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4G.R. No.

L-22619

December 2, 1924

NATIONAL COAL COMPANY, plaintiff-appellee,


vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellant.
JOHNSON, J.:
This action was brought in the Court of First Instance of the City of Manila on the 17th day of
July, 1923, for the purpose of recovering the sum of P12,044.68, alleged to have been paid
under protest by the plaintiff company to the defendant, as specific tax on 24,089.3 tons of
coal. Said company is a corporation created by Act No. 2705 of the Philippine Legislature for
the purpose of developing the coal industry in the Philippine Islands and is actually engaged
in coal mining on reserved lands belonging to the Government. It claimed exemption from
taxes under the provision of sections 14 and 15 of Act No. 2719, and prayed for a judgment
ordering the defendant to refund to the plaintiff said sum of P12,044.68, with legal interest
from the date of the presentation of the complaint, and costs against the defendant.
The defendant answered denying generally and specifically all the material allegations of
the complaint, except the legal existence and personality of the plaintiff. As a special
defense, the defendant alleged (a) that the sum of P12,044.68 was paid by the plaintiff
without protests, and (b) that said sum was due and owing from the plaintiff to the
Government of the Philippine Islands under the provisions of section 1496 of the
Administrative Code and prayed that the complaint be dismissed, with costs against the
plaintiff.
Upon the issue thus presented, the case was brought on for trial. After a consideration of the
evidence adduced by both parties, the Honorable Pedro Conception, judge, held that the
words "lands owned by any person, etc.," in section 15 of Act No. 2719 should be
understood to mean "lands held in lease or usufruct," in harmony with the other provision of
said Act; that the coal lands possessed by the plaintiff, belonging to the Government, fell
within the provisions of section 15 of Act No. 2719; and that a tax of P0.04 per ton of 1,016
kilos on each ton of coal extracted therefrom, as provided in said section, was the only tax
which should be collected from the plaintiff; and sentenced the defendant to refund to the
plaintiff the sum of P11,081.11 which is the difference between the amount collected under
section 1496 of the Administrative Code and the amount which should have been collected
under the provisions of said section 15 of Act No. 2719. From that sentence the defendant
appealed, and now makes the following assignments of error:
I. The court below erred in holding that section 15 of Act No. 2719 does not refer to coal
lands owned by persons and corporations.
II. The court below erred in holding that the plaintiff was not subject to the tax prescribed in
section 1496 of the Administrative Code.

The question confronting us in this appeal is whether the plaintiff is subject to the taxes
under section 15 of Act No. 2719, or to the specific taxes under section 1496 of the
Administrative Code.
The plaintiff corporation was created on the 10th day of March, 1917, by Act No. 2705, for
the purpose of developing the coal industry in the Philippine Island, in harmony with the
general plan of the Government to encourage the development of the natural resources of
the country, and to provided facilities therefor. By said Act, the company was granted the
general powers of a corporation "and such other powers as may be necessary to enable it to
prosecute the business of developing coal deposits in the Philippine Island and of mining,
extracting, transporting and selling the coal contained in said deposits." (Sec. 2, Act No.
2705.) By the same law (Act No. 2705) the Government of the Philippine Islands is made the
majority stockholder, evidently in order to insure proper government supervision and
control, and thus to place the Government in a position to render all possible
encouragement, assistance and help in the prosecution and furtherance of the company's
business.
On May 14, 1917, two months after the passage of Act No. 2705, creating the National Coal
Company, the Philippine Legislature passed Act No. 2719 "to provide for the leasing and
development of coal lands in the Philippine Islands." On October 18, 1917, upon petition of
the National Coal Company, the Governor-General, by Proclamation No. 39, withdrew "from
settlement, entry, sale or other disposition, all coal-bearing public lands within the Province
of Zamboanga, Department of Mindanao and Sulu, and the Island of Polillo, Province of
Tayabas." Almost immediately after the issuance of said proclamation the National Coal
Company took possession of the coal lands within the said reservation, with an area of about
400 hectares, without any further formality, contract or lease. Of the 30,000 shares of stock
issued by the company, the Government of the Philippine Islands is the owner of 29,809
shares, that is, of 99 1/3 per centum of the whole capital stock.
If we understand the theory of the plaintiff-appellee, it is, that it claims to be the owner of
the land from which it has mined the coal in question and is therefore subject to the
provisions of section 15 of Act No. 2719 and not to the provisions of the section 1496 of the
Administrative Code. That contention of the plaintiff leads us to an examination of the
evidence upon the question of the ownership of the land from which the coal in question
was mined. Was the plaintiff the owner of the land from which the coal in question was
mined? If the evidence shows the affirmative, then the judgment should be affirmed. If the
evidence shows that the land does not belong to the plaintiff, then the judgment should be
reversed, unless the plaintiff's rights fall under section 3 of said Act.
The only witness presented by the plaintiff upon the question of the ownership of the land in
question was Mr. Dalmacio Costas, who stated that he was a member of the board of
directors of the plaintiff corporation; that the plaintiff corporation took possession of the land
in question by virtue of the proclamation of the Governor-General, known as Proclamation
No. 39 of the year 1917; that no document had been issued in favor of the plaintiff
corporation; that said corporation had received no permission from the Secretary of
Agriculture and Natural Resources; that it took possession of said lands covering an area of

about 400 hectares, from which the coal in question was mined, solely, by virtue of said
proclamation (Exhibit B, No. 39).

except those mentioned, perhaps, in section 10 of Act No. 2719, and they do not change the
situation here.

Said proclamation (Exhibit B) was issued by Francis Burton Harrison, then Governor-General,
on the 18th day of October, 1917, and provided: "Pursuant to the provision of section 71 of
Act No. 926, I hereby withdraw from settlement, entry, sale, or other disposition, all coalbearing public lands within the Province of Zamboanga, Department of Mindanao and Sulu,
and the Island of Polillo, Province of Tayabas." It will be noted that said proclamation only
provided that all coal-bearing public lands within said province and island should be
withdrawn from settlement, entry, sale, or other disposition. There is nothing in said
proclamation which authorizes the plaintiff or any other person to enter upon said
reversations and to mine coal, and no provision of law has been called to our attention, by
virtue of which the plaintiff was entitled to enter upon any of the lands so reserved by said
proclamation without first obtaining permission therefor.

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

The plaintiff is a private corporation. The mere fact that the Government happens to the
majority stockholder does not make it a public corporation. Act No. 2705, as amended by
Act No. 2822, makes it subject to all of the provisions of the Corporation Law, in so far as
they are not inconsistent with said Act (No. 2705). No provisions of Act No. 2705 are found
to be inconsistent with the provisions of the Corporation Law. As a private corporation, it has
no greater rights, powers or privileges than any other corporation which might be organized
for the same purpose under the Corporation Law, and certainly it was not the intention of
the Legislature to give it a preference or right or privilege over other legitimate private
corporations in the mining of coal. While it is true that said proclamation No. 39 withdrew
"from settlement, entry, sale, or other disposition of coal-bearing public lands within the
Province of Zamboanga . . . and the Island of Polillo," it made no provision for the occupation
and operation by the plaintiff, to the exclusion of other persons or corporations who might,
under proper permission, enter upon the operate coal mines.
On the 14th day of May, 1917, and before the issuance of said proclamation, the Legislature
of the Philippine Island in "an Act for the leasing and development of coal lands in the
Philippine Islands" (Act No. 2719), made liberal provision. Section 1 of said Act provides:
"Coal-bearing lands of the public domain in the Philippine Island shall not be disposed of in
any manner except as provided in this Act," thereby giving a clear indication that no "coalbearing lands of the public domain" had been disposed of by virtue of said proclamation.
Neither is there any provision in Act No. 2705 creating the National Coal Company, nor in
the amendments thereof found in Act No. 2822, which authorizes the National Coal
Company to enter upon any of the reserved coal lands without first having obtained
permission from the Secretary of Agriculture and Natural Resources.lawphi1.net
The following propositions are fully sustained by the facts and the law:
(1) The National Coal Company is an ordinary private corporation organized under Act No.
2705, and has no greater powers nor privileges than the ordinary private corporation,

(3) Upon demand of the Collector of Internal Revenue it paid a tax of P0.50 a ton, as taxes
under the provisions of article 1946 of the Administrative Code on the 15th day of
December, 1922.
(4) It is admitted that it is neither the owner nor the lessee of the lands upon which said coal
was mined.
(5) The proclamation of Francis Burton Harrison, Governor-General, of the 18th day of
October, 1917, by authority of section 1 of Act No. 926, withdrawing from settlement, entry,
sale, or other dispositon all coal-bearing public lands within the Province of Zamboanga and
the Island of Polillo, was not a reservation for the benefit of the National Coal Company, but
for any person or corporation of the Philippine Islands or of the United States.
(6) That the National Coal Company entered upon said land and mined said coal, so far as
the record shows, without any lease or other authority from either the Secretary of
Agriculture and Natural Resources or any person having the power to grant a leave or
authority.
From all of the foregoing facts we find that the issue is well defined between the plaintiff and
the defendant. The plaintiff contends that it was liable only to pay the internal revenue and
other fees and taxes provided for under section 15 of Act No. 2719; while the defendant
contends, under the facts of record, the plaintiff is obliged to pay the internal revenue duty
provided for in section 1496 of the Administrative Code. That being the issue, an
examination of the provisions of Act No. 2719 becomes necessary.
An examination of said Act (No. 2719) discloses the following facts important for
consideration here:
First. All "coal-bearing lands of the public domain in the Philippine Islands shall not be
disposed of in any manner except as provided in this Act." Second. Provisions for leasing by
the Secretary of Agriculture and Natural Resources of "unreserved, unappropriated coalbearing public lands," and the obligation to the Government which shall be imposed by said
Secretary upon the lessee.lawphi1.net
Third. The internal revenue duty and tax which must be paid upon coal-bearing lands owned
by any person, firm, association or corporation.
To repeat, it will be noted, first, that Act No. 2719 provides an internal revenue duty and tax
upon unreserved, unappropriated coal-bearing public lands which may be leased by the

Secretary of Agriculture and Natural Resources; and, second, that said Act (No. 2719)
provides an internal revenue duty and tax imposed upon any person, firm, association or
corporation, who may be the owner of "coal-bearing lands." A reading of said Act clearly
shows that the tax imposed thereby is imposed upon two classes of persons only lessees
and owners.
The lower court had some trouble in determining what was the correct interpretation of
section 15 of said Act, by reason of what he believed to be some difference in the
interpretation of the language used in Spanish and English. While there is some ground for
confusion in the use of the language in Spanish and English, we are persuaded, considering
all the provisions of said Act, that said section 15 has reference only to persons, firms,
associations or corporations which had already, prior to the existence of said Act, become
the owners of coal lands. Section 15 cannot certainty refer to "holders or lessees of coal
lands' for the reason that practically all of the other provisions of said Act has reference to
lessees or holders. If section 15 means that the persons, firms, associations, or corporation
mentioned therein are holders or lessees of coal lands only, it is difficult to understand why
the internal revenue duty and tax in said section was made different from the obligations
mentioned in section 3 of said Act, imposed upon lessees or holders.
From all of the foregoing, it seems to be made plain that the plaintiff is neither a lessee nor
an owner of coal-bearing lands, and is, therefore, not subject to any other provisions of Act
No. 2719. But, is the plaintiff subject to the provisions of section 1496 of the Administrative
Code?
Section 1496 of the Administrative Code provides that "on all coal and coke there shall be
collected, per metric ton, fifty centavos." Said section (1496) is a part of article, 6 which
provides for specific taxes. Said article provides for a specific internal revenue tax upon all
things manufactured or produced in the Philippine Islands for domestic sale or consumption,
and upon things imported from the United States or foreign countries. It having been
demonstrated that the plaintiff has produced coal in the Philippine Islands and is not a
lessee or owner of the land from which the coal was produced, we are clearly of the opinion,
and so hold, that it is subject to pay the internal revenue tax under the provisions of section
1496 of the Administrative Code, and is not subject to the payment of the internal revenue
tax under section 15 of Act No. 2719, nor to any other provisions of said Act.
Therefore, the judgment appealed from is hereby revoked, and the defendant is hereby
relieved from all responsibility under the complaint. And, without any finding as to costs, it is
so ordered.

PHILIPPINE SOCIETY V. COA GR 169752


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

animals and for their protection, shall belong to said society and shall be used to promote its
objects.

watch, capture, and prosecute offenders against the laws enacted to prevent cruelty to
animals. (Emphasis supplied)

(emphasis supplied)

On December 1, 2003, an audit team from respondent Commission on Audit (COA) visited
the office of the petitioner to conduct an audit survey pursuant to COA Office Order No.
2003-051 dated November 18, 2003[5] addressed to the petitioner. The petitioner demurred
on the ground that it was a private entity not under the jurisdiction of COA, citing Section
2(1) of Article IX of the Constitution which specifies the general jurisdiction of the COA, viz:

Subsequently, however, the power to make arrests as well as the privilege to retain a
portion of the fines collected for violation of animal-related laws were recalled by virtue of
Commonwealth Act (C.A.) No. 148,[4] which reads, in its entirety, thus:
Be it enacted by the National Assembly of the Philippines:
Section 1. Section four of Act Numbered Twelve hundred and eighty-five as amended by Act
Numbered Thirty five hundred and forty-eight, is hereby further amended so as to read as
follows:
Sec. 4. The said society is authorized to appoint not to exceed ten agents in the City of
Manila, and not to exceed one in each municipality of the Philippines who shall have the
authority to denounce to regular peace officers any violation of the laws enacted for the
prevention of cruelty to animals and the protection of animals and to cooperate with said
peace officers in the prosecution of transgressors of such laws.
Sec. 2. The full amount of the fines collected for violation of the laws against cruelty to
animals and for the protection of animals, shall accrue to the general fund of the
Municipality where the offense was committed.
Sec. 3. This Act shall take effect upon its approval.
Approved, November 8, 1936. (Emphasis supplied)

Immediately thereafter, then President Manuel L. Quezon issued Executive Order (E.O.) No.
63 dated November 12, 1936, portions of which provide:
Whereas, during the first regular session of the National Assembly, Commonwealth Act
Numbered One Hundred Forty Eight was enacted depriving the agents of the Society for the
Prevention of Cruelty to Animals of their power to arrest persons who have violated the laws
prohibiting cruelty to animals thereby correcting a serious defect in one of the laws existing
in our statute books.

Section 1. General Jurisdiction. The Commission on Audit shall have the power, authority,
and duty to examine, audit, and settle all accounts pertaining to the revenue and receipts
of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining
to the Government, or any of its subdivisions, agencies, or instrumentalities, including
government-owned and controlled corporations with original charters, and on a post-audit
basis: (a) constitutional bodies, commissions and officers that have been granted fiscal
autonomy under the Constitution; (b) autonomous state colleges and universities; (c) other
government-owned or controlled corporations and their subsidiaries; and (d) such nongovernmental entities receiving subsidy or equity, directly or indirectly, from or through the
government, which are required by law or the granting institution to submit to such audit as
a condition of subsidy or equity. However, where the internal control system of the audited
agencies is inadequate, the Commission may adopt such measures, including temporary or
special pre-audit, as are necessary and appropriate to correct the deficiencies. It shall keep
the general accounts of the Government, and for such period as may be provided by law,
preserve the vouchers and other supporting papers pertaining thereto. (Emphasis supplied)
Petitioner explained thus:
a.
Although the petitioner was created by special legislation, this necessarily came about
because in January 1905 there was as yet neither a Corporation Law or any other general
law under which it may be organized and incorporated, nor a Securities and Exchange
Commission which would have passed upon its organization and incorporation.
b.
That Executive Order No. 63, issued during the Commonwealth period, effectively
deprived the petitioner of its power to make arrests, and that the petitioner lost its
operational funding, underscore the fact that it exercises no governmental function. In fine,
the government itself, by its overt acts, confirmed petitioners status as a private juridical
entity.

xxxx

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

Whereas, the cruel treatment of animals is an offense against the State, penalized under our
statutes, which the Government is duty bound to enforce;

Petitioner thereafter filed with the respondent COA a Request for Re-evaluation dated May
19, 2004,[8] insisting that it was a private domestic corporation.

Now, therefore, I, Manuel L. Quezon, President of the Philippines, pursuant to the authority
conferred upon me by the Constitution, hereby decree, order, and direct the Commissioner
of Public Safety, the Provost Marshal General as head of the Constabulary Division of the
Philippine Army, every Mayor of a chartered city, and every municipal president to detail
and organize special members of the police force, local, national, and the Constabulary to

Acting on the said request, the General Counsel of respondent COA, in a Memorandum
dated July 13, 2004,[9] affirmed her earlier opinion that the petitioner was a government
entity that was subject to the audit jurisdiction of respondent COA. In a letter dated
September 14, 2004, the respondent COA informed the petitioner of the result of the reevaluation, maintaining its position that the petitioner was subject to its audit jurisdiction,
and requested an initial conference with the respondents.

In a Memorandum dated September 16, 2004, Director Delfin Aguilar reported to COA
Assistant Commissioner Juanito Espino, Corporate Government Sector, that the audit survey
was not conducted due to the refusal of the petitioner because the latter maintained that it
was a private corporation.
Petitioner received on September 27, 2005 the subject COA Office Order 2005-021 dated
September 14, 2005 and the COA Letter dated September 23, 2005.

Hence, herein Petition on the following grounds:


A.
RESPONDENT COMMISSION ON AUDIT COMMITTED GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT RULED THAT PETITIONER IS
SUBJECT TO ITS AUDIT AUTHORITY.
B.
PETITIONER IS ENTITLED TO THE RELIEF SOUGHT, THERE BEING NO APPEAL, NOR ANY
PLAIN, SPEEDY AND ADEQUATE REMEDY IN THE ORDINARY COURSE OF LAW AVAILABLE TO
IT.[10]
The essential question before this Court is whether the petitioner qualifies as a government
agency that may be subject to audit by respondent COA.
Petitioner argues: first, even though it was created by special legislation in 1905 as there
was no general law then existing under which it may be organized or incorporated, it
exercises no governmental functions because these have been revoked by C.A. No. 148 and
E.O. No. 63; second, nowhere in its charter is it indicated that it is a public corporation,
unlike, for instance, C.A. No. 111 which created the Boy Scouts of the Philippines, defined its
powers and purposes, and specifically stated that it was An Act to Create a Public
Corporation in which, even as amended by Presidential Decree No. 460, the law still
adverted to the Boy Scouts of the Philippines as a public corporation, all of which are not
obtaining in the charter of the petitioner; third, if it were a government body, there would
have been no need for the State to grant it tax exemptions under Republic Act No. 1178,
and the fact that it was so exempted strengthens its position that it is a private institution;
fourth, the employees of the petitioner are registered and covered by the Social Security
System at the latters initiative and not through the Government Service Insurance System,
which should have been the case had the employees been considered government
employees; fifth, the petitioner does not receive any form of financial assistance from the
government, since C.A. No. 148, amending Section 5 of Act No. 1285, states that the full
amount of the fines, collected for violation of the laws against cruelty to animals and for the
protection of animals, shall accrue to the general fund of the Municipality where the offense
was committed; sixth, C.A. No. 148 effectively deprived the petitioner of its powers to make
arrests and serve processes as these functions were placed in the hands of the police force;
seventh, no government appointee or representative sits on the board of trustees of the
petitioner; eighth, a reading of the provisions of its charter (Act No. 1285) fails to show that
any act or decision of the petitioner is subject to the approval of or control by any
government agency, except to the extent that it is governed by the law on private
corporations in general; and finally, ninth, the Committee on Animal Welfare, under the
Animal Welfare Act of 1998, includes members from both the private and the public sectors.

The respondents contend that since the petitioner is a body politic created by virtue of a
special legislation and endowed with a governmental purpose, then, indubitably, the COA
may audit the financial activities of the latter. Respondents in effect divide their contentions
into six strains: first, the test to determine whether an entity is a government corporation
lies in the manner of its creation, and, since the petitioner was created by virtue of a special
charter, it is thus a government corporation subject to respondents auditing power; second,
the petitioner exercises sovereign powers, that is, it is tasked to enforce the laws for the
protection and welfare of animals which ultimately redound to the public good and welfare,
and, therefore, it is deemed to be a government instrumentality as defined under the
Administrative Code of 1987, the purpose of which is connected with the administration of
government, as purportedly affirmed by American jurisprudence; third, by virtue of Section
23,[11] Title II, Book III of the same Code, the Office of the President exercises supervision or
control over the petitioner; fourth, under the same Code, the requirement under its special
charter for the petitioner to render a report to the Civil Governor, whose functions have
been inherited by the Office of the President, clearly reflects the nature of the petitioner as a
government instrumentality; fifth, despite the passage of the Corporation Code, the law
creating the petitioner had not been abolished, nor had it been re-incorporated under any
general corporation law; and finally, sixth, Republic Act No. 8485, otherwise known as the
Animal Welfare Act of 1998, designates the petitioner as a member of its Committee on
Animal Welfare which is attached to the Department of Agriculture.
In view of the phrase One-half of all the fines imposed and collected through the efforts of
said society, the Court, in a Resolution dated January 30, 2007, required the Office of the
Solicitor General (OSG) and the parties to comment on: a) petitioner's authority to impose
fines and the validity of the provisions of Act No. 1285 and Commonwealth Act No. 148
considering that there are no standard measures provided for in the aforecited laws as to
the manner of implementation, the specific violations of the law, the person/s authorized to
impose fine and in what amount; and, b) the effect of the 1935 and 1987 Constitutions on
whether petitioner continues to exist or should organize as a private corporation under the
Corporation Code, B.P. Blg. 68 as amended.
Petitioner and the OSG filed their respective Comments. Respondents filed a Manifestation
stating that since they were being represented by the OSG which filed its Comment, they
opted to dispense with the filing of a separate one and adopt for the purpose that of the
OSG.
The petitioner avers that it does not have the authority to impose fines for violation of
animal welfare laws; it only enjoyed the privilege of sharing in the fines imposed and
collected from its efforts in the enforcement of animal welfare laws; such privilege, however,
was subsequently abolished by C.A. No. 148; that it continues to exist as a private
corporation since it was created by the Philippine Commission before the effectivity of the
Corporation law, Act No. 1459; and the 1935 and 1987 Constitutions.
The OSG submits that Act No. 1285 and its amendatory laws did not give petitioner the
authority to impose fines for violation of laws[12] relating to the prevention of cruelty to
animals and the protection of animals; that even prior to the amendment of Act No. 1285,
petitioner was only entitled to share in the fines imposed; C.A. No. 148 abolished that
privilege to share in the fines collected; that petitioner is a public corporation and has
continued to exist since Act No. 1285; petitioner was not repealed by the 1935 and 1987
Constitutions which contain transitory provisions maintaining all laws issued not inconsistent
therewith until amended, modified or repealed.
The petition is impressed with merit.

The arguments of the parties, interlaced as they are, can be disposed of in five points.
First, the Court agrees with the petitioner that the charter test cannot be applied.
Essentially, the charter test as it stands today provides:
[T]he test to determine whether a corporation is government owned or controlled, or private
in nature is simple. Is it created by its own charter for the exercise of a public function, or by
incorporation under the general corporation law? Those with special charters are
government corporations subject to its provisions, and its employees are under the
jurisdiction of the Civil Service Commission, and are compulsory members of the
Government Service Insurance System. xxx (Emphasis supplied)[13]
The petitioner is correct in stating that the charter test is predicated, at best, on the legal
regime established by the 1935 Constitution, Section 7, Article XIII, which states:
Sec. 7. The National Assembly shall not, except by general law, provide for the formation,
organization, or regulation of private corporations, unless such corporations are owned or
controlled by the Government or any subdivision or instrumentality thereof.[14]
The foregoing proscription has been carried over to the 1973 and the 1987 Constitutions.
Section 16 of Article XII of the present Constitution provides:
Sec. 16. The Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations. Government-owned or controlled
corporations may be created or established by special charters in the interest of the
common good and subject to the test of economic viability.
Section 16 is essentially a re-enactment of Section 7 of Article XVI of the 1935 Constitution
and Section 4 of Article XIV of the 1973 Constitution.
During the formulation of the 1935 Constitution, the Committee on Franchises
recommended the foregoing proscription to prevent the pressure of special interests upon
the lawmaking body in the creation of corporations or in the regulation of the same. To
permit the lawmaking body by special law to provide for the organization, formation, or
regulation of private corporations would be in effect to offer to it the temptation in many
cases to favor certain groups, to the prejudice of others or to the prejudice of the interests of
the country.[15]
And since the underpinnings of the charter test had been introduced by the 1935
Constitution and not earlier, it follows that the test cannot apply to the petitioner, which was
incorporated by virtue of Act No. 1285, enacted on January 19, 1905. Settled is the rule that
laws in general have no retroactive effect, unless the contrary is provided.[16] All statutes
are to be construed as having only a prospective operation, unless the purpose and
intention of the legislature to give them a retrospective effect is expressly declared or is
necessarily implied from the language used. In case of doubt, the doubt must be resolved
against the retrospective effect.[17]
There are a few exceptions. Statutes can be given retroactive effect in the following cases:
(1) when the law itself so expressly provides; (2) in case of remedial statutes; (3) in case of

curative statutes; (4) in case of laws interpreting others; and (5) in case of laws creating
new rights.[18] None of the exceptions is present in the instant case.
The general principle of prospectivity of the law likewise applies to Act No. 1459, otherwise
known as the Corporation Law, which had been enacted by virtue of the plenary powers of
the Philippine Commission on March 1, 1906, a little over a year after January 19, 1905, the
time the petitioner emerged as a juridical entity. Even the Corporation Law respects the
rights and powers of juridical entities organized beforehand, viz:
SEC. 75. Any corporation or sociedad anonima formed, organized, and existing under the
laws of the Philippine Islands and lawfully transacting business in the Philippine Islands on
the date of the passage of this Act, shall be subject to the provisions hereof so far as such
provisions may be applicable and shall be entitled at its option either to continue business
as such corporation or to reform and organize under and by virtue of the provisions of this
Act, transferring all corporate interests to the new corporation which, if a stock corporation,
is authorized to issue its shares of stock at par to the stockholders or members of the old
corporation according to their interests. (Emphasis supplied).
As pointed out by the OSG, both the 1935 and 1987 Constitutions contain transitory
provisions maintaining all laws issued not inconsistent therewith until amended, modified or
repealed.[19]
In a legal regime where the charter test doctrine cannot be applied, the mere fact that a
corporation has been created by virtue of a special law does not necessarily qualify it as a
public corporation.
What then is the nature of the petitioner as a corporate entity? What legal regime governs
its rights, powers, and duties?
As stated, at the time the petitioner was formed, the applicable law was the Philippine Bill of
1902, and, emphatically, as also stated above, no proscription similar to the charter test can
be found therein.
The textual foundation of the charter test, which placed a limitation on the power of the
legislature, first appeared in the 1935 Constitution. However, the petitioner was
incorporated in 1905 by virtue of Act No. 1258, a law antedating the Corporation Law (Act
No. 1459) by a year, and the 1935 Constitution, by thirty years. There being neither a
general law on the formation and organization of private corporations nor a restriction on
the legislature to create private corporations by direct legislation, the Philippine Commission
at that moment in history was well within its powers in 1905 to constitute the petitioner as a
private juridical entity.
Time and again the Court must caution even the most brilliant scholars of the law and all
constitutional historians on the danger of imposing legal concepts of a later date on facts of
an earlier date.[20]
The amendments introduced by C.A. No. 148 made it clear that the petitioner was a private
corporation and not an agency of the government. This was evident in Executive Order No.
63, issued by then President of the Philippines Manuel L. Quezon, declaring that the
revocation of the powers of the petitioner to appoint agents with powers of arrest corrected
a serious defect in one of the laws existing in the statute books.

As a curative statute, and based on the doctrines so far discussed, C.A. No. 148 has to be
given retroactive effect, thereby freeing all doubt as to which class of corporations the
petitioner belongs, that is, it is a quasi-public corporation, a kind of private domestic
corporation, which the Court will further elaborate on under the fourth point.
Second, a reading of petitioners charter shows that it is not subject to control or supervision
by any agency of the State, unlike government-owned and -controlled corporations. No
government representative sits on the board of trustees of the petitioner. Like all private
corporations, the successors of its members are determined voluntarily and solely by the
petitioner in accordance with its by-laws, and may exercise those powers generally accorded
to private corporations, such as the powers to hold property, to sue and be sued, to use a
common seal, and so forth. It may adopt by-laws for its internal operations: the petitioner
shall be managed or operated by its officers in accordance with its by-laws in force. The
pertinent provisions of the charter provide:
Section 1. Anna L. Ide, Kate S. Wright, John L. Chamberlain, William F. Tucker, Mary S.
Fergusson, Amasa S. Crossfield, Spencer Cosby, Sealy B. Rossiter, Richard P. Strong, Jose
Robles Lahesa, Josefina R. de Luzuriaga, and such other persons as may be associated with
them in conformity with this act, and their successors, are hereby constituted and created a
body politic and corporate at law, under the name and style of The Philippines Society for
the Prevention of Cruelty to Animals.
As incorporated by this Act, said society shall have the power to add to its organization such
and as many members as it desires, to provide for and choose such officers as it may deem
advisable, and in such manner as it may wish, and to remove members as it shall provide.
It shall have the right to sue and be sued, to use a common seal, to receive legacies and
donations, to conduct social enterprises for the purpose of obtaining funds, to levy dues
upon its members and provide for their collection to hold real and personal estate such as
may be necessary for the accomplishment of the purposes of the society, and to adopt such
by-laws for its government as may not be inconsistent with law or this charter.
xxxx
Sec. 3. The said society shall be operated under the direction of its officers, in accordance
with its by-laws in force, and this charter.
xxxx
Sec. 6. The principal office of the society shall be kept in the city of Manila, and the society
shall have full power to locate and establish branch offices of the society wherever it may
deem advisable in the Philippine Islands, such branch offices to be under the supervision
and control of the principal office.
Third. The employees of the petitioner are registered and covered by the Social Security
System at the latters initiative, and not through the Government Service Insurance System,
which should be the case if the employees are considered government employees. This is
another indication of petitioners nature as a private entity. Section 1 of Republic Act No.
1161, as amended by Republic Act No. 8282, otherwise known as the Social Security Act of
1997, defines the employer:

Employer Any person, natural or juridical, domestic or foreign, who carries on in the
Philippines any trade, business, industry, undertaking or activity of any kind and uses the
services of another person who is under his orders as regards the employment, except the
Government and any of its political subdivisions, branches or instrumentalities, including
corporations owned or controlled by the Government: Provided, That a self-employed person
shall be both employee and employer at the same time. (Emphasis supplied)
Fourth. The respondents contend that the petitioner is a body politic because its primary
purpose is to secure the protection and welfare of animals which, in turn, redounds to the
public good.
This argument, is, at best, specious. The fact that a certain juridical entity is impressed with
public interest does not, by that circumstance alone, make the entity a public corporation,
inasmuch as a corporation may be private although its charter contains provisions of a
public character, incorporated solely for the public good. This class of corporations may be
considered quasi-public corporations, which are private corporations that render public
service, supply public wants,[21] or pursue other eleemosynary objectives. While purposely
organized for the gain or benefit of its members, they are required by law to discharge
functions for the public benefit. Examples of these corporations are utility,[22] railroad,
warehouse, telegraph, telephone, water supply corporations and transportation companies.
[23] It must be stressed that a quasi-public corporation is a species of private corporations,
but the qualifying factor is the type of service the former renders to the public: if it performs
a public service, then it becomes a quasi-public corporation.[24]

Authorities are of the view that the purpose alone of the corporation cannot be taken as a
safe guide, for the fact is that almost all corporations are nowadays created to promote the
interest, good, or convenience of the public. A bank, for example, is a private corporation;
yet, it is created for a public benefit. Private schools and universities are likewise private
corporations; and yet, they are rendering public service. Private hospitals and wards are
charged with heavy social responsibilities. More so with all common carriers. On the other
hand, there may exist a public corporation even if it is endowed with gifts or donations from
private individuals.

The true criterion, therefore, to determine whether a corporation is public or private is found
in the totality of the relation of the corporation to the State. If the corporation is created by
the State as the latters own agency or instrumentality to help it in carrying out its
governmental functions, then that corporation is considered public; otherwise, it is private.
Applying the above test, provinces, chartered cities, and barangays can best exemplify
public corporations. They are created by the State as its own device and agency for the
accomplishment of parts of its own public works.[25]

It is clear that the amendments introduced by C.A. No. 148 revoked the powers of the
petitioner to arrest offenders of animal welfare laws and the power to serve processes in
connection therewith.
Fifth. The respondents argue that since the charter of the petitioner requires the latter to
render periodic reports to the Civil Governor, whose functions have been inherited by the
President, the petitioner is, therefore, a government instrumentality.

This contention is inconclusive. By virtue of the fiction that all corporations owe their very
existence and powers to the State, the reportorial requirement is applicable to all
corporations of whatever nature, whether they are public, quasi-public, or private
corporationsas creatures of the State, there is a reserved right in the legislature to
investigate the activities of a corporation to determine whether it acted within its powers. In
other words, the reportorial requirement is the principal means by which the State may see
to it that its creature acted according to the powers and functions conferred upon it. These
principles were extensively discussed in Bataan Shipyard & Engineering Co., Inc. v.
Presidential Commission on Good Government.[26] Here, the Court, in holding that the
subject corporation could not invoke the right against self-incrimination whenever the State
demanded the production of its corporate books and papers, extensively discussed the
purpose of reportorial requirements, viz:

Whether or not the Local Water Districts formed and created pursuant to the provisions of
Presidential Decree No. 198, as amended, are government-owned or controlled corporations
with original charter falling under the Civil Service Law and/or covered by the visitorial
power of the Commission on Audit is the issue which the petitioners entreat this Court, en
banc, to shed light on.

x x x The corporation is a creature of the state. It is presumed to be incorporated for the


benefit of the public. It received certain special privileges and franchises, and holds them
subject to the laws of the state and the limitations of its charter. Its powers are limited by
law. It can make no contract not authorized by its charter. Its rights to act as a corporation
are only preserved to it so long as it obeys the laws of its creation. There is a reserve[d]
right in the legislature to investigate its contracts and find out whether it has exceeded its
powers. It would be a strange anomaly to hold that a state, having chartered a corporation
to make use of certain franchises, could not, in the exercise of sovereignty, inquire how
these franchises had been 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.)[27]

Presidential Decree No. 198 was issued by the then President Ferdinand E. Marcos by virtue
of his legislative power under Proclamation No. 1081. It authorized the different local
legislative bodies to form and create their respective water districts through a resolution
they will pass subject to the guidelines, rules and regulations therein laid down. The decree
further created and formed the "Local Water Utilities Administration" (LWUA), a national
agency attached to the National Economic and Development Authority (NEDA), and granted
with regulatory power necessary to optimize public service from water utilities operations.

WHEREFORE, the petition is GRANTED. Petitioner is DECLARED a private domestic


corporation subject to the jurisdiction of the Securities and Exchange Commission. The
respondents are ENJOINED from investigating, examining and auditing the petitioner's fiscal
and financial affairs.
SO ORDERED.
G.R. No. 95237-38 September 13, 1991
DAVAO CITY WATER DISTRICT, CAGAYAN DE ORO CITY WATER DISTRICT, METRO
CEBU WATER DISTRICT, ZAMBOANGA CITY WATER DISTRICT, LEYTE METRO WATER
DISTRICT, BUTUAN CITY WATER DISTRICT, CAMARINES NORTE WATER DISTRICT,
LAGUNA WATER DISTRICT, DUMAGUETE CITY WATER DISTRICT, LA UNION WATER
DISTRICT, BAYBAY WATER DISTRICT, METRO LINGAYEN WATER DISTRICT,
URDANETA WATER DISTRICT, COTABATO CITY WATER DISTRICT, MARAWI WATER
DISTRICT, TAGUM WATER DISTRICT, DIGOS WATER DISTRICT, BISLIG WATER
DISTRICT,
and
MECAUAYAN
WATER
DISTRICT, petitioners,
vs.
CIVIL SERVICE COMMISSION, and COMMISSION ON AUDIT, respondents.
MEDIALDEA, J.:p

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

The respondents, on the other hand, are the Civil Service Commission (CSC) and the
Commission on Audit (COA), both government agencies and represented in this case by the
Solicitor General.
On April 17, 1989, this Court ruled in the case of Tanjay Water District v. Gabaton, et
al. (G.R. No. 63742, 172 SCRA 253):
Significantly, Article IX (B), Section 2(1) of the 1987 Constitution provides
that
the
Civil
Service
embraces
all
branches,
subdivisions,
instrumentalities, and agencies of the government, including governmentowned and controlled corporations with original charters. Inasmuch as PD
No. 198, as amended, is the original charter of the petitioner, Tanjay Water
District, and respondent Tarlac Water District and all water districts in the
country, they come under the coverage of the Civil Service Law, rules and
regulations. (Sec. 35, Art. VIII and Sec. 37, Art. IX of PD No. 807).
As an offshoot of the immediately cited ruling, the CSC. issued Resolution No. 90-575, the
dispositive portion of which reads:
NOW THEREFORE, in view of all the foregoing, the Commission resolved,
as it hereby resolves to rule that Local Water Districts, being quasi-public
corporations created by law to perform public services and supply public
wants, the matter of hiring and firing of its officers and employees should
be governed by the Civil Service Law, rules and regulations. Henceforth,
all appointments of personnel of the different local water districts in the
country shall be submitted to the Commission for appropriate action.
(Rollo. p. 22).

However, on May 16, 1990, in G.R. No. 85760, entitled "Metro Iloilo Water District v. National
Labor Relations Commission, et al.," the Third Division of this Court ruled in a minute
resolution:
xxx xxx xxx
Considering that PD 198 is a general legislation empowering and/or
authorizing government agencies and entities to create water districts,
said PD 198 cannot be considered as the charter itself creating the Water
District. Public respondent NLRC did not commit any grave abuse of
discretion in holding that the operative act, that created the Metro Iloilo
Water District was the resolution of the Sangguniang Panglunsod of Iloilo
City. Hence, the employees of Water Districts are not covered by Civil
Service Laws as the latter do (sic) not have original charters.
In adherence to the just cited ruling, the CSC suspended the implementation of Resolution
No. 90-575 by issuing Resolution No. 90-770 which reads:
xxx xxx xxx
NOW, THEREFORE, in view of all the foregoing, the Commission resolved
to rule, as it hereby rules, that the implementation of CSC. Resolution No.
575 dated June 27, 1990 be deferred in the meantime pending clarification
from the Supreme Court are regards its conflicting decisions in the cases
of Tanjay Water District v. Gabaton and Metro Iloilo Water District v.
National Labor Relations Commission. (p. 26, Rollo)
In the meanwhile, there exists a divergence of opinions between COA on one hand, and the
(LWUA), on the other hand, with respect to the authority of COA to audit the different water
districts.
COA opined that the audit of the water districts is simply an act of discharging the visitorial
power vested in them by law (letter of COA to LWUA dated August 13, 1985, pp. 2930, Rollo).
On the other hand, LWUA maintained that only those water districts with subsidies from the
government fall within the COA's jurisdiction and only to the extent of the amount of such
subsidies, pursuant to the provision of the Government Auditing Code of the Phils.
It is to be observed that just like the question of whether the employees of the water
districts falls under the coverage of the Civil Service Law, the conflict between the water
districts and the COA is also dependent on the final determination of whether or not water
districts are government-owned or controlled corporations with original charter. The reason
behind this is Sec. 2(1), Article IX-D of the 1987 constitution which reads:

Sec. 2(1) The Commission on Audit shall have the power, authority, and
duty to examine, audit, and settle all accounts pertaining to the revenue
and receipts of, and expenditures or uses of funds and property, owned or
held in trust by, or pertaining to the Government, or any of its
subdivisions, agencies or instrumentalities, including government-owned
or controlled corporations with original charters, and on a post audit basis.
(emphasis supplied)
Petitioners' main argument is that they are private corporations without original charter,
hence they are outside the jurisdiction of respondents CSC and COA. Reliance is made on
the Metro Iloilo case which declared petitioners as quasi-public corporations created by
virtue of PD 198, a general legislation which cannot be considered as the charter itself
creating the water districts. Holding on to this ruling, petitioners contend that they are
private corporations which are only regarded as quasi-public or semi-public because they
serve public interest and convenience and that since PD 198 is a general legislation, the
operative act which created a water district is not the said decree but the resolution of the
sanggunian concerned.
After a fair consideration of the parties' arguments coupled with a careful study of the
applicable laws as well as the constitutional provisions involved, We rule against the
petitioners and reiterate Our ruling in Tanjay case declaring water districts governmentowned or controlled corporations with original charter.
As early as Baguio Water District v. Trajano, et al., (G.R. No. 65428, February 20, 1984, 127
SCRA 730), We already ruled that a water district is a corporation created pursuant to a
special law P.D. No. 198, as amended, and as such its officers and employees are covered
by the Civil Service Law.
In another case (Hagonoy Water District v. NLRC, G.R. No. 81490, August 31, 1988, 165
SCRA 272), We ruled once again that local water districts are quasi-public corporations
whose employees belong to the Civil Service. The Court's pronoucement in this case, as
extensively quoted in the Tanjay case, supra, partly reads:
"The only question here is whether or not local water districts are
governmkent owned or controlled corporations whose employees are
subject to the provisions of the Civil Service Law. The Labor Arbiter
asserted jurisdiction over the alleged illegal dismissal of private
respondent Villanueva by relying on Section 25 of Presidential decree No.
198, known as the Provincial Water Utilities Act of 1973" which went onto
effect in 25 May 1973, and which provides as follows:
Exemption from Civil Service. The district and its
employees, being engaged in a proprietary function, are
hereby exempt from the provisions of the Civil Service
Law. Collective Bargaining shall be available only to
personnel below supervisory levels:Provided, however,

That the total of all salaries, wages emoluments,


benefits or other compensation paid to all employees in
any month shall not exceed fifty percent (50%) of
average net monthy revenue. Said net revenue
representing income from water sales and sewerage
service charges, less pro-rata share of debt service and
expenses for fuel or energy for pumping during the
preceding fiscal year.
The Labor Arbiter failed to take into accout the provisions of Presidential
Decree No. 1479, which went into effect on 11 June 1978, P.D. No. 1479,
wiped away Section 25 of PD 198 quoted above, and Section 26 of PD 198
was renumbered as Section 25 in the following manner:
Section 26 of the same decree PD 198 is hereby amended to read as
Section 25 as follows:
Section 25. Authorization. The district may exercise all the powers
which are expressly granted by this Title or which are necessarily implied
from or incidental to the powers and purposes herein stated. For the
purpose of carrying out the objectives of this Act, a district is hereby
granted the power of eminent domain, the exercise thereof shall, however,
be subject to review by the Administration.
Thus, Section 25 of PD 198 exempting the employees of water districts
from the application of the Civil Service Law was removed from the statute
books:
xxx xxx xxx
We grant the petition for the following reasons:
1. Section 25 of PD No. 198 was repealed by Section 3 of PD No. 1479;
Section 26 of PD No. 198 was amended ro read as Sec. 25 by Sec. 4 of PD
No. 1479. The amendatory decree took effect on June 11, 1978.
xxx xxx xxx
3. The BWD is a corporation created pursuant to a special law PD No.
198, as amended. As such its officers and employees are part of the Civil
Service (Sec. 1, Art. XII-B, [1973] Constitution; PD No. 868).
Ascertained from a consideration of the whole statute, PD 198 is a special law applicable
only to the different water districts created pursuant thereto. In all its essential terms, it is
obvious that it pertains to a special purpose which is intended to meet a particular set of

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

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


or province shall enact a resolution containing the following:
a) The name of the local water district, which shall include the name of the
city, municipality, or province, or region thereof, served by said system,
followed by the words "Water District."
It also prescribes for the numbers and qualifications of the members of the Board of
Directors:
Sec. 8. Number and Qualification. The Board of Directors of a district
shall be composed of five citizens of the Philippines who are of voting age
and residents within the district. One member shall be a representative of
civic-oriented service clubs, one member of representative of professional
associations, one member a representative of business, commercial or
financial organizations, one member a representative of educational
institutions and one member a representative of women's organization. No
public official shall serve as director. Provided, however, that if the district
has availed of the financial assistance of the Administration, the
Administration may appoint any of its personnel to sit in the board of
directors with all the rights and privileges appertaining to a regular
member for such period as the indebtedness remains unpaid in which
case the board shall be composed of six members; (as amended by PDs
Nos. 768 and 1479).
the manner of their appointment and nominations;
Sec. 9. Appointment. Board members shall be appointed by the
appointing authority. Said appointments shall be made from a list of
nominees, if any, submitted pursuant to Section 10. If no nominations are
submitted, the appointing authority shall appoint any qualified person of
the category to the vacant position;
Sec.10. Nominations. On or before October 1 of each even numbered
year, the secretary of the district shall contact each known organization,
association, or institution being represented by the director whose term
will expire on December 31 and solicit nominations from these
organizations to fill the position for the ensuing term. One nomination may
be submitted in writing by each such organization to the Secretary of the
district on or before November 1 of such year: This list of nominees shall
be transmitted by the Secretary of the district to the office of the
appointing authority on or before November 15 of such year and he shall
make his appointment from the list submitted on or before December 15.
In the event the appointing authority fails to make his appointments on or
before December 15, selection shall be made from said list of nominees by
majority vote of the seated directors of the district constituting a quorum.

Initial nominations for all five seats of the board shall be solicited by the
legislative body or bodies at the time of adoption of the resolution forming
the district. Thirty days thereafter, a list of nominees shall be submitted to
the provincial governor in the event the resolution forming the district is
by a provincial board, or the mayor of the city or municipality in the event
the resolution forming the adoption of the district is by the city or
municipal board of councilors, who shall select the initial directors
therefrom within 15 days after receipt of such nominations;
their terms of office:
Sec. 11. Term of Office. Of the five initial directors of each newly formed
district, two shall be appointed for a maximum term of two years, two for
a maximum term of four years, and one for a maximum term of six years.
Terms of office of all directors in a given district shall be such that the term
of at least one director, but not more then two, shall expire on December
31 of each even-numbered year. Regular terms of office after the initial
terms shall be for six years commencing on January 1 of odd-numbered
years. Directors may be removed for cause only, subject to review and
approval of the Administration; (as amended by PD 768).
the manner of filling up vacancies:
Sec. 12. Vacancies. In the event of a vacancy in the board of directors
occurring more than six months before expiration of any director's term,
the remaining directors shall within 30 days, serve notice to or request the
secretary of the district for nominations and within 30 days, thereafter a
list of nominees shall be submitted to the appointing authority for his
appointment of a replacement director from the list of nominees. In the
absence of such nominations, the appointing authority shall make such
appointment. If within 30 days after submission to him of a list of
nominees the appointing authority fails to make an appointment, the
vacancy shall be filled from such list by a majority vote of the remaining
members of the Board of Directors constituting a quorum. Vacancies
occurring within the last six months of an unexpired term shall also be
filled by the Board in the above manner. The director thus appointed shall
serve the unexpired term only; (as amended by PD 768).
and the compensation and personal liability of the members of the Board of Directors:
Sec. 13. Compensation. Each director shall receive a per diem, to be
determined by the board, for each meeting of the board actually attended
by him, but no director shag receive per diems in any given month in
excess of the equivalent of the total per diems of four meetings in any
given month. No director shall receive other compensation for services to
the district.

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


Administration (as amended by PD 768).
Sec. 14. Personal Liability. No director may be held to be personally
liable for any action of the district.
Noteworthy, the above quoted provisions of PD 198, as amended, are similar to those which
are actually contained in other corporate charters. The conclusion is inescapable that the
said decree is in truth and in fact the charter of the different water districts for it clearly
defines the latter's primary purpose and its basic organizational set-up. In other words, PD
198, as amended, is the very law which gives a water district juridical personality. While it is
true that a resolution of a local sanggunian is still necessary for the final creation of a
district, this Court is of the opinion that said resolution cannot be considered as its charter,
the same being intended only to implement the provisions of said decree. In passing a
resolution forming a water district, the local sanggunian is entrusted with no authority or
discretion to grant a charter for the creation of a private corporation. It is merely given the
authority for the formation of a water district, on a local option basis, to be exercised under
and in pursuance of PD 198.
More than the aforequoted provisions, what is of important interest in the case at bar is
Section 3, par. (b) of the same decree which reads:

trustees of a private corporation are elected from among the members and stockholders
thereof. It would not be amiss to emphasize at this point that a private corporation is
created for the private purpose, benefit, aim and end of its members or stockholders.
Necessarily, said members or stockholders should be given a free hand to choose those who
will compose the governing body of their corporation. But this is not the case here and this
clearly indicates that petitioners are definitely not private corporations.
The foregoing disquisition notwithstanding, We are, however, not unaware of the serious
repercussion this may bring to the thousands of water districts' employees throughout the
country who stand to be affected because they do not have the necessary civil service
eligibilities. As these employees are equally protected by the constitutional guarantee to
security of tenure, We find it necessary to rule for the protection of such right which cannot
be impaired by a subsequent ruling of this Court. Thus, those employees who have already
acquired their permanent employment status at the time of the promulgation of this
decision cannot be removed by the mere reason that they lack the necessary civil service
eligibilities.
ACCORDINGLY, the petition is hereby DISMISSED. Petitioners are declared "governmentowned or controlled corporations with original charter" which fall under the jurisdiction of
the public respondents CSC and COA.
SO ORDERED.

Sec. 3(b). Appointing authority. The person empowered to appoint the


members of the Board of Directors of a local water district, depending
upon the geographic coverage and population make-up of the particular
district. In the event that more than seventy-five percent of the total
active water service connections of a local water districts are within the
boundary of any city or municipality, the appointing authority shall be the
mayor of that city or municipality, as the case may be; otherwise, the
appointing authority shall be the governor of the province within which the
district is located:Provided, That if the existing waterworks system in the
city or municipality established as a water district under this Decree is
operated and managed by the province, initial appointment shall be
extended by the governor of the province. Subsequent appointments shall
be as specified herein.
If portions of more than one province are included within the boundary of
the district, and the appointing authority is to be the governors then the
power to appoint shall rotate between the governors involved with the
initial appointments made by the governor in whose province the greatest
number of service connections exists (as amended by PD 768).
The above-quoted section definitely sets to naught petitioners' contention that they are
private corporations. It is clear therefrom that the power to appoint the members who will
comprise the Board of Directors belongs to the local executives of the local subdivision units
where such districts are located. In contrast, the members of the Board of Directors or

It appearing from the record of the Consulta that UNG SIU SI TEMPLE is a religious
organization whose deaconess, founder, trustees and administrator are all Chinese
citizens, this Court is of the opinion and so hold that in view of the provisions of the
sections 1 and 5 of Article XIII of the Constitution of the Philippines limiting the
acquisition of land in the Philippines to its citizens, or to corporations or
associations at least sixty per centum of the capital stock of which is owned by
such citizens adopted after the enactment of said Act No. 271, and the decision of
the Supreme Court in the case of Krivenko vs. the Register of Deeds of Manila, the
deed of donation in question should not be admitted for admitted for registration.
(Printed Rec. App. pp 17-18).
Not satisfied with the ruling of the Court of First Instance, counsel for the donee Uy Siu Si
Temple has appealed to this Court, claiming: (1) that the acquisition of the land in question,
for religious purposes, is authorized and permitted by Act No. 271 of the old Philippine
Commission, providing as follows:

G.R. No. L-6776

May 21, 1955

THE REGISTER OF DEEDS OF RIZAL, petitioner-appellee,


vs.
UNG SIU SI TEMPLE, respondent-appellant.
Alejo F. Candido for appellant.
Office of the Solicitor General Querube C. Makalintal and Solicitor Felix V. Makasiar for
appellee.

SECTION 1. It shall be lawful for all religious associations, of whatever sort or


denomination, whether incorporated in the Philippine Islands or in the name of
other country, or not incorporated at all, to hold land in the Philippine Islands upon
which to build churches, parsonages, or educational or charitable institutions.
SEC. 2. Such religious institutions, if not incorporated, shall hold the land in the
name of three Trustees for the use of such associations; . . .. (Printed Rec. App. p.
5.)
and (2) that the refusal of the Register of Deeds violates the freedom of religion clause of
our Constitution [Art. III, Sec. 1(7)].

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


The Register of Deeds for the province of Rizal refused to accept for record a deed of
donation executed in due form on January 22, 1953, by Jesus Dy, a Filipino citizen,
conveying a parcel of residential land, in Caloocan, Rizal, known as lot No. 2, block 48-D,
PSD-4212, G.L.R.O. Record No. 11267, in favor of the unregistered religious organization
"Ung Siu Si Temple", operating through three trustees all of Chinese nationality. The
donation was duly accepted by Yu Juan, of Chinese nationality, founder and deaconess of the
Temple, acting in representation and in behalf of the latter and its trustees.
The refusal of the Registrar was elevated en Consultato the IVth Branch of the Court of First
Instance of Manila. On March 14, 1953, the Court upheld the action of the Rizal Register of
Deeds, saying:
The question raised by the Register of Deeds in the above transcribed consulta is
whether a deed of donation of a parcel of land executed in favor of a religious
organization whose founder, trustees and administrator are Chinese citizens should
be registered or not.

We are of the opinion that the Court below has correctly held that in view of the absolute
terms of section 5, Title XIII, of the Constitution, the provisions of Act No. 271 of the old
Philippine Commission must be deemed repealed since the Constitution was enacted, in so
far as incompatible therewith. In providing that,
Save in cases of hereditary succession, no private agricultural land shall be
transferred or assigned except to individuals, corporations or associations qualified
to acquire or hold lands of the public domain in the Philippines,
the Constitution makes no exception in favor of religious associations. Neither is there any
such saving found in sections 1 and 2 of Article XIII, restricting the acquisition of public
agricultural lands and other natural resources to "corporations or associations at least sixty
per centum of the capital of which is owned by such citizens" (of the Philippines).
The fact that the appellant religious organization has no capital stock does not suffice to
escape the Constitutional inhibition, since it is admitted that its members are of foreign
nationality. The purpose of the sixty per centum requirement is obviously to ensure that
corporations or associations allowed to acquire agricultural land or to exploit natural

resources shall be controlled by Filipinos; and the spirit of the Constitution demands that in
the absence of capital stock, the controlling membership should be composed of Filipino
citizens.
To permit religious associations controlled by non-Filipinos to acquire agricultural lands
would be to drive the opening wedge to revive alien religious land holdings in this country.
We can not ignore the historical fact that complaints against land holdings of that kind were
among the factors that sparked the revolution of 1896.
As to the complaint that the disqualification under article XIII is violative of the freedom of
religion guaranteed by Article III of the Constitution, we are by no means convinced (nor has
it been shown) that land tenure is indispensable to the free exercise and enjoyment of
religious profession or worship; or that one may not worship the Deity according to the
dictates of his own conscience unless upon land held in fee simple.

G.R. No. L-6055

June 12, 1953

THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee,


vs.
WILLIAM H. QUASHA, defendant-appellant.
Jose P. Laurel for appellant and William H. Quasha in his own behalf.
Office of the Solicitor General Juan R. Liwag and Assistant Solicitor General Francisco
Carreon for appellee.
REYES, J.:

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

Q. According to this article of incorporation Arsenio Baylon subscribed to 1,135


preferred shares with a total value of P1,135. Do you know how that came to be?
A. Yes.
The people who were desirous of forming the corporation, whose names are listed on page 7
of this certified copy came to my house, Messrs. Shannahan, Onstott, O'Bannon, Caven,
Perry and Anastasakas one evening. There was considerable difficulty to get them all
together at one time because they were pilots. They had difficulty in deciding what their
respective share holdings would be. Onstott had invested a certain amount of money in
airplane surplus property and they had obtained a considerable amount of money on those
planes and as I recall they were desirous of getting a corporation formed right away. And
they wanted to have their respective shares holdings resolved at a latter date. They stated
that they could get together that they feel that they had no time to settle their respective
share holdings. We discussed the matter and finally it was decided that the best way to
handle the things was not to put the shares in the name of anyone of the interested parties
and to have someone act as trustee for their respective shares holdings. So we looked
around for a trustee. And he said "There are a lot of people whom I trust." He said, "Is there
someone around whom we could get right away?" I said, "There is Arsenio. He was my boy
during the liberation and he cared for me when i was sick and i said i consider him my
friend." I said. They all knew Arsenio. He is a very kind man and that was what was done.
That is how it came about.
Defendant is accused under article 172 paragraph 1, in connection with article 171,
paragraph 4, of the Revised Penal Code, which read:
ART. 171. Falsification by public officer, employee, or notary or ecclesiastic
minister. The penalty ofprision mayor and a fine not to exceed 5,000 pesos shall
be imposed upon any public officer, employee, or notary who, taking advantage of
his official position, shall falsify a document by committing any of the following
acts:
xxx

xxx

xxx

4. Making untruthful statements in a narration of facts.


ART. 172. Falsification by private individuals and use of falsified documents. The
penalty of prision correccional in its medium and maximum period and a fine of not
more than 5,000 pesos shall be imposed upon:
xxx

xxx

xxx

1. Any private individual who shall commit any of the falsifications enumerated in
the next preceding article in any public or official document or letter of exchange or
any other kind of commercial document.

Commenting on the above provision, Justice Albert, in his well-known work on the Revised
Penal Code ( new edition, pp. 407-408), observes, on the authority of U.S. vs. Reyes, (1 Phil.,
341), that the perversion of truth in the narration of facts must be made with the wrongful
intent of injuring a third person; and on the authority of U.S. vs. Lopez (15 Phil., 515), the
same author further maintains that even if such wrongful intent is proven, still the untruthful
statement will not constitute the crime of falsification if there is no legal obligation on the
part of the narrator to disclose the truth. Wrongful intent to injure a third person and
obligation on the part of the narrator to disclose the truth are thus essential to a conviction
for a crime of falsification under the above article of the Revised Penal Code.
Now, as we see it, the falsification imputed in the accused in the present case consists in not
disclosing in the articles of incorporation that Baylon was a mere trustee ( or dummy as the
prosecution chooses to call him) of his American co-incorporators, thus giving the
impression that Baylon was the owner of the shares subscribed to by him which, as above
stated, amount to 60.005 per cent of the sub-scribed capital stock. This, in the opinion of
the trial court, is a malicious perversion of the truth made with the wrongful intent
circumventing section 8, Article XIV of the Constitution, which provides that " no franchise,
certificate, or any other form of authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to corporation or other entities organized
under the law of the Philippines, sixty per centum of the capital of which is owned by
citizens of the Philippines . . . ." Plausible though it may appear at first glance, this opinion
loses validity once it is noted that it is predicated on the erroneous assumption that the
constitutional provision just quoted was meant to prohibit the mere formation of a public
utility corporation without 60 per cent of its capital being owned by the Filipinos, a mistaken
belief which has induced the lower court to that the accused was under obligation to
disclose the whole truth about the nationality of the subscribed capital stock of the
corporation by revealing that Baylon was a mere trustee or dummy of his American coincorporators, and that in not making such disclosure defendant's intention was to
circumvent the Constitution to the detriment of the public interests. Contrary to the lower
court's assumption, the Constitution does not prohibit the mere formation of a public utility
corporation without the required formation of Filipino capital. What it does prohibit is the
granting of a franchise or other form of authorization for the operation of a public utility to
a corporation already in existence but without the requisite proportion of Filipino capital.
This is obvious from the context, for the constitutional provision in question qualifies the
terms " franchise", "certificate", or "any other form of authorization" with the phrase "for the
operation of a public utility," thereby making it clear that the franchise meant is not the
"primary franchise" that invest a body of men with corporate existence but the "secondary
franchise" or the privilege to operate as a public utility after the corporation has already
come into being.
If the Constitution does not prohibit the mere formation of a public utility corporation with
the alien capital, then how can the accused be charged with having wrongfully intended to
circumvent that fundamental law by not revealing in the articles of incorporation that Baylon
was a mere trustee of his American co-incorporation and that for that reason the subscribed
capital stock of the corporation was wholly American? For the mere formation of the
corporation such revelation was not essential, and the Corporation Law does not require it.
Defendant was, therefore, under no obligation to make it. In the absence of such obligation

and of the allege wrongful intent, defendant cannot be legally convicted of the crime with
which he is charged.
It is urged, however, that the formation of the corporation with 60 per cent of its subscribed
capital stock appearing in the name of Baylon was an indispensable preparatory step to the
subversion of the constitutional prohibition and the laws implementing the policy expressed
therein. This view is not correct. For a corporation to be entitled to operate a public utility it
is not necessary that it be organized with 60 per cent of its capital owned by Filipinos from
the start. A corporation formed with capital that is entirely alien may subsequently change
the nationality of its capital through transfer of shares to Filipino citizens. conversely, a
corporation originally formed with Filipino capital may subsequently change the national
status of said capital through transfer of shares to foreigners. What need is there then for a
corporation that intends to operate a public utility to have, at the time of its formation, 60
per cent of its capital owned by Filipinos alone? That condition may anytime be attained thru
the necessary transfer of stocks. The moment for determining whether a corporation is
entitled to operate as a public utility is when it applies for a franchise, certificate, or any
other form of authorization for that purpose. And that can be done after the corporation has
already come into being and not while it is still being formed. And at that moment, the
corporation must show that it has complied not only with the requirement of the
Constitution as to the nationality of its capital, but also with the requirements of the Civil
Aviation Law if it is a common carrier by air, the Revised Administrative Code if it is a
common carrier by water, and the Public Service Law if it is a common carrier by land or
other kind of public service.
Equally untenable is the suggestion that defendant should at least be held guilty of an
"impossible crime" under article 59 of the Revised Penal Code. It not being possible to
suppose that defendant had intended to commit a crime for the simple reason that the
alleged constitutional prohibition which he is charged for having tried to circumvent does
not exist, conviction under that article is out of the question.
The foregoing consideration can not but lead to the conclusion that the defendant can not
be held guilty of the crime charged. The majority of the court, however, are also of the
opinion that, even supposing that the act imputed to the defendant constituted falsification
at the time it was perpetrated, still with the approval of the Party Amendment to the
Constitution in March, 1947, which placed Americans on the same footing as Filipino citizens
with respect to the right to operate public utilities in the Philippines, thus doing away with
the prohibition in section 8, Article XIV of the Constitution in so far as American citizens are
concerned, the said act has ceased to be an offense within the meaning of the law, so that
defendant can no longer be held criminally liable therefor.
In view of the foregoing, the judgment appealed from is reversed and the defendant William
H. Quasha acquitted, with costs de oficio.

G.R. No. L-2294

May 25, 1951

FILIPINAS COMPAIA DE SEGUROS, petitioner,


vs.
CHRISTERN, HUENEFELD and CO., INC., respondent.
Ramirez and Ortigas for petitioner.
Ewald Huenefeld for respondent.
PARAS, C.J.:
On October 1, 1941, the respondent corporation, Christern Huenefeld, & Co., Inc., after
payment of corresponding premium, obtained from the petitioner ,Filipinas Cia. de Seguros,
fire policy No. 29333 in the sum of P1000,000, covering merchandise contained in a building
located at No. 711 Roman Street, Binondo Manila. On February 27, 1942, or during the
Japanese military occupation, the building and insured merchandise were burned. In due
time the respondent submitted to the petitioner its claim under the policy. The salvage
goods were sold at public auction and, after deducting their value, the total loss suffered by
the respondent was fixed at P92,650. The petitioner refused to pay the claim on the ground

that the policy in favor of the respondent had ceased to be in force on the date the United
States declared war against Germany, the respondent Corporation (though organized under
and by virtue of the laws of the Philippines) being controlled by the German subjects and the
petitioner being a company under American jurisdiction when said policy was issued on
October 1, 1941. The petitioner, however, in pursuance of the order of the Director of
Bureau of Financing, Philippine Executive Commission, dated April 9, 1943, paid to the
respondent the sum of P92,650 on April 19, 1943.
The present action was filed on August 6, 1946, in the Court of First Instance of Manila for
the purpose of recovering from the respondent the sum of P92,650 above mentioned. The
theory of the petitioner is that the insured merchandise were burned up after the policy
issued in 1941 in favor of the respondent corporation has ceased to be effective because of
the outbreak of the war between the United States and Germany on December 10, 1941,
and that the payment made by the petitioner to the respondent corporation during the
Japanese military occupation was under pressure. After trial, the Court of First Instance of
Manila dismissed the action without pronouncement as to costs. Upon appeal to the Court of
Appeals, the judgment of the Court of First Instance of Manila was affirmed, with costs. The
case is now before us on appeal by certiorari from the decision of the Court of Appeals.
The Court of Appeals overruled the contention of the petitioner that the respondent
corporation became an enemy when the United States declared war against Germany,
relying on English and American cases which held that a corporation is a citizen of the
country or state by and under the laws of which it was created or organized. It rejected the
theory that nationality of private corporation is determine by the character or citizenship of
its controlling stockholders.
There is no question that majority of the stockholders of the respondent corporation were
German subjects. This being so, we have to rule that said respondent became an enemy
corporation upon the outbreak of the war between the United States and Germany. The
English and American cases relied upon by the Court of Appeals have lost their force in view
of the latest decision of the Supreme Court of the United States in Clark vs. Uebersee Finanz
Korporation, decided on December 8, 1947, 92 Law. Ed. Advance Opinions, No. 4, pp. 148153, in which the controls test has been adopted. In "Enemy Corporation" by Martin Domke,
a paper presented to the Second International Conference of the Legal Profession held at the
Hague (Netherlands) in August. 1948 the following enlightening passages appear:
Since World War I, the determination of enemy nationality of corporations has been
discussion in many countries, belligerent and neutral. A corporation was subject to
enemy legislation when it was controlled by enemies, namely managed under the
influence of individuals or corporations, themselves considered as enemies. It was
the English courts which first the Daimler case applied this new concept of
"piercing the corporate veil," which was adopted by the peace of Treaties of 1919
and the Mixed Arbitral established after the First World War.
The United States of America did not adopt the control test during the First World
War. Courts refused to recognized the concept whereby American-registered

corporations could be considered as enemies and thus subject to domestic


legislation and administrative measures regarding enemy property.
World War II revived the problem again. It was known that German and other
enemy interests were cloaked by domestic corporation structure. It was not only by
legal ownership of shares that a material influence could be exercised on the
management of the corporation but also by long term loans and other factual
situations. For that reason, legislation on enemy property enacted in various
countries during World War II adopted by statutory provisions to the control test
and determined, to various degrees, the incidents of control. Court decisions were
rendered on the basis of such newly enacted statutory provisions in determining
enemy character of domestic corporation.
The United States did not, in the amendments of the Trading with the Enemy Act
during the last war, include as did other legislations the applications of the control
test and again, as in World War I, courts refused to apply this concept whereby the
enemy character of an American or neutral-registered corporation is determined by
the enemy nationality of the controlling stockholders.
Measures of blocking foreign funds, the so called freezing regulations, and other
administrative practice in the treatment of foreign-owned property in the United
States allowed to large degree the determination of enemy interest in domestic
corporations and thus the application of the control test. Court decisions sanctioned
such administrative practice enacted under the First War Powers Act of 1941, and
more recently, on December 8, 1947, the Supreme Court of the United States
definitely approved of the control theory. In Clark vs. Uebersee Finanz Korporation,
A. G., dealing with a Swiss corporation allegedly controlled by German interest, the
Court: "The property of all foreign interest was placed within the reach of the
vesting power (of the Alien Property Custodian) not to appropriate friendly or
neutral assets but to reach enemy interest which masqueraded under those
innocent fronts. . . . The power of seizure and vesting was extended to all property
of any foreign country or national so that no innocent appearing device could
become a Trojan horse."
It becomes unnecessary, therefore, to dwell at length on the authorities cited in support of
the appealed decision. However, we may add that, in Haw Pia vs. China Banking
Corporation,* 45 Off Gaz., (Supp. 9) 299, we already held that China Banking Corporation
came within the meaning of the word "enemy" as used in the Trading with the Enemy Acts of
civilized countries not only because it was incorporated under the laws of an enemy country
but because it was controlled by enemies.
The Philippine Insurance Law (Act No. 2427, as amended,) in section 8, provides that
"anyone except a public enemy may be insured." It stands to reason that an insurance
policy ceases to be allowable as soon as an insured becomes a public enemy.

Effect of war, generally. All intercourse between citizens of belligerent powers


which is inconsistent with a state of war is prohibited by the law of nations. Such
prohibition includes all negotiations, commerce, or trading with the enemy; all acts
which will increase, or tend to increase, its income or resources; all acts of
voluntary submission to it; or receiving its protection; also all acts concerning the
transmission of money or goods; and all contracts relating thereto are thereby
nullified. It further prohibits insurance upon trade with or by the enemy, upon the
life or lives of aliens engaged in service with the enemy; this for the reason that the
subjects of one country cannot be permitted to lend their assistance to protect by
insurance the commerce or property of belligerent, alien subjects, or to do anything
detrimental too their country's interest. The purpose of war is to cripple the power
and exhaust the resources of the enemy, and it is inconsistent that one country
should destroy its enemy's property and repay in insurance the value of what has
been so destroyed, or that it should in such manner increase the resources of the
enemy, or render it aid, and the commencement of war determines, for like
reasons, all trading intercourse with the enemy, which prior thereto may have been
lawful. All individuals therefore, who compose the belligerent powers, exist, as to
each other, in a state of utter exclusion, and are public enemies. (6 Couch, Cyc. of
Ins. Law, pp. 5352-5353.)
In the case of an ordinary fire policy, which grants insurance only from year, or for
some other specified term it is plain that when the parties become alien enemies,
the contractual tie is broken and the contractual rights of the parties, so far as not
vested. lost. (Vance, the Law on Insurance, Sec. 44, p. 112.)
The respondent having become an enemy corporation on December 10, 1941, the insurance
policy issued in its favor on October 1, 1941, by the petitioner (a Philippine corporation) had
ceased to be valid and enforcible, and since the insured goods were burned after December
10, 1941, and during the war, the respondent was not entitled to any indemnity under said
policy from the petitioner. However, elementary rules of justice (in the absence of specific
provision in the Insurance Law) require that the premium paid by the respondent for the
period covered by its policy from December 11, 1941, should be returned by the petitioner.
The Court of Appeals, in deciding the case, stated that the main issue hinges on the
question of whether the policy in question became null and void upon the declaration of war
between the United States and Germany on December 10, 1941, and its judgment in favor
of the respondent corporation was predicated on its conclusion that the policy did not cease
to be in force. The Court of Appeals necessarily assumed that, even if the payment by the
petitioner to the respondent was involuntary, its action is not tenable in view of the ruling on
the validity of the policy. As a matter of fact, the Court of Appeals held that "any intimidation
resorted to by the appellee was not unjust but the exercise of its lawful right to claim for and
received the payment of the insurance policy," and that the ruling of the Bureau of Financing
to the effect that "the appellee was entitled to payment from the appellant was, well
founded." Factually, there can be no doubt that the Director of the Bureau of Financing, in
ordering the petitioner to pay the claim of the respondent, merely obeyed the instruction of
the Japanese Military Administration, as may be seen from the following: "In view of the
findings and conclusion of this office contained in its decision on Administrative Case dated

February 9, 1943 copy of which was sent to your office and the concurrence therein of the
Financial Department of the Japanese Military Administration, and following the instruction
of said authority, you are hereby ordered to pay the claim of Messrs. Christern, Huenefeld &
Co., Inc. The payment of said claim, however, should be made by means of crossed check."
(Emphasis supplied.)
It results that the petitioner is entitled to recover what paid to the respondent under the
circumstances on this case. However, the petitioner will be entitled to recover only the
equivalent, in actual Philippines currency of P92,650 paid on April 19, 1943, in accordance
with the rate fixed in the Ballantyne scale.
Wherefore, the appealed decision is hereby reversed and the respondent corporation is
ordered to pay to the petitioner the sum of P77,208.33, Philippine currency, less the amount
of the premium, in Philippine currency, that should be returned by the petitioner for the
unexpired term of the policy in question, beginning December 11, 1941. Without costs. So
ordered.

Filipino citizens when they sought to register in favor of their congregation of deed
of donation of a parcel of land
required said corporation sole to submit a similar affidavit declaring that 60 per cent of the
members thereof were Filipino citizens.
The vendee in the letter dated June 28, 1954, expressed willingness to submit an affidavit,
both not in the same tenor as that made the Progress of the Carmelite Nuns because the
two cases were not similar, for whereas the congregation of the Carmelite Nuns had five
incorporators, the corporation sole has only one; that according to their articles of
incorporation, the organization of the Carmelite Nuns became the owner of properties
donated to it, whereas the case at bar, the totality of the Catholic population of Davao would
become the owner of the property bought to be registered.

G.R. No. L-8451

December 20, 1957

THE ROMAN CATHOLIC APOSTOLIC ADMINISTRATOR OF DAVAO, INC., petitioner,


vs.
THE LAND REGISTRATION COMMISSION and THE REGISTER OF DEEDS OF DAVAO
CITY, respondents.
Teodoro Padilla, for petitioner.
Office of the Solicitor General Ambrosio Padilla, Assistant Solicitor General Jose G. Bautista
and Troadio T. Quianzon, Jr., for respondents.

FELIX, J.:
This is a petition for mandamus filed by the Roman Catholic Apostolic Administrator of
Davao seeking the reversal of a resolution by the Land Registration Commissioner in L.R.C.
Consulta No. 14. The facts of the case are as follows:
On October 4, 1954, Mateo L. Rodis, a Filipino citizen and resident of the City of Davao,
executed a deed of sale of a parcel of land located in the same city covered by Transfer
Certificate No. 2263, in favor of the Roman Catholic Apostolic Administrator of Davao Inc., s
corporation sole organized and existing in accordance with Philippine Laws, with Msgr. Clovis
Thibault, a Canadian citizen, as actual incumbent. When the deed of sale was presented to
Register of Deeds of Davao for registration, the latter.

As the Register of Deeds entertained some doubts as to the registerability if the document,
the matter was referred to the Land Registration Commissioner en consulta for resolution in
accordance with section 4 of Republic Act No. 1151. Proper hearing on the matter was
conducted by the Commissioner and after the petitioner corporation had filed its
memorandum, a resolution was rendered on September 21, 1954, holding that in view of the
provisions of Section 1 and 5 of Article XIII of the Philippine Constitution, the vendee was not
qualified to acquire private lands in the Philippines in the absence of proof that at least 60
per centum of the capital, property, or assets of the Roman Catholic Apostolic Administrator
of Davao, Inc., was actually owned or controlled by Filipino citizens, there being no question
that the present incumbent of the corporation sole was a Canadian citizen. It was also the
opinion of the Land Registration Commissioner that section 159 of the corporation Law
relied upon by the vendee was rendered operative by the aforementioned provisions of the
Constitution with respect to real estate, unless the precise condition set therein that at
least 60 per cent of its capital is owned by Filipino citizens be present, and, therefore,
ordered the Registered Deeds of Davao to deny registration of the deed of sale in the
absence of proof of compliance with such condition.
After the motion to reconsider said resolution was denied, an action for mandamus was
instituted with this Court by said corporation sole, alleging that under the Corporation Law
as well as the settled jurisprudence on the matter, the deed of sale executed by Mateo L.
Rodis in favor of petitioner is actually a deed of sale in favor of the Catholic Church which is
qualified to acquire private agricultural lands for the establishment and maintenance of
places of worship, and prayed that judgment be rendered reserving and setting aside the
resolution of the Land Registration Commissioner in question. In its resolution of November
15, 1954, this Court gave due course to this petition providing that the procedure prescribed
for appeals from the Public Service Commission of the Securities and Exchange
Commissions (Rule 43), be followed.
Section 5 of Article XIII of the Philippine Constitution reads as follows:

having in mind a previous resolution of the Fourth Branch of the Court of First
Instance of Manila wherein the Carmelite Nuns of Davao were made to prepare an
affidavit to the effect that 60 per cent of the members of their corporation were

SEC. 5. Save in cases of hereditary succession, no private agricultural land shall be


transferred or assigned except to individuals, corporations, or associations qualified
to acquire or hold lands of the public domain in the Philippines.
Section 1 of the same Article also provides the following:
SECTION 1. All agricultural, timber, and mineral lands of the public domain, water, minerals,
coal, petroleum, and other mineral oils, all forces of potential energy, and other natural
resources of the Philippines belong to the State, and their disposition, exploitation,
development, or utilization shall be limited to cititzens of the Philippines, or to corporations
or associations at least sixty per centum of the capital of which is owned by such citizens,
SUBJECT TO ANY EXISTING RIGHT, grant, lease, or concession AT THE TIME OF THE
INAUGURATION OF THE GOVERNMENT ESTABLISHED UNDER CONSTITUTION. Natural
resources, with the exception of public agricultural land, shall not be alienated, and no
license, concession, or leases for the exploitation, development, or utilization of any of the
natural resources shall be granted for a period exceeding twenty-five years, renewable for
another twenty-five years, except as to water rights for irrigation, water supply, fisheries, or
industrial uses other than the development of water power, in which cases other than the
development and limit of the grant.
In virtue of the foregoing mandates of the Constitution, who are considered "qualified" to
acquire and hold agricultural lands in the Philippines? What is the effect of these
constitutional prohibition of the right of a religious corporation recognized by our
Corporation Law and registered as a corporation sole, to possess, acquire and register real
estates in its name when the Head, Manager, Administrator or actual incumbent is an alien?
Petitioner consistently maintained that a corporation sole, irrespective of the citizenship of
its incumbent, is not prohibited or disqualified to acquire and hold real properties. The
Corporation Law and the Canon Law are explicit in their provisions that a corporation sole or
"ordinary" is not the owner of the of the properties that he may acquire but merely the
administrator thereof. The Canon Law also specified that church temporalities are owned by
the Catholic Church as a "moral person" or by the diocess as minor "moral persons" with the
ordinary or bishop as administrator.
And elaborating on the composition of the Catholic Church in the Philippines, petitioner
explained that as a religious society or organization, it is made up of 2 elements or divisions
the clergy or religious members and the faithful or lay members. The 1948 figures of the
Bureau of Census showed that there were 277,551 Catholics in Davao and aliens residing
therein numbered 3,465. Ever granting that all these foreigners are Catholics, petitioner
contends that Filipino citizens form more than 80 per cent of the entire Catholics population
of that area. As to its clergy and religious composition, counsel for petitioner presented the
Catholic Directory of the Philippines for 1954 (Annex A) which revealed that as of that year,
Filipino clergy and women novices comprise already 60.5 per cent of the group. It was,
therefore, allowed that the constitutional requirement was fully met and satisfied.

Respondents, on the other hand, averred that although it might be true that petitioner is not
the owner of the land purchased, yet he has control over the same, with full power to
administer, take possession of, alienate, transfer, encumber, sell or dispose of any or all
lands and their improvements registered in the name of the corporation sole and can
collect, receive, demand or sue for all money or values of any kind that may be kind that
may become due or owing to said corporation, and vested with authority to enter into
agreements with any persons, concerns or entities in connection with said real properties, or
in other words, actually exercising all rights of ownership over the properties. It was their
stand that the theory that properties registered in the name of the corporation sole are held
in true for the benefit of the Catholic population of a place, as of Davao in the case at bar
should be sustained because a conglomeration of persons cannot just be pointed out as the
cestui que trust or recipient of the benefits from the property allegedly administered in their
behalf. Neither can it be said that the mass of people referred to as such beneficiary
exercise ant right of ownership over the same. This set-up, respondents argued, falls short
of a trust. The respondents instead tried to prove that in reality, the beneficiary of
ecclesiastical properties are not members or faithful of the church but someone else, by
quoting a portion a portion of the ought of fidelity subscribed by a bishop upon his elevation
to the episcopacy wherein he promises to render to the Pontificial Father or his successors
an account of his pastoral office and of all things appertaining to the state of this church.
Respondents likewise advanced the opinion that in construing the constitutional provision
calling for 60 per cent of Filipino citizenship, the criterion of the properties or assets thereof.
In solving the problem thus submitted to our consideration, We can say the following: A
corporation sole is a special form of corporation usually associated with the clergy.
Conceived and introduced into the common law by sheer necessity, this legal creation which
was referred to as "that unhappy freak of English law" was designed to facilitate the exercise
of the functions of ownership carried on by the clerics for and on behalf of the church which
was regarded as the property owner (See I Couvier's Law Dictionary, p. 682-683).
A corporation sole consists of one person only, and his successors (who will always be one at
a time), in some particular station, who are incorporated by law in order to give them some
legal capacities and advantages, particularly that of perpetuity, which in their natural
persons they could not have had. In this sense, the king is a sole corporation; so is a bishop,
or dens, distinct from their several chapters (Reid vs. Barry, 93 Fla. 849, 112 So. 846).
The provisions of our Corporation law on religious corporations are illuminating and sustain
the stand of petitioner. Section 154 thereof provides:
SEC. 154. For the administration of the temporalities of any religious
denomination, society or church and the management of the estates and the
properties thereof, it shall be lawful for the bishop, chief priest, or presiding either
of any such religious denomination, society or church to become a corporation sole,
unless inconsistent wit the rules, regulations or discipline of his religious
denomination, society or church or forbidden by competent authority thereof.

See also the pertinent provisions of the succeeding sections of the same Corporation Law
copied hereunder:
SEC. 155. In order to become a corporation sole the bishop, chief priest, or
presiding elder of any religious denomination, society or church must file with the
Securities and Exchange Commissioner articles of incorporation setting forth the
following facts:
xxx xxx xxx.
(3) That as such bishop, chief priest, or presiding elder he is charged with the
administration of the temporalities and the management of the estates and
properties of his religious denomination, society, or church within its territorial
jurisdiction, describing it;
xxx xxx xxx.
(As amended by Commonwealth Act No. 287).
SEC. 157. From and after the filing with the Securities and Exchange Commissioner
of the said articles of incorporation, which verified by affidavit or affirmation as
aforesaid and accompanied by the copy of the commission, certificate of election,
or letters of appointment of the bishop, chief priest, or presiding elder, duly
certified as prescribed in the section immediately preceding such the bishop, chief
priest, or presiding elder, as the case may be, shall become a corporation sole
and all temporalities, estates, and properties the religious denomination, society,
or church therefore administered or managed by him as such bishop, chief priest,
or presiding elder, shall be held in trust by him as a corporation sole, for the use,
purpose, behalf, and sole benefit of his religious denomination, society, or church,
including hospitals, schools, colleges, orphan, asylums, parsonages, and
cemeteries thereof. For the filing of such articles of incorporation, the Securities
and Exchange Commissioner shall collect twenty-five pesos. (As amended by
Commonwealth Act. No. 287); and.
SEC. 163. The right to administer all temporalities and all property held or owned
by a religious order or society, or by the diocese, synod, or district organization of
any religious denomination or church shall, on its incorporation, pass to the
corporation and shall be held in trust for the use, purpose behalf, and benefit of the
religious society, or order so incorporated or of the church of which the diocese, or
district organization is an organized and constituent part.
The Cannon Law contains similar provisions regarding the duties of the corporation sole or
ordinary as administrator of the church properties, as follows:

Al Ordinario local pertenence vigilar diligentemente sobre la administracion de


todos los bienes eclesiasticos que se hallan en su territorio y no estuvieren
sustraidos de su jurisdiccion, salvs las prescriciones legitimas que le concedan mas
aamplios derechos.
Teniendo en cuenta los derechos y las legitimas costumbres y circunstancias,
procuraran los Ordinarios regular todo lo concerniente a la administracion de los
bienes eclesciasticos, dando las oportunas instucciones particularles dentro del
narco del derecho comun. (Title XXVIII, Codigo de Derecho Canonico, Lib. III, Canon
1519).1
That leaves no room for doubt that the bishops or archbishops, as the case may be, as
corporation's sole are merely administrators of the church properties that come to their
possession, in which they hold in trust for the church. It can also be said that while it is true
that church properties could be administered by a natural persons, problems regarding
succession to said properties can not be avoided to rise upon his death. Through this legal
fiction, however, church properties acquired by the incumbent of a corporation sole pass, by
operation of law, upon his death not his personal heirs but to his successor in office. It could
be seen, therefore, that a corporation sole is created not only to administer the
temporalities of the church or religious society where he belongs but also to hold and
transmit the same to his successor in said office. If the ownership or title to the properties
do not pass to the administrators, who are the owners of church properties?.
Bouscaren and Elis, S.J., authorities on cannon law, on their treatise comment:
In matters regarding property belonging to the Universal Church and to the
Apostolic See, the Supreme Pontiff exercises his office of supreme administrator
through the Roman Curia; in matters regarding other church property, through the
administrators of the individual moral persons in the Church according to that
norms, laid down in the Code of Cannon Law. This does not mean, however, that
the Roman Pontiff is the owner of all the church property; but merely that he is the
supreme guardian (Bouscaren and Ellis, Cannon Law, A Text and Commentary, p.
764).
and this Court, citing Campes y Pulido, Legislacion y Jurisprudencia Canonica, ruled in the
case of Trinidad vs. Roman Catholic Archbishop of Manila, 63 Phil. 881, that:
The second question to be decided is in whom the ownership of the properties
constituting the endowment of the ecclesiastical or collative chaplaincies is vested.
Canonists entertain different opinions as to the persons in whom the ownership of
the ecclesiastical properties is vested, with respect to which we shall, for our
purpose, confine ourselves to stating with Donoso that, while many doctors cited
by Fagnano believe that it resides in the Roman Pontiff as Head of the Universal
Church, it is more probable that ownership, strictly speaking, does not reside in the
latter, and, consequently, ecclesiastical properties are owned by the churches,

institutions and canonically established private corporations to which said


properties have been donated.
Considering that nowhere can We find any provision conferring ownership of church
properties on the Pope although he appears to be the supreme administrator or guardian of
his flock, nor on the corporation sole or heads of dioceses as they are admittedly
mere administrators of said properties, ownership of these temporalities logically fall and
develop upon the church, diocese or congregation acquiring the same. Although this
question of ownership of ecclesiastical properties has off and on been mentioned in several
decisions of the Court yet in no instance was the subject of citizenship of this religious
society been passed upon.
We are not unaware of the opinion expressed by the late Justice Perfecto in his dissent in the
case of Agustines vs. Court of First Instance of Bulacan, 80 Phil. 565, to the effect that "the
Roman Catholic Archbishop of Manila is only a branch of a universal church by the Pope,
with permanent residence in Rome, Italy". There is no question that the Roman Catholic
Church existing in the Philippines is a tributary and part of the international religious
organization, for the word "Roman" clearly expresses its unity with and recognizes the
authority of the Pope in Rome. However, lest We become hasty in drawing conclusions, We
have to analyze and take note of the nature of the government established in the Vatican
City, of which it was said:
GOVERNMENT. In the Roman Catholic Church supreme authority and jurisdiction
over clergy and laity alike as held by the pope who (since the Middle Ages) is
elected by the cardinals assembled in conclave, and holds office until his death or
legitimate abdication. . . While the pope is obviously independent of the laws made,
and the officials appointed, by himself or his predecessors, he usually exercises his
administrative authority according to the code of canon law and through the
congregations, tribunals and offices of the Curia Romana. In their respective
territories (called generally dioceses) and over their respective subjects, the
patriarchs, metropolitans or archbishops and bishops exercise a jurisdiction which is
called ordinary (as attached by law to an office given to a person. . . (Collier's
Encyclopedia, Vol. 17, p. 93).
While it is true and We have to concede that in the profession of their faith, the Roman
Pontiff is the supreme head; that in the religious matters, in the exercise of their belief, the
Catholic congregation of the faithful throughout the world seeks the guidance and direction
of their Spiritual Father in the Vatican, yet it cannot be said that there is a merger of
personalities resultant therein. Neither can it be said that the political and civil rights of the
faithful, inherent or acquired under the laws of their country, are affected by that
relationship with the Pope. The fact that the Roman Catholic Church in almost every country
springs from that society that saw its beginning in Europe and the fact that the clergy of this
faith derive their authorities and receive orders from the Holy See do not give or bestow the
citizenship of the Pope upon these branches. Citizenship is a political right which cannot be
acquired by a sort of "radiation". We have to realize that although there is a fraternity
among all the catholic countries and the dioceses therein all over the globe, the universality
that the word "catholic" implies, merely characterize their faith, a uniformity in the practice

and the interpretation of their dogma and in the exercise of their belief, but certainly they
are separate and independent from one another in jurisdiction, governed by different laws
under which they are incorporated, and entirely independent on the others in the
management and ownership of their temporalities. To allow theory that the Roman Catholic
Churches all over the world follow the citizenship of their Supreme Head, the Pontifical
Father, would lead to the absurdity of finding the citizens of a country who embrace the
Catholic faith and become members of that religious society, likewise citizens of the Vatican
or of Italy. And this is more so if We consider that the Pope himself may be an Italian or
national of any other country of the world. The same thing be said with regard to the
nationality or citizenship of the corporation sole created under the laws of the Philippines,
which is not altered by the change of citizenship of the incumbent bishops or head of said
corporation sole.
We must therefore, declare that although a branch of the Universal Roman Catholic
Apostolic Church, every Roman Catholic Church in different countries, if it exercises its
mission and is lawfully incorporated in accordance with the laws of the country where it is
located, is considered an entity or person with all the rights and privileges granted to such
artificial being under the laws of that country, separate and distinct from the personality of
the Roman Pontiff or the Holy See, without prejudice to its religious relations with the latter
which are governed by the Canon Law or their rules and regulations.
We certainly are conscious of the fact that whatever conclusion We may draw on this matter
will have a far reaching influence, nor can We overlook the pages of history that arouse
indignation and criticisms against church landholdings. This nurtured feeling that snowbailed
into a strong nationalistic sentiment manifested itself when the provisions on natural to be
embodied in the Philippine Constitution were framed, but all that has been said on this
regard referred more particularly to landholdings of religious corporations known as "Friar
Estates" which have already bee acquired by our government, and not to properties held by
corporations sole which, We repeat, are properties held in trust for the benefit of the faithful
residing within its territorial jurisdiction. Though that same feeling probably precipitated and
influenced to a large extent the doctrine laid down in the celebrated Krivenco decision, We
have to take this matter in the light of legal provisions and jurisprudence actually obtaining,
irrespective of sentiments.
The question now left for our determination is whether the Universal Roman Catholic
Apostolic Church in the Philippines, or better still, the corporation sole named the Roman
Catholic Apostolic Administrator of Davao, Inc., is qualified to acquire private agricultural
lands in the Philippines pursuant to the provisions of Article XIII of the Constitution.
We see from sections 1 and 5 of said Article quoted before, that only persons or corporations
qualified to acquire hold lands of the public domain in the Philippines may acquire or be
assigned and hold private agricultural lands. Consequently, the decisive factor in the
present controversy hinges on the proposition or whether or not the petitioner in this case
can acquire agricultural lands of the public domain.
From the data secured from the Securities and Exchange Commission, We find that the
Roman Catholic Bishop of Zamboanga was incorporated (as a corporation sole)

in September, 1912, principally to administer its temporalities and manage its properties.
Probably due to the ravages of the last war, its articles of incorporation
were reconstructed in the Securities and Exchange Commission on April 8, 1948. At first,
this corporation sole administered all the temporalities of the church existing or located in
the island of Mindanao. Later on, however, new dioceses were formed and new corporations
sole were created to correspond with the territorial jurisdiction of the new dioceses, one of
them being petitioner herein, the Roman Catholic Apostolic Administrator of Davao, Inc.,
which was registered with the Securities and Exchange Commission on September 12, 1950,
and succeeded in the administrative for all the "temporalities" of the Roman Catholic Church
existing in Davao.
According to our Corporation Law, Public Act No. 1549, approved April 1, 1906, a corporation
sole.
is organized and composed of a single individual, the head of any religious society
or church, for the ADMINISTRATION of the temporalities of such society or church.
By "temporalities" is meant estate and properties not used exclusively for religious
worship. The successor in office of such religious head or chief priest incorporated
as a corporation sole shall become the corporation sole on ascension to office, and
shall be permitted to transact business as such on filing with the Securities and
Exchange Commission a copy of his commission, certificate of election or letter of
appointment duly certified by any notary public or clerk of court of record
(Guevara's The Philippine Corporation Law, p. 223).
The Corporation Law also contains the following provisions:
SECTION 159. Any corporation sole may purchase and hold real estate and
personal; property for its church, charitable, benevolent, or educational purposes,
and may receive bequests or gifts of such purposes. Such corporation may
mortgage or sell real property held by it upon obtaining an order for that purpose
from the Court of First Instance of the province in which the property is situated;
but before making the order proof must be made to the satisfaction of the Court
that notice of the application for leave to mortgage or sell has been given by
publication or otherwise in such manner and for such time as said Court or the
Judge thereof may have directed, and that it is to the interest of the corporation
that leave to mortgage or sell must be made by petition, duly verified by the
bishop, chief priest, or presiding elder acting as corporation sole, and may be
opposed by any member of the religious denomination, society or church
represented by the corporation sole: Provided, however, That in cases where the
rules, regulations, and discipline of the religious denomination, society or church
concerned represented by such corporation sole regulate the methods of acquiring,
holding, selling and mortgaging real estate and personal property, such rules,
regulations, and discipline shall control and the intervention of the Courts shall not
be necessary.
It can, therefore, be noticed that the power of a corporation sole to purchase real property,
like the power exercised in the case at bar, it is not restricted although the power to sell or

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

enactment than public Act No. 1459, the provisions of Section 159 in amplification of Section
13 thereof, as regard real properties, should be considered repealed by the former.
There is a reason to believe that when the specific provision of the Constitution invoked by
respondent Commissioner was under consideration, the framers of the same did not have in
mind or overlooked this particular form of corporation. It is undeniable that the
naturalization and conservation of our national resources was one of the dominating
objectives of the Convention and in drafting the present Article XII of the Constitution, the
delegates were goaded by the desire (1) to insure their conservation for Filipino posterity;
(2) to serve as an instrument of national defense, helping prevent the extension into the
country of foreign control through peaceful economic penetration; and (3) to prevent making
the Philippines a source of international conflicts with the consequent danger to its internal
security and independence (See The Framing of the Philippine Constitution by Professor Jose
M. Aruego, a Delegate to the Constitutional Convention, Vol. II. P. 592-604). In the same
book Delegate Aruego, explaining the reason behind the first consideration, wrote:
At the time of the framing of Philippine Constitution, Filipino capital had been to be
rather shy. Filipinos hesitated s a general rule to invest a considerable sum of their
capital for the development, exploitation and utilization of the natural resources of
the country. They had not as yet been so used to corporate as the peoples of the
west. This general apathy, the delegates knew, would mean the retardation of the
development of the natural resources, unless foreign capital would be encouraged
to come and help in that development. They knew that the naturalization of the
natural resources would certainly not encourage theINVESTMENT OF FOREIGN
CAPITAL into them. But there was a general feeling in the Convention that it was
better to have such a development retarded or even postpone together until such
time when the Filipinos would be ready and willing to undertake it rather than
permit the natural resources to be placed under the ownership or control of
foreigners in order that they might be immediately be developed, with the Filipinos
of the future serving not as owners but utmost as tenants or workers under foreign
masters. By all means, the delegates believed, the natural resources should be
conserved for Filipino posterity.
It could be distilled from the foregoing that the farmers of the Constitution intended said
provisions as barrier for foreigners or corporations financed by such foreigners to acquire,
exploit and develop our natural resources, saving these undeveloped wealth for our people
to clear and enrich when they are already prepared and capable of doing so. But that is not
the case of corporations sole in the Philippines, for, We repeat, they are mere administrators
of the "temporalities" or properties titled in their name and for the benefit of the members
of their respective religion composed of an overwhelming majority of Filipinos. No mention
nor allusion whatsoever is made in the Constitution as to the prohibition against or the
liability of the Roman Catholic Church in the Philippines to acquire and hold agricultural
lands. Although there were some discussions on landholdings, they were mostly confined in
the inclusion of the provision allowing the Government to break big landed estates to put an
end to absentee landlordism.

But let us suppose, for the sake of argument, that the above referred to inhibitory clause of
Section 1 of Article XIII of the constitution does have bearing on the petitioner's case; even
so the clause requiring that at least 60 per centum of the capital of the corporation be
owned by Filipinos is subordinated to the petitioner's aforesaid right already existing at the
time of the inauguration of the Commonwealth and the Republic of the Philippines. In the
language of Mr. Justice Jose P. Laurel (a delegate to the Constitutional Convention), in his
concurring opinion of the case of Gold Creek mining Corporation, petitioner vs. Eulogio
Rodriguez, Secretary of Agriculture and Commerce, and Quirico Abadilla, Director of the
Bureau of Mines, respondent, 66 Phil. 259:
The saving clause in the section involved of the Constitution was originally
embodied in the report submitted by the Committee on Naturalization and
Preservation of Land and Other Natural Resources to the Constitutional Convention
on September 17, 1954. It was later inserted in the first draft of the Constitution as
section 13 of Article XIII thereof, and finally incorporated as we find it now. Slight
have been the changes undergone by the proviso from the time when it comes out
of the committee until it was finally adopted. When first submitted and as inserted
to the first draft of the Constitution it reads: 'subject to any right, grant, lease, or
concession existing in respect thereto on the date of the adoption of the
Constitution'. As finally adopted, the proviso reads: 'subject to any existing right,
grant, lease, or concession at the time of the inauguration of the Government
established under this Constitution'. This recognition is not mere graciousness but
springs form the just character of the government established. The framers of the
Constitution were not obscured by the rhetoric of democracy or swayed to hostility
by an intense spirit of nationalism. They well knew that conservation of our natural
resources did not mean destruction or annihilation of acquired property rights.
Withal, they erected a government neither episodic nor stationary but well-nigh
conservative in the protection of property rights. This notwithstanding nationalistic
and socialistic traits discoverable upon even a sudden dip into a variety of the
provisions embodied in the instrument.
The writer of this decision wishes to state at this juncture that during the deliberation of this
case he submitted to the consideration of the Court the question that may be termed the
"vested right saving clause" contained in Section 1, Article XII of the Constitution, but some
of the members of this Court either did not agree with the theory of the writer, or were not
ready to take a definite stand on the particular point I am now to discuss deferring our ruling
on such debatable question for a better occasion, inasmuch as the determination thereof is
not absolutely necessary for the solution of the problem involved in this case. In his desire to
face the issues squarely, the writer will endeavor, at least as a disgression, to explain and
develop his theory, not as a lucubration of the Court, but of his own, for he deems it better
and convenient to go over the cycle of reasons that are linked to one another and that step
by step lead Us to conclude as We do in the dispositive part of this decision.
It will be noticed that Section 1 of Article XIII of the Constitution provides, among other
things, that "all agricultural lands of the public domain and their disposition shall be limited
to citizens of the Philippines or to corporations at least 60 per centum of the capital of which

is owned by such citizens, SUBJECT TO ANY EXISTING RIGHT AT THE TIME OF THE
INAUGURATION OF THE GOVERNMENT ESTABLISHED UNDER THIS CONSTITUTION."
As recounted by Mr. Justice Laurel in the aforementioned case of Gold Creek Mining
Corporation vs. Rodriguez et al., 66 Phil. 259, "this recognition (in the clause already
quoted), is not mere graciousness but springs from the just character of the government
established. The farmers of the Constitution were not obscured by the rhetoric of
democracy or swayed to hostility by an intense spirit of nationalism. They well knew that
conservation of our natural resources did not mean destruction or annihilation of ACQUIRED
PROPERTY RIGHTS".
But respondents' counsel may argue that the preexisting right of acquisition of public or
private lands by a corporation which does not fulfill this 60 per cent requisite, refers to
purchases of the Constitution and not to later transactions. This argument would imply that
even assuming that petitioner had at the time of the enactment of the Constitution the right
to purchase real property or right could not be exercised after the effectivity of our
Constitution, because said power or right of corporations sole, like the herein petitioner,
conferred in virtue of the aforequoted provisions of the Corporation Law, could no longer be
exercised in view of the requisite therein prescribed that at least 60 per centum of the
capital of the corporation had to be Filipino. It has been shown before that: (1) the
corporation sole, unlike the ordinary corporations which are formed by no less than 5
incorporators, is composed of only one persons, usually the head or bishop of the diocese, a
unit which is not subject to expansion for the purpose of determining any percentage
whatsoever; (2) the corporation sole is only the administrator and not the owner of the
temporalities located in the territory comprised by said corporation sole; (3) such
temporalities are administered for and on behalf of the faithful residing in the diocese or
territory of the corporation sole; and (4) the latter, as such, has no nationality and the
citizenship of the incumbent Ordinary has nothing to do with the operation, management or
administration of the corporation sole, nor effects the citizenship of the faithful connected
with their respective dioceses or corporation sole.
In view of these peculiarities of the corporation sole, it would seem obvious that when the
specific provision of the Constitution invoked by respondent Commissioner (section 1, Art.
XIII), was under consideration, the framers of the same did not have in mind or overlooked
this particular form of corporation. If this were so, as the facts and circumstances already
indicated tend to prove it to be so, then the inescapable conclusion would be that this
requirement of at least 60 per cent of Filipino capital was never intended to apply to
corporations sole, and the existence or not a vested right becomes unquestionably
immaterial.
But let us assumed that the questioned proviso is material. yet We might say that a reading
of said Section 1 will show that it does not refer to any actual acquisition of land up to
the right, qualification or power to acquire and hold private real property. The population of
the Philippines, Catholic to a high percentage, is ever increasing. In the practice of religion
of their faithful the corporation sole may be in need of more temples where to pray, more
schools where the children of the congregation could be taught in the principles of their
religion, more hospitals where their sick could be treated, more hallow or consecrated

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

Being aware of the transcendental and far-reaching effects that Our ruling on the matter
might have, this case was thoroughly considered from all points of view, the Court sparing
no effort to solve the delicate problems involved herein.
At the deliberations had to attain this end, two ways were open to a prompt dispatch of the
case: (1) the reversal of the doctrine We laid down in the celebrated Krivenko case by
excluding urban lots and properties from the group of the term "private agricultural lands"
use in this section 5, Article XIII of the Constitution; and (2) by driving Our reasons to a point
that might indirectly cause the appointment of Filipino bishops or Ordinary to head the
corporations sole created to administer the temporalities of the Roman Catholic Church in
the Philippines. With regard to the first way, a great majority of the members of this Court
were not yet prepared nor agreeable to follow that course, for reasons that are obvious. As
to the second way, it seems to be misleading because the nationality of the head of a
diocese constituted as a corporation sole has no material bearing on the functions of the
latter, which are limited to the administration of the temporalities of the Roman Catholic
Apostolic Church in the Philippines.
Upon going over the grounds on which the dissenting opinion is based, it may be noticed
that its author lingered on the outskirts of the issues, thus throwing the main points in
controversy out of focus. Of course We fully agree, as stated by Professor Aruego, that the
framers of our Constitution had at heart to insure the conservation of the natural resources
of Our motherland of Filipino posterity; to serve them as an instrument of national defense,
helping prevent the extension into the country of foreign control through peaceful economic
penetration; and to prevent making the Philippines a source of international conflicts with
the consequent danger to its internal security and independence. But all these precautions
adopted by the Delegates to Our Constitutional Assembly could have not been intended for
or directed against cases like the one at bar. The emphasis and wonderings on the
statement that once the capacity of a corporation sole to acquire private agricultural lands
is admitted there will be no limit to the areas that it may hold and that this will pave the way
for the "revival or revitalization of religious landholdings that proved so troublesome in our
past", cannot even furnish the "penumbra" of a threat to the future of the Filipino people. In
the first place, the right of Filipino citizens, including those of foreign extraction, and
Philippine corporations, to acquire private lands is not subject to any restriction or limit as to
quantity or area, and We certainly do not see any wrong in that. The right of Filipino citizens
and corporations to acquire public agricultural lands is already limited by law. In the second
place, corporations sole cannot be considered as aliens because they have no nationality at
all. Corporations sole are, under the law, mere administrators of the temporalities of the
Roman Catholic Church in the Philippines. In the third place, every corporation, be it
aggregate or sole, is only entitled to purchase, convey, sell, lease, let, mortgage, encumber
and otherwise deal with real properties when it is pursuant to or in consonance with the
purposes for which the corporation was formed, and when the transactions of the lawful
business of the corporation reasonably and necessarily require such dealing section 13(5) of the Corporation Law, Public Act No. 1459 and considering these provisions in
conjunction with Section 159 of the same law which provides that a corporation sole may
only "purchase and hold real estate and personal properties for its church, charitable,
benevolent or educational purposes", the above mentioned fear of revitalization of religious
landholdings in the Philippines is absolutely dispelled. The fact that the law
thus expressly authorizes the corporations sole to receive bequests or gifts of real

properties (which were the main source that the friars had to acquire their big haciendas
during the Spanish regime), is a clear indication that the requisite that bequests or gifts of
real estate be for charitable, benevolent, or educational purposes, was, in the opinion of the
legislators, considered sufficient and adequate protection against the revitalization of
religious landholdings.
Finally, and as previously stated, We have reason to believe that when the Delegates to the
Constitutional Convention drafted and approved Article XIII of the Constitution they do not
have in mind the corporation sole. We come to this finding because the Constitutional
Assembly, composed as it was by a great number of eminent lawyers and jurists, was like
any other legislative body empowered to enact either the Constitution of the country or any
public statute, presumed to know the conditions existing as to particular subject matter
when it enacted a statute (Board of Commerce of Orange Country vs. Bain, 92 S.E. 176; N.
C. 377).
Immemorial customs are presumed to have been always in the mind of the
Legislature in enacting legislation. (In re Kruger's Estate, 121 A. 109; 277 P. 326).
The Legislative is presumed to have a knowledge of the state of the law on the
subjects upon which it legislates. (Clover Valley Land and Stock Co. vs. Lamb et al.,
187, p. 723,726.)
The Court in construing a statute, will assume that the legislature acted with full
knowledge of the prior legislation on the subject and its construction by the courts.
(Johns vs. Town of Sheridan, 89 N. E. 899, 44 Ind. App. 620.).
The Legislature is presumed to have been familiar with the subject with which it
was dealing . . . . (Landers vs. Commonwealth, 101 S. E. 778, 781.).
The Legislature is presumed to know principles of statutory construction. (People
vs. Lowell, 230 N. W. 202, 250 Mich. 349, followed in P. vs. Woodworth, 230 N.W.
211, 250 Mich. 436.).
It is not to be presumed that a provision was inserted in a constitution or statute
without reason, or that a result was intended inconsistent with the judgment of
men of common sense guided by reason" (Mitchell vs. Lawden, 123 N.E. 566, 288
Ill. 326.) See City of Decatur vs. German, 142 N. E. 252, 310 Ill. 591, and may other
authorities that can be cited in support hereof.
Consequently, the Constitutional Assembly must have known:
1. That a corporation sole is organized by and composed of a single individual, the
head of any religious society or church operating within the zone, area or
jurisdiction covered by said corporation sole (Article 155, Public Act No. 1459);

2. That a corporation sole is a non-stock corporation;


3. That the Ordinary ( the corporation sole proper) does not own the temporalities
which he merely administers;
4. That under the law the nationality of said Ordinary or of any administrator has
absolutely no bearing on the nationality of the person desiring to acquire real
property in the Philippines by purchase or other lawful means other than by
hereditary succession, who according to the Constitution must be a Filipino
(sections 1 and 5, Article XIII).
5. That section 159 of the Corporation Law expressly authorized the corporation
sole to purchase and holdreal estate for its church, charitable, benevolent or
educational purposes, and to receive bequests or giftsfor such purposes;
6. That in approving our Magna Carta the Delegates to the Constitutional
Convention, almost all of whom were Roman Catholics, could not have intended to
curtail the propagation of the Roman Catholic faith or the expansion of the
activities of their church, knowing pretty well that with the growth of our population
more places of worship, more schools where our youth could be taught and trained;
more hallow grounds where to bury our dead would be needed in the course of
time.
Long before the enactment of our Constitution the law authorized the corporations sole even
to receive bequests or gifts of real estates and this Court could not, without any clear and
specific provision of the Constitution, declare that any real property donated, let as say this
year, could no longer be registered in the name of the corporation sole to which it was
conveyed. That would be an absurdity that should not receive our sanction on the pretext
that corporations sole which have no nationality and are non-stock corporations composed
of only one person in the capacity of administrator, have to establish first that at least sixty
per centum of their capital belong to Filipino citizens. The new Civil Code even provides:
ART. 10. In case of doubt in the interpretation or application of laws, it is
presumed that the lawmaking body intended right and justice to prevail.
Moreover, under the laws of the Philippines, the administrator of the properties of a Filipino
can acquire, in the name of the latter, private lands without any limitation whatsoever, and
that is so because the properties thus acquired are not for and would not belong to the
administrator but to the Filipino whom he represents. But the dissenting Justice inquires: If
the Ordinary is only the administrator, for whom does he administer? And who can alter or
overrule his acts? We will forthwith proceed to answer these questions. The corporations
sole by reason of their peculiar constitution and form of operation have no designed owner
of its temporalities, although by the terms of the law it can be safely implied that the
Ordinary holds them in trust for the benefit of the Roman Catholic faithful to their respective
locality or diocese. Borrowing the very words of the law, We may say that the temporalities
of every corporation sole are held in trust for the use, purpose, behalf and benefit of the

religious society, or order so incorporated or of the church to which the diocese, synod, or
district organization is an organized and constituent part (section 163 of the Corporation
Law).
In connection with the powers of the Ordinary over the temporalities of the corporation sole,
let us see now what is the meaning and scope of the word "control". According to the
Merriam-Webster's New International Dictionary, 2nd ed., p. 580, on of the acceptations of
the word "control" is:
4. To exercise restraining or directing influence over; to dominate; regulate; hence,
to hold from action; to curb; subject; also, Obs. to overpower.
SYN: restrain, rule, govern, guide, direct; check, subdue.
It is true that under section 159 of the Corporation Law, the intervention of the courts is not
necessary, tomortgage or sell real property held by the corporation sole where the rules,
regulations and discipline of the religious denomination, society or church concerned
presented by such corporation sole regulates the methods of acquiring, holding, selling and
mortgaging real estate, and that the Roman Catholic faithful residing in the jurisdiction of
the corporation sole has no say either in the manner of acquiring or of selling real property.
It may be also admitted that the faithful of the diocese cannot govern or overrule the acts of
the Ordinary, but all this does not mean that the latter can administer the temporalities of
the corporation sole without check or restraint. We must not forget that when a corporation
sole is incorporated under Philippine laws, the head and only member thereof subjects
himself to the jurisdiction of the Philippine courts of justice and these tribunals can thus
entertain grievances arising out of or with respect to the temporalities of the church which
came into the possession of the corporation sole as administrator. It may be alleged that the
courts cannot intervene as to the matters of doctrine or teachings of the Roman Catholic
Church. That is correct, but the courts may step in, at the instance of the faithful for whom
the temporalities are being held in trust, to check undue exercise by the corporation sole of
its power as administrator to insure that they are used for the purpose or purposes for which
the corporation sole was created.
American authorities have these to say:
It has been held that the courts have jurisdiction over an action brought by persons
claiming to be members of a church, who allege a wrongful and fraudulent
diversion of the church property to uses foreign to the purposes of the church,
since no ecclesiastical question is involved and equity will protect from wrongful
diversion of the property (Hendryx vs. Peoples United Church, 42 Wash. 336, 4
L.R.A. n.s. 1154).
The courts of the State have no general jurisdiction and control over the officers of
such corporations in respect to the performance of their official duties; but as in
respect to the property which they hold for the corporation, they stand in position
of TRUSTEES and the courts may exercise the same supervision as in other cases

of trust (Ramsey vs. Hicks, 174 Ind. 428, 91 N.E. 344, 92 N.E. 164, 30 L.R.A. n.s.
665; Hendryx vs. Peoples United Church, supra.).

ignored in describing the essentials of the process (Rottschaeffer on Constitutional


Law, 1939 ed., p. 18-19).

Courts of the state do not interfere with the administration of church rules or
discipline unless civil rights become involved and which must be protected (Morris
St., Baptist Church vs. Dart, 67 S.C. 338, 45 S.E. 753, and others). (All cited in Vol.
II, Cooley's Constitutional Limitations, p. 960-964.).

There are times that when even the literal expression of legislation may be
inconsistent with the general objectives of policy behind it, and on the basis of
equity or spirit of the statute the courts rationalize a restricted meaning of the
latter. A restricted interpretation is usually applied where the effect of literal
interpretation will make for injustice and absurdity or, in the words of one court, the
language must be so unreasonable 'as to shock general common sense'. (Vol. 3,
Sutherland on Statutory Construction, 3rd ed., 150.).

If the Constitutional Assembly was aware of all the facts above enumerated and of the
provisions of law relative to existing conditions as to management and operation of
corporations sole in the Philippines, and if, on the other hand, almost all of the Delegates
thereto embraced the Roman Catholic faith, can it be imagined even for an instant that
when Article XIII of the Constitution was approved the framers thereof intended to prevent
or curtail from then on the acquisition sole, either by purchase or donation, of real properties
that they might need for the propagation of the faith and for there religious and Christian
activities such as the moral education of the youth, the care, attention and treatment of the
sick and the burial of the dead of the Roman Catholic faithful residing in the jurisdiction of
the respective corporations sole? The mere indulgence in said thought would impress upon
Us a feeling of apprehension and absurdity. And that is precisely the leit motiv that
permeates the whole fabric of the dissenting opinion.
It seems from the foregoing that the main problem We are confronted with in this appeal,
hinges around the necessity of a proper and adequate interpretation of sections 1 and 5 of
Article XIII of the Constitution. Let Us then be guided by the principles of statutory
construction laid down by the authorities on the matter:
The most important single factor in determining the intention of the people from
whom the constitution emanated is the language in which it is expressed. The
words employed are to be taken in their natural sense, except that legal or
technical terms are to be given their technical meaning. The imperfections of
language as a vehicle for conveying meanings result in ambiguities that must be
resolved by result to extraneous aids for discovering the intent of the framers.
Among the more important of these are a consideration of the history of the times
when the provision was adopted and of the purposes aimed at in its adoption. The
debates of constitutional convention, contemporaneous construction, and practical
construction by the legislative and executive departments, especially if long
continued, may be resorted to resolve, but not to create,
ambiguities. . . . Consideration of the consequences flowing from alternative
constructions of doubtful provisions constitutes an important interpretative
device. . . . The purposes of many of the broadly phrased constitutional limitations
were the promotion of policies that do not lend themselves to definite and specific
formulation. The courts have had to define those policies and have often drawn on
natural law and natural rights theories in doing so. The interpretation of
constitutions tends to respond to changing conceptions of political and social
values. The extent to which these extraneous aids affect the judicial construction of
constitutions cannot be formulated in precise rules, but their influence cannot be

A constitution is not intended to be a limitation on the development of a country


nor an obstruction to its progress and foreign relations (Moscow Fire Ins. Co. of
Moscow, Russia vs. Bank of New York and Trust Co., 294 N. Y. S.648; 56 N.E. 2d.
745, 293 N.Y. 749).
Although the meaning or principles of a constitution remain fixed and unchanged
from the time of its adoption, a constitution must be construed as if intended to
stand for a great length of time, and it is progressive and not static. Accordingly, it
should not receive too narrow or literal an interpretation but rather the meaning
given it should be applied in such manner as to meet new or changed conditions as
they arise (U.S. vs. Lassic, 313 U.S. 299, 85 L. Ed., 1368).
Effect should be given to the purpose indicated by a fair interpretation of the
language used and that construction which effectuates, rather than that which
destroys a plain intent or purpose of a constitutional provision, is not only favored
but will be adopted (State ex rel. Randolph Country vs. Walden, 206 S.W. 2d 979).
It is quite generally held that in arriving at the intent and purpose the construction
should be broad or liberal or equitable, as the better method of ascertaining that
intent, rather than technical (Great Southern Life Ins. Co. vs. City of Austin, 243
S.W. 778).
All these authorities uphold our conviction that the framers of the Constitution had not in
mind the corporations sole, nor intended to apply them the provisions of section 1 and 5 of
said Article XIII when they passed and approved the same. And if it were so as We think it is,
herein petitioner, the Roman Catholic Apostolic Administrator of Davao, Inc., could not be
deprived of the right to acquire by purchase or donation real properties for charitable,
benevolent and educational purposes, nor of the right to register the same in its name with
the Register of Deeds of Davao, an indispensable requisite prescribed by the Land
Registration Act for lands covered by the Torrens system.
We leave as the last theme for discussion the much debated question above referred to as
"the vested right saving clause" contained in section 1, Article XIII of the Constitution. The
dissenting Justice hurls upon the personal opinion expressed on the matter by the writer of
the decision the most pointed darts of his severe criticism. We think, however, that this

strong dissent should have been spared, because as clearly indicated before, some
members of this Court either did not agree with the theory of the writer or were not ready to
take a definite stand on that particular point, so that there being no majority opinion thereon
there was no need of any dissension therefrom. But as the criticism has been made the
writer deems it necessary to say a few words of explanation.
The writer fully agrees with the dissenting Justice that ordinarily "a capacity to acquire
(property) in futuro, is not in itself a vested or existing property right that the Constitution
protects from impairment. For a property right to be vested (or acquired) there must be a
transition from the potential or contingent to the actual, and the proprietary interest must
have attached to a thing; it must have become 'fixed and established'" (Balboa vs. Farrales,
51 Phil. 498). But the case at bar has to be considered as an exception to the rule because
among the rights granted by section 159 of the Corporation Law was the right to receive
bequests or gifts of real properties for charitable, benevolent and educational purposes. And
this right to receive such bequests or gifts (which implies donations in futuro), is not a mere
potentiality that could be impaired without any specific provision in the Constitution to that
effect, especially when the impairment would disturbingly affect the propagation of the
religious faith of the immense majority of the Filipino people and the curtailment of the
activities of their Church. That is why the writer gave us a basis of his contention what
Professor Aruego said in his book "The Framing of the Philippine Constitution" and the
enlightening opinion of Mr. Justice Jose P. Laurel, another Delegate to the Constitutional
Convention, in his concurring opinion in the case of Goldcreek Mining Co. vs. Eulogio
Rodriguez et al., 66 Phil. 259. Anyway the majority of the Court did not deem necessary to
pass upon said "vested right saving clause" for the final determination of this case.

vs.
JUDGE CANDIDO P. VILLANUEVA, of the Court of First Instance of Bulacan, Malolos
Branch VII, and IGLESIA NI CRISTO, as a corporation sole, represented by ERAO
G. MANALO, as Executive Minister,respondents-appellees.

AQUINO, J.:
Like L-49623, Manila Electric Company vs. Judge Castro-Bartolome, this case involves the
prohibition in section 11, Article XIV of the Constitution that "no private corporation or
association may hold alienable lands of the public domain except by lease not to exceed one
thousand hectares in area".
Lots Nos. 568 and 569, located at Barrio Dampol, Plaridel, Bulacan, with an area of 313
square meters and an assessed value of P1,350 were acquired by the Iglesia Ni Cristo on
January 9, 1953 from Andres Perez in exchange for a lot with an area of 247 square meters
owned by the said church (Exh. D).
The said lots were already possessed by Perez in 1933. They are not included in any military
reservation. They are inside an area which was certified as alienable or disposable by the
Bureau of Forestry in 1927. The lots are planted to santol and mango trees and banana
plants. A chapel exists on the said land. The land had been declared for realty tax purposes.
Realty taxes had been paid therefor (Exh. N).

JUDGMENT
Wherefore, the resolution of the respondent Land Registration Commission of September 21,
1954, holding that in view of the provisions of sections 1 and 5 of Article XIII of the Philippine
Constitution the vendee (petitioner) is not qualified to acquire lands in the Philippines in the
absence of proof that at least 60 per centum of the capital, properties or assets of the
Roman Catholic Apostolic Administrator of Davao, Inc. is actually owned or controlled by
Filipino citizens, and denying the registration of the deed of sale in the absence of proof of
compliance with such requisite, is hereby reversed. Consequently, the respondent Register
of Deeds of the City of Davao is ordered to register the deed of sale executed by Mateo L.
Rodis in favor of the Roman Catholic Apostolic Administrator of Davao, Inc., which is the
subject of the present litigation. No pronouncement is made as to costs. It is so ordered.

On September 13, 1977, the Iglesia Ni Cristo, a corporation sole, duly existing under
Philippine laws, filed with the Court of First Instance of Bulacan an application for the
registration of the two lots. It alleged that it and its predecessors-in-interest had possessed
the land for more than thirty years. It invoked section 48(b) of the Public Land Law, which
provides:
Chapter VIII.Judicial confirmation of imperfect or incomplete titles.
xxx xxx xxx
SEC. 48. The following-described citizens of the Philippines, occupying
lands of the public domain or claiming to own any such lands or an
interest therein, but whose titles have not been perfected or completed,
may apply to the Court of First Instance of the province where the land is
located for confirmation of their claims and the issuance of a certificate of
title therefore, under the Land Register Act, to wit:

Bautista Angelo and Endencia, JJ., concur.

G.R. No. L-55289 June 29, 1982


xxx xxx xxx
REPUBLIC OF THE PHILIPPINES, represented by the Director of Lands, petitionerappellant,

(b) Those who by themselves or through their predecessors-in-interest


have been in open, continuous, exclusive, and notorious possession and
occupation of agricultural lands of the public domain, under a bona
fide claim of acquisition of ownership, for at least thirty years immediately
preceding the filing of the application for confirmation of title except when
prevented by war or force majeure. These shall be conclusively presumed
to have performed all the conditions essential to a Government grant and
shall be entitled to a certificate of title under the provisions of this
chapter." (As amended by Republic Act No. 1942, approved on June 22,
1957.)
The Republic of the Philippines, through the Direct/r of Lands, opposed the application on
the grounds that applicant, as a private corporation, is disqualified to hold alienable lands of
the public domain, that the land applied for is public land not susceptible of private
appropriation and that the applicant and its predecessors-in-interest have not been in the
open, continuous, exclusive and notorious possession of the land since June 12, 1945.
After hearing, the trial court ordered the registration of the two lots, as described in Plan Ap04-001344 (Exh. E), in the name of the Iglesia Ni Cristo, a corporation sole, represented by
Executive Minister Erao G. Manalo, with office at the corner of Central and Don Mariano
Marcos Avenues, Quezon City, From that decision, the Republic of the Philippines appealed
to this Court under Republic Act No. 5440. The appeal should be sustained.
As correctly contended by the Solicitor General, the Iglesia Ni Cristo, as a corporation sole or
a juridical person, is disqualified to acquire or hold alienable lands of the public domain, like
the two lots in question, because of the constitutional prohibition already mentioned and
because the said church is not entitled to avail itself of the benefits of section 48(b) which
applies only to Filipino citizens or natural persons. A corporation sole (an "unhappy freak of
English law") has no nationality (Roman Catholic Apostolic Adm. of Davao, Inc. vs. Land
Registration Commission, 102 Phil. 596. See Register of Deeds vs. Ung Siu Si Temple, 97
Phil. 58 and sec. 49 of the Public Land Law).

In Uy Un vs. Perez, 71 Phil. 508, it was noted that the right of an occupant of public
agricultural land to obtain a confirmation of his title under section 48(b) of the Public Land
Law is a "derecho dominical incoativo"and that before the issuance of the certificate of title
the occupant is not in the juridical sense the true owner of the land since it still pertains to
the State.
The lower court's judgment is reversed and set aside. The application for registration of the
Iglesia Ni Cristo is dismissed with costs against said applicant.
SO ORDERED.

G.R. No. L-12719

May 31, 1962

THE COLLECTOR OF INTERNAL REVENUE, petitioner,


vs.
THE CLUB FILIPINO, INC. DE CEBU, respondent.
Office of the Solicitor General for petitioner.
V. Jaime and L. E. Petilla for respondent.
PAREDES, J.:
This is a petition to review the decision of the Court of Tax Appeals, reversing the decision of
the Collector of Internal Revenue, assessing against and demanding from the "Club Filipino,
Inc. de Cebu", the sum of P12,068.84 as fixed and percentage taxes, surcharge and
compromise penalty, allegedly due from it as a keeper of bar and restaurant.

The contention in the comments of the Iglesia Ni Cristo (its lawyer did not file any brief) that
the two lots are private lands, following the rule laid down in Susi vs. Razon and Director of
Lands, 48 Phil. 424, is not correct. What was considered private land in the Susi case was a
parcel of land possessed by a Filipino citizen since time immemorial, as in Cario vs. Insular
Government, 212 U.S. 449, 53 L. ed. 594, 41 Phil. 935 and 7 Phil. 132. The lots sought to be
registered in this case do not fall within that category. They are still public lands. A land
registration proceeding under section 48(b) "presupposes that the land is public" (Mindanao
vs. Director of Lands, L-19535, July 10, 1967, 20 SCRA 641, 644).

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

As held in Oh Cho vs. Director of Lands, 75 Phil. 890, "all lands that were not acquired from
the Government, either by purchase or by grant, belong to the public domain. An exception
to the rule would be any land that should have been in the possession of an occupant and of
his predecessors-in-interest since time immemorial, for such possession would justify the
presumption that the land had never been part of the public domain or that it had been a
private property even before the Spanish conquest. "

The Club owns and operates a club house, a bowling alley, a golf course (on a lot leased
from the government), and a bar-restaurant where it sells wines and liquors, soft drinks,
meals and short orders to its members and their guests. The bar-restaurant was a necessary
incident to the operation of the club and its golf-course. The club is operated mainly with
funds derived from membership fees and dues. Whatever profits it had, were used to defray

its overhead expenses and to improve its golf-course. In 1951. as a result of a capital
surplus, arising from the re-valuation of its real properties, the value or price of which
increased, the Club declared stock dividends; but no actual cash dividends were distributed
to the stockholders. In 1952, a BIR agent discovered that the Club has never paid
percentage tax on the gross receipts of its bar and restaurant, although it secured B-4, B9(a) and B-7 licenses. In a letter dated December 22, 1852, the Collector of Internal
Revenue assessed against and demanded from the Club, the following sums:

and members; that upon its dissolution, its remaining assets, after paying debts, shall be
donated to a charitable Philippine Institution in Cebu; that it is operated mainly with funds
derived from membership fees and dues; that the Club's bar and restaurant catered only to
its members and their guests; that there was in fact no cash dividend distribution to its
stockholders and that whatever was derived on retail from its bar and restaurant was used
to defray its overall overhead expenses and to improve its golf-course (cost-plus-expensesbasis), it stands to reason that the Club is not engaged in the business of an operator of bar
and restaurant (same authorities, cited above).

As percentage tax on its gross receipts


during the tax years 1946 to 1951

It is conceded that the Club derived profit from the operation of its bar and restaurant, but
P9,599.07
such fact does not necessarily convert it into a profit-making enterprise. The bar and
restaurant are necessary adjuncts of the Club to foster its purposes and the profits derived
Surcharge therein
2,399.77
therefrom are necessarily incidental to the primary object of developing and cultivating
As fixed tax for the years 1946 to 1952
sports for the healthful recreation and entertainment of the stockholders and members. That
a Club makes some profit, does not make it a profit-making Club. As has been remarked a
Compromise penalty
500.00
club should always strive, whenever possible, to have surplus (Jesus Sacred Heart College v.
Collector of Int. Rev., G.R. No. L-6807, May 24, 1954; Collector of Int. Rev. v. Sinco
Educational Corp., G.R. No. L-9276, Oct. 23, 1956).1wph1.t
The Club wrote the Collector, requesting for the cancellation of the assessment. The request
having been denied, the Club filed the instant petition for review.
It is claimed that unlike the two cases just cited (supra), which are non-stock, the appellee
Club is a stock corporation. This is unmeritorious. The facts that the capital stock of the
The dominant issues involved in this case are twofold:
respondent Club is divided into shares, does not detract from the finding of the trial court
that it is not engaged in the business of operator of bar and restaurant. What is
determinative of whether or not the Club is engaged in such business is its object or
1. Whether the respondent Club is liable for the payment of the sum of 12,068.84, as fixed
purpose, as stated in its articles and by-laws. It is a familiar rule that the actual purpose is
and percentage taxes and surcharges prescribed in sections 182, 183 and 191 of the Tax
not controlled by the corporate form or by the commercial aspect of the business
Code, under which the assessment was made, in connection with the operation of its bar
prosecuted, but may be shown by extrinsic evidence, including the by-laws and the method
and restaurant, during the periods mentioned above; and
of operation. From the extrinsic evidence adduced, the Tax Court concluded that the Club is
not engaged in the business as a barkeeper and restaurateur.
2. Whether it is liable for the payment of the sum of P500.00 as compromise penalty.
Section 182, of the Tax Code states, "Unless otherwise provided, every person engaging in a
business on which the percentage tax is imposed shall pay in full a fixed annual tax of ten
pesos for each calendar year or fraction thereof in which such person shall engage in said
business." Section 183 provides in general that "the percentage taxes on business shall be
payable at the end of each calendar quarter in the amount lawfully due on the business
transacted during each quarter; etc." And section 191, same Tax Code, provides "Percentage
tax . . . Keepers of restaurants, refreshment parlors and other eating places shall pay a tax
three per centum, and keepers of bar and cafes where wines or liquors are served five per
centum of their gross receipts . . .". It has been held that the liability for fixed and
percentage taxes, as provided by these sections, does not ipso factoattach by mere reason
of the operation of a bar and restaurant. For the liability to attach, the operator thereof must
be engaged in the business as a barkeeper and restaurateur. The plain and ordinary
meaning of business is restricted to activities or affairs where profit is the purpose or
livelihood is the motive, and the term business when used without qualification, should be
construed in its plain and ordinary meaning, restricted to activities for profitor livelihood
(The Coll. of Int. Rev. v. Manila Lodge No. 761 of the BPOE [Manila Elks Club] & Court of Tax
Appeals, G.R. No. L-11176, June 29, 1959, giving full definitions of the word "business"; Coll.
of Int. Rev. v. Sweeney, et al. [International Club of Iloilo, Inc.], G.R. No. L-12178, Aug. 21,
1959, the facts of which are similar to the ones at bar; Manila Polo Club v. B. L. Meer, etc.,
No. L-10854, Jan. 27, 1960).
Having found as a fact that the Club was organized to develop and cultivate sports of all
class and denomination, for the healthful recreation and entertainment of its stockholders

Moreover, for a stock corporation to exist, two requisites must be complied with, to wit: (1) a
capital stock divided into shares and (2) an authority to distribute to the holders of such
shares, dividends or allotments of the surplus profits on the basis of the shares held (sec. 3,
Act No. 1459). In the case at bar, nowhere in its articles of incorporation or by-laws could be
found an authority for the distribution of its dividends or surplus profits. Strictly speaking, it
cannot, therefore, be considered a stock corporation, within the contemplation of the
corporation law.
A tax is a burden, and, as such, it should not be deemed imposed upon fraternal, civic, nonprofit, nonstock organizations, unless the intent to the contrary is manifest and patent"
(Collector v. BPOE Elks Club, et al., supra), which is not the case in the present appeal.
Having arrived at the conclusion that respondent Club is not engaged in the business as an
operator of a bar and restaurant, and therefore, not liable for fixed and percentage taxes, it
follows that it is not liable for any penalty, much less of a compromise penalty.
WHEREFORE, the decision appealed from is affirmed without costs.

G.R. No. 91889 August 27, 1993


MANUEL R. DULAY ENTERPRISES, INC., VIRGILIO E. DULAY AND NEPOMUCENO
REDOVAN, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, EDGARDO D. PABALAN, MANUEL A. TORRES,
JR., MARIA THERESA V. VELOSO AND CASTRENSE C. VELOSO, respondents.
NOCON, J.:
This is a petition for review on certiorari to annul and set aside the decision 1 of the Court of
Appeals affirming the decision 2 of the Regional Trial Court of Pasay, Branch 114 Civil Cases
Nos. 8198-P, and 2880-P, the dispositive portion of which reads, as follows:
Wherefore, in view of all the foregoing considerations, in this Court hereby
renders judgment, as follows:
In Civil Case No. 2880-P, the petition filed by Manuel R. Dulay Enterprises,
Inc. and Virgilio E. Dulay for annulment or declaration of nullity of the
decision of the Metropolitan Trial Court, Branch 46, Pasay City, in its Civil

Case No. 38-81 entitled "Edgardo D. Pabalan, et al., vs. Spouses Florentino
Manalastas, et al.," is dismissed for lack of merits;
In Civil Case No. 8278-P, the complaint filed by Manuel R. Dulay
Enterprises, Inc. for cancellation of title of Manuel A. Torres, Jr. (TCT No.
24799 of the Register of Deeds of Pasay City) and reconveyance, is
dismissed for lack or merit, and,
In Civil Case No. 8198-P, defendants Manuel R. Dulay Enterprises, Inc. and
Virgilio E. Dulay are ordered to surrender and deliver possession of the
parcel of land, together with all the improvements thereon, described in
Transfer Certificate of Title No. 24799 of the Register of Deeds of Pasay
City, in favor of therein plaintiffs Manuel A. Torres, Jr. as owner and
Edgardo D. Pabalan as real estate administrator of said Manuel A. Torres,
Jr.; to account for and return to said plaintiffs the rentals from dwelling unit
No. 8-A of the apartment building (Dulay Apartment) from June 1980 up to
the present, to indemnify plaintiffs, jointly and severally, expenses of
litigation in the amount of P4,000.00 and attorney's fees in the sum of
P6,000.00, for all the three (3) cases. Co-defendant Nepomuceno Redovan
is ordered to pay the current and subsequent rentals on the premises
leased by him to plaintiffs.
The counterclaim of defendants Virgilio E. Dulay and Manuel R. Dulay
Enterprises, Inc. and N. Redovan, dismissed for lack of merit. With costs
against the three (3) aforenamed defendants. 3
The facts as found by the trial court are as follows:
Petitioner Manuel R. Dulay Enterprises, Inc, a domestic corporation with the following as
members of its Board of Directors: Manuel R. Dulay with 19,960 shares and designated as
president, treasurer and general manager, Atty. Virgilio E. Dulay with 10 shares and
designated as vice-president; Linda E. Dulay with 10 shares; Celia Dulay-Mendoza with 10
shares; and Atty. Plaridel C. Jose with 10 shares and designated as secretary, owned a
property covered by TCT No. 17880 4 and known as Dulay Apartment consisting of sixteen
(16) apartment units on a six hundred eighty-nine (689) square meters lot, more or less,
located at Seventh Street (now Buendia Extension) and F.B. Harrison Street, Pasay City.
Petitioner corporation through its president, Manuel Dulay, obtained various loans for the
construction of its hotel project, Dulay Continental Hotel (now Frederick Hotel). It even had
to borrow money from petitioner Virgilio Dulay to be able to continue the hotel project. As a
result of said loan, petitioner Virgilio Dulay occupied one of the unit apartments of the
subject property since property since 1973 while at the same time managing the Dulay
Apartment at his shareholdings in the corporation was subsequently increased by his
father. 5

On December 23, 1976, Manuel Dulay by virtue of Board Resolution


No 18 6 of petitioner corporation sold the subject property to private respondents spouses
Maria Theresa and Castrense Veloso in the amount of P300,000.00 as evidenced by the
Deed of Absolute Sale. 7 Thereafter, TCT No. 17880 was cancelled and TCT No. 23225 was
issued to private respondent Maria Theresa Veloso. 8 Subsequently, Manuel Dulay and
private respondents spouses Veloso executed a Memorandum to the Deed of Absolute Sale
of December 23, 1976 9 dated December 9, 1977 giving Manuel Dulay within (2) years or
until December 9, 1979 to repurchase the subject property for P200,000.00 which was,
however, not annotated either in TCT No. 17880 or TCT No. 23225.
On December 24, 1976, private respondent Maria Veloso, without the knowledge of Manuel
Dulay, mortgaged the subject property to private respondent Manuel A. Torres for a loan of
P250,000.00 which was duly annotated as Entry No. 68139 in TCT No. 23225. 10
Upon the failure of private respondent Maria Veloso to pay private respondent Torres, the
subject property was sold on April 5, 1978 to private respondent Torres as the highest bidder
in an extrajudicial foreclosure sale as evidenced by the Certificate of Sheriff's Sale 11 issued
on April 20, 1978.
On July 20, 1978, private respondent Maria Veloso executed a Deed of Absolute Assignment
of the Right to Redeem 12 in favor of Manuel Dulay assigning her right to repurchase the
subject property from private respondent Torres as a result of the extra sale held on April 25,
1978.
As neither private respondent Maria Veloso nor her assignee Manuel Dulay was able to
redeem the subject property within the one year statutory period for redemption, private
respondent Torres filed an Affidavit of Consolidation of Ownership 13 with the Registry of
Deeds of Pasay City and TCT No. 24799 14 was subsequently issued to private respondent
Manuel Torres on April 23, 1979.
On October 1, 1979, private respondent Torres filed a petition for the issuance of a writ of
possession against private respondents spouses Veloso and Manuel Dulay in LRC Case No.
1742-P. However, when petitioner Virgilio Dulay was never authorized by the petitioner
corporation to sell or mortgage the subject property, the trial court ordered private
respondent Torres to implead petitioner corporation as an indispensable party but the latter
moved for the dismissal of his petition which was granted in an Order dated April 8, 1980.
On June 20, 1980, private respondent Torres and Edgardo Pabalan, real estate administrator
of Torres, filed an action against petitioner corporation, Virgilio Dulay and Nepomuceno
Redovan, a tenant of Dulay Apartment Unit No. 8-A for the recovery of possession, sum of
money and damages with preliminary injunction in Civil Case, No. 8198-P with the then
Court of First Instance of Rizal.
On July 21, 1980, petitioner corporation filed an action against private respondents spouses
Veloso and Torres for the cancellation of the Certificate of Sheriff's Sale and TCT No. 24799
in Civil Case No. 8278-P with the then Court of First Instance of Rizal.

On January 29, 1981, private respondents Pabalan and Torres filed an action against spouses
Florentino and Elvira Manalastas, a tenant of Dulay Apartment Unit No. 7-B, with petitioner
corporation as intervenor for ejectment in Civil Case No. 38-81 with the Metropolitan Trial
Court of Pasay City which rendered a decision on April 25, 1985, dispositive portion of which
reads, as follows:
Wherefore, judgment is hereby rendered in favor of the plaintiff (herein
private respondents) and against the defendants:

considering that the sale of the subject property between private respondents spouses
Veloso and Manuel Dulay has no binding effect on petitioner corporation as Board Resolution
No. 18 which authorized the sale of the subject property was resolved without the approval
of all the members of the board of directors and said Board Resolution was prepared by a
person not designated by the corporation to be its secretary.
We do not agree.
Section 101 of the Corporation Code of the Philippines provides:

1. Ordering the defendants and all persons claiming possession under


them to vacate the premises.
2. Ordering the defendants to pay the rents in the sum of P500.000 a
month from May, 1979 until they shall have vacated the premises with
interest at the legal rate;
3. Ordering the defendants to pay attorney's fees in the sum of P2,000.00
and P1,000.00 as other expenses of litigation and for them to pay the
costs of the suit. 15
Thereafter or on May 17, 1985, petitioner corporation and Virgilio Dulay filed an action
against the presiding judge of the Metropolitan Trial Court of Pasay City, private respondents
Pabalan and Torres for the annulment of said decision with the Regional Trial Court of Pasay
in Civil Case No. 2880-P.
Thereafter, the three (3) cases were jointly tried and the trial court rendered a decision in
favor of private respondents.
Not satisfied with said decision, petitioners appealed to the Court of Appeals which rendered
a decision on October 23, 1989, the dispositive portion of which reads, as follows:
PREMISES CONSIDERED, the decision being appealed should be as it is
hereby AFFIRMED in full.16
On November 8, 1989, petitioners filed a Motion for Reconsideration which was denied on
January 26, 1990.
Hence, this petition.
During the pendency of this petition, private respondent Torres died on April 3, 1991 as
shown in his death certificate 17 and named Torres-Pabalan Realty & Development
Corporation as his heir in his holographic will 18 dated October 31, 1986.
Petitioners contend that the respondent court had acted with grave abuse of discretion
when it applied the doctrine of piercing the veil of corporate entity in the instant case

Sec. 101. When board meeting is unnecessary or improperly held. Unless


the by-laws provide otherwise, any action by the directors of a close
corporation without a meeting shall nevertheless be deemed valid if:
1. Before or after such action is taken, written consent thereto is signed by
all the directors, or
2. All the stockholders have actual or implied knowledge of the action and
make no prompt objection thereto in writing; or
3. The directors are accustomed to take informal action with the express
or implied acquiese of all the stockholders, or
4. All the directors have express or implied knowledge of the action in
question and none of them makes prompt objection thereto in writing.
If a directors' meeting is held without call or notice, an action taken
therein within the corporate powers is deemed ratified by a director who
failed to attend, unless he promptly files his written objection with the
secretary of the corporation after having knowledge thereof.
In the instant case, petitioner corporation is classified as a close corporation and
consequently a board resolution authorizing the sale or mortgage of the subject property is
not necessary to bind the corporation for the action of its president. At any rate, corporate
action taken at a board meeting without proper call or notice in a close corporation is
deemed ratified by the absent director unless the latter promptly files his written objection
with the secretary of the corporation after having knowledge of the meeting which, in his
case, petitioner Virgilio Dulay failed to do.
It is relevant to note that although a corporation is an entity which has a personality distinct
and separate from its individual stockholders or members, 19 the veil of corporate fiction
may be pierced when it is used to defeat public convenience justify wrong, protect fraud or
defend crime. 20 The privilege of being treated as an entity distinct and separate from its
stockholder or members is therefore confined to its legitimate uses and is subject to certain
limitations to prevent the commission of fraud or other illegal or unfair act. When the

corporation is used merely as an alter ego or business conduit of a person, the law will
regard the corporation as the act of that person. 21 The Supreme Court had repeatedly
disregarded the separate personality of the corporation where the corporate entity was used
to annul a valid contract executed by one of its members.
Petitioners' claim that the sale of the subject property by its president, Manuel Dulay, to
private respondents spouses Veloso is null and void as the alleged Board Resolution No. 18
was passed without the knowledge and consent of the other members of the board of
directors cannot be sustained. As correctly pointed out by the respondent Court of Appeals:
Appellant Virgilio E. Dulay's protestations of complete innocence to the
effect that he never participated nor was even aware of any meeting or
resolution authorizing the mortgage or sale of the subject premises (see
par. 8, affidavit of Virgilio E. Dulay, dated May 31, 1984, p. 14, Exh. "21")
is difficult to believe. On the contrary, he is very much privy to the
transactions involved. To begin with, he is a incorporator and one of the
board of directors designated at the time of the organization of Manuel R.
Dulay Enterprise, Inc. In ordinary parlance, the said entity is loosely
referred to as a "family corporation". The nomenclature, if imprecise,
however, fairly reflects the cohesiveness of a group and the parochial
instincts of the individual members of such an aggrupation of which
Manuel R. Dulay Enterprises, Inc. is typical: four-fifths of its incorporators
being close relatives namely, three (3) children and their father whose
name identifies their corporation (Articles of Incorporation of Manuel R.
Dulay Enterprises, Inc. Exh. "31-A"). 22
Besides, the fact that petitioner Virgilio Dulay on June 24, 1975 executed an affidavit 23 that
he was a signatory witness to the execution of the post-dated Deed of Absolute Sale of the
subject property in favor of private respondent Torres indicates that he was aware of the
transaction executed between his father and private respondents and had, therefore,
adequate knowledge about the sale of the subject property to private respondents.
Consequently, petitioner corporation is liable for the act of Manuel Dulay and the sale of the
subject property to private respondents by Manuel Dulay is valid and binding. As stated by
the trial court:
. . . the sale between Manuel R. Dulay Enterprises, Inc. and the spouses
Maria Theresa V. Veloso and Castrense C. Veloso, was a corporate act of
the former and not a personal transaction of Manuel R. Dulay. This is so
because Manuel R. Dulay was not only president and treasurer but also the
general manager of the corporation. The corporation was a closed family
corporation and the only non-relative in the board of directors was Atty.
Plaridel C. Jose who appeared on paper as the secretary. There is no
denying the fact, however, that Maria Socorro R. Dulay at times acted as
secretary. . . ., the Court can not lose sight of the fact that the Manuel R.
Dulay Enterprises, Inc. is a closed family corporation where the
incorporators and directors belong to one single family. It cannot be

concealed that Manuel R. Dulay as president, treasurer and general


manager almost had absolute control over the business and affairs of the
corporation. 24
Moreover, the appellate courts will not disturb the findings of the trial judge unless he has
plainly overlooked certain facts of substance and value that, if considered, might affect the
result of the case, 25 which is not present in the instant case.
Petitioners' contention that private respondent Torres never acquired ownership over the
subject property since the latter was never in actual possession of the subject property nor
was the property ever delivered to him is also without merit.
Paragraph 1, Article 1498 of the New Civil Code provides:
When the sale is made through a public instrument, the execution thereof
shall be equivalent to the delivery of the thing which is the object of the
contract, if from the deed the contrary do not appear or cannot clearly be
inferred.
Under the aforementioned article, the mere execution of the deed of sale in a public
document is equivalent to the delivery of the property. Likewise, this Court had held that:
It is settled that the buyer in a foreclosure sale becomes the absolute
owner of the property purchased if it is not redeemed during the period of
one year after the registration of the sale. As such, he is entitled to the
possession of the said property and can demand it at any time following
the consolidation of ownership in his name and the issuance to him of a
new transfer certificate of title. The buyer can in fact demand possession
of the land even during the redemption period except that he has to post a
bond in accordance with Section 7 of Act No. 3133 as amended. No such
bond is required after the redemption period if the property is not
redeemed. Possession of the land then becomes an absolute right of the
purchaser as confirmed owner. 26
Therefore, prior physical delivery or possession is not legally required since the execution of
the Deed of Sale in deemed equivalent to delivery.
Finally, we hold that the respondent appellate court did not err in denying petitioner's
motion for reconsideration despite the fact that private respondents failed to submit their
comment to said motion as required by the respondent appellate court from resolving
petitioners' motion for reconsideration without the comment of the private respondent
which was required merely to aid the court in the disposition of the motion. The courts are
as much interested as the parties in the early disposition of cases before them. To require
otherwise would unnecessarily clog the courts' dockets.

WHEREFORE, the petition is DENIED and the decision appealed from is hereby AFFIRMED.
SO ORDERED.

personally accountable for the amounts of the unauthorized and fraudulent disbursements
and disposition of assets made by him, and that he be required to account for said assets,
and that pending trial and disposition of the case on its merits a receiver be appointed to
take possession of the books, records and assets of the defendant corporation preparatory
to its dissolution and liquidation and distribution of the assets. Over the strong objection of
the defendants, the trial court presided by respondent Judge Jose Teodoro, granted the
petition for the appointment of a receiver and designated Mr. Alfredo Yulo as such receiver
with a bond of P50,000. Failing to secure a reconsideration of the order appointing a
receiver, the defendants in said case, Financing Corporation of the Philippines and J. Amado
Araneta, as petitioners, have filed the present petition for certiorari with preliminary
injunction to revoke and set aside the order. Acting upon that part of the petition asking for
a writ of preliminary injunction, a majority of the court granted the same upon the filing of a
bond by the petitioners in the sum of P50,000.
The main contention of the petitioners in opposing the appointment of a receiver in this case
is that said appointment is merely an auxiliary remedy; that the principal remedy sought by
the respondents in the action in Negros Occidental was the dissolution of the Financing
Corporation of the Philippines; that according to the law a suit for the dissolution of a
corporation can be brought and maintained only by the State through its legal counsel, and
that respondents, much less the minority stockholders of said corporation, have no right or
personality to maintain the action for dissolution, and that inasmuch as said action cannot
be maintained legally by the respondents, then the auxiliary remedy for the appointment of
a receiver has no basis.

G.R. No. L-4900

August 31, 1953

FINANCING CORPORATION OF THE PHILIPPINES and J. AMADO


ARANETA, petitioners,
vs.
HON. JOSE TEODORO, Judge of the Court of First Instance of Negros Occidental,
Branch II, and ENCARNACION LIZARES VDA. DE PANLILIO, (MONTEMAYOR, J.:)
In civil case No. 1924 of the Court of First Instance of Negros Occidental, Asuncion Lopez
Vda. de Lizares, Encarnacion Lizares Vda. de Panlilio and Efigenia Vda. de Paredes, in their
own behalf and in behalf of the other minority stockholders of the Financing Corporation of
the Philippines, filed a complaint against the said corporation and J. Amado Araneta, its
president and general manager, claiming among other things alleged gross mismanagement
and fraudulent conduct of the corporate affairs of the defendant corporation by J. Amado
Araneta, and asking that the corporation be dissolved; that J. Amado Araneta be declared

True it is that the general rule is that the minority stockholders of a corporation cannot sue
and demand its dissolution. However, there are cases that hold that even minority
stockholders may ask for dissolution, this, under the theory that such minority members, if
unable to obtain redress and protection of their rights within the corporation, must not and
should not be left without redress and remedy. This was what probably prompted this Court
to state in the case of Hall, et al. vs. Judge Piccio,* G.R. No. L-2598 (47 Off. Gaz. No. 12
Supp., p. 200) that even the existence of a de jure corporation may be terminated in a
private suit for its dissolution by the stockholders without the intervention of the State. It
was therein further held that although there might be some room for argument on the right
of minority stockholders to ask for dissolution,-that question does not affect the court's
jurisdiction over the case, and that the remedy by the party dissatisfied was to appeal from
the decision of the trial court. We repeat that although as a rule, minority stockholders of a
corporation may not ask for its dissolution in a private suit, and that such action should be
brought by the Government through its legal officer in a quo warranto case, at their instance
and request, there might be exceptional cases wherein the intervention of the State, for one
reason or another, cannot be obtained, as when the State is not interested because the
complaint is strictly a matter between the stockholders and does not involve, in the opinion
of the legal officer of the Government, any of the acts or omissions warranting quo
warranto proceedings, in which minority stockholders are entitled to have such dissolution.
When such action or private suit is brought by them, the trial court had jurisdiction and may
or may not grant the prayer, depending upon the facts and circumstances attending it. The
trial court's decision is of course subject to review by the appellate tribunal. Having such
jurisdiction, the appointment of a receiver pendente lite is left to the sound discretion of the
trial court. As was said in the case of Angeles vs. Santos (64 Phil., 697), the action having

been properly brought and the trial court having entertained the same, it was within the
power of said court upon proper showing to appoint a receiverpendente lite for the
corporation; that although the appointment of a receiver upon application of the minority
stockholders is a power to be exercised with great caution, nevertheless, it should be
exercised necessary in order not to entirely ignore and disregard the rights of said minority
stockholders, especially when said minority stockholders are unable to obtain redress and
protection of their rights within the corporation itself.
In that civil case No. 1924 of Negros Occidental court, allegations of mismanagement and
misconduct by its President and Manager were made, specially in connection with the
petition for the appointment of a receiver. in order to have an idea of the seriousness of said
allegations, we reproduce a pertinent portion of the order of respondent Judge Teodoro
dated June 23, 1951, subject of these certiorari proceedings:
Considering plaintiffs' complaint and verified motion for appointment of a receiver
together, as they have been treated jointly in the opposition of the defendants, the
grounds of the prayer for receivership may be briefly stated to be: (1) imminent
danger of insolvency; (2) fraud and mismanagement, such as, particularly, (a)
wrongful and unauthorized diversion from corporate purposes and use for personal
benefit of defendant Araneta, for the benefit of the corporations under his control
and of which he is majority stockholder and/or for the benefit of his relatives,
personal friends and the political organization to which he is affiliated of
approximately over one and a half million pesos of the funds of the defendant
corporation in the form of uncollected allowances and loans, either without or with
uncollected interest, and either unsecured or insufficiently secured, and sometimes
with a securities appearing in favor of defendant Araneta as if the funds advanced
or loaned were his own; (b) unauthorized and profitless pledging of securities
owned by defendant corporation to secure obligations amounting to P588,645.34 of
another corporation controlled by defendant Araneta; (c) unauthorized and
profitless using of the name of the defendant corporation in the shipping of sugar

belonging to other corporations controlled by defendant Araneta to the benefit of


said corporations in the amount of at least P104,343.36; (d) refusal by defendant
Araneta to endorse to the defendant corporation shares of stock and other
securities belonging to it but which are still in his name; (e) negligent failure to
endorse other shares of stock belonging to defendant corporation but still in the
names of the respective vendors; and (f) illegal and unauthorized transfer and
deposit in the United States of America of 6,426,281 shares of the Atok-Big Wedge
Mining Company; (3) violations of the corporation law and the by-laws of the
corporation such as (a) refusal to allow minority stockholders to examine the books
and records of the corporation; (b) failure to call and hold stockholders' and
directors' meetings; (c) virtual disregard and ignoring of the board of directors by
defendant Araneta who has been and is conducting the affairs of the corporation
under his absolute control and for his personal benefit and for the benefit of the
corporations controlled by him, to the prejudice and in disregard of the rights of the
plaintiffs and other minority stockholders; and (d) irregularity in the keeping and (e)
errors and omissions in the books and failure of the same to reflect the real and
actual transactions of the defendant corporations; (4) failure to achieve the
fundamental purpose of the corporation; (5) if administration, possession and
control of the affairs, books, etc. of defendant corporation are left in the hands of
the defendant Araneta and the present corporate officials, under his power and
influence, the remaining assets of the corporation are in danger of being further
dissipated, wasted or lost and of becoming ultimately unavailable for distribution
among its stockholders; and (6) the best means to protect and preserve the assets
of defendant corporation is the appointment of a receiver.
In conclusion, we hold that the trial court through respondent Judge Teodoro had jurisdiction
and properly entertained the original case; that he also had jurisdiction to appoint a
receiver pendente lite, and considering the allegations made in connection with the petition
for the appointment of a receiver, he neither exceeded his jurisdiction nor abused his
discretion in appointing a receiver. The petition for certiorari is hereby denied, with costs.
The writ of preliminary injunction heretofore issued is hereby ordered dissolved