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Corporation Law (Business Organization II)

G.R. No. L-23145

November 29, 1968

TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased. RENATO D. TAYAG, ancillary administrator-appellee,
vs.
BENGUET CONSOLIDATED, INC., oppositor-appellant.
Cirilo F. Asperillo, Jr., for ancillary administrator-appellee.
Ross, Salcedo, Del Rosario, Bito and Misa for oppositor-appellant.
FERNANDO, J.:
Confronted by an obstinate and adamant refusal of the domiciliary administrator, the County Trust Company of New York, United States
of America, of the estate of the deceased Idonah Slade Perkins, who died in New York City on March 27, 1960, to surrender to the
ancillary administrator in the Philippines the stock certificates owned by her in a Philippine corporation, Benguet Consolidated, Inc., to
satisfy the legitimate claims of local creditors, the lower court, then presided by the Honorable Arsenio Santos, now retired, issued on
May 18, 1964, an order of this tenor: "After considering the motion of the ancillary administrator, dated February 11, 1964, as well as
the opposition filed by the Benguet Consolidated, Inc., the Court hereby (1) considers as lost for all purposes in connection with the
administration and liquidation of the Philippine estate of Idonah Slade Perkins the stock certificates covering the 33,002 shares of stock
standing in her name in the books of the Benguet Consolidated, Inc., (2) orders said certificates cancelled, and (3) directs said
corporation to issue new certificates in lieu thereof, the same to be delivered by said corporation to either the incumbent ancillary
administrator or to the Probate Division of this Court."1
From such an order, an appeal was taken to this Court not by the domiciliary administrator, the County Trust Company of New York, but
by the Philippine corporation, the Benguet Consolidated, Inc. The appeal cannot possibly prosper. The challenged order represents a
response and expresses a policy, to paraphrase Frankfurter, arising out of a specific problem, addressed to the attainment of specific
ends by the use of specific remedies, with full and ample support from legal doctrines of weight and significance.
The facts will explain why. As set forth in the brief of appellant Benguet Consolidated, Inc., Idonah Slade Perkins, who died on March
27, 1960 in New York City, left among others, two stock certificates covering 33,002 shares of appellant, the certificates being in the
possession of the County Trust Company of New York, which as noted, is the domiciliary administrator of the estate of the
deceased.2 Then came this portion of the appellant's brief: "On August 12, 1960, Prospero Sanidad instituted ancillary administration
proceedings in the Court of First Instance of Manila; Lazaro A. Marquez was appointed ancillary administrator, and on January 22,
1963, he was substituted by the appellee Renato D. Tayag. A dispute arose between the domiciary administrator in New York and the
ancillary administrator in the Philippines as to which of them was entitled to the possession of the stock certificates in question. On
January 27, 1964, the Court of First Instance of Manila ordered the domiciliary administrator, County Trust Company, to "produce and
deposit" them with the ancillary administrator or with the Clerk of Court. The domiciliary administrator did not comply with the order, and
on February 11, 1964, the ancillary administrator petitioned the court to "issue an order declaring the certificate or certificates of stocks
covering the 33,002 shares issued in the name of Idonah Slade Perkins by Benguet Consolidated, Inc., be declared [or] considered as
lost."3
It is to be noted further that appellant Benguet Consolidated, Inc. admits that "it is immaterial" as far as it is concerned as to "who is
entitled to the possession of the stock certificates in question; appellant opposed the petition of the ancillary administrator because the
said stock certificates are in existence, they are today in the possession of the domiciliary administrator, the County Trust Company, in
New York, U.S.A...."4
It is its view, therefore, that under the circumstances, the stock certificates cannot be declared or considered as lost. Moreover, it would
allege that there was a failure to observe certain requirements of its by-laws before new stock certificates could be issued. Hence, its
appeal.
As was made clear at the outset of this opinion, the appeal lacks merit. The challenged order constitutes an emphatic affirmation of
judicial authority sought to be emasculated by the wilful conduct of the domiciliary administrator in refusing to accord obedience to a
court decree. How, then, can this order be stigmatized as illegal?
As is true of many problems confronting the judiciary, such a response was called for by the realities of the situation. What cannot be
ignored is that conduct bordering on wilful defiance, if it had not actually reached it, cannot without undue loss of judicial prestige, be

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condoned or tolerated. For the law is not so lacking in flexibility and resourcefulness as to preclude such a solution, the more so as
deeper reflection would make clear its being buttressed by indisputable principles and supported by the strongest policy considerations.
It can truly be said then that the result arrived at upheld and vindicated the honor of the judiciary no less than that of the country.
Through this challenged order, there is thus dispelled the atmosphere of contingent frustration brought about by the persistence of the
domiciliary administrator to hold on to the stock certificates after it had, as admitted, voluntarily submitted itself to the jurisdiction of the
lower court by entering its appearance through counsel on June 27, 1963, and filing a petition for relief from a previous order of March
15, 1963.
Thus did the lower court, in the order now on appeal, impart vitality and effectiveness to what was decreed. For without it, what it had
been decided would be set at naught and nullified. Unless such a blatant disregard by the domiciliary administrator, with residence
abroad, of what was previously ordained by a court order could be thus remedied, it would have entailed, insofar as this matter was
concerned, not a partial but a well-nigh complete paralysis of judicial authority.
1. Appellant Benguet Consolidated, Inc. did not dispute the power of the appellee ancillary administrator to gain control and possession
of all assets of the decedent within the jurisdiction of the Philippines. Nor could it. Such a power is inherent in his duty to settle her
estate and satisfy the claims of local creditors.5 As Justice Tuason speaking for this Court made clear, it is a "general rule universally
recognized" that administration, whether principal or ancillary, certainly "extends to the assets of a decedent found within the state or
country where it was granted," the corollary being "that an administrator appointed in one state or country has no power over property in
another state or country."6
It is to be noted that the scope of the power of the ancillary administrator was, in an earlier case, set forth by Justice Malcolm. Thus: "It
is often necessary to have more than one administration of an estate. When a person dies intestate owning property in the country of
his domicile as well as in a foreign country, administration is had in both countries. That which is granted in the jurisdiction of decedent's
last domicile is termed the principal administration, while any other administration is termed the ancillary administration. The reason for
the latter is because a grant of administration does not ex proprio vigore have any effect beyond the limits of the country in which it is
granted. Hence, an administrator appointed in a foreign state has no authority in the [Philippines]. The ancillary administration is proper,
whenever a person dies, leaving in a country other than that of his last domicile, property to be administered in the nature of assets of
the deceased liable for his individual debts or to be distributed among his heirs."7
It would follow then that the authority of the probate court to require that ancillary administrator's right to "the stock certificates covering
the 33,002 shares ... standing in her name in the books of [appellant] Benguet Consolidated, Inc...." be respected is equally beyond
question. For appellant is a Philippine corporation owing full allegiance and subject to the unrestricted jurisdiction of local courts. Its
shares of stock cannot therefore be considered in any wise as immune from lawful court orders.
Our holding in Wells Fargo Bank and Union v. Collector of Internal Revenue8 finds application. "In the instant case, the actual situs of
the shares of stock is in the Philippines, the corporation being domiciled [here]." To the force of the above undeniable proposition, not
even appellant is insensible. It does not dispute it. Nor could it successfully do so even if it were so minded.
2. In the face of such incontrovertible doctrines that argue in a rather conclusive fashion for the legality of the challenged order, how
does appellant, Benguet Consolidated, Inc. propose to carry the extremely heavy burden of persuasion of precisely demonstrating the
contrary? It would assign as the basic error allegedly committed by the lower court its "considering as lost the stock certificates covering
33,002 shares of Benguet belonging to the deceased Idonah Slade Perkins, ..."9 More specifically, appellant would stress that the
"lower court could not "consider as lost" the stock certificates in question when, as a matter of fact, his Honor the trial Judge knew, and
does know, and it is admitted by the appellee, that the said stock certificates are in existence and are today in the possession of the
domiciliary administrator in New York."10
There may be an element of fiction in the above view of the lower court. That certainly does not suffice to call for the reversal of the
appealed order. Since there is a refusal, persistently adhered to by the domiciliary administrator in New York, to deliver the shares of
stocks of appellant corporation owned by the decedent to the ancillary administrator in the Philippines, there was nothing unreasonable
or arbitrary in considering them as lost and requiring the appellant to issue new certificates in lieu thereof. Thereby, the task incumbent
under the law on the ancillary administrator could be discharged and his responsibility fulfilled.
Any other view would result in the compliance to a valid judicial order being made to depend on the uncontrolled discretion of the party
or entity, in this case domiciled abroad, which thus far has shown the utmost persistence in refusing to yield obedience. Certainly,

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appellant would not be heard to contend in all seriousness that a judicial decree could be treated as a mere scrap of paper, the court
issuing it being powerless to remedy its flagrant disregard.
It may be admitted of course that such alleged loss as found by the lower court did not correspond exactly with the facts. To be more
blunt, the quality of truth may be lacking in such a conclusion arrived at. It is to be remembered however, again to borrow from
Frankfurter, "that fictions which the law may rely upon in the pursuit of legitimate ends have played an important part in its
development."11
Speaking of the common law in its earlier period, Cardozo could state fictions "were devices to advance the ends of justice, [even if]
clumsy and at times offensive."12 Some of them have persisted even to the present, that eminent jurist, noting "the quasi contract, the
adopted child, the constructive trust, all of flourishing vitality, to attest the empire of "as if" today." 13 He likewise noted "a class of fictions
of another order, the fiction which is a working tool of thought, but which at times hides itself from view till reflection and analysis have
brought it to the light."14
What cannot be disputed, therefore, is the at times indispensable role that fictions as such played in the law. There should be then on
the part of the appellant a further refinement in the catholicity of its condemnation of such judicial technique. If ever an occasion did call
for the employment of a legal fiction to put an end to the anomalous situation of a valid judicial order being disregarded with apparent
impunity, this is it. What is thus most obvious is that this particular alleged error does not carry persuasion.
3. Appellant Benguet Consolidated, Inc. would seek to bolster the above contention by its invoking one of the provisions of its by-laws
which would set forth the procedure to be followed in case of a lost, stolen or destroyed stock certificate; it would stress that in the event
of a contest or the pendency of an action regarding ownership of such certificate or certificates of stock allegedly lost, stolen or
destroyed, the issuance of a new certificate or certificates would await the "final decision by [a] court regarding the ownership
[thereof]."15
Such reliance is misplaced. In the first place, there is no such occasion to apply such by-law. It is admitted that the foreign domiciliary
administrator did not appeal from the order now in question. Moreover, there is likewise the express admission of appellant that as far
as it is concerned, "it is immaterial ... who is entitled to the possession of the stock certificates ..." Even if such were not the case, it
would be a legal absurdity to impart to such a provision conclusiveness and finality. Assuming that a contrariety exists between the
above by-law and the command of a court decree, the latter is to be followed.
It is understandable, as Cardozo pointed out, that the Constitution overrides a statute, to which, however, the judiciary must yield
deference, when appropriately invoked and deemed applicable. It would be most highly unorthodox, however, if a corporate by-law
would be accorded such a high estate in the jural order that a court must not only take note of it but yield to its alleged controlling force.
The fear of appellant of a contingent liability with which it could be saddled unless the appealed order be set aside for its inconsistency
with one of its by-laws does not impress us. Its obedience to a lawful court order certainly constitutes a valid defense, assuming that
such apprehension of a possible court action against it could possibly materialize. Thus far, nothing in the circumstances as they have
developed gives substance to such a fear. Gossamer possibilities of a future prejudice to appellant do not suffice to nullify the lawful
exercise of judicial authority.
4. What is more the view adopted by appellant Benguet Consolidated, Inc. is fraught with implications at war with the basic postulates
of corporate theory.
We start with the undeniable premise that, "a corporation is an artificial being created by operation of law...."16 It owes its life to the
state, its birth being purely dependent on its will. As Berle so aptly stated: "Classically, a corporation was conceived as an artificial
person, owing its existence through creation by a sovereign power."17As a matter of fact, the statutory language employed owes much
to Chief Justice Marshall, who in the Dartmouth College decision defined a corporation precisely as "an artificial being, invisible,
intangible, and existing only in contemplation of law."18
The well-known authority Fletcher could summarize the matter thus: "A corporation is not in fact and in reality a person, but the law
treats it as though it were a person by process of fiction, or by regarding it as an artificial person distinct and separate from its individual
stockholders.... It owes its existence to law. It is an artificial person created by law for certain specific purposes, the extent of whose
existence, powers and liberties is fixed by its charter."19 Dean Pound's terse summary, a juristic person, resulting from an association of
human beings granted legal personality by the state, puts the matter neatly.20

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There is thus a rejection of Gierke's genossenchaft theory, the basic theme of which to quote from Friedmann, "is the reality of the
group as a social and legal entity, independent of state recognition and concession."21 A corporation as known to Philippine
jurisprudence is a creature without any existence until it has received the imprimatur of the state according to law. It is logically
inconceivable therefore that it will have rights and privileges of a higher priority than that of its creator. More than that, it cannot
legitimately refuse to yield obedience to acts of its state organs, certainly not excluding the judiciary, whenever called upon to do so.
As a matter of fact, a corporation once it comes into being, following American law still of persuasive authority in our jurisdiction, comes
more often within the ken of the judiciary than the other two coordinate branches. It institutes the appropriate court action to enforce its
right. Correlatively, it is not immune from judicial control in those instances, where a duty under the law as ascertained in an appropriate
legal proceeding is cast upon it.
To assert that it can choose which court order to follow and which to disregard is to confer upon it not autonomy which may be
conceded but license which cannot be tolerated. It is to argue that it may, when so minded, overrule the state, the source of its very
existence; it is to contend that what any of its governmental organs may lawfully require could be ignored at will. So extravagant a claim
cannot possibly merit approval.
5. One last point. In Viloria v. Administrator of Veterans Affairs,22 it was shown that in a guardianship proceedings then pending in a
lower court, the United States Veterans Administration filed a motion for the refund of a certain sum of money paid to the minor under
guardianship, alleging that the lower court had previously granted its petition to consider the deceased father as not entitled to guerilla
benefits according to a determination arrived at by its main office in the United States. The motion was denied. In seeking a
reconsideration of such order, the Administrator relied on an American federal statute making his decisions "final and conclusive on all
questions of law or fact" precluding any other American official to examine the matter anew, "except a judge or judges of the United
States court."23 Reconsideration was denied, and the Administrator appealed.
In an opinion by Justice J.B.L. Reyes, we sustained the lower court. Thus: "We are of the opinion that the appeal should be rejected.
The provisions of the U.S. Code, invoked by the appellant, make the decisions of the U.S. Veterans' Administrator final and conclusive
when made on claims property submitted to him for resolution; but they are not applicable to the present case, where the Administrator
is not acting as a judge but as a litigant. There is a great difference between actions against the Administrator (which must be filed
strictly in accordance with the conditions that are imposed by the Veterans' Act, including the exclusive review by United States courts),
and those actions where the Veterans' Administrator seeks a remedy from our courts and submits to their jurisdiction by filing actions
therein. Our attention has not been called to any law or treaty that would make the findings of the Veterans' Administrator, in actions
where he is a party, conclusive on our courts. That, in effect, would deprive our tribunals of judicial discretion and render them mere
subordinate instrumentalities of the Veterans' Administrator."
It is bad enough as the Viloria decision made patent for our judiciary to accept as final and conclusive, determinations made by foreign
governmental agencies. It is infinitely worse if through the absence of any coercive power by our courts over juridical persons within our
jurisdiction, the force and effectivity of their orders could be made to depend on the whim or caprice of alien entities. It is difficult to
imagine of a situation more offensive to the dignity of the bench or the honor of the country.
Yet that would be the effect, even if unintended, of the proposition to which appellant Benguet Consolidated seems to be firmly
committed as shown by its failure to accept the validity of the order complained of; it seeks its reversal. Certainly we must at all pains
see to it that it does not succeed. The deplorable consequences attendant on appellant prevailing attest to the necessity of negative
response from us. That is what appellant will get.
That is all then that this case presents. It is obvious why the appeal cannot succeed. It is always easy to conjure extreme and even
oppressive possibilities. That is not decisive. It does not settle the issue. What carries weight and conviction is the result arrived at, the
just solution obtained, grounded in the soundest of legal doctrines and distinguished by its correspondence with what a sense of
realism requires. For through the appealed order, the imperative requirement of justice according to law is satisfied and national dignity
and honor maintained.
WHEREFORE, the appealed order of the Honorable Arsenio Santos, the Judge of the Court of First Instance, dated May 18, 1964, is
affirmed. With costs against oppositor-appelant Benguet Consolidated, Inc.

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G.R. No. L-17295

July 30, 1962

ANG PUE & COMPANY, ET AL., plaintiffs-appellants,


vs.
SECRETARY OF COMMERCE AND INDUSTRY, defendant-appellee.
Felicisimo E. Escaran for plaintiffs-appellants.
Office of the Solicitor General for defendant-appellee.
DIZON, J.:
Action for declaratory relief filed in the Court of First Instance of Iloilo by Ang Pue & Company, Ang Pue and Tan Siong against the
Secretary of Commerce and Industry to secure judgment "declaring that plaintiffs could extend for five years the term of the partnership
pursuant to the provisions of plaintiffs' Amendment to the Article of Co-partnership."
The answer filed by the defendant alleged, in substance, that the extension for another five years of the term of the plaintiffs'
partnership would be in violation of the provisions of Republic Act No. 1180.
It appears that on May 1, 1953, Ang Pue and Tan Siong, both Chinese citizens, organized the partnership Ang Pue & Company for a
term of five years from May 1, 1953, extendible by their mutual consent. The purpose of the partnership was "to maintain the business
of general merchandising, buying and selling at wholesale and retail, particularly of lumber, hardware and other construction materials
for commerce, either native or foreign." The corresponding articles of partnership (Exhibit B) were registered in the Office of the
Securities & Exchange Commission on June 16, 1953.
On June 19, 1954 Republic Act No. 1180 was enacted to regulate the retail business. It provided, among other things, that, after its
enactment, a partnership not wholly formed by Filipinos could continue to engage in the retail business until the expiration of its term.
On April 15, 1958 prior to the expiration of the five-year term of the partnership Ang Pue & Company, but after the enactment of the
Republic Act 1180, the partners already mentioned amended the original articles of part ownership (Exhibit B) so as to extend the term
of life of the partnership to another five years. When the amended articles were presented for registration in the Office of the Securities
& Exchange Commission on April 16, 1958, registration was refused upon the ground that the extension was in violation of the
aforesaid Act.
From the decision of the lower court dismissing the action, with costs, the plaintiffs interposed this appeal.
The question before us is too clear to require an extended discussion. To organize a corporation or a partnership that could claim a
juridical personality of its own and transact business as such, is not a matter of absolute right but a privilege which may be enjoyed only
under such terms as the State may deem necessary to impose. That the State, through Congress, and in the manner provided by law,
had the right to enact Republic Act No. 1180 and to provide therein that only Filipinos and concerns wholly owned by Filipinos may
engage in the retail business can not be seriously disputed. That this provision was clearly intended to apply to partnership already
existing at the time of the enactment of the law is clearly showing by its provision giving them the right to continue engaging in their
retail business until the expiration of their term or life.
To argue that because the original articles of partnership provided that the partners could extend the term of the partnership, the
provisions of Republic Act 1180 cannot be adversely affect appellants herein, is to erroneously assume that the aforesaid provision
constitute a property right of which the partners can not be deprived without due process or without their consent. The agreement
contain therein must be deemed subject to the law existing at the time when the partners came to agree regarding the extension. In the
present case, as already stated, when the partners amended the articles of partnership, the provisions of Republic Act 1180 were
already in force, and there can be not the slightest doubt that the right claimed by appellants to extend the original term of their
partnership to another five years would be in violation of the clear intent and purpose of the law aforesaid.
WHEREFORE, the judgment appealed from is affirmed, with costs.

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[G.R. Nos. 84132-33 : December 10, 1990.]
NATIONAL DEVELOPMENT COMPANY AND NEW AGRIX, INC., Petitioners, vs. PHILIPPINE VETERANS
BANK, THE EX-OFFICIO SHERIFF and GODOFREDO QUILING, in his capacity as Deputy Sheriff of Calamba,
Laguna, Respondents.

DECISION

CRUZ, J.:
This case involves the constitutionality of a presidential decree which, like all other issuances of President Marcos
during his regime, was at that time regarded as sacrosanct. It is only now, in a freer atmosphere, that his acts are
being tested by the touchstone of the fundamental law that even then was supposed to limit presidential action.: rd
The particular enactment in question is Pres. Decree No. 1717, which ordered the rehabilitation of the Agrix Group of
Companies to be administered mainly by the National Development Company. The law outlined the procedure for filing
claims against the Agrix companies and created a Claims Committee to process these claims. Especially relevant to
this case, and noted at the outset, is Sec. 4(1) thereof providing that "all mortgages and other liens presently
attaching to any of the assets of the dissolved corporations are hereby extinguished."
Earlier, the Agrix Marketing, Inc. (AGRIX) had executed in favor of private respondent Philippine Veterans Bank a real
estate mortgage dated July 7, 1978, over three (3) parcels of land situated in Los Baos, Laguna. During the
existence of the mortgage, AGRIX went bankrupt. It was for the expressed purpose of salvaging this and the other
Agrix companies that the aforementioned decree was issued by President Marcos.
Pursuant thereto, the private respondent filed a claim with the AGRIX Claims Committee for the payment of its loan
credit. In the meantime, the New Agrix, Inc. and the National Development Company, petitioners herein, invoking
Sec. 4 (1) of the decree, filed a petition with the Regional Trial Court of Calamba, Laguna, for the cancellation of the
mortgage lien in favor of the private respondent. For its part, the private respondent took steps to extrajudicially
foreclose the mortgage, prompting the petitioners to file a second case with the same court to stop the foreclosure.
The two cases were consolidated.
After the submission by the parties of their respective pleadings, the trial court rendered the impugned decision.
Judge Francisco Ma. Guerrero annulled not only the challenged provision, viz., Sec. 4 (1), but the entire Pres. Decree
No. 1717 on the grounds that: (1) the presidential exercise of legislative power was a violation of the principle of
separation of powers; (2) the law impaired the obligation of contracts; and (3) the decree violated the equal
protection clause. The motion for reconsideration of this decision having been denied, the present petition was filed.:
rd
The petition was originally assigned to the Third Division of this Court but because of the constitutional questions
involved it was transferred to the Court en banc. On August 30, 1988, the Court granted the petitioner's prayer for a
temporary restraining order and instructed the respondents to cease and desist from conducting a public auction sale
of the lands in question. After the Solicitor General and the private respondent had filed their comments and the
petitioners their reply, the Court gave due course to the petition and ordered the parties to file simultaneous
memoranda. Upon compliance by the parties, the case was deemed submitted.
The petitioners contend that the private respondent is now estopped from contesting the validity of the decree. In
support of this contention, it cites the recent case of Mendoza v. Agrix Marketing, Inc., 1 where the constitutionality of
Pres. Decree No. 1717 was also raised but not resolved. The Court, after noting that the petitioners had already filed
their claims with the AGRIX Claims Committee created by the decree, had simply dismissed the petition on the ground
of estoppel.
The petitioners stress that in the case at bar the private respondent also invoked the provisions of Pres. Decree No.
1717 by filing a claim with the AGRIX Claims Committee. Failing to get results, it sought to foreclose the real estate
mortgage executed by AGRIX in its favor, which had been extinguished by the decree. It was only when the
petitioners challenged the foreclosure on the basis of Sec. 4 (1) of the decree, that the private respondent attacked
the validity of the provision. At that stage, however, consistent with Mendoza, the private respondent was already
estopped from questioning the constitutionality of the decree.
The Court does not agree that the principle of estoppel is applicable.
It is not denied that the private respondent did file a claim with the AGRIX Claims Committee pursuant to this decree.
It must be noted, however, that this was done in 1980, when President Marcos was the absolute ruler of this country
and his decrees were the absolute law. Any judicial challenge to them would have been futile, not to say foolhardy.

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The private respondent, no less than the rest of the nation, was aware of that reality and knew it had no choice under
the circumstances but to conform.: nad
It is true that there were a few venturesome souls who dared to question the dictator's decisions before the courts of
justice then. The record will show, however, that not a single act or issuance of President Marcos was ever declared
unconstitutional, not even by the highest court, as long as he was in power. To rule now that the private respondent is
estopped for having abided with the decree instead of boldly assailing it is to close our eyes to a cynical fact of life
during that repressive time.
This case must be distinguished from Mendoza, where the petitioners, after filing their claims with the AGRIX Claims
Committee, received in settlement thereof shares of stock valued at P40,000.00 without protest or reservation. The
herein private respondent has not been paid a single centavo on its claim, which was kept pending for more than
seven years for alleged lack of supporting papers. Significantly, the validity of that claim was not questioned by the
petitioner when it sought to restrain the extrajudicial foreclosure of the mortgage by the private respondent. The
petitioner limited itself to the argument that the private respondent was estopped from questioning the decree
because of its earlier compliance with its provisions.
Independently of these observations, there is the consideration that an affront to the Constitution cannot be allowed
to continue existing simply because of procedural inhibitions that exalt form over substance.
The Court is especially disturbed by Section 4(1) of the decree, quoted above, extinguishing all mortgages and other
liens attaching to the assets of AGRIX. It also notes, with equal concern, the restriction in Subsection (ii) thereof that
all "unsecured obligations shall not bear interest" and in Subsection (iii) that "all accrued interests, penalties or
charges as of date hereof pertaining to the obligations, whether secured or unsecured, shall not be recognized."
These provisions must be read with the Bill of Rights, where it is clearly provided in Section 1 that "no person shall be
deprived of life, liberty or property without due course of law nor shall any person be denied the equal protection of
the law" and in Section 10 that "no law impairing the obligation of contracts shall be passed."
In defending the decree, the petitioners argue that property rights, like all rights, are subject to regulation under the
police power for the promotion of the common welfare. The contention is that this inherent power of the state may be
exercised at any time for this purpose so long as the taking of the property right, even if based on contract, is done
with due process of law.
This argument is an over-simplification of the problem before us. The police power is not a panacea for all
constitutional maladies. Neither does its mere invocation conjure an instant and automatic justification for every act of
the government depriving a person of his life, liberty or property.
A legislative act based on the police power requires the concurrence of a lawful subject and a lawful method. In more
familiar words, a) the interests of the public generally, as distinguished from those of a particular class, should justify
the interference of the state; and b) the means employed are reasonably necessary for the accomplishment of the
purpose and not unduly oppressive upon individuals. 2
Applying these criteria to the case at bar, the Court finds first of all that the interests of the public are not sufficiently
involved to warrant the interference of the government with the private contracts of AGRIX. The decree speaks
vaguely of the "public, particularly the small investors," who would be prejudiced if the corporation were not to be
assisted. However, the record does not state how many there are of such investors, and who they are, and why they
are being preferred to the private respondent and other creditors of AGRIX with vested property rights.:-cralaw
The public interest supposedly involved is not identified or explained. It has not been shown that by the creation of
the New Agrix, Inc. and the extinction of the property rights of the creditors of AGRIX, the interests of the public as a
whole, as distinguished from those of a particular class, would be promoted or protected. The indispensable link to the
welfare of the greater number has not been established. On the contrary, it would appear that the decree was issued
only to favor a special group of investors who, for reasons not given, have been preferred to the legitimate creditors
of AGRIX.
Assuming there is a valid public interest involved, the Court still finds that the means employed to rehabilitate AGRIX
fall far short of the requirement that they shall not be unduly oppressive. The oppressiveness is patent on the face of
the decree. The right to property in all mortgages, liens, interests, penalties and charges owing to the creditors of
AGRIX is arbitrarily destroyed. No consideration is paid for the extinction of the mortgage rights. The accrued interests
and other charges are simply rejected by the decree. The right to property is dissolved by legislative fiat without
regard to the private interest violated and, worse, in favor of another private interest.
A mortgage lien is a property right derived from contract and so comes under the protection of the Bill of Rights. So
do interests on loans, as well as penalties and charges, which are also vested rights once they accrue. Private
property cannot simply be taken by law from one person and given to another without compensation and any known
public purpose. This is plain arbitrariness and is not permitted under the Constitution.

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And not only is there arbitrary taking, there is discrimination as well. In extinguishing the mortgage and other liens,
the decree lumps the secured creditors with the unsecured creditors and places them on the same level in the
prosecution of their respective claims. In this respect, all of them are considered unsecured creditors. The only
concession given to the secured creditors is that their loans are allowed to earn interest from the date of the decree,
but that still does not justify the cancellation of the interests earned before that date. Such interests, whether due to
the secured or the unsecured creditors, are all extinguished by the decree. Even assuming such cancellation to be
valid, we still cannot see why all kinds of creditors, regardless of security, are treated alike.
Under the equal protection clause, all persons or things similarly situated must be treated alike, both in the privileges
conferred and the obligations imposed. Conversely, all persons or things differently situated should be treated
differently. In the case at bar, persons differently situated are similarly treated, in disregard of the principle that there
should be equality only among equals.- nad
One may also well wonder why AGRIX was singled out for government help, among other corporations where the
stockholders or investors were also swindled. It is not clear why other companies entitled to similar concern were not
similarly treated. And surely, the stockholders of the private respondent, whose mortgage lien had been cancelled and
legitimate claims to accrued interests rejected, were no less deserving of protection, which they did not get. The
decree operated, to use the words of a celebrated case, 3 "with an evil eye and an uneven hand."
On top of all this, New Agrix, Inc. was created by special decree notwithstanding the provision of Article XIV, Section 4
of the 1973 Constitution, then in force, that:
SEC. 4. The Batasang Pambansa shall not, except by general law, provide for the formation, organization, or
regulation of private corporations, unless such corporations are owned or controlled by the Government or any
subdivision or instrumentality thereof. 4
The new corporation is neither owned nor controlled by the government. The National Development Corporation was
merely required to extend a loan of not more than P10,000,000.00 to New Agrix, Inc. Pending payment thereof, NDC
would undertake the management of the corporation, but with the obligation of making periodic reports to the Agrix
board of directors. After payment of the loan, the said board can then appoint its own management. The stocks of the
new corporation are to be issued to the old investors and stockholders of AGRIX upon proof of their claims against the
abolished corporation. They shall then be the owners of the new corporation. New Agrix, Inc. is entirely private and so
should have been organized under the Corporation Law in accordance with the above-cited constitutional provision.
The Court also feels that the decree impairs the obligation of the contract between AGRIX and the private respondent
without justification. While it is true that the police power is superior to the impairment clause, the principle will apply
only where the contract is so related to the public welfare that it will be considered congenitally susceptible to change
by the legislature in the interest of the greater number. 5 Most present-day contracts are of that nature. But as
already observed, the contracts of loan and mortgage executed by AGRIX are purely private transactions and have not
been shown to be affected with public interest. There was therefore no warrant to amend their provisions and deprive
the private respondent of its vested property rights.
It is worth noting that only recently in the case of the Development Bank of the Philippines v. NLRC, 6 we sustained
the preference in payment of a mortgage creditor as against the argument that the claims of laborers should take
precedence over all other claims, including those of the government. In arriving at this ruling, the Court recognized
the mortgage lien as a property right protected by the due process and contract clauses notwithstanding the
argument that the amendment in Section 110 of the Labor Code was a proper exercise of the police power.: nad
The Court reaffirms and applies that ruling in the case at bar.
Our finding, in sum, is that Pres. Decree No. 1717 is an invalid exercise of the police power, not being in conformity
with the traditional requirements of a lawful subject and a lawful method. The extinction of the mortgage and other
liens and of the interest and other charges pertaining to the legitimate creditors of AGRIX constitutes taking without
due process of law, and this is compounded by the reduction of the secured creditors to the category of unsecured
creditors in violation of the equal protection clause. Moreover, the new corporation, being neither owned nor controlled
by the Government, should have been created only by general and not special law. And insofar as the decree also
interferes with purely private agreements without any demonstrated connection with the public interest, there is
likewise an impairment of the obligation of the contract.
With the above pronouncements, we feel there is no more need to rule on the authority of President Marcos to
promulgate Pres. Decree No. 1717 under Amendment No. 6 of the 1973 Constitution. Even if he had such authority,
the decree must fall just the same because of its violation of the Bill of Rights.
WHEREFORE, the petition is DISMISSED. Pres. Decree No. 1717 is declared UNCONSTITUTIONAL. The temporary
restraining order dated August 30, 1988, is LIFTED. Costs against the petitioners.- nad

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G.R. No. 147402

January 14, 2004

ENGR. RANULFO C. FELICIANO, in his capacity as General Manager of the Leyte Metropolitan Water District (LMWD),
Tacloban City, petitioner,
vs.
COMMISSION ON AUDIT, Chairman CELSO D. GANGAN, Commissioners RAUL C. FLORES and EMMANUEL M. DALMAN, and
Regional Director of COA Region VIII, respondents.

DECISION

CARPIO, J.:
The Case
This is a petition for certiorari1 to annul the Commission on Audits ("COA") Resolution dated 3 January 2000 and the Decision dated 30
January 2001 denying the Motion for Reconsideration. The COA denied petitioner Ranulfo C. Felicianos request for COA to cease all
audit services, and to stop charging auditing fees, to Leyte Metropolitan Water District ("LMWD"). The COA also denied petitioners
request for COA to refund all auditing fees previously paid by LMWD.
Antecedent Facts
A Special Audit Team from COA Regional Office No. VIII audited the accounts of LMWD. Subsequently, LMWD received a letter from
COA dated 19 July 1999 requesting payment of auditing fees. As General Manager of LMWD, petitioner sent a reply dated 12 October
1999 informing COAs Regional Director that the water district could not pay the auditing fees. Petitioner cited as basis for his action
Sections 6 and 20 of Presidential Decree 198 ("PD 198")2, as well as Section 18 of Republic Act No. 6758 ("RA 6758"). The Regional
Director referred petitioners reply to the COA Chairman on 18 October 1999.
On 19 October 1999, petitioner wrote COA through the Regional Director asking for refund of all auditing fees LMWD previously paid to
COA.
On 16 March 2000, petitioner received COA Chairman Celso D. Gangans Resolution dated 3 January 2000 denying his requests.
Petitioner filed a motion for reconsideration on 31 March 2000, which COA denied on 30 January 2001.
On 13 March 2001, petitioner filed this instant petition. Attached to the petition were resolutions of the Visayas Association of Water
Districts (VAWD) and the Philippine Association of Water Districts (PAWD) supporting the petition.
The Ruling of the Commission on Audit
The COA ruled that this Court has already settled COAs audit jurisdiction over local water districts in Davao City Water District v.
Civil Service Commission and Commission on Audit,3 as follows:
The above-quoted provision [referring to Section 3(b) PD 198] 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 members of the Board
of Directors belong to the local executives of the local subdivision unit where such districts are located. In contrast, the
members of the Board of Directors or the trustees of a private corporation are elected from among members or stockholders
thereof. It would not be amiss at this point to emphasize 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 who will compose the governing body of their corporation. But this is not the case here and this clearly indicates that
petitioners are not private corporations.
The COA also denied petitioners request for COA to stop charging auditing fees as well as petitioners request for COA to refund all
auditing fees already paid.

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The Issues
Petitioner contends that COA committed grave abuse of discretion amounting to lack or excess of jurisdiction by auditing LMWD and
requiring it to pay auditing fees. Petitioner raises the following issues for resolution:
1. Whether a Local Water District ("LWD") created under PD 198, as amended, is a government-owned or controlled
corporation subject to the audit jurisdiction of COA;
2. Whether Section 20 of PD 198, as amended, prohibits COAs certified public accountants from auditing local water districts;
and
3. Whether Section 18 of RA 6758 prohibits the COA from charging government-owned and controlled corporations auditing
fees.
The Ruling of the Court
The petition lacks merit.
The Constitution and existing laws4 mandate COA to audit all government agencies, including government-owned and controlled
corporations ("GOCCs") with original charters. An LWD is a GOCC with an original charter. Section 2(1), Article IX-D of the Constitution
provides for COAs audit jurisdiction, as follows:
SECTION 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 and
controlled corporations with original charters, and on a post-audit basis: (a) constitutional bodies, commissions and offices
that have been granted fiscal autonomy under this Constitution; (b) autonomous state colleges and universities; (c) other
government-owned or controlled corporations and their subsidiaries; and (d) such non-governmental 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)
The COAs audit jurisdiction extends not only to government "agencies or instrumentalities," but also to "government-owned and
controlled corporations with original charters" as well as "other government-owned or controlled corporations" without original charters.
Whether LWDs are Private or Government-Owned
and Controlled Corporations with Original Charters
Petitioner seeks to revive a well-settled issue. Petitioner asks for a re-examination of a doctrine backed by a long line of cases
culminating in Davao City Water District v. Civil Service Commission5 and just recently reiterated in De Jesus v. Commission on
Audit.6 Petitioner maintains that LWDs are not government-owned and controlled corporations with original charters. Petitioner even
argues that LWDs are private corporations. Petitioner asks the Court to consider certain interpretations of the applicable laws, which
would give a "new perspective to the issue of the true character of water districts."7
Petitioner theorizes that what PD 198 created was the Local Waters Utilities Administration ("LWUA") and not the LWDs. Petitioner
claims that LWDs are created "pursuant to" and not created directly by PD 198. Thus, petitioner concludes that PD 198 is not an
"original charter" that would place LWDs within the audit jurisdiction of COA as defined in Section 2(1), Article IX-D of the Constitution.
Petitioner elaborates that PD 198 does not create LWDs since it does not expressly direct the creation of such entities, but only
provides for their formation on an optional or voluntary basis.8 Petitioner adds that the operative act that creates an LWD is the approval
of the Sanggunian Resolution as specified in PD 198.
Petitioners contention deserves scant consideration.
We begin by explaining the general framework under the fundamental law. The Constitution recognizes two classes of corporations.
The first refers to private corporations created under a general law. The second refers to government-owned or controlled corporations
created by special charters. Section 16, Article XII of the Constitution provides:

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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.
The Constitution emphatically prohibits the creation of private corporations except by a general law applicable to all citizens. 9 The
purpose of this constitutional provision is to ban private corporations created by special charters, which historically gave certain
individuals, families or groups special privileges denied to other citizens.10
In short, Congress cannot enact a law creating a private corporation with a special charter. Such legislation would be unconstitutional.
Private corporations may exist only under a general law. If the corporation is private, it must necessarily exist under a general law.
Stated differently, only corporations created under a general law can qualify as private corporations. Under existing laws, that general
law is the Corporation Code,11 except that the Cooperative Code governs the incorporation of cooperatives.12
The Constitution authorizes Congress to create government-owned or controlled corporations through special charters. Since private
corporations cannot have special charters, it follows that Congress can create corporations with special charters only if such
corporations are government-owned or controlled.
Obviously, LWDs are not private corporations because they are not created under the Corporation Code. LWDs are not registered with
the Securities and Exchange Commission. Section 14 of the Corporation Code states that "[A]ll corporations organized under this code
shall file with the Securities and Exchange Commission articles of incorporation x x x." LWDs have no articles of incorporation, no
incorporators and no stockholders or members. There are no stockholders or members to elect the board directors of LWDs as in the
case of all corporations registered with the Securities and Exchange Commission. The local mayor or the provincial governor appoints
the directors of LWDs for a fixed term of office. This Court has ruled that LWDs are not created under the Corporation Code, thus:
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.13 (Emphasis
supplied)
LWDs exist by virtue of PD 198, which constitutes their special charter. Since under the Constitution only government-owned or
controlled corporations may have special charters, LWDs can validly exist only if they are government-owned or controlled. To claim
that LWDs are private corporations with a special charter is to admit that their existence is constitutionally infirm.
Unlike private corporations, which derive their legal existence and power from the Corporation Code, LWDs derive their legal existence
and power from PD 198. Sections 6 and 25 of PD 19814 provide:
Section 6. Formation of District. This Act is the source of authorization and power to form and maintain a district. For
purposes of this Act, a district shall be considered as a quasi-public corporation performing public service and
supplying public wants. As such, a district shall exercise the powers, rights and privileges given to private
corporations under existing laws, in addition to the powers granted in, and subject to such restrictions imposed,
under this Act.
(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".
(b) A description of the boundary of the district. In the case of a city or municipality, such boundary may include all lands within
the city or municipality. A district may include one or more municipalities, cities or provinces, or portions thereof.
(c) A statement completely transferring any and all waterworks and/or sewerage facilities managed, operated by or under the
control of such city, municipality or province to such district upon the filing of resolution forming the district.
(d) A statement identifying the purpose for which the district is formed, which shall include those purposes outlined in Section 5
above.
(e) The names of the initial directors of the district with the date of expiration of term of office for each.
(f) A statement that the district may only be dissolved on the grounds and under the conditions set forth in Section 44 of this
Title.
(g) A statement acknowledging the powers, rights and obligations as set forth in Section 36 of this Title.

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Nothing in the resolution of formation shall state or infer that the local legislative body has the power to dissolve, alter or affect
the district beyond that specifically provided for in this Act.
If two or more cities, municipalities or provinces, or any combination thereof, desire to form a single district, a similar resolution
shall be adopted in each city, municipality and province.
xxx
Sec. 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. (Emphasis supplied)
Clearly, LWDs exist as corporations only by virtue of PD 198, which expressly confers on LWDs corporate powers. Section 6 of PD
198 provides that LWDs "shall exercise the powers, rights and privileges given to private corporations under existing laws." Without PD
198, LWDs would have no corporate powers. Thus, PD 198 constitutes the special enabling charter of LWDs. The ineluctable
conclusion is that LWDs are government-owned and controlled corporations with a special charter.
The phrase "government-owned and controlled corporations with original charters" means GOCCs created under special laws and not
under the general incorporation law. There is no difference between the term "original charters" and "special charters." The Court
clarified this in National Service Corporation v. NLRC15 by citing the deliberations in the Constitutional Commission, as follows:
THE PRESIDING OFFICER (Mr. Trenas). The session is resumed.
Commissioner Romulo is recognized.
MR. ROMULO. Mr. Presiding Officer, I am amending my original proposed amendment to now read as follows: "including
government-owned or controlled corporations WITH ORIGINAL CHARTERS." The purpose of this amendment is to indicate
that government corporations such as the GSIS and SSS, which have original charters, fall within the ambit of the civil service.
However, corporations which are subsidiaries of these chartered agencies such as the Philippine Airlines, Manila Hotel and
Hyatt are excluded from the coverage of the civil service.
THE PRESIDING OFFICER (Mr. Trenas). What does the Committee say?
MR. FOZ. Just one question, Mr. Presiding Officer. By the term "original charters," what exactly do we mean?
MR. ROMULO. We mean that they were created by law, by an act of Congress, or by special law.
MR. FOZ. And not under the general corporation law.
MR. ROMULO. That is correct. Mr. Presiding Officer.
MR. FOZ. With that understanding and clarification, the Committee accepts the amendment.
MR. NATIVIDAD. Mr. Presiding Officer, so those created by the general corporation law are out.
MR. ROMULO. That is correct. (Emphasis supplied)
Again, in Davao City Water District v. Civil Service Commission,16 the Court reiterated the meaning of the phrase "governmentowned and controlled corporations with original charters" in this wise:
By "government-owned or controlled corporation with original charter," We mean government owned or controlled
corporation created by a special law and not under the Corporation Code of the Philippines. Thus, in the case of
Lumanta v. NLRC (G.R. No. 82819, February 8, 1989, 170 SCRA 79, 82), We held:
"The Court, in National Service Corporation (NASECO) v. National Labor Relations Commission, G.R. No.
69870, promulgated on 29 November 1988, quoting extensively from the deliberations of the 1986
Constitutional Commission in respect of the intent and meaning of the new phrase with original charter, in
effect held that government-owned and controlled corporations with original charter refer to corporations

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chartered by special law as distinguished from corporations organized under our general incorporation
statute the Corporation Code. In NASECO, the company involved had been organized under the general
incorporation statute and was a subsidiary of the National Investment Development Corporation (NIDC) which in turn
was a subsidiary of the Philippine National Bank, a bank chartered by a special statute. Thus, government-owned or
controlled corporations like NASECO are effectively, excluded from the scope of the Civil Service." (Emphasis
supplied)
Petitioners contention that the Sangguniang Bayan resolution creates the LWDs assumes that the Sangguniang Bayan has the power
to create corporations. This is a patently baseless assumption. The Local Government Code17 does not vest in the Sangguniang Bayan
the power to create corporations.18 What the Local Government Code empowers the Sangguniang Bayan to do is to provide for the
establishment of a waterworks system "subject to existing laws." Thus, Section 447(5)(vii) of the Local Government Code provides:
SECTION 447. Powers, Duties, Functions and Compensation. (a) The sangguniang bayan, as the legislative body of the
municipality, shall enact ordinances, approve resolutions and appropriate funds for the general welfare of the municipality and
its inhabitants pursuant to Section 16 of this Code and in the proper exercise of the corporate powers of the municipality as
provided for under Section 22 of this Code, and shall:
xxx
(vii) Subject to existing laws, provide for the establishment, operation, maintenance, and repair of an efficient
waterworks system to supply water for the inhabitants; regulate the construction, maintenance, repair and use of
hydrants, pumps, cisterns and reservoirs; protect the purity and quantity of the water supply of the municipality and,
for this purpose, extend the coverage of appropriate ordinances over all territory within the drainage area of said
water supply and within one hundred (100) meters of the reservoir, conduit, canal, aqueduct, pumping station, or
watershed used in connection with the water service; and regulate the consumption, use or wastage of water;
x x x. (Emphasis supplied)
The Sangguniang Bayan may establish a waterworks system only in accordance with the provisions of PD 198. The Sangguniang
Bayan has no power to create a corporate entity that will operate its waterworks system. However, the Sangguniang Bayan may avail of
existing enabling laws, like PD 198, to form and incorporate a water district. Besides, even assuming for the sake of argument that the
Sangguniang Bayan has the power to create corporations, the LWDs would remain government-owned or controlled corporations
subject to COAs audit jurisdiction. The resolution of the Sangguniang Bayan would constitute an LWDs special charter, making the
LWD a government-owned and controlled corporation with an original charter. In any event, the Court has already ruled in Baguio
Water District v. Trajano19 that the Sangguniang Bayan resolution is not the special charter of LWDs, thus:
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.
Petitioner further contends that a law must create directly and explicitly a GOCC in order that it may have an original charter. In short,
petitioner argues that one special law cannot serve as enabling law for several GOCCs but only for one GOCC. Section 16, Article XII
of the Constitution mandates that "Congress shall not, except by general law,"20 provide for the creation of private corporations. Thus,
the Constitution prohibits one special law to create one private corporation, requiring instead a "general law" to create private
corporations. In contrast, the same Section 16 states that "Government-owned or controlled corporations may be created or
established by special charters." Thus, the Constitution permits Congress to create a GOCC with a special charter. There is, however,
no prohibition on Congress to create several GOCCs of the same class under one special enabling charter.
The rationale behind the prohibition on private corporations having special charters does not apply to GOCCs. There is no danger of
creating special privileges to certain individuals, families or groups if there is one special law creating each GOCC. Certainly, such
danger will not exist whether one special law creates one GOCC, or one special enabling law creates several GOCCs. Thus, Congress
may create GOCCs either by special charters specific to each GOCC, or by one special enabling charter applicable to a class of
GOCCs, like PD 198 which applies only to LWDs.
Petitioner also contends that LWDs are private corporations because Section 6 of PD 19821 declares that LWDs "shall be considered
quasi-public" in nature. Petitioners rationale is that only private corporations may be deemed "quasi-public" and not public corporations.
Put differently, petitioner rationalizes that a public corporation cannot be deemed "quasi-public" because such corporation is already
public. Petitioner concludes that the term "quasi-public" can only apply to private corporations. Petitioners argument is inconsequential.
Petitioner forgets that the constitutional criterion on the exercise of COAs audit jurisdiction depends on the governments ownership or
control of a corporation. The nature of the corporation, whether it is private, quasi-public, or public is immaterial.

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The Constitution vests in the COA audit jurisdiction over "government-owned and controlled corporations with original charters," as well
as "government-owned or controlled corporations" without original charters. GOCCs with original charters are subject to COA pre-audit,
while GOCCs without original charters are subject to COA post-audit. GOCCs without original charters refer to corporations created
under the Corporation Code but are owned or controlled by the government. The nature or purpose of the corporation is not material in
determining COAs audit jurisdiction. Neither is the manner of creation of a corporation, whether under a general or special law.
The determining factor of COAs audit jurisdiction is government ownership or control of the corporation. InPhilippine Veterans
Bank Employees Union-NUBE v. Philippine Veterans Bank,22 the Court even ruled that the criterion of ownership and control is
more important than the issue of original charter, thus:
This point is important because the Constitution provides in its Article IX-B, Section 2(1) that "the Civil Service embraces all
branches, subdivisions, instrumentalities, and agencies of the Government, including government-owned or controlled
corporations with original charters." As the Bank is not owned or controlled by the Government although it does have an
original charter in the form of R.A. No. 3518,23 it clearly does not fall under the Civil Service and should be regarded
as an ordinary commercial corporation. Section 28 of the said law so provides. The consequence is that the relations of the
Bank with its employees should be governed by the labor laws, under which in fact they have already been paid some of their
claims. (Emphasis supplied)
Certainly, the government owns and controls LWDs. The government organizes LWDs in accordance with a specific law, PD 198. There
is no private party involved as co-owner in the creation of an LWD. Just prior to the creation of LWDs, the national or local government
owns and controls all their assets. The government controls LWDs because under PD 198 the municipal or city mayor, or the provincial
governor, appoints all the board directors of an LWD for a fixed term of six years.24 The board directors of LWDs are not co-owners of
the LWDs. LWDs have no private stockholders or members. The board directors and other personnel of LWDs are government
employees subject to civil service laws25 and anti-graft laws.26
While Section 8 of PD 198 states that "[N]o public official shall serve as director" of an LWD, it only means that the appointees to the
board of directors of LWDs shall come from the private sector. Once such private sector representatives assume office as directors,
they become public officials governed by the civil service law and anti-graft laws. Otherwise, Section 8 of PD 198 would contravene
Section 2(1), Article IX-B of the Constitution declaring that the civil service includes "government-owned or controlled corporations with
original charters."
If LWDs are neither GOCCs with original charters nor GOCCs without original charters, then they would fall under the term "agencies or
instrumentalities" of the government and thus still subject to COAs audit jurisdiction. However, the stark and undeniable fact is that the
government owns LWDs. Section 4527 of PD 198 recognizes government ownership of LWDs when Section 45 states that the board of
directors may dissolve an LWD only on the condition that "another public entity has acquired the assets of the district and has
assumed all obligations and liabilities attached thereto." The implication is clear that an LWD is a public and not a private entity.
Petitioner does not allege that some entity other than the government owns or controls LWDs. Instead, petitioner advances the theory
that the "Water Districts owner is the District itself."28 Assuming for the sake of argument that an LWD is "self-owned,"29 as petitioner
describes an LWD, the government in any event controls all LWDs. First, government officials appoint all LWD directors to a fixed term
of office. Second, any per diem of LWD directors in excess of P50 is subject to the approval of the Local Water Utilities Administration,
and directors can receive no other compensation for their services to the LWD.30 Third, the Local Water Utilities Administration can
require LWDs to merge or consolidate their facilities or operations.31 This element of government control subjects LWDs to COAs audit
jurisdiction.
Petitioner argues that upon the enactment of PD 198, LWDs became private entities through the transfer of ownership of water facilities
from local government units to their respective water districts as mandated by PD 198. Petitioner is grasping at straws. Privatization
involves the transfer of government assets to a private entity. Petitioner concedes that the owner of the assets transferred under
Section 6 (c) of PD 198 is no other than the LWD itself.32 The transfer of assets mandated by PD 198 is a transfer of the water systems
facilities "managed, operated by or under the control of such city, municipality or province to such (water) district."33 In short, the transfer
is from one government entity to another government entity. PD 198 is bereft of any indication that the transfer is to privatize the
operation and control of water systems.
Finally, petitioner claims that even on the assumption that the government owns and controls LWDs, Section 20 of PD 198 prevents
COA from auditing LWDs. 34 Section 20 of PD 198 provides:
Sec. 20. System of Business Administration. The Board shall, as soon as practicable, prescribe and define by resolution a
system of business administration and accounting for the district, which shall be patterned upon and conform to the standards
established by the Administration. Auditing shall be performed by a certified public accountant not in the government
service. The Administration may, however, conduct annual audits of the fiscal operations of the district to be performed by an
auditor retained by the Administration. Expenses incurred in connection therewith shall be borne equally by the water district
concerned and the Administration.35 (Emphasis supplied)

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Petitioner argues that PD 198 expressly prohibits COA auditors, or any government auditor for that matter, from auditing LWDs.
Petitioner asserts that this is the import of the second sentence of Section 20 of PD 198 when it states that "[A]uditing shall be
performed by a certified public accountant not in the government service."36
PD 198 cannot prevail over the Constitution. No amount of clever legislation can exclude GOCCs like LWDs from COAs audit
jurisdiction. Section 3, Article IX-C of the Constitution outlaws any scheme or devise to escape COAs audit jurisdiction, thus:
Sec. 3. No law shall be passed exempting any entity of the Government or its subsidiary in any guise whatever, or any
investment of public funds, from the jurisdiction of the Commission on Audit. (Emphasis supplied)
The framers of the Constitution added Section 3, Article IX-D of the Constitution precisely to annul provisions of Presidential Decrees,
like that of Section 20 of PD 198, that exempt GOCCs from COA audit. The following exchange in the deliberations of the Constitutional
Commission elucidates this intent of the framers:
MR. OPLE: I propose to add a new section on line 9, page 2 of the amended committee report which reads: NO LAW SHALL
BE PASSED EXEMPTING ANY ENTITY OF THE GOVERNMENT OR ITS SUBSIDIARY IN ANY GUISE WHATEVER, OR
ANY INVESTMENTS OF PUBLIC FUNDS, FROM THE JURISDICTION OF THE COMMISSION ON AUDIT.
May I explain my reasons on record.
We know that a number of entities of the government took advantage of the absence of a legislature in the past to
obtain presidential decrees exempting themselves from the jurisdiction of the Commission on Audit, one notable
example of which is the Philippine National Oil Company which is really an empty shell. It is a holding corporation by itself, and
strictly on its own account. Its funds were not very impressive in quantity but underneath that shell there were billions of pesos
in a multiplicity of companies. The PNOC the empty shell under a presidential decree was covered by the jurisdiction of
the Commission on Audit, but the billions of pesos invested in different corporations underneath it were exempted from the
coverage of the Commission on Audit.
Another example is the United Coconut Planters Bank. The Commission on Audit has determined that the coconut levy is a
form of taxation; and that, therefore, these funds attributed to the shares of 1,400,000 coconut farmers are, in effect, public
funds. And that was, I think, the basis of the PCGG in undertaking that last major sequestration of up to 94 percent of all the
shares in the United Coconut Planters Bank. The charter of the UCPB, through a presidential decree, exempted it from the
jurisdiction of the Commission on Audit, it being a private organization.
So these are the fetuses of future abuse that we are slaying right here with this additional section.
May I repeat the amendment, Madam President: NO LAW SHALL BE PASSED EXEMPTING ANY ENTITY OF THE
GOVERNMENT OR ITS SUBSIDIARY IN ANY GUISE WHATEVER, OR ANY INVESTMENTS OF PUBLIC FUNDS, FROM
THE JURISDICTION OF THE COMMISSION ON AUDIT.
THE PRESIDENT: May we know the position of the Committee on the proposed amendment of Commissioner Ople?
MR. JAMIR: If the honorable Commissioner will change the number of the section to 4, we will accept the amendment.
MR. OPLE: Gladly, Madam President. Thank you.
MR. DE CASTRO: Madam President, point of inquiry on the new amendment.
THE PRESIDENT: Commissioner de Castro is recognized.
MR. DE CASTRO: Thank you. May I just ask a few questions of Commissioner Ople.
Is that not included in Section 2 (1) where it states: "(c) government-owned or controlled corporations and their subsidiaries"?
So that if these government-owned and controlled corporations and their subsidiaries are subjected to the audit of the COA,
any law exempting certain government corporations or subsidiaries will be already unconstitutional.
So I believe, Madam President, that the proposed amendment is unnecessary.

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MR. MONSOD: Madam President, since this has been accepted, we would like to reply to the point raised by Commissioner
de Castro.
THE PRESIDENT: Commissioner Monsod will please proceed.
MR. MONSOD: I think the Commissioner is trying to avoid the situation that happened in the past, because the same provision
was in the 1973 Constitution and yet somehow a law or a decree was passed where certain institutions were exempted from
audit. We are just reaffirming, emphasizing, the role of the Commission on Audit so that this problem will never arise in the
future.37
There is an irreconcilable conflict between the second sentence of Section 20 of PD 198 prohibiting COA auditors from auditing LWDs
and Sections 2(1) and 3, Article IX-D of the Constitution vesting in COA the power to audit all GOCCs. We rule that the second
sentence of Section 20 of PD 198 is unconstitutional since it violates Sections 2(1) and 3, Article IX-D of the Constitution.
On the Legality of COAs
Practice of Charging Auditing Fees
Petitioner claims that the auditing fees COA charges LWDs for audit services violate the prohibition in Section 18 of RA 6758,38 which
states:
Sec. 18. Additional Compensation of Commission on Audit Personnel and of other Agencies. In order to preserve the
independence and integrity of the Commission on Audit (COA), its officials and employees are prohibited from receiving
salaries, honoraria, bonuses, allowances or other emoluments from any government entity, local government unit,
government-owned or controlled corporations, and government financial institutions, except those compensation paid
directly by COA out of its appropriations andcontributions.
Government entities, including government-owned or controlled corporations including financial institutions and local
government units are hereby prohibited from assessing or billing other government entities, including government-owned or
controlled corporations including financial institutions or local government units for services rendered by its officials and
employees as part of their regular functions for purposes of paying additional compensation to said officials and employees.
(Emphasis supplied)
Claiming that Section 18 is "absolute and leaves no doubt,"39 petitioner asks COA to discontinue its practice of charging auditing fees to
LWDs since such practice allegedly violates the law.
Petitioners claim has no basis.
Section 18 of RA 6758 prohibits COA personnel from receiving any kind of compensation from any government entity except
"compensation paid directly by COA out of its appropriations and contributions." Thus, RA 6758 itself recognizes an exception to
the statutory ban on COA personnel receiving compensation from GOCCs. In Tejada v. Domingo,40 the Court declared:
There can be no question that Section 18 of Republic Act No. 6758 is designed to strengthen further the policy x x x to
preserve the independence and integrity of the COA, by explicitly PROHIBITING: (1) COA officials and employees from
receiving salaries, honoraria, bonuses, allowances or other emoluments from any government entity, local government unit,
GOCCs and government financial institutions, except such compensation paid directly by the COA out of its
appropriations and contributions, and (2) government entities, including GOCCs, government financial institutions and local
government units from assessing or billing other government entities, GOCCs, government financial institutions or local
government units for services rendered by the latters officials and employees as part of their regular functions for purposes of
paying additional compensation to said officials and employees.
xxx
The first aspect of the strategy is directed to the COA itself, while the second aspect is addressed directly against the GOCCs
and government financial institutions. Under the first, COA personnel assigned to auditing units of GOCCs or
government financial institutions can receive only such salaries, allowances or fringe benefits paid directly by the
COA out of its appropriations and contributions. The contributions referred to are the cost of audit services earlier
mentioned which cannot include the extra emoluments or benefits now claimed by petitioners. The COA is further
barred from assessing or billing GOCCs and government financial institutions for services rendered by its personnel as part of
their regular audit functions for purposes of paying additional compensation to such personnel. x x x. (Emphasis supplied)

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In Tejada, the Court explained the meaning of the word "contributions" in Section 18 of RA 6758, which allows COA to charge GOCCs
the cost of its audit services:
x x x the contributions from the GOCCs are limited to the cost of audit services which are based on the actual cost of the audit
function in the corporation concerned plus a reasonable rate to cover overhead expenses. The actual audit cost shall include
personnel services, maintenance and other operating expenses, depreciation on capital and equipment and out-of-pocket
expenses. In respect to the allowances and fringe benefits granted by the GOCCs to the COA personnel assigned to the
formers auditing units, the same shall be directly defrayed by COA from its own appropriations x x x. 41
COA may charge GOCCs "actual audit cost" but GOCCs must pay the same directly to COA and not to COA auditors. Petitioner has
not alleged that COA charges LWDs auditing fees in excess of COAs "actual audit cost." Neither has petitioner alleged that the auditing
fees are paid by LWDs directly to individual COA auditors. Thus, petitioners contention must fail.
WHEREFORE, the Resolution of the Commission on Audit dated 3 January 2000 and the Decision dated 30 January 2001 denying
petitioners Motion for Reconsideration are AFFIRMED. The second sentence of Section 20 of Presidential Decree No. 198 is declared
VOID for being inconsistent with Sections 2 (1) and 3, Article IX-D of the Constitution. No costs.

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G.R. No. L-19891

July 31, 1964

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


vs.
IMPERIAL INSURANCE, INC., MACARIO M. OFILADA, Sheriff of Manila and
HON. AGUSTIN MONTESA, Judge of the Court of First Instance of Manila, respondents.
Felipe N. Aurea for petitioners.
Taada, Teehankee and Carreon for respondent Imperial Insurance, Inc.
PAREDES, J.:
Petitioner J. R. Da Silva, is the President of the J.R.S. Business Corporation, an establishment duly franchised by the Congress of the
Philippines, to conduct a messenger and delivery express service. On July 12, 1961, the respondent Imperial Insurance, Inc.,
presented with the CFI of Manila a complaint (Civ. Case No. 47520), for sum of money against the petitioner corporation. After the
defendants therein have submitted their Answer, the parties entered into a Compromise Agreement, assisted by their respective
counsels, the pertinent portions of which recite:
1) WHEREAS, the DEFENDANTS admit and confess their joint and solidary indebtedness to the PLAINTIFF in the full sum of
PESOS SIXTY ONE THOUSAND ONE HUNDRED SEVENTY-TWO & 32/100 (P61,172.32), Philippine Currency, itemized as
follows:
a) Principal

P50,000.00

b) Interest at 12% per annum

5,706.14

c) Liquidated damages at 7% per annum

3,330.58

d) Costs of suit

135.60

e) Attorney's fees

2,000.00

2) WHEREAS, the DEFENDANTS bind themselves, jointly and severally, and hereby promise to pay their aforementioned
obligation to the PLAINTIFF at its business address at 301-305 Banquero St., (Ground Floor), Regina Building, Escolta,
Manila, within sixty (60) days from March 16, 1962 or on or before May 14, 1962;
3) WHEREAS, in the event the DEFENDANTS FAIL to pay in full the total amount of PESOS SIXTY ONE THOUSAND ONE
HUNDRED SEVENTY TWO & 32/100 (P61,172.32), Philippine Currency, for any reason whatsoever, on May 14, 1962, the
PLAINTIFF shall be entitled, as a matter of right, to move for the execution of the decision to be rendered in the above-entitled
case by this Honorable Court based on this COMPROMISE AGREEMENT.
On March 17, 1962, the lower court rendered judgment embodying the contents of the said compromise agreement, the dispositive
portion of which reads
WHEREFORE, the Court hereby approves the above-quoted compromise agreement and renders judgment in accordance
therewith, enjoining the parties to comply faithfully and strictly with the terms and conditions thereof, without special
pronouncement as to costs.
Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and approved by this Honorable
Court, without prejudice to the parties adducing other evidence to prove their case not covered by this stipulation of
facts. 1wph1.t
On May 15, 1962, one day after the date fixed in the compromise agreement, within which the judgment debt would be paid, but was
not, respondent Imperial Insurance Inc., filed a "Motion for the Insurance of a Writ of Execution". On May 23, 1962, a Writ of Execution
was issued by respondent Sheriff of Manila and on May 26, 1962, Notices of Sale were sent out for the auction of the personal
properties of the petitioner J.R.S. Business Corporation. On June 2, 1962, a Notice of Sale of the "whole capital stocks of the
defendants JRS Business Corporation, the business name, right of operation, the whole assets, furnitures and equipments, the total
liabilities, and Net Worth, books of accounts, etc., etc." of the petitioner corporation was, handed down. On June 9, the petitioner, thru
counsel, presented an "Urgent Petition for Postponement of Auction Sale and for Release of Levy on the Business Name and Right to
Operate of Defendant JRS Business Corporation", stating that petitioners were busy negotiating for a loan with which to pay the

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judgment debt; that the judgment was for money only and, therefore, plaintiff (respondent Insurance Company) was not authorized to
take over and appropriate for its own use, the business name of the defendants; that the right to operate under the franchise, was not
transferable and could not be considered a personal or immovable, property, subject to levy and sale. On June 10, 1962, a
Supplemental Motion for Release of Execution, was filed by counsel of petitioner JRS Business Corporation, claiming that the capital
stocks thereof, could not be levied upon and sold under execution. Under date of June 20, 1962, petitioner's counsel presented a
pleading captioned "Very Urgent Motion for Postponement of Public Auction Sale and for Ruling on Motion for Release of Levy on
the Business Name, Right to Operate and Capital Stocks of JRS Business Corporation". The auction sale was set for June 21, 1962. In
said motion, petitioners alleged that the loan they had applied for, was to be secured within the next ten (10) days, and they would be
able to discharge the judgment debt. Respondents opposed the said motion and on June 21, 1962, the lower court denied the motion
for postponement of the auction sale.
In the sale which was conducted in the premises of the JRS Business Corporation at 1341 Perez St., Paco, Manila, all the properties of
said corporation contained in the Notices of Sale dated May 26, 1962, and June 2, 1962 (the latter notice being for the whole capital
stocks of the defendant, JRS Business Corporation, the business name, right of operation, the whole assets, furnitures and
equipments, the total liabilities and Net Worth, books of accounts, etc., etc.), were bought by respondent Imperial Insurance, Inc., for
P10,000.00, which was the highest bid offered. Immediately after the sale, respondent Insurance Company took possession of the
proper ties and started running the affairs and operating the business of the JRS Business Corporation. Hence, the present appeal.
It would seem that the matters which need determination are (1) whether the respondent Judge acted without or in excess of his
jurisdiction or with grave abuse of discretion in promulgating the Order of June 21, 1962, denying the motion for postponement of the
scheduled sale at public auction, of the properties of petitioner; and (2) whether the business name or trade name, franchise (right to
operate) and capital stocks of the petitioner are properties or property rights which could be the subject of levy, execution and sale.
The respondent Court's act of postponing the scheduled sale was within the discretion of respondent Judge, the exercise of which, one
way or the other, did not constitute grave abuse of discretion and/or excess of jurisdiction. There was a decision rendered and the
corresponding writ of execution was issued. Respondent Judge had jurisdiction over the matter and erroneous conclusions of law or
fact, if any, committed in the exercise of such jurisdiction are merely errors of judgment, not correctible by certiorari (Villa Rey Transit v.
Bello, et al., L-18957, April 23, 1963, and cases cited therein.)
The corporation law, on forced sale of franchises, provides
Any franchise granted to a corporation to collect tolls or to occupy, enjoy, or use public property or any portion of the public
domain or any right of way over public property or the public domain, and any rights and privileges acquired under such
franchise may be levied upon and sold under execution, together with the property necessary for the enjoyment, the exercise
of the powers, and the receipt of the proceeds of such franchise or right of way, in the same manner and with like effect as any
other property to satisfy any judgment against the corporation: Provided, That the sale of the franchise or right of way and the
property necessary for the enjoyment, the exercise of the powers, and the receipt of the proceeds of said franchise or right of
way is especially decreed and ordered in the judgment: And provided, further, That the sale shall not become effective until
confirmed by the court after due notice. (Sec. 56, Corporation Law.)
In the case of Gulf Refining Co. v. Cleveland Trust Co., 108 So., 158, it was held
The first question then for decision is the meaning of the word "franchise" in the statute.
"A franchise is a special privilege conferred by governmental authority, and which does not belong to citizens of the
country generally as a matter of common right. ... Its meaning depends more or less upon the connection in which the
word is employed and the property and corporation to which it is applied. It may have different significations.
"For practical purposes, franchises, so far as relating to corporations, are divisible into (1) corporate or general
franchises; and (2) special or secondary franchises. The former is the franchise to exist as a corporation, while the
latter are certain rights and privileges conferred upon existing corporations, such as the right to use the streets of a
municipality to lay pipes or tracks, erect poles or string wires." 2 Fletcher's Cyclopedia Corp. See. 1148; 14 C.J. p.
160; Adams v. Yazon & M. V. R. Co., 24 So. 200, 317, 28 So. 956, 77 Miss. 253, 60 L.R.A. 33 et seq.
The primary franchise of a corporation that is, the right to exist as such, is vested "in the individuals who compose the
corporation and not in the corporation itself" (14 C.J. pp. 160, 161; Adams v. Railroad, supra; 2 Fletcher's Cyclopedia Corp.
Secs. 1153, 1158; 3 Thompson on Corporations 2d Ed.] Secs. 2863, 2864),and cannot be conveyed in the absence of a
legislative authority so to do (14A CJ. 543, 577; 1 Fletcher's Cyc. Corp. Sec. 1224; Memphis & L.R.R. Co. v. Berry 5 S. Ct.
299, 112 U.S. 609, 28 L.E.d. 837; Vicksburg Waterworks Co. v. Vicksburg, 26 S. Ct. 660, 202 U.S. 453, 50 L.E.d. 1102, 6 Ann.
Cas. 253; Arthur v. Commercial & Railroad Bank, 9 Smedes & M. 394, 48 Am. Dec. 719), but the specify or secondary
franchises of a corporation are vested in the corporation and may ordinarily be conveyed or mortgaged under a general power
granted to a corporation to dispose of its property (Adams v. Railroad, supra; 14A C.J. 542, 557; 3 Thompson on Corp. [2nd

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Ed.] Sec. 2909), except such special or secondary franchises as are charged with a public use (2 Fletcher's Cyc. Corp. see.
1225; 14A C.J. 544; 3 Thompson on Corp. [2d Ed.] sec. 2908; Arthur v. Commercial & R.R. Bank, supra; McAllister v. Plant, 54
Miss. 106).
The right to operate a messenger and express delivery service, by virtue of a legislative enactment, is admittedly a secondary franchise
(R.A. No. 3260, entitled "An Act granting the JRS Business Corporation a franchise to conduct a messenger and express service)" and,
as such, under our corporation law, is subject to levy and sale on execution together and including all the property necessary for the
enjoyment thereof. The law, however, indicates the procedure under which the same (secondary franchise and the properties
necessary for its enjoyment) may be sold under execution. Said franchise can be sold under execution, when such sale is especially
decreed and ordered in the judgment and it becomes effective only when the sale is confirmed by the Court after due notice (Sec. 56,
Corp. Law). The compromise agreement and the judgment based thereon, do not contain any special decree or order making the
franchise answerable for the judgment debt. The same thing may be stated with respect to petitioner's trade name or business name
and its capital stock. Incidentally, the trade name or business name corresponds to the initials of the President of the petitioner
corporation and there can be no serious dispute regarding the fact that a trade name or business name and capital stock are
necessarily included in the enjoyment of the franchise. Like that of a franchise, the law mandates, that property necessary for the
enjoyment of said franchise, can only be sold to satisfy a judgment debt if the decision especially so provides. As We have stated
heretofore, no such directive appears in the decision. Moreover, a trade name or business name cannot be sold separately from the
franchise, and the capital stock of the petitioner corporation or any other corporation, for the matter, represents the interest and is the
property of stockholders in the corporation, who can only be deprived thereof in the manner provided by law (Therbee v. Baker, 35 N.E.
Eq. [8 Stew.] 501, 505; In re Wells' Estate, 144 N.W. 174, 177, Wis. 294, cited in 6 Words and Phrases, 109).
It, therefore, results that the inclusion of the franchise, the trade name and/or business name and the capital stock of the petitioner
corporation, in the sale of the properties of the JRS Business Corporation, has no justification. The sale of the properties of petitioner
corporation is set aside, in so far as it authorizes the levy and sale of its franchise, trade name and capital stocks. Without
pronouncement as to costs.

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G.R. No. 125027

August 12, 2002

ANITA MANGILA, petitioner,


vs.
COURT OF APPEALS and LORETA GUINA, respondents.
CARPIO, J.:
The Case
This is a petition fore review on certiorari under Rule 45 of the Rules of Court, seeking to set aside the Decision1of the Court of Appeals
affirming the Decision2 of the Regional Trial Court, Branch 108, Pasay City. The trial court upheld the writ of attachment and the
declaration of default on petitioner while ordering her to pay private respondent P109,376.95 plus 18 percent interest per annum, 25
percent attorneys fees and costs of suit.
The Facts
Petitioner Anita Mangila ("petitioner" for brevity) is an exporter of sea foods and doing business under the name and style of Seafoods
Products. Private respondent Loreta Guina ("private respondent" for brevity) is the President and General Manager of Air Swift
International, a single registered proprietorship engaged in the freight forwarding business.
Sometime in January 1988, petitioner contracted the freight forwarding services of private respondent for shipment of petitioners
products, such as crabs, prawns and assorted fishes, to Guam (USA) where petitioner maintains an outlet. Petitioner agreed to pay
private respondent cash on delivery. Private respondents invoice stipulates a charge of 18 percent interest per annum on all overdue
accounts. In case of suit, the same invoice stipulates attorneys fees equivalent to 25 percent of the amount due plus costs of suit.3
On the first shipment, petitioner requested for seven days within which to pay private respondent. However, for the next three
shipments, March 17, 24 and 31, 1988, petitioner failed to pay private respondent shipping charges amounting to P109, 376.95.4
Despite several demands, petitioner never paid private respondent. Thus, on June 10, 1988, private respondent filed Civil Case No.
5875 before the Regional Trial Court of Pasay City for collection of sum of money.
On August 1, 1988, the sheriff filed his Sheriffs Return showing that summons was not served on petitioner. A woman found at
petitioners house informed the sheriff that petitioner transferred her residence to Sto. Nio, Guagua, Pampanga. The sheriff found out
further that petitioner had left the Philippines for Guam.5
Thus, on September 13, 1988, construing petitioners departure from the Philippines as done with intent to defraud her creditors, private
respondent filed a Motion for Preliminary Attachment. On September 26, 1988, the trial court issued an Order of Preliminary
Attachment6 against petitioner. The following day, the trial court issued a Writ of Preliminary Attachment.
The trial court granted the request of its sheriff for assistance from their counterparts in RTC, Pampanga. Thus, on October 28, 1988,
Sheriff Alfredo San Miguel of RTC Pampanga served on petitioners household help in San Fernando, Pampanga, the Notice of Levy
with the Order, Affidavit and Bond.7
On November 7, 1988, petitioner filed an Urgent Motion to Discharge Attachment8 without submitting herself to the jurisdiction of the
trial court. She pointed out that up to then, she had not been served a copy of the Complaint and the summons. Hence, petitioner
claimed the court had not acquired jurisdiction over her person.9
In the hearing of the Urgent Motion to Discharge Attachment on November 11, 1988, private respondent sought and was granted a resetting to December 9, 1988. On that date, private respondents counsel did not appear, so the Urgent Motion to Discharge Attachment
was deemed submitted for resolution.10
The trial court granted the Motion to Discharge Attachment on January 13, 1989 upon filing of petitioners counter-bond. The trial court,
however, did not rule on the question of jurisdiction and on the validity of the writ of preliminary attachment.

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On December 26, 1988, private respondent applied for an alias summons, which the trial court issued on January 19, 1989.11 It was
only on January 26, 1989 that summons was finally served on petitioner.12
On February 9, 1989, petitioner filed a Motion to Dismiss the Complaint on the ground of improper venue. Private respondents invoice
for the freight forwarding service stipulates that "if court litigation becomes necessary to enforce collection xxx the agreed venue for
such action is Makati, Metro Manila."13 Private respondent filed an Opposition asserting that although "Makati" appears as the stipulated
venue, the same was merely an inadvertence by the printing press whose general manager executed an affidavit14 admitting such
inadvertence. Moreover, private respondent claimed that petitioner knew that private respondent was holding office in Pasay City and
not in Makati.15 The lower court, finding credence in private respondents assertion, denied the Motion to Dismiss and gave petitioner
five days to file her Answer. Petitioner filed a Motion for Reconsideration but this too was denied.
Petitioner filed her Answer16 on June 16, 1989, maintaining her contention that the venue was improperly laid.
On June 26, 1989, the trial court issued an Order setting the pre-trial for July 18, 1989 at 8:30 a.m. and requiring the parties to submit
their pre-trial briefs. Meanwhile, private respondent filed a Motion to Sell Attached Properties but the trial court denied the motion.
On motion of petitioner, the trial court issued an Order resetting the pre-trial from July 18, 1989 to August 24, 1989 at 8:30 a.m..
On August 24, 1989, the day of the pre-trial, the trial court issued an Order17 terminating the pre-trial and allowing the private
respondent to present evidence ex-parte on September 12, 1989 at 8:30 a.m.. The Order stated that when the case was called for pretrial at 8:31 a.m., only the counsel for private respondent appeared. Upon the trial courts second call 20 minutes later, petitioners
counsel was still nowhere to be found. Thus, upon motion of private respondent, the pre-trial was considered terminated.
On September 12, 1989, petitioner filed her Motion for Reconsideration of the Order terminating the pre-trial. Petitioner explained that
her counsel arrived 5 minutes after the second call, as shown by the transcript of stenographic notes, and was late because of heavy
traffic. Petitioner claims that the lower court erred in allowing private respondent to present evidence ex-parte since there was no Order
considering the petitioner as in default. Petitioner contends that the Order of August 24, 1989 did not state that petitioner was declared
as in default but still the court allowed private respondent to present evidence ex-parte.18
On October 6, 1989, the trial court denied the Motion for Reconsideration and scheduled the presentation of private respondents
evidence ex-parte on October 10, 1989.1wphi1.nt
On October 10, 1989, petitioner filed an Omnibus Motion stating that the presentation of evidence ex-parte should be suspended
because there was no declaration of petitioner as in default and petitioners counsel was not absent, but merely late.
On October 18, 1989, the trial court denied the Omnibus Motion.19
On November 20, 1989, the petitioner received a copy of the Decision of November 10, 1989, ordering petitioner to pay respondent
P109,376.95 plus 18 percent interest per annum, 25 percent attorneys fees and costs of suit. Private respondent filed a Motion for
Execution Pending Appeal but the trial court denied the same.
The Ruling of the Court of Appeals
On December 15, 1995, the Court of Appeals rendered a decision affirming the decision of the trial court. The Court of Appeals upheld
the validity of the issuance of the writ of attachment and sustained the filing of the action in the RTC of Pasay. The Court of Appeals
also affirmed the declaration of default on petitioner and concluded that the trial court did not commit any reversible error.
Petitioner filed a Motion for Reconsideration on January 5, 1996 but the Court of Appeals denied the same in a Resolution dated May
20, 1996.
Hence, this petition.
The Issues

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The issues raised by petitioner may be re-stated as follows:
I.
WHETHER RESPONDENT COURT ERRED IN NOT HOLDING THAT THE WRIT OF ATTACHMENT WAS IMPROPERLY
ISSUED AND SERVED;
II.
WHETHER THERE WAS A VALID DECLARATION OF DEFAULT;
III.
WHETHER THERE WAS IMPROPER VENUE.
IV.
WHETHER RESPONDENT COURT ERRED IN DECLARING THAT PETITIONER IS OBLIGED TO PAY P109, 376.95, PLUS
ATTORNEYS FEES.20
The Ruling of the Court
Improper Issuance and Service of Writ of Attachment
Petitioner ascribes several errors to the issuance and implementation of the writ of attachment. Among petitioners arguments are: first,
there was no ground for the issuance of the writ since the intent to defraud her creditors had not been established; second, the value of
the properties levied exceeded the value of private respondents claim. However, the crux of petitioners arguments rests on the
question of the validity of the writ of attachment. Because of failure to serve summons on her before or simultaneously with the writs
implementation, petitioner claims that the trial court had not acquired jurisdiction over her person and thus the service of the writ is void.
As a preliminary note, a distinction should be made between issuance and implementation of the writ of attachment. It is necessary to
distinguish between the two to determine when jurisdiction over the person of the defendant should be acquired to validly implement
the writ. This distinction is crucial in resolving whether there is merit in petitioners argument.
This Court has long settled the issue of when jurisdiction over the person of the defendant should be acquired in cases where a party
resorts to provisional remedies. A party to a suit may, at any time after filing the complaint, avail of the provisional remedies under the
Rules of Court. Specifically, Rule 57 on preliminary attachment speaks of the grant of the remedy "at the commencement of the
action or at any time thereafter."21 This phrase refers to the date of filing of the complaint which is the moment that marks "the
commencement of the action." The reference plainly is to a time before summons is served on the defendant, or even before summons
issues.
In Davao Light & Power Co., Inc. v. Court of Appeals, 22 this Court clarified the actual time when jurisdiction should be had:
"It goes without saying that whatever be the acts done by the Court prior to the acquisition of jurisdiction over the person of
defendant - issuance of summons, order of attachment and writ of attachment - these do not and cannot bind and affect
the defendant until and unless jurisdiction over his person is eventually obtained by the court, either by service on him
of summons or other coercive process or his voluntary submission to the courts authority. Hence, when the sheriff or other
proper officer commences implementation of the writ of attachment, it is essential that he serve on the defendant not only a
copy of the applicants affidavit and attachment bond, and of the order of attachment, as explicitly required by Section 5 of
Rule 57, but also the summons addressed to said defendant as well as a copy of the complaint xxx." (Emphasis supplied.)
Furthermore, we have held that the grant of the provisional remedy of attachment involves three stages: first, the court issues the order
granting the application; second, the writ of attachment issues pursuant to the order granting the writ; and third, the writ is
implemented. For the initial two stages, it is not necessary that jurisdiction over the person of the defendant be first

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obtained. However, once the implementation of the writ commences, the court must have acquired jurisdiction over the defendant
for without such jurisdiction, the court has no power and authority to act in any manner against the defendant. Any order issuing from
the Court will not bind the defendant.23
In the instant case, the Writ of Preliminary Attachment was issued on September 27, 1988 and implemented on October 28,
1988. However, the alias summons was served only on January 26, 1989 or almost three months after the implementation of
the writ of attachment.
The trial court had the authority to issue the Writ of Attachment on September 27 since a motion for its issuance can be filed "at the
commencement of the action." However, on the day the writ was implemented, the trial court should have, previously or simultaneously
with the implementation of the writ, acquired jurisdiction over the petitioner. Yet, as was shown in the records of the case, the summons
was actually served on petitioner several months after the writ had been implemented.
Private respondent, nevertheless, claims that the prior or contemporaneous service of summons contemplated in Section 5 of Rule 57
provides for exceptions. Among such exceptions are "where the summons could not be served personally or by substituted service
despite diligent efforts or where the defendant is a resident temporarily absent therefrom x x x." Private respondent asserts that when
she commenced this action, she tried to serve summons on petitioner but the latter could not be located at her customary address in
Kamuning, Quezon City or at her new address in Guagua, Pampanga.24 Furthermore, respondent claims that petitioner was not even in
Pampanga; rather, she was in Guam purportedly on a business trip.
Private respondent never showed that she effected substituted service on petitioner after her personal service failed. Likewise, if it were
true that private respondent could not ascertain the whereabouts of petitioner after a diligent inquiry, still she had some other recourse
under the Rules of Civil Procedure.
The rules provide for certain remedies in cases where personal service could not be effected on a party. Section 14, Rule 14 of the
Rules of Court provides that whenever the defendants "whereabouts are unknown and cannot be ascertained by diligent inquiry,
service may, by leave of court, be effected upon him by publication in a newspaper of general circulation x x x." Thus, if petitioners
whereabouts could not be ascertained after the sheriff had served the summons at her given address, then respondent could have
immediately asked the court for service of summons by publication on petitioner.25
Moreover, as private respondent also claims that petitioner was abroad at the time of the service of summons, this made petitioner a
resident who is temporarily out of the country. This is the exact situation contemplated in Section 16,26 Rule 14 of the Rules of Civil
Procedure, providing for service of summons by publication.
In conclusion, we hold that the alias summons belatedly served on petitioner cannot be deemed to have cured the fatal defect in the
enforcement of the writ. The trial court cannot enforce such a coercive process on petitioner without first obtaining jurisdiction over her
person. The preliminary writ of attachment must be served after or simultaneous with the service of summons on the defendant whether
by personal service, substituted service or by publication as warranted by the circumstances of the case.27 The subsequent service of
summons does not confer a retroactive acquisition of jurisdiction over her person because the law does not allow for retroactivity of a
belated service.
Improper Venue
Petitioner assails the filing of this case in the RTC of Pasay and points to a provision in private respondents invoice which contains the
following:
"3. If court litigation becomes necessary to enforce collection, an additional equivalent (sic) to 25% of the principal amount will
be charged. The agreed venue for such action is Makati, Metro Manila, Philippines."28
Based on this provision, petitioner contends that the action should have been instituted in the RTC of Makati and to do otherwise would
be a ground for the dismissal of the case.
We resolve to dismiss the case on the ground of improper venue but not for the reason stated by petitioner.

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The Rules of Court provide that parties to an action may agree in writing on the venue on which an action should be
brought.29 However, a mere stipulation on the venue of an action is not enough to preclude parties from bringing a case in other
venues.30 The parties must be able to show that such stipulation is exclusive. Thus, absent words that show the parties intention to
restrict the filing of a suit in a particular place, courts will allow the filing of a case in any venue, as long as jurisdictional requirements
are followed. Venue stipulations in a contract, while considered valid and enforceable, do not as a rule supersede the general rule set
forth in Rule 4 of the Revised Rules of Court.31 In the absence of qualifying or restrictive words, they should be considered merely as an
agreement on additional forum, not as limiting venue to the specified place.32
In the instant case, the stipulation does not limit the venue exclusively to Makati. There are no qualifying or restrictive words in the
invoice that would evince the intention of the parties that Makati is the "only or exclusive" venue where the action could be instituted.
We therefore agree with private respondent that Makati is not the only venue where this case could be filed.
Nevertheless, we hold that Pasay is not the proper venue for this case.
Under the 1997 Rules of Civil Procedure, the general rule is venue in personal actions is "where the defendant or any of the defendants
resides or may be found, or where the plaintiff or any of the plaintiffs resides, at the election of the plaintiff."33 The exception to this rule
is when the parties agree on an exclusive venue other than the places mentioned in the rules. But, as we have discussed, this
exception is not applicable in this case. Hence, following the general rule, the instant case may be brought in the place of residence of
the plaintiff or defendant, at the election of the plaintiff (private respondent herein).
In the instant case, the residence of private respondent (plaintiff in the lower court) was not alleged in the complaint. Rather, what was
alleged was the postal address of her sole proprietorship, Air Swift International. It was only when private respondent testified in court,
after petitioner was declared in default, that she mentioned her residence to be in Better Living Subdivision, Paraaque City.
In the earlier case of Sy v. Tyson Enterprises, Inc.,34 the reverse happened. The plaintiff in that case was Tyson Enterprises, Inc., a
corporation owned and managed by Dominador Ti. The complaint, however, did not allege the office or place of business of the
corporation, which was in Binondo, Manila. What was alleged was the residence of Dominador Ti, who lived in San Juan, Rizal. The
case was filed in the Court of First Instance of Rizal, Pasig. The Court there held that the evident purpose of alleging the address of the
corporations president and manager was to justify the filing of the suit in Rizal, Pasig instead of in Manila. Thus, the Court ruled that
there was no question that venue was improperly laid in that case and held that the place of business of Tyson Enterpises, Inc. is
considered as its residence for purposes of venue. Furthermore, the Court held that the residence of its president is not the residence
of the corporation because a corporation has a personality separate and distinct from that of its officers and stockholders.
In the instant case, it was established in the lower court that petitioner resides in San Fernando, Pampanga35while private respondent
resides in Paraaque City.36 However, this case was brought in Pasay City, where the business of private respondent is found. This
would have been permissible had private respondents business been a corporation, just like the case in Sy v. Tyson Enterprises,
Inc. However, as admitted by private respondent in her Complaint37 in the lower court, her business is a sole proprietorship, and as
such, does not have a separate juridical personality that could enable it to file a suit in court.38 In fact, there is no law authorizing sole
proprietorships to file a suit in court.39
A sole proprietorship does not possess a juridical personality separate and distinct from the personality of the owner of the
enterprise.40 The law merely recognizes the existence of a sole proprietorship as a form of business organization conducted for profit by
a single individual and requires its proprietor or owner to secure licenses and permits, register its business name, and pay taxes to the
national government.41 The law does not vest a separate legal personality on the sole proprietorship or empower it to file or defend an
action in court.42
Thus, not being vested with legal personality to file this case, the sole proprietorship is not the plaintiff in this case but rather Loreta
Guina in her personal capacity. In fact, the complaint in the lower court acknowledges in its caption that the plaintiff and defendant are
Loreta Guina and Anita Mangila, respectively. The title of the petition before us does not state, and rightly so, Anita Mangila v. Air Swift
International, but rather Anita Mangila v. Loreta Guina. Logically then, it is the residence of private respondent Guina, the proprietor with
the juridical personality, which should be considered as one of the proper venues for this case.
All these considered, private respondent should have filed this case either in San Fernando, Pampanga (petitioners residence) or
Paraaque (private respondents residence). Since private respondent (complainant below) filed this case in Pasay, we hold that the
case should be dismissed on the ground of improper venue.

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Although petitioner filed an Urgent Motion to Discharge Attachment in the lower court, petitioner expressly stated that she was filing the
motion without submitting to the jurisdiction of the court. At that time, petitioner had not been served the summons and a copy of the
complaint.43 Thereafter, petitioner timely filed a Motion to Dismiss44on the ground of improper venue. Rule 16, Section 1 of the Rules of
Court provides that a motion to dismiss may be filed "[W]ithin the time for but before filing the answer to the complaint or pleading
asserting a claim." Petitioner even raised the issue of improper venue in his Answer45 as a special and affirmative defense. Petitioner
also continued to raise the issue of improper venue in her Petition for Review46 before this Court. We thus hold that the dismissal of this
case on the ground of improper venue is warranted.
The rules on venue, like other procedural rules, are designed to insure a just and orderly administration of justice or the impartial and
evenhanded determination of every action and proceeding. Obviously, this objective will not be attained if the plaintiff is given
unrestricted freedom to choose where to file the complaint or petition.47
We find no reason to rule on the other issues raised by petitioner.1wphi1.nt
WHEREFORE, the petition is GRANTED on the grounds of improper venue and invalidity of the service of the writ of attachment. The
decision of the Court of Appeals and the order of respondent judge denying the motion to dismiss are REVERSED and SET ASIDE.
Civil Case No. 5875 is hereby dismissed without prejudice to refiling it in the proper venue. The attached properties of petitioner are
ordered returned to her immediately.

G.R. No. L-4935

May 28, 1954

J. M. TUASON & CO., INC., represented by it Managing PARTNER, GREGORIA ARANETA, INC., plaintiff-appellee,
vs.
QUIRINO BOLAOS, defendant-appellant.
Araneta and Araneta for appellee.
Jose A. Buendia for appellant.
REYES, J.:
This is an action originally brought in the Court of First Instance of Rizal, Quezon City Branch, to recover possesion of registered land
situated in barrio Tatalon, Quezon City.
Plaintiff's complaint was amended three times with respect to the extent and description of the land sought to be recovered. The original
complaint described the land as a portion of a lot registered in plaintiff's name under Transfer Certificate of Title No. 37686 of the land
record of Rizal Province and as containing an area of 13 hectares more or less. But the complaint was amended by reducing the area
of 6 hectares, more or less, after the defendant had indicated the plaintiff's surveyors the portion of land claimed and occupied by him.
The second amendment became necessary and was allowed following the testimony of plaintiff's surveyors that a portion of the area
was embraced in another certificate of title, which was plaintiff's Transfer Certificate of Title No. 37677. And still later, in the course of
trial, after defendant's surveyor and witness, Quirino Feria, had testified that the area occupied and claimed by defendant was about 13
hectares, as shown in his Exhibit 1, plaintiff again, with the leave of court, amended its complaint to make its allegations conform to the
evidence.
Defendant, in his answer, sets up prescription and title in himself thru "open, continuous, exclusive and public and notorious possession
(of land in dispute) under claim of ownership, adverse to the entire world by defendant and his predecessor in interest" from "time inmemorial". The answer further alleges that registration of the land in dispute was obtained by plaintiff or its predecessors in interest thru
"fraud or error and without knowledge (of) or interest either personal or thru publication to defendant and/or predecessors in interest."
The answer therefore prays that the complaint be dismissed with costs and plaintiff required to reconvey the land to defendant or pay its
value.

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After trial, the lower court rendered judgment for plaintiff, declaring defendant to be without any right to the land in question and
ordering him to restore possession thereof to plaintiff and to pay the latter a monthly rent of P132.62 from January, 1940, until he
vacates the land, and also to pay the costs.
Appealing directly to this court because of the value of the property involved, defendant makes the following assignment or errors:
I. The trial court erred in not dismissing the case on the ground that the case was not brought by the real property in interest.
II. The trial court erred in admitting the third amended complaint.
III. The trial court erred in denying defendant's motion to strike.
IV. The trial court erred in including in its decision land not involved in the litigation.
V. The trial court erred in holding that the land in dispute is covered by transfer certificates of Title Nos. 37686 and 37677.
Vl. The trial court erred in not finding that the defendant is the true and lawful owner of the land.
VII. The trial court erred in finding that the defendant is liable to pay the plaintiff the amount of P132.62 monthly from January,
1940, until he vacates the premises.
VIII. The trial court erred in not ordering the plaintiff to reconvey the land in litigation to the defendant.
As to the first assigned error, there is nothing to the contention that the present action is not brought by the real party in interest, that is,
by J. M. Tuason and Co., Inc. What the Rules of Court require is that an action be brought in the name of, but not necessarily by, the
real party in interest. (Section 2, Rule 2.) In fact the practice is for an attorney-at-law to bring the action, that is to file the complaint, in
the name of the plaintiff. That practice appears to have been followed in this case, since the complaint is signed by the law firm of
Araneta and Araneta, "counsel for plaintiff" and commences with the statement "comes now plaintiff, through its undersigned counsel."
It is true that the complaint also states that the plaintiff is "represented herein by its Managing Partner Gregorio Araneta, Inc.", another
corporation, but there is nothing against one corporation being represented by another person, natural or juridical, in a suit in court. The
contention that Gregorio Araneta, Inc. can not act as managing partner for plaintiff on the theory that it is illegal for two corporations to
enter into a partnership is without merit, for the true rule is that "though a corporation has no power to enter into a partnership, it may
nevertheless enter into a joint venture with another where the nature of that venture is in line with the business authorized by its
charter." (Wyoming-Indiana Oil Gas Co. vs. Weston, 80 A. L. R., 1043, citing 2 Fletcher Cyc. of Corp., 1082.) There is nothing in the
record to indicate that the venture in which plaintiff is represented by Gregorio Araneta, Inc. as "its managing partner" is not in line with
the corporate business of either of them.
Errors II, III, and IV, referring to the admission of the third amended complaint, may be answered by mere reference to section 4 of Rule
17, Rules of Court, which sanctions such amendment. It reads:
Sec. 4. Amendment to conform to evidence. When issues not raised by the pleadings are tried by express or implied
consent of the parties, they shall be treated in all respects, as if they had been raised in the pleadings. Such amendment of
the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made upon
motion of any party at my time, even of the trial of these issues. If evidence is objected to at the trial on the ground that it is not
within the issues made by the pleadings, the court may allow the pleadings to be amended and shall be so freely when the
presentation of the merits of the action will be subserved thereby and the objecting party fails to satisfy the court that the
admission of such evidence would prejudice him in maintaining his action or defense upon the merits. The court may grant a
continuance to enable the objecting party to meet such evidence.
Under this provision amendment is not even necessary for the purpose of rendering judgment on issues proved though not alleged.
Thus, commenting on the provision, Chief Justice Moran says in this Rules of Court:
Under this section, American courts have, under the New Federal Rules of Civil Procedure, ruled that where the facts shown
entitled plaintiff to relief other than that asked for, no amendment to the complaint is necessary, especially where defendant

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has himself raised the point on which recovery is based, and that the appellate court treat the pleadings as amended to
conform to the evidence, although the pleadings were not actually amended. (I Moran, Rules of Court, 1952 ed., 389-390.)
Our conclusion therefore is that specification of error II, III, and IV are without merit..
Let us now pass on the errors V and VI. Admitting, though his attorney, at the early stage of the trial, that the land in dispute "is that
described or represented in Exhibit A and in Exhibit B enclosed in red pencil with the name Quirino Bolaos," defendant later changed
his lawyer and also his theory and tried to prove that the land in dispute was not covered by plaintiff's certificate of title. The evidence,
however, is against defendant, for it clearly establishes that plaintiff is the registered owner of lot No. 4-B-3-C, situate in barrio Tatalon,
Quezon City, with an area of 5,297,429.3 square meters, more or less, covered by transfer certificate of title No. 37686 of the land
records of Rizal province, and of lot No. 4-B-4, situated in the same barrio, having an area of 74,789 square meters, more or less,
covered by transfer certificate of title No. 37677 of the land records of the same province, both lots having been originally registered on
July 8, 1914 under original certificate of title No. 735. The identity of the lots was established by the testimony of Antonio Manahan and
Magno Faustino, witnesses for plaintiff, and the identity of the portion thereof claimed by defendant was established by the testimony of
his own witness, Quirico Feria. The combined testimony of these three witnesses clearly shows that the portion claimed by defendant is
made up of a part of lot 4-B-3-C and major on portion of lot 4-B-4, and is well within the area covered by the two transfer certificates of
title already mentioned. This fact also appears admitted in defendant's answer to the third amended complaint.
As the land in dispute is covered by plaintiff's Torrens certificate of title and was registered in 1914, the decree of registration can no
longer be impugned on the ground of fraud, error or lack of notice to defendant, as more than one year has already elapsed from the
issuance and entry of the decree. Neither court the decree be collaterally attacked by any person claiming title to, or interest in, the land
prior to the registration proceedings. (Sorogon vs. Makalintal,1 45 Off. Gaz., 3819.) Nor could title to that land in derogation of that of
plaintiff, the registered owner, be acquired by prescription or adverse possession. (Section 46, Act No. 496.) Adverse, notorious and
continuous possession under claim of ownership for the period fixed by law is ineffective against a Torrens title. (Valiente vs. Judge of
CFI of Tarlac,2 etc., 45 Off. Gaz., Supp. 9, p. 43.) And it is likewise settled that the right to secure possession under a decree of
registration does not prescribed. (Francisco vs. Cruz, 43 Off. Gaz., 5105, 5109-5110.) A recent decision of this Court on this point is that
rendered in the case of Jose Alcantara et al., vs. Mariano et al., 92 Phil., 796. This disposes of the alleged errors V and VI.
As to error VII, it is claimed that `there was no evidence to sustain the finding that defendant should be sentenced to pay plaintiff
P132.62 monthly from January, 1940, until he vacates the premises.' But it appears from the record that that reasonable compensation
for the use and occupation of the premises, as stipulated at the hearing was P10 a month for each hectare and that the area occupied
by defendant was 13.2619 hectares. The total rent to be paid for the area occupied should therefore be P132.62 a month. It is appears
from the testimony of J. A. Araneta and witness Emigdio Tanjuatco that as early as 1939 an action of ejectment had already been filed
against defendant. And it cannot be supposed that defendant has been paying rents, for he has been asserting all along that the
premises in question 'have always been since time immemorial in open, continuous, exclusive and public and notorious possession and
under claim of ownership adverse to the entire world by defendant and his predecessors in interest.' This assignment of error is thus
clearly without merit.
Error No. VIII is but a consequence of the other errors alleged and needs for further consideration.
During the pendency of this case in this Court appellant, thru other counsel, has filed a motion to dismiss alleging that there is pending
before the Court of First Instance of Rizal another action between the same parties and for the same cause and seeking to sustain that
allegation with a copy of the complaint filed in said action. But an examination of that complaint reveals that appellant's allegation is not
correct, for the pretended identity of parties and cause of action in the two suits does not appear. That other case is one for recovery of
ownership, while the present one is for recovery of possession. And while appellant claims that he is also involved in that order action
because it is a class suit, the complaint does not show that such is really the case. On the contrary, it appears that the action seeks
relief for each individual plaintiff and not relief for and on behalf of others. The motion for dismissal is clearly without merit.
Wherefore, the judgment appealed from is affirmed, with costs against the plaintiff.

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G.R. No. 75875 December 15, 1989
WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM and CHARLES CHAMSAY, petitioners,
vs.
SANITARY WARES MANUFACTURING CORPORATOIN, ERNESTO V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R.
LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V. CRUZ, respondents.
G.R. No. 75951 December 15, 1989
SANITARY WARES MANUFACTURING CORPORATION, ERNESTO R. LAGDAMEO, ENRIQUE B. LAGDAMEO, GEORGE FL .EE
RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V. CRUX, petitioners,
vs.
THE COURT OF APPEALS, WOLFGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM, CHARLES CHAMSAY and
LUCIANO SALAZAR, respondents.
G.R. Nos. 75975-76 December 15, 1989
LUCIANO E. SALAZAR, petitioner,
vs.
SANITARY WARES MANUFACTURING CORPORATION, ERNESTO V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R.
LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG, AVELINO V. CRUZ and the COURT OF
APPEALS, respondents.
Belo, Abiera & Associates for petitioners in 75875.
Sycip, Salazar, Hernandez & Gatmaitan for Luciano E. Salazar.

GUTIERREZ, JR., J.:


These consolidated petitions seek the review of the amended decision of the Court of Appeals in CA-G.R. SP Nos. 05604 and 05617
which set aside the earlier decision dated June 5, 1986, of the then Intermediate Appellate Court and directed that in all subsequent
elections for directors of Sanitary Wares Manufacturing Corporation (Saniwares), American Standard Inc. (ASI) cannot nominate more
than three (3) directors; that the Filipino stockholders shall not interfere in ASI's choice of its three (3) nominees; that, on the other
hand, the Filipino stockholders can nominate only six (6) candidates and in the event they cannot agree on the six (6) nominees, they
shall vote only among themselves to determine who the six (6) nominees will be, with cumulative voting to be allowed but without
interference from ASI.
The antecedent facts can be summarized as follows:
In 1961, Saniwares, a domestic corporation was incorporated for the primary purpose of manufacturing and marketing sanitary wares.
One of the incorporators, Mr. Baldwin Young went abroad to look for foreign partners, European or American who could help in its
expansion plans. On August 15, 1962, ASI, a foreign corporation domiciled in Delaware, United States entered into an Agreement with
Saniwares and some Filipino investors whereby ASI and the Filipino investors agreed to participate in the ownership of an enterprise
which would engage primarily in the business of manufacturing in the Philippines and selling here and abroad vitreous china and
sanitary wares. The parties agreed that the business operations in the Philippines shall be carried on by an incorporated enterprise and
that the name of the corporation shall initially be "Sanitary Wares Manufacturing Corporation."
The Agreement has the following provisions relevant to the issues in these cases on the nomination and election of the directors of the
corporation:
3. Articles of Incorporation

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(a) The Articles of Incorporation of the Corporation shall be substantially in the form annexed hereto as Exhibit A and,
insofar as permitted under Philippine law, shall specifically provide for
(1) Cumulative voting for directors:
xxx xxx xxx
5. Management
(a) The management of the Corporation shall be vested in a Board of Directors, which shall consist of nine
individuals. As long as American-Standard shall own at least 30% of the outstanding stock of the Corporation, three of
the nine directors shall be designated by American-Standard, and the other six shall be designated by the other
stockholders of the Corporation. (pp. 51 & 53, Rollo of 75875)
At the request of ASI, the agreement contained provisions designed to protect it as a minority group, including the grant of veto powers
over a number of corporate acts and the right to designate certain officers, such as a member of the Executive Committee whose vote
was required for important corporate transactions.
Later, the 30% capital stock of ASI was increased to 40%. The corporation was also registered with the Board of Investments for
availment of incentives with the condition that at least 60% of the capital stock of the corporation shall be owned by Philippine nationals.
The joint enterprise thus entered into by the Filipino investors and the American corporation prospered. Unfortunately, with the business
successes, there came a deterioration of the initially harmonious relations between the two groups. According to the Filipino group, a
basic disagreement was due to their desire to expand the export operations of the company to which ASI objected as it apparently had
other subsidiaries of joint joint venture groups in the countries where Philippine exports were contemplated. On March 8, 1983, the
annual stockholders' meeting was held. The meeting was presided by Baldwin Young. The minutes were taken by the Secretary,
Avelino Cruz. After disposing of the preliminary items in the agenda, the stockholders then proceeded to the election of the members of
the board of directors. The ASI group nominated three persons namely; Wolfgang Aurbach, John Griffin and David P. Whittingham. The
Philippine investors nominated six, namely; Ernesto Lagdameo, Sr., Raul A. Boncan, Ernesto R. Lagdameo, Jr., George F. Lee, and
Baldwin Young. Mr. Eduardo R, Ceniza then nominated Mr. Luciano E. Salazar, who in turn nominated Mr. Charles Chamsay. The
chairman, Baldwin Young ruled the last two nominations out of order on the basis of section 5 (a) of the Agreement, the consistent
practice of the parties during the past annual stockholders' meetings to nominate only nine persons as nominees for the nine-member
board of directors, and the legal advice of Saniwares' legal counsel. The following events then, transpired:
... There were protests against the action of the Chairman and heated arguments ensued. An appeal was made by
the ASI representative to the body of stockholders present that a vote be taken on the ruling of the Chairman. The
Chairman, Baldwin Young, declared the appeal out of order and no vote on the ruling was taken. The Chairman then
instructed the Corporate Secretary to cast all the votes present and represented by proxy equally for the 6 nominees
of the Philippine Investors and the 3 nominees of ASI, thus effectively excluding the 2 additional persons nominated,
namely, Luciano E. Salazar and Charles Chamsay. The ASI representative, Mr. Jaqua protested the decision of the
Chairman and announced that all votes accruing to ASI shares, a total of 1,329,695 (p. 27, Rollo, AC-G.R. SP No.
05617) were being cumulatively voted for the three ASI nominees and Charles Chamsay, and instructed the
Secretary to so vote. Luciano E. Salazar and other proxy holders announced that all the votes owned by and or
represented by them 467,197 shares (p. 27, Rollo, AC-G.R. SP No. 05617) were being voted cumulatively in favor of
Luciano E. Salazar. The Chairman, Baldwin Young, nevertheless instructed the Secretary to cast all votes equally in
favor of the three ASI nominees, namely, Wolfgang Aurbach, John Griffin and David Whittingham and the six
originally nominated by Rogelio Vinluan, namely, Ernesto Lagdameo, Sr., Raul Boncan, Ernesto Lagdameo, Jr.,
Enrique Lagdameo, George F. Lee, and Baldwin Young. The Secretary then certified for the election of the following
Wolfgang Aurbach, John Griffin, David Whittingham Ernesto Lagdameo, Sr., Ernesto Lagdameo, Jr., Enrique
Lagdameo, George F. Lee, Raul A. Boncan, Baldwin Young. The representative of ASI then moved to recess the
meeting which was duly seconded. There was also a motion to adjourn (p. 28, Rollo, AC-G.R. SP No. 05617). This
motion to adjourn was accepted by the Chairman, Baldwin Young, who announced that the motion was carried and
declared the meeting adjourned. Protests against the adjournment were registered and having been ignored, Mr.
Jaqua the ASI representative, stated that the meeting was not adjourned but only recessed and that the meeting
would be reconvened in the next room. The Chairman then threatened to have the stockholders who did not agree to

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the decision of the Chairman on the casting of votes bodily thrown out. The ASI Group, Luciano E. Salazar and other
stockholders, allegedly representing 53 or 54% of the shares of Saniwares, decided to continue the meeting at the
elevator lobby of the American Standard Building. The continued meeting was presided by Luciano E. Salazar, while
Andres Gatmaitan acted as Secretary. On the basis of the cumulative votes cast earlier in the meeting, the ASI Group
nominated its four nominees; Wolfgang Aurbach, John Griffin, David Whittingham and Charles Chamsay. Luciano E.
Salazar voted for himself, thus the said five directors were certified as elected directors by the Acting Secretary,
Andres Gatmaitan, with the explanation that there was a tie among the other six (6) nominees for the four (4)
remaining positions of directors and that the body decided not to break the tie. (pp. 37-39, Rollo of 75975-76)
These incidents triggered off the filing of separate petitions by the parties with the Securities and Exchange Commission (SEC). The
first petition filed was for preliminary injunction by Saniwares, Emesto V. Lagdameo, Baldwin Young, Raul A. Bonean Ernesto R.
Lagdameo, Jr., Enrique Lagdameo and George F. Lee against Luciano Salazar and Charles Chamsay. The case was denominated as
SEC Case No. 2417. The second petition was for quo warranto and application for receivership by Wolfgang Aurbach, John Griffin,
David Whittingham, Luciano E. Salazar and Charles Chamsay against the group of Young and Lagdameo (petitioners in SEC Case No.
2417) and Avelino F. Cruz. The case was docketed as SEC Case No. 2718. Both sets of parties except for Avelino Cruz claimed to be
the legitimate directors of the corporation.
The two petitions were consolidated and tried jointly by a hearing officer who rendered a decision upholding the election of the
Lagdameo Group and dismissing the quo warranto petition of Salazar and Chamsay. The ASI Group and Salazar appealed the decision
to the SEC en banc which affirmed the hearing officer's decision.
The SEC decision led to the filing of two separate appeals with the Intermediate Appellate Court by Wolfgang Aurbach, John Griffin,
David Whittingham and Charles Chamsay (docketed as AC-G.R. SP No. 05604) and by Luciano E. Salazar (docketed as AC-G.R. SP
No. 05617). The petitions were consolidated and the appellate court in its decision ordered the remand of the case to the Securities and
Exchange Commission with the directive that a new stockholders' meeting of Saniwares be ordered convoked as soon as possible,
under the supervision of the Commission.
Upon a motion for reconsideration filed by the appellees Lagdameo Group) the appellate court (Court of Appeals) rendered the
questioned amended decision. Petitioners Wolfgang Aurbach, John Griffin, David P. Whittingham and Charles Chamsay in G.R. No.
75875 assign the following errors:
I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED ELECTION OF PRIVATE RESPONDENTS AS
MEMBERS OF THE BOARD OF DIRECTORS OF SANIWARES WHEN IN FACT THERE WAS NO ELECTION AT
ALL.
II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS FROM EXERCISING THEIR FULL VOTING
RIGHTS REPRESENTED BY THE NUMBER OF SHARES IN SANIWARES, THUS DEPRIVING PETITIONERS AND
THE CORPORATION THEY REPRESENT OF THEIR PROPERTY RIGHTS WITHOUT DUE PROCESS OF LAW.
III. THE COURT OF APPEALS IMPOSES CONDITIONS AND READS PROVISIONS INTO THE AGREEMENT OF
THE PARTIES WHICH WERE NOT THERE, WHICH ACTION IT CANNOT LEGALLY DO. (p. 17, Rollo-75875)
Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended decision on the following grounds:
11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of binding contractual agreements entered into by
stockholders and the replacement of the conditions of such agreements with terms never contemplated by the
stockholders but merely dictated by the CA .
11.2. The Amended decision would likewise sanction the deprivation of the property rights of stockholders without due
process of law in order that a favored group of stockholders may be illegally benefitted and guaranteed a continuing
monopoly of the control of a corporation. (pp. 14-15, Rollo-75975-76)
On the other hand, the petitioners in G.R. No. 75951 contend that:
I

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THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE RECOGNIZING THAT THE STOCKHOLDERS
OF SANIWARES ARE DIVIDED INTO TWO BLOCKS, FAILS TO FULLY ENFORCE THE BASIC INTENT OF THE
AGREEMENT AND THE LAW.
II
THE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT PRIVATE PETITIONERS HEREIN WERE
THE DULY ELECTED DIRECTORS DURING THE 8 MARCH 1983 ANNUAL STOCKHOLDERS MEETING OF
SANTWARES. (P. 24, Rollo-75951)
The issues raised in the petitions are interrelated, hence, they are discussed jointly.
The main issue hinges on who were the duly elected directors of Saniwares for the year 1983 during its annual stockholders' meeting
held on March 8, 1983. To answer this question the following factors should be determined: (1) the nature of the business established
by the parties whether it was a joint venture or a corporation and (2) whether or not the ASI Group may vote their additional 10% equity
during elections of Saniwares' board of directors.
The rule is that whether the parties to a particular contract have thereby established among themselves a joint venture or some other
relation depends upon their actual intention which is determined in accordance with the rules governing the interpretation and
construction of contracts. (Terminal Shares, Inc. v. Chicago, B. and Q.R. Co. (DC MO) 65 F Supp 678; Universal Sales Corp. v.
California Press Mfg. Co. 20 Cal. 2nd 751, 128 P 2nd 668)
The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual intention of the parties should be viewed strictly on
the "Agreement" dated August 15,1962 wherein it is clearly stated that the parties' intention was to form a corporation and not a joint
venture.
They specifically mention number 16 under Miscellaneous Provisions which states:
xxx xxx xxx
c) nothing herein contained shall be construed to constitute any of the parties hereto partners or joint venturers in
respect of any transaction hereunder. (At P. 66, Rollo-GR No. 75875)
They object to the admission of other evidence which tends to show that the parties' agreement was to establish a joint venture
presented by the Lagdameo and Young Group on the ground that it contravenes the parol evidence rule under section 7, Rule 130 of
the Revised Rules of Court. According to them, the Lagdameo and Young Group never pleaded in their pleading that the "Agreement"
failed to express the true intent of the parties.
The parol evidence Rule under Rule 130 provides:
Evidence of written agreements-When the terms of an agreement have been reduced to writing, it is to be considered
as containing all such terms, and therefore, there can be, between the parties and their successors in interest, no
evidence of the terms of the agreement other than the contents of the writing, except in the following cases:
(a) Where a mistake or imperfection of the writing, or its failure to express the true intent and agreement of the parties
or the validity of the agreement is put in issue by the pleadings.
(b) When there is an intrinsic ambiguity in the writing.
Contrary to ASI Group's stand, the Lagdameo and Young Group pleaded in their Reply and Answer to Counterclaim in SEC Case No.
2417 that the Agreement failed to express the true intent of the parties, to wit:
xxx xxx xxx

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4. While certain provisions of the Agreement would make it appear that the parties thereto disclaim being partners or
joint venturers such disclaimer is directed at third parties and is not inconsistent with, and does not preclude, the
existence of two distinct groups of stockholders in Saniwares one of which (the Philippine Investors) shall constitute
the majority, and the other ASI shall constitute the minority stockholder. In any event, the evident intention of the
Philippine Investors and ASI in entering into the Agreement is to enter into ajoint venture enterprise, and if some
words in the Agreement appear to be contrary to the evident intention of the parties, the latter shall prevail over the
former (Art. 1370, New Civil Code). The various stipulations of a contract shall be interpreted together attributing to
the doubtful ones that sense which may result from all of them taken jointly (Art. 1374, New Civil Code). Moreover, in
order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally
considered. (Art. 1371, New Civil Code). (Part I, Original Records, SEC Case No. 2417)
It has been ruled:
In an action at law, where there is evidence tending to prove that the parties joined their efforts in furtherance of an
enterprise for their joint profit, the question whether they intended by their agreement to create a joint adventure, or to
assume some other relation is a question of fact for the jury. (Binder v. Kessler v 200 App. Div. 40,192 N Y S 653;
Pyroa v. Brownfield (Tex. Civ. A.) 238 SW 725; Hoge v. George, 27 Wyo, 423, 200 P 96 33 C.J. p. 871)
In the instant cases, our examination of important provisions of the Agreement as well as the testimonial evidence presented by the
Lagdameo and Young Group shows that the parties agreed to establish a joint venture and not a corporation. The history of the
organization of Saniwares and the unusual arrangements which govern its policy making body are all consistent with a joint venture and
not with an ordinary corporation. As stated by the SEC:
According to the unrebutted testimony of Mr. Baldwin Young, he negotiated the Agreement with ASI in behalf of the
Philippine nationals. He testified that ASI agreed to accept the role of minority vis-a-vis the Philippine National group
of investors, on the condition that the Agreement should contain provisions to protect ASI as the minority.
An examination of the Agreement shows that certain provisions were included to protect the interests of ASI as the
minority. For example, the vote of 7 out of 9 directors is required in certain enumerated corporate acts [Sec. 3 (b) (ii)
(a) of the Agreement]. ASI is contractually entitled to designate a member of the Executive Committee and the vote of
this member is required for certain transactions [Sec. 3 (b) (i)].
The Agreement also requires a 75% super-majority vote for the amendment of the articles and by-laws of Saniwares
[Sec. 3 (a) (iv) and (b) (iii)]. ASI is also given the right to designate the president and plant manager [Sec. 5 (6)]. The
Agreement further provides that the sales policy of Saniwares shall be that which is normally followed by ASI [Sec. 13
(a)] and that Saniwares should not export "Standard" products otherwise than through ASI's Export Marketing
Services [Sec. 13 (6)]. Under the Agreement, ASI agreed to provide technology and know-how to Saniwares and the
latter paid royalties for the same. (At p. 2).
xxx xxx xxx
It is pertinent to note that the provisions of the Agreement requiring a 7 out of 9 votes of the board of directors for
certain actions, in effect gave ASI (which designates 3 directors under the Agreement) an effective veto power.
Furthermore, the grant to ASI of the right to designate certain officers of the corporation; the super-majority voting
requirements for amendments of the articles and by-laws; and most significantly to the issues of tms case, the
provision that ASI shall designate 3 out of the 9 directors and the other stockholders shall designate the other 6,
clearly indicate that there are two distinct groups in Saniwares, namely ASI, which owns 40% of the capital stock and
the Philippine National stockholders who own the balance of 60%, and that 2) ASI is given certain protections as the
minority stockholder.
Premises considered, we believe that under the Agreement there are two groups of stockholders who established a
corporation with provisions for a special contractual relationship between the parties, i.e., ASI and the other
stockholders. (pp. 4-5)

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Section 5 (a) of the agreement uses the word "designated" and not "nominated" or "elected" in the selection of the nine directors on a
six to three ratio. Each group is assured of a fixed number of directors in the board.
Moreover, ASI in its communications referred to the enterprise as joint venture. Baldwin Young also testified that Section 16(c) of the
Agreement that "Nothing herein contained shall be construed to constitute any of the parties hereto partners or joint venturers in
respect of any transaction hereunder" was merely to obviate the possibility of the enterprise being treated as partnership for tax
purposes and liabilities to third parties.
Quite often, Filipino entrepreneurs in their desire to develop the industrial and manufacturing capacities of a local firm are constrained
to seek the technology and marketing assistance of huge multinational corporations of the developed world. Arrangements are
formalized where a foreign group becomes a minority owner of a firm in exchange for its manufacturing expertise, use of its brand
names, and other such assistance. However, there is always a danger from such arrangements. The foreign group may, from the start,
intend to establish its own sole or monopolistic operations and merely uses the joint venture arrangement to gain a foothold or test the
Philippine waters, so to speak. Or the covetousness may come later. As the Philippine firm enlarges its operations and becomes
profitable, the foreign group undermines the local majority ownership and actively tries to completely or predominantly take over the
entire company. This undermining of joint ventures is not consistent with fair dealing to say the least. To the extent that such subversive
actions can be lawfully prevented, the courts should extend protection especially in industries where constitutional and legal
requirements reserve controlling ownership to Filipino citizens.
The Lagdameo Group stated in their appellees' brief in the Court of Appeal
In fact, the Philippine Corporation Code itself recognizes the right of stockholders to enter into agreements regarding
the exercise of their voting rights.
Sec. 100. Agreements by stockholders.xxx xxx xxx
2. An agreement between two or more stockholders, if in writing and signed by the parties thereto, may provide that in
exercising any voting rights, the shares held by them shall be voted as therein provided, or as they may agree, or as
determined in accordance with a procedure agreed upon by them.
Appellants contend that the above provision is included in the Corporation Code's chapter on close corporations and
Saniwares cannot be a close corporation because it has 95 stockholders. Firstly, although Saniwares had 95
stockholders at the time of the disputed stockholders meeting, these 95 stockholders are not separate from each
other but are divisible into groups representing a single Identifiable interest. For example, ASI, its nominees and
lawyers count for 13 of the 95 stockholders. The YoungYutivo family count for another 13 stockholders, the Chamsay
family for 8 stockholders, the Santos family for 9 stockholders, the Dy family for 7 stockholders, etc. If the members of
one family and/or business or interest group are considered as one (which, it is respectfully submitted, they should be
for purposes of determining how closely held Saniwares is there were as of 8 March 1983, practically only 17
stockholders of Saniwares. (Please refer to discussion in pp. 5 to 6 of appellees' Rejoinder Memorandum dated 11
December 1984 and Annex "A" thereof).
Secondly, even assuming that Saniwares is technically not a close corporation because it has more than 20
stockholders, the undeniable fact is that it is a close-held corporation. Surely, appellants cannot honestly claim that
Saniwares is a public issue or a widely held corporation.
In the United States, many courts have taken a realistic approach to joint venture corporations and have not rigidly
applied principles of corporation law designed primarily for public issue corporations. These courts have indicated
that express arrangements between corporate joint ventures should be construed with less emphasis on the ordinary
rules of law usually applied to corporate entities and with more consideration given to the nature of the agreement
between the joint venturers (Please see Wabash Ry v. American Refrigerator Transit Co., 7 F 2d 335; Chicago, M &
St. P. Ry v. Des Moines Union Ry; 254 Ass'n. 247 US. 490'; Seaboard Airline Ry v. Atlantic Coast Line Ry; 240 N.C.
495,.82 S.E. 2d 771; Deboy v. Harris, 207 Md., 212,113 A 2d 903; Hathway v. Porter Royalty Pool, Inc., 296 Mich. 90,
90, 295 N.W. 571; Beardsley v. Beardsley, 138 U.S. 262; "The Legal Status of Joint Venture Corporations", 11 Vand

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Law Rev. p. 680,1958). These American cases dealt with legal questions as to the extent to which the requirements
arising from the corporate form of joint venture corporations should control, and the courts ruled that substantial
justice lay with those litigants who relied on the joint venture agreement rather than the litigants who relied on the
orthodox principles of corporation law.
As correctly held by the SEC Hearing Officer:
It is said that participants in a joint venture, in organizing the joint venture deviate from the traditional pattern of
corporation management. A noted authority has pointed out that just as in close corporations, shareholders'
agreements in joint venture corporations often contain provisions which do one or more of the following: (1) require
greater than majority vote for shareholder and director action; (2) give certain shareholders or groups of shareholders
power to select a specified number of directors; (3) give to the shareholders control over the selection and retention
of employees; and (4) set up a procedure for the settlement of disputes by arbitration (See I O' Neal, Close
Corporations, 1971 ed., Section 1.06a, pp. 15-16) (Decision of SEC Hearing Officer, P. 16)
Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not necessarily imply that agreements regarding the
exercise of voting rights are allowed only in close corporations. As Campos and Lopez-Campos explain:
Paragraph 2 refers to pooling and voting agreements in particular. Does this provision necessarily imply that these
agreements can be valid only in close corporations as defined by the Code? Suppose that a corporation has twenty
five stockholders, and therefore cannot qualify as a close corporation under section 96, can some of them enter into
an agreement to vote as a unit in the election of directors? It is submitted that there is no reason for denying
stockholders of corporations other than close ones the right to enter into not voting or pooling agreements to protect
their interests, as long as they do not intend to commit any wrong, or fraud on the other stockholders not parties to
the agreement. Of course, voting or pooling agreements are perhaps more useful and more often resorted to in close
corporations. But they may also be found necessary even in widely held corporations. Moreover, since the Code
limits the legal meaning of close corporations to those which comply with the requisites laid down by section 96, it is
entirely possible that a corporation which is in fact a close corporation will not come within the definition. In such
case, its stockholders should not be precluded from entering into contracts like voting agreements if these are
otherwise valid. (Campos & Lopez-Campos, op cit, p. 405)
In short, even assuming that sec. 5(a) of the Agreement relating to the designation or nomination of directors restricts
the right of the Agreement's signatories to vote for directors, such contractual provision, as correctly held by the SEC,
is valid and binding upon the signatories thereto, which include appellants. (Rollo No. 75951, pp. 90-94)
In regard to the question as to whether or not the ASI group may vote their additional equity during elections of Saniwares' board of
directors, the Court of Appeals correctly stated:
As in other joint venture companies, the extent of ASI's participation in the management of the corporation is spelled
out in the Agreement. Section 5(a) hereof says that three of the nine directors shall be designated by ASI and the
remaining six by the other stockholders, i.e., the Filipino stockholders. This allocation of board seats is obviously in
consonance with the minority position of ASI.
Having entered into a well-defined contractual relationship, it is imperative that the parties should honor and adhere
to their respective rights and obligations thereunder. Appellants seem to contend that any allocation of board seats,
even in joint venture corporations, are null and void to the extent that such may interfere with the stockholder's rights
to cumulative voting as provided in Section 24 of the Corporation Code. This Court should not be prepared to hold
that any agreement which curtails in any way cumulative voting should be struck down, even if such agreement has
been freely entered into by experienced businessmen and do not prejudice those who are not parties thereto. It may
well be that it would be more cogent to hold, as the Securities and Exchange Commission has held in the decision
appealed from, that cumulative voting rights may be voluntarily waived by stockholders who enter into special
relationships with each other to pursue and implement specific purposes, as in joint venture relationships between
foreign and local stockholders, so long as such agreements do not adversely affect third parties.

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In any event, it is believed that we are not here called upon to make a general rule on this question. Rather, all that
needs to be done is to give life and effect to the particular contractual rights and obligations which the parties have
assumed for themselves.
On the one hand, the clearly established minority position of ASI and the contractual allocation of board seats Cannot
be disregarded. On the other hand, the rights of the stockholders to cumulative voting should also be protected.
In our decision sought to be reconsidered, we opted to uphold the second over the first. Upon further reflection, we
feel that the proper and just solution to give due consideration to both factors suggests itself quite clearly. This Court
should recognize and uphold the division of the stockholders into two groups, and at the same time uphold the right of
the stockholders within each group to cumulative voting in the process of determining who the group's nominees
would be. In practical terms, as suggested by appellant Luciano E. Salazar himself, this means that if the Filipino
stockholders cannot agree who their six nominees will be, a vote would have to be taken among the Filipino
stockholders only. During this voting, each Filipino stockholder can cumulate his votes. ASI, however, should not be
allowed to interfere in the voting within the Filipino group. Otherwise, ASI would be able to designate more than the
three directors it is allowed to designate under the Agreement, and may even be able to get a majority of the board
seats, a result which is clearly contrary to the contractual intent of the parties.
Such a ruling will give effect to both the allocation of the board seats and the stockholder's right to cumulative voting.
Moreover, this ruling will also give due consideration to the issue raised by the appellees on possible violation or
circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and the nationalization requirements of the
Constitution and the laws if ASI is allowed to nominate more than three directors. (Rollo-75875, pp. 38-39)
The ASI Group and petitioner Salazar, now reiterate their theory that the ASI Group has the right to vote their additional equity pursuant
to Section 24 of the Corporation Code which gives the stockholders of a corporation the right to cumulate their votes in electing
directors. Petitioner Salazar adds that this right if granted to the ASI Group would not necessarily mean a violation of the Anti-Dummy
Act (Commonwealth Act 108, as amended). He cites section 2-a thereof which provides:
And provided finally that the election of aliens as members of the board of directors or governing body of corporations
or associations engaging in partially nationalized activities shall be allowed in proportion to their allowable
participation or share in the capital of such entities. (amendments introduced by Presidential Decree 715, section 1,
promulgated May 28, 1975)
The ASI Group's argument is correct within the context of Section 24 of the Corporation Code. The point of query, however, is whether
or not that provision is applicable to a joint venture with clearly defined agreements:
The legal concept of ajoint venture is of common law origin. It has no precise legal definition but it has been generally
understood to mean an organization formed for some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It
is in fact hardly distinguishable from the partnership, since their elements are similar community of interest in the
business, sharing of profits and losses, and a mutual right of control. Blackner v. Mc Dermott, 176 F. 2d. 498, [1949];
Carboneau v. Peterson, 95 P. 2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12 289 P. 2d. 242
[1955]). The main distinction cited by most opinions in common law jurisdictions is that the partnership contemplates
a general business with some degree of continuity, while the joint venture is formed for the execution of a single
transaction, and is thus of a temporary nature. (Tufts v. Mann 116 Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v.
Martin, 395 111. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]). This observation is not entirely
accurate in this jurisdiction, since under the Civil Code, a partnership may be particular or universal, and a particular
partnership may have for its object a specific undertaking. (Art. 1783, Civil Code). It would seem therefore that under
Philippine law, a joint venture is a form of partnership and should thus be governed by the law of partnerships. The
Supreme Court has however recognized a distinction between these two business forms, and has held that although
a corporation cannot enter into a partnership contract, it may however engage in a joint venture with others. (At p. 12,
Tuazon v. Bolanos, 95 Phil. 906 [1954]) (Campos and Lopez-Campos Comments, Notes and Selected Cases,
Corporation Code 1981)
Moreover, the usual rules as regards the construction and operations of contracts generally apply to a contract of joint venture. (O' Hara
v. Harman 14 App. Dev. (167) 43 NYS 556).

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Bearing these principles in mind, the correct view would be that the resolution of the question of whether or not the ASI Group may vote
their additional equity lies in the agreement of the parties.
Necessarily, the appellate court was correct in upholding the agreement of the parties as regards the allocation of director seats under
Section 5 (a) of the "Agreement," and the right of each group of stockholders to cumulative voting in the process of determining who the
group's nominees would be under Section 3 (a) (1) of the "Agreement." As pointed out by SEC, Section 5 (a) of the Agreement relates
to the manner of nominating the members of the board of directors while Section 3 (a) (1) relates to the manner of voting for these
nominees.
This is the proper interpretation of the Agreement of the parties as regards the election of members of the board of directors.
To allow the ASI Group to vote their additional equity to help elect even a Filipino director who would be beholden to them would
obliterate their minority status as agreed upon by the parties. As aptly stated by the appellate court:
... ASI, however, should not be allowed to interfere in the voting within the Filipino group. Otherwise, ASI would be
able to designate more than the three directors it is allowed to designate under the Agreement, and may even be able
to get a majority of the board seats, a result which is clearly contrary to the contractual intent of the parties.
Such a ruling will give effect to both the allocation of the board seats and the stockholder's right to cumulative voting.
Moreover, this ruling will also give due consideration to the issue raised by the appellees on possible violation or
circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and the nationalization requirements of the
Constitution and the laws if ASI is allowed to nominate more than three directors. (At p. 39, Rollo, 75875)
Equally important as the consideration of the contractual intent of the parties is the consideration as regards the possible domination by
the foreign investors of the enterprise in violation of the nationalization requirements enshrined in the Constitution and circumvention of
the Anti-Dummy Act. In this regard, petitioner Salazar's position is that the Anti-Dummy Act allows the ASI group to elect board directors
in proportion to their share in the capital of the entity. It is to be noted, however, that the same law also limits the election of aliens as
members of the board of directors in proportion to their allowance participation of said entity. In the instant case, the foreign Group ASI
was limited to designate three directors. This is the allowable participation of the ASI Group. Hence, in future dealings, this limitation of
six to three board seats should always be maintained as long as the joint venture agreement exists considering that in limiting 3 board
seats in the 9-man board of directors there are provisions already agreed upon and embodied in the parties' Agreement to protect the
interests arising from the minority status of the foreign investors.
With these findings, we the decisions of the SEC Hearing Officer and SEC which were impliedly affirmed by the appellate court
declaring Messrs. Wolfgang Aurbach, John Griffin, David P Whittingham, Emesto V. Lagdameo, Baldwin young, Raul A. Boncan,
Emesto V. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee as the duly elected directors of Saniwares at the March 8,1983
annual stockholders' meeting.
On the other hand, the Lagdameo and Young Group (petitioners in G.R. No. 75951) object to a cumulative voting during the election of
the board of directors of the enterprise as ruled by the appellate court and submits that the six (6) directors allotted the Filipino
stockholders should be selected by consensus pursuant to section 5 (a) of the Agreement which uses the word "designate" meaning
"nominate, delegate or appoint."
They also stress the possibility that the ASI Group might take control of the enterprise if the Filipino stockholders are allowed to select
their nominees separately and not as a common slot determined by the majority of their group.
Section 5 (a) of the Agreement which uses the word designates in the allocation of board directors should not be interpreted in isolation.
This should be construed in relation to section 3 (a) (1) of the Agreement. As we stated earlier, section 3(a) (1) relates to the manner of
voting for these nominees which is cumulative voting while section 5(a) relates to the manner of nominating the members of the board
of directors. The petitioners in G.R. No. 75951 agreed to this procedure, hence, they cannot now impugn its legality.
The insinuation that the ASI Group may be able to control the enterprise under the cumulative voting procedure cannot, however, be
ignored. The validity of the cumulative voting procedure is dependent on the directors thus elected being genuine members of the
Filipino group, not voters whose interest is to increase the ASI share in the management of Saniwares. The joint venture character of
the enterprise must always be taken into account, so long as the company exists under its original agreement. Cumulative voting may

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not be used as a device to enable ASI to achieve stealthily or indirectly what they cannot accomplish openly. There are substantial
safeguards in the Agreement which are intended to preserve the majority status of the Filipino investors as well as to maintain the
minority status of the foreign investors group as earlier discussed. They should be maintained.
WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are DISMISSED and the petition in G.R. No. 75951 is partly
GRANTED. The amended decision of the Court of Appeals is MODIFIED in that Messrs. Wolfgang Aurbach John Griffin, David
Whittingham Emesto V. Lagdameo, Baldwin Young, Raul A. Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee
are declared as the duly elected directors of Saniwares at the March 8,1983 annual stockholders' meeting. In all other respects, the
questioned decision is AFFIRMED. Costs against the petitioners in G.R. Nos. 75975-76 and G.R. No. 75875.

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G.R. No. 167379

June 27, 2006

PRIMELINK PROPERTIES AND DEVELOPMENT CORPORATION and RAFAELITO W. LOPEZ, Petitioners,


vs.
MA. CLARITA T. LAZATIN-MAGAT, JOSE SERAFIN T. LAZATIN, JAIME TEODORO T. LAZATIN and JOSE MARCOS T.
LAZATIN, Respondents.
DECISION
CALLEJO, SR., J.:
Before us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure of the Decision1 of the Court of
Appeals (CA) in CA-G.R. CV No. 69200 and its Resolution2 denying petitioners motion for reconsideration thereof.
The factual and procedural antecedents are as follows:
Primelink Properties and Development Corporation (Primelink for brevity) is a domestic corporation engaged in real estate
development. Rafaelito W. Lopez is its President and Chief Executive Officer.3
Ma. Clara T. Lazatin-Magat and her brothers, Jose Serafin T. Lazatin, Jaime T. Lazatin and Jose Marcos T. Lazatin (the Lazatins for
brevity), are co-owners of two (2) adjoining parcels of land, with a combined area of 30,000 square meters, located in Tagaytay City and
covered by Transfer Certificate of Title (TCT) No. T-108484of the Register of Deeds of Tagaytay City.
On March 10, 1994, the Lazatins and Primelink, represented by Lopez, in his capacity as President, entered into a Joint Venture
Agreement5 (JVA) for the development of the aforementioned property into a residential subdivision to be known as "Tagaytay Garden
Villas." Under the JVA, the Lazatin siblings obliged themselves to contribute the two parcels of land as their share in the joint venture.
For its part, Primelink undertook to contribute money, labor, personnel, machineries, equipment, contractors pool, marketing activities,
managerial expertise and other needed resources to develop the property and construct therein the units for sale to the public.
Specifically, Primelink bound itself to accomplish the following, upon the execution of the deed:
a.) Survey the land, and prepare the projects master plans, engineering designs, structural and architectural plans, site
development plans, and such other need plans in accordance with existing laws and the rules and regulations of appropriate
government institutions, firms or agencies;
b.) Secure and pay for all the licenses, permits and clearances needed for the projects;
c.) Furnish all materials, equipment, labor and services for the development of the land in preparation for the construction and
sale of the different types of units (single-detached, duplex/twin, cluster and row house);
d.) Guarantee completion of the land development work if not prevented by force majeure or fortuitous event or by competent
authority, or other unavoidable circumstances beyond the DEVELOPERS control, not to exceed three years from the date of
the signing of this Joint Venture Agreement, except the installation of the electrical facilities which is solely MERALCOS
responsibility;
e.) Provide necessary manpower resources, like executive and managerial officers, support personnel and marketing staff, to
handle all services related to land and housing development (administrative and construction) and marketing (sales,
advertising and promotions).6
The Lazatins and Primelink covenanted that they shall be entitled to draw allowances/advances as follows:
1. During the first two years of the Project, the DEVELOPER and the LANDOWNER can draw allowances or make advances
not exceeding a total of twenty percent (20%) of the net revenue for that period, on the basis of sixty percent (60%) for the
DEVELOPER and forty percent (40%) for the LANDOWNERS.
The drawing allowances/advances are limited to twenty percent (20%) of the net revenue for the first two years, in order to
have sufficient reserves or funds to protect and/or guarantee the construction and completion of the different types of units
mentioned above.

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2. After two years, the DEVELOPER and the LANDOWNERS shall be entitled to drawing allowances and/or advances
equivalent to sixty percent (60%) and forty percent (40%), respectively, of the total net revenue or income of the sale of the
units.7
They also agreed to share in the profits from the joint venture, thus:
1. The DEVELOPER shall be entitled to sixty percent (60%) of the net revenue or income of the Joint Venture project, after
deducting all expenses incurred in connection with the land development (such as administrative management and
construction expenses), and marketing (such as sales, advertising and promotions), and
2. The LANDOWNERS shall be entitled to forty percent (40%) of the net revenue or income of the Joint Venture project, after
deducting all the above-mentioned expenses.8
Primelink submitted to the Lazatins its Projection of the Sales-Income-Cost of the project:
SALES-INCOME-COST PROJECTION
lawphil.net
SELLING PRICE

COST PRICE

DIFFERENCE

INCOME

CLUSTER:
A1 3,200,000

A2 1,260,000

1,940,000 x 24

P 46,560,000.00

B2 960,000

1,540,000 x 24

36,960,000.00

C2 1,400,000

2,100,000 x 16

33,600,000.00

D2 700,000

900,000 x 24

21,600,000.00

TWIN:
B1 2,500,000
SINGLE:
C1 3,500,000
ROW-TYPE TOWNHOMES:
D1 1,600,000

P138,720,000.00
(GROSS)

Total Cash Price (A1+B1+C1+D1)

P231,200,000.00

Total Building Expense (A2+B2+C2+D2)

92,480,000.00

COMPUTATION OF ADDL. INCOME ON INTEREST


TCP x 30% D/P

P 69,360,000

Balance = 70%

161,840,000

x .03069 x 48

P238,409,740

Total Amount (TCP + int. earn.)

P 69,360,000.00

238,409,740.00
P307,769,740.00

EXPENSES:
less: A

Building expenses

P 92,480,000.00

Commission (8% of TCP)

18,496,000.00

Admin. & Mgmt. expenses (2% of TCP)

4,624,000.00

Advertising & Promo exp. (2% of TCP)

4,624,000.00

Building expenses for the open


spaces and Amenities (Development
cost not incl. Housing) 400 x 30,000 sqms.

12,000,000.00

TOTAL EXPENSES (A+B+C+D+E)

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P132,224,000.00
RECONCILIATION OF INCOME VS. EXPENSES
Total Projected Income (incl. income from interest earn.)

P307,769,740.00

less:

132,224,000.00

Total Expenses

P175,545,740.009

The parties agreed that any unsettled or unresolved misunderstanding or conflicting opinions between the parties relative to the
interpretation, scope and reach, and the enforcement/implementation of any provision of the agreement shall be referred to Voluntary
Arbitration in accordance with the Arbitration Law.10
The Lazatins agreed to subject the title over the subject property to an escrow agreement. Conformably with the escrow agreement, the
owners duplicate of the title was deposited with the China Banking Corporation.11However, Primelink failed to immediately secure a
Development Permit from Tagaytay City, and applied the permit only on August 30, 1995. On October 12, 1995, the City issued a
Development Permit to Primelink.12
In a Letter13 dated April 10, 1997, the Lazatins, through counsel, demanded that Primelink comply with its obligations under the JVA,
otherwise the appropriate action would be filed against it to protect their rights and interests. This impelled the officers of Primelink to
meet with the Lazatins and enabled the latter to review its business records/papers. In another Letter14 dated October 22, 1997, the
Lazatins informed Primelink that they had decided to rescind the JVA effective upon its receipt of the said letter. The Lazatins
demanded that Primelink cease and desist from further developing the property.
Subsequently, on January 19, 1998, the Lazatins filed, with the Regional Trial Court (RTC) of Tagaytay City, Branch 18, a complaint for
rescission accounting and damages, with prayer for temporary restraining order and/or preliminary injunction against Primelink and
Lopez. The case was docketed as Civil Case No. TG-1776. Plaintiffs alleged, among others, that, despite the lapse of almost four (4)
years from the execution of the JVA and the delivery of the title and possession of the land to defendants, the land development aspect
of the project had not yet been completed, and the construction of the housing units had not yet made any headway, based on the
following facts, namely: (a) of the 50 housing units programmed for Phase I, only the following types of houses appear on the site in
these condition: (aa) single detached, one completed and two units uncompleted; (bb) cluster houses, one unit nearing completion; (cc)
duplex, two units completed and two units unfinished; and (dd) row houses, two units, completed; (b) in Phase II thereof, all that was
done by the defendants was to grade the area; the units so far constructed had been the object of numerous complaints by their
owners/purchasers for poor workmanship and the use of sub-standard materials in their construction, thus, undermining the projects
marketability. Plaintiffs also alleged that defendants had, without justifiable reason, completely disregarded previously agreed
accounting and auditing procedures, checks and balances system installed for the mutual protection of both parties, and the scheduled
regular meetings were seldom held to the detriment and disadvantage of plaintiffs. They averred that they sent a letter through counsel,
demanding compliance of what was agreed upon under the agreement but defendants refused to heed said demand. After a
succession of letters with still no action from defendants, plaintiffs sent a letter on October 22, 1997, a letter formally rescinding the
JVA.
Plaintiffs also claimed that in a sales-income-costs projection prepared and submitted by defendants, they (plaintiffs) stood to receive
the amount of P70,218,296.00 as their net share in the joint venture project; to date, however, after almost four (4) years and despite
the undertaking in the JVA that plaintiffs shall initially get 20% of the agreed net revenue during the first two (2) years (on the basis of
the 60%-40% sharing) and their full 40% share thereafter, defendants had yet to deliver these shares to plaintiffs which by conservative
estimates would amount to no less than P40,000,000.00.15
Plaintiffs prayed that, after due proceedings, judgment be rendered in their favor, thus:
WHEREFORE, it is respectfully prayed of this Honorable Court that a temporary restraining order be forthwith issued enjoining the
defendants to immediately stop their land development, construction and marketing of the housing units in the aforesaid project; after
due proceedings, to issue a writ of preliminary injunction enjoining and prohibiting said land development, construction and marketing of
housing units, pending the disposition of the instant case.
After trial, a decision be rendered:
1. Rescinding the Joint Venture Agreement executed between the plaintiffs and the defendants;
2. Immediately restoring to the plaintiffs possession of the subject parcels of land;

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3. Ordering the defendants to render an accounting of all income generated as well as expenses incurred and disbursement
made in connection with the project;
4. Making the Writ of Preliminary Injunction permanent;
5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount Forty Million Pesos (P40,000,000.00) in
actual and/or compensatory damages;
6. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of Two Million Pesos (P2,000,000.00) in
exemplary damages;
7. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount equivalent to ten percent (10%) of the total
amount due as and for attorneys fees; and
8. To pay the costs of this suit.
Other reliefs and remedies as are just and equitable are likewise being prayed for.16
Defendants opposed plaintiffs plea for a writ of preliminary injunction on the ground that plaintiffs complaint was premature, due to their
failure to refer their complaint to a Voluntary Arbitrator pursuant to the JVA in relation to Section 2 of Republic Act No. 876 before filing
their complaint in the RTC. They prayed for the dismissal of the complaint under Section 1(j), Rule 16 of the Rules of Court:
WHEREFORE, it is respectfully prayed that an Order be issued:
a) dismissing the Complaint on the basis of Section 1(j), Rule 16 of the aforecited Rules of Court, or, in the alternative,
b) requiring the plaintiffs to make initiatory step for arbitration by filing the demand to arbitrate, and then asking the parties to
resolve their controversies, pursuant to the Arbitration Law, or in the alternative;
c) staying or suspending the proceedings in captioned case until the completion of the arbitration, and
d) denying the plaintiffs prayer for the issuance of a temporary restraining order or writ of preliminary injunction.
Other reliefs and remedies just and equitable in the premises are prayed for.17
In the meantime, before the expiration of the reglementary period to answer the complaint, defendants, invoking their counsels heavy
workload, prayed for a 15-day extension18 within which to file their answer. The additional time prayed for was granted by the
RTC.19 However, instead of filing their answer, defendants prayed for a series of 15-day extensions in eight (8) successive motions for
extensions on the same justification.20 The RTC again granted the additional time prayed for, but in granting the last extension, it
warned against further extension.21Despite the admonition, defendants again moved for another 15-day extension,22 which, this time,
the RTC denied. No answer having been filed, plaintiffs moved to declare the defendants in default,23 which the RTC granted in its
Order24 dated June 24, 1998.
On June 25, 1998, defendants filed, via registered mail, their "Answer with Counterclaim and Opposition to the Prayer for the Issuance
of a Writ of Preliminary Injunction."25 On July 8, 1998, defendants filed a Motion to Set Aside the Order of Default.26 This was opposed
by plaintiffs.27 In an Order28 dated July 14, 1998, the RTC denied defendants motion to set aside the order of default and ordered the
reception of plaintiffs evidence ex parte. Defendants filed a motion for reconsideration29 of the July 14, 1998 Order, which the RTC
denied in its Order30 dated October 21, 1998.
Defendants thereafter interposed an appeal to the CA assailing the Order declaring them in default, as well as the Order denying their
motion to set aside the order of default, alleging that these were contrary to facts of the case, the law and jurisprudence. 31 On
September 16, 1999, the appellate court issued a Resolution32 dismissing the appeal on the ground that the Orders appealed from were
interlocutory in character and, therefore, not appealable. No motion for reconsideration of the Order of the dismissal was filed by
defendants.
In the meantime, plaintiffs adduced ex parte their testimonial and documentary evidence. On April 17, 2000, the RTC rendered a
Decision, the dispositive part of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants as follows:

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1. Ordering the rescission of the Joint Venture Agreement as of the date of filing of this complaint;
2. Ordering the defendants to return possession, including all improvements therein, of the real estate property belonging to
the plaintiffs which is described in, and covered by Transfer Certificate of Title No. T-10848 of the Register of Deeds of
Tagaytay City, and located in Barangay Anulin, City of Tagaytay;
3. Ordering the defendants to turn over all documents, records or papers that have been executed, prepared and retained in
connection with any contract to sell or deed of sale of all lots/units sold during the effectivity of the joint venture agreement;
4. Ordering the defendants to pay the plaintiffs the sum of P1,041,524.26 representing their share of the net income of
the P2,603,810.64 as of September 30, 1995, as stipulated in the joint venture agreement;
5. Ordering the defendants to pay the plaintiffs attorneys fees in the amount of P104,152.40;
6. Ordering the defendants to pay the costs.
SO ORDERED.33
The trial court anchored its decision on the following findings:
x x x Evidence on record have shown patent violations by the defendants of the stipulations particularly paragraph II covering
Developers (defendant) undertakings, as well as paragraph III and paragraph V of the JVA. These violations are not limited to those
made against the plaintiffs alone as it appears that some of the unit buyers themselves have their own separate gripes against the
defendants as typified by the letters (Exhibits "G" and "H") of Mr. Emmanuel Enciso.
xxxx
Rummaging through the evidence presented in the course of the testimony of Mrs. Maminta on August 6, 1998 (Exhibits "N," "O," "P,"
"Q" and "R" as well as submarkings, pp. 60 to 62, TSN August 6, 1998) this court has observed, and is thus convinced, that a pattern of
what appears to be a scheme or plot to reduce and eventually blot out the net income generated from sales of housing units by
defendants, has been established. Exhibit "P-2" is explicit in declaring that, as of September 30, 1995, the joint venture project earned a
net income of aboutP2,603,810.64. This amount, however, was drastically reduced in a subsequent financial report submitted by the
defendants to P1,954,216.39. Shortly thereafter, and to the dismay of the plaintiffs, the defendants submitted an income statement and
a balance sheet (Exhibits "R" and "R-1") indicating a net loss of P5,122,906.39 as of June 30, 1997.
Of the reported net income of P2,603,810.64 (Exhibit "P-2") the plaintiffs should have received the sum ofP1,041,524.26 representing
their 40% share under paragraph II and V of the JVA. But this was not to be so. Even before the plaintiffs could get hold of their share
as indicated above, the defendants closed the chance altogether by declaring a net loss. The court perceives this to be one calculated
coup-de-grace that would put to thin air plaintiffs hope of getting their share in the profit under the JVA.
That this matter had reached the court is no longer a cause for speculation. The way the defendants treated the JVA and the manner by
which they handled the project itself vis--vis their partners, the plaintiffs herein, there is bound to be certain conflict as the latter
repeatedly would received the losing end of the bargain.
Under the intolerable circumstances, the plaintiffs could not have opted for some other recourse but to file the present action to enforce
their rights. x x x34
On May 15, 2000, plaintiffs filed a Motion for Execution Pending Appeal35 alleging defendants dilatory tactics for its allowance. This was
opposed by defendants.36
On May 22, 2000, the RTC resolved the motion for execution pending appeal in favor of plaintiffs.37 Upon posting a bond
of P1,000,000.00 by plaintiffs, a writ of execution pending appeal was issued on June 20, 2000.38
Defendants appealed the decision to the CA on the following assignment of errors:
I
THE TRIAL COURT ERRED IN DECIDING THE CASE WITHOUT FIRST REFERRING THE COMPLAINT FOR VOLUNTARY
ARBITRATION (RA NO. 876), CONTRARY TO THE MANDATED VOLUNTARY ARBITRATION CLAUSE UNDER THE JOINT

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VENTURE AGREEMENT, AND THE DOCTRINE IN "MINDANAO PORTLAND CEMENT CORPORATION V. MCDONOUGH
CONSTRUCTION COMPANY OF FLORIDA" (19 SCRA 814-815).
II
THE TRIAL COURT ERRED IN ISSUING A WRIT OF EXECUTION PENDING APPEAL EVEN IN THE ABSENCE OF GOOD AND
COMPELLING REASONS TO JUSTIFY SAID ISSUANCE, AND DESPITE PRIMELINKS STRONG OPPOSITION THERETO.
III
THE TRIAL COURT ERRED IN REFUSING TO DECIDE PRIMELINKS MOTION TO QUASH THE WRIT OF EXECUTION PENDING
APPEAL AND THE MOTION FOR RECONSIDERATION, ALTHOUGH THE COURT HAS RETAINED ITS JURISDICTION TO RULE
ON ALL QUESTIONS RELATED TO EXECUTION.
IV
THE TRIAL COURT ERRED IN RESCINDING THE JOINT VENTURE AGREEMENT ALTHOUGH PRIMELINK HAS SUBSTANTIALLY
DEVELOPED THE PROJECT AND HAS SPENT MORE OR LESS FORTY MILLION PESOS, AND DESPITE APPELLEES FAILURE
TO PRESENT SUFFICIENT EVIDENCE JUSTIFYING THE SAID RESCISSION.
V
THE TRIAL COURT ERRED IN DECIDING THAT THE APPELLEES HAVE THE RIGHT TO TAKE OVER THE SUBDIVISION AND TO
APPROPRIATE FOR THEMSELVES ALL THE EXISTING IMPROVEMENTS INTRODUCED THEREIN BY PRIMELINK, ALTHOUGH
SAID RIGHT WAS NEITHER ALLEGED NOR PRAYED FOR IN THE COMPLAINT, MUCH LESS PROVEN DURING THE EX PARTE
HEARING, AND EVEN WITHOUT ORDERING APPELLEES TO FIRST REIMBURSE PRIMELINK OF THE SUBSTANTIAL
DIFFERENCE BETWEEN THE MARKET VALUE OF APPELLEES RAW, UNDEVELOPED AND UNPRODUCTIVE LAND
(CONTRIBUTED TO THE PROJECT) AND THE SUM OF MORE OR LESS FORTY MILLION PESOS WHICH PRIMELINK HAD
SPENT FOR THE HORIZONTAL AND VERTICAL DEVELOPMENT OF THE PROJECT, THEREBY ALLOWING APPELLEES TO
UNJUSTLY ENRICH THEMSELVES AT THE EXPENSE OF PRIMELINK. 39
The appeal was docketed in the CA as CA-G.R. CV No. 69200.
On August 9, 2004, the appellate court rendered a decision affirming, with modification, the appealed decision. The fallo of the decision
reads:
WHEREFORE, in view of the foregoing, the assailed decision of the Regional Trial Court of Tagaytay City, Branch 18, promulgated on
April 17, 2000 in Civil Case No. TG-1776, is hereby AFFIRMED. Accordingly, Transfer Certificate of Title No. T-10848 held for
safekeeping by Chinabank pursuant to the Escrow Agreement is ordered released for return to the plaintiffs-appellees and conformably
with the affirmed decision, the cancellation by the Register of Deeds of Tagaytay City of whatever annotation in TCT No. 10848 by
virtue of the Joint Venture Agreement, is now proper.
SO ORDERED.40
Citing the ruling of this Court in Aurbach v. Sanitary Wares Manufacturing Corporation,41 the appellate court ruled that, under Philippine
law, a joint venture is a form of partnership and is to be governed by the laws of partnership. The aggrieved parties filed a motion for
reconsideration,42 which the CA denied in its Resolution43dated March 7, 2005.
Petitioners thus filed the instant Petition for Review on Certiorari, alleging that:
1) DID THE HONORABLE COURT OF APPEALS COMMIT A FATAL AND REVERSIBLE LEGAL ERROR AND/OR GRAVE
ABUSE OF DISCRETION IN ORDERING THE RETURN TO THE RESPONDENTS OF THE PROPERTY WITH ALL
IMPROVEMENTS THEREON, EVEN WITHOUT ORDERING/REQUIRING THE RESPONDENTS TO FIRST PAY OR
REIMBURSE PRIMELINK OF ALL EXPENSES INCURRED IN DEVELOPING AND MARKETING THE PROJECT, LESS THE
ORIGINAL VALUE OF THE PROPERTY, AND THE SHARE DUE RESPONDENTS FROM THE PROFITS (IF ANY) OF THE
JOINT VENTURE PROJECT?
2) IS THE AFORESAID ORDER ILLEGAL AND CONFISCATORY, OPPRESSIVE AND UNCONSCIONABLE, CONTRARY TO
THE TENETS OF GOOD HUMAN RELATIONS AND VIOLATIVE OF EXISTING LAWS AND JURISPRUDENCE ON JUDICIAL

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NOTICE, DEFAULT, UNJUST ENRICHMENT AND RESCISSION OF CONTRACT WHICH REQUIRES MUTUAL
RESTITUTION, NOT UNILATERAL APPROPRIATION, OF PROPERTY BELONGING TO ANOTHER? 44
Petitioners maintain that the aforesaid portion of the decision which unconditionally awards to respondents "all improvements" on the
project without requiring them to pay the value thereof or to reimburse Primelink for all expenses incurred therefore is inherently and
essentially illegal and confiscatory, oppressive and unconscionable, contrary to the tenets of good human relations, and will allow
respondents to unjustly enrich themselves at Primelinks expense. At the time respondents contributed the two parcels of land,
consisting of 30,000 square meters to the joint venture project when the JVA was signed on March 10, 1994, the said properties were
worth not more than P500.00 per square meter, the "price tag" agreed upon the parties for the purpose of the JVA. Moreover, before
respondents rescinded the JVA sometime in October/November 1997, the property had already been substantially developed as
improvements had already been introduced thereon; petitioners had likewise incurred administrative and marketing expenses, among
others, amounting to more or less P40,000,000.00.45
Petitioners point out that respondents did not pray in their complaint that they be declared the owners and entitled to the possession of
the improvements made by petitioner Primelink on the property; neither did they adduce evidence to prove their entitlement to said
improvements. It follows, petitioners argue, that respondents were not entitled to the improvements although petitioner Primelink was
declared in default.
They also aver that, under Article 1384 of the New Civil Code, rescission shall be only to the extent necessary to cover the damages
caused and that, under Article 1385 of the same Code, rescission creates the obligation to return the things which were not object of
the contract, together with their fruits, and the price with its interest; consequently, it can be effected only when respondents can return
whatever they may be obliged to return. Respondents who sought the rescission of the JVA must place petitioner Primelink in the status
quo. They insist that respondents cannot rescind and, at the same time, retain the consideration, or part of the consideration received
under the JVA. They cannot have the benefits of rescission without assuming its burden. All parties must be restored to their original
positions as nearly as possible upon the rescission of a contract. In the event that restoration to the status quo is impossible, rescission
may be granted if the Court can balance the equities and fashion an appropriate remedy that would be equitable to both parties and
afford complete relief.
Petitioners insist that being defaulted in the court a quo would in no way defeat their claim for reimbursement because "[w]hat matters
is that the improvements exist and they cannot be denied."46 Moreover, they point out, the ruling of this Court in Aurbach v. Sanitary
Wares Manufacturing Corporation47 cited by the CA is not in point.
On the other hand, the CA ruled that although respondents therein (plaintiffs below) did not specifically pray for their takeover of the
property and for the possession of the improvements on the parcels of land, nevertheless, respondents were entitled to said relief as a
necessary consequence of the ruling of the trial court ordering the rescission of the JVA. The appellate court cited the ruling of this
Court in the Aurbach case and Article 1838 of the New Civil Code, to wit:
As a general rule, the relation of the parties in joint ventures is governed by their agreement. When the agreement is silent on any
particular issue, the general principles of partnership may be resorted to.48
Respondents, for their part, assert that Articles 1380 to 1389 of the New Civil Code deal with rescissible contracts. What applies is
Article 1191 of the New Civil Code, which reads:
ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is
incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case.
He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385
and 1388 and the Mortgage Law.
They insist that petitioners are not entitled to rescission for the improvements because, as found by the RTC and the CA, it was
petitioner Primelink that enriched itself at the expense of respondents. Respondents reiterate the ruling of the CA, and argue as follows:
PRIMELINK argued that the LAZATINs in their complaint did not allege, did not prove and did not pray that they are and should be
entitled to take over the development of the project, and that the improvements and existing structures which were introduced by
PRIMELINK after spending more or less Forty Million Pesos be awarded to them. They merely asked in the complaint that the joint
venture agreement be rescinded, and that the parcels of land they contributed to the project be returned to them.

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PRIMELINKs argument lacks merit. The order of the court for PRIMELINK to return possession of the real estate property belonging to
the LAZATINs including all improvements thereon was not a judgment that was different in kind than what was prayed for by the
LAZATINs. The order to return the property with all the improvements thereon is just a necessary consequence to the order of
rescission.
As a general rule, the relation of the parties in joint ventures is governed by their agreement. When the agreement is silent on any
particular issue, the general principles of partnership may be resorted to. In Aurbach v. Sanitary Wares Manufacturing Corporation, the
Supreme Court discussed the following points regarding joint ventures and partnership:
The legal concept of a joint venture is of common law origin. It has no precise legal definition, but it has been generally understood to
mean an organization formed for some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is, in fact, hardly distinguishable
from the partnership, since elements are similar community of interest in the business, sharing of profits and losses, and a mutual
right of control. (Blackner v. McDermott, 176 F.2d 498 [1949]; Carboneau v. Peterson, 95 P.2d 1043 [1939]; Buckley v. Chadwick, 45
Cal.2d 183, 288 P.2d 12, 289 P.2d 242 [1955]) The main distinction cited by most opinions in common law jurisdictions is that the
partnership contemplates a general business with some degree of continuity, while the joint venture is formed for the execution of a
single transaction, and is thus of a temporary nature. (Tuffs v. Mann, 116 Cal.App. 170, 2 P.2d 500 [1931]; Harmon v. Martin, 395 III.
595, 71 N.E.2d 74 [1947]; Gates v. Megargel, 266 Fed. 811 [1920]) This observation is not entirely accurate in this jurisdiction, since
under the Civil Code, a partnership may be particular or universal, and a particular partnership may have for its object a specific
undertaking. (Art. 1783, Civil Code). It would seem therefore that, under Philippine law, a joint venture is a form of partnership and
should thus be governed by the laws of partnership. The Supreme Court has, however, recognized a distinction between these two
business forms, and has held that although a corporation cannot enter into a partnership contract, it may, however, engage in a joint
venture with others. (At p. 12, Tuazon v. Bolanos, 95 Phil. 906 [1954]; Campos and Lopez Campos Comments, Notes and Selected
Cases, Corporation Code 1981) (Emphasis Supplied)
The LAZATINs were able to establish fraud on the part of PRIMELINK which, in the words of the court a quo, was a pattern of what
appears to be a scheme or plot to reduce and eventually blot out the net incomes generated from sales of housing units by the
defendants. Under Article 1838 of the Civil Code, where the partnership contract is rescinded on the ground of the fraud or
misrepresentation of one of the parties thereto, the party entitled to rescind is, without prejudice to any other right is entitled to a lien on,
or right of retention of, the surplus of the partnership property after satisfying the partnership liabilities to third persons for any sum of
money paid by him for the purchase of an interest in the partnership and for any capital or advance contributed by him. In the instant
case, the joint venture still has outstanding liabilities to third parties or the buyers of the property.
It is not amiss to state that title to the land or TCT No. T-10848 which is now held by Chinabank for safekeeping pursuant to the Escrow
Agreement executed between Primelink Properties and Development Corporation and Ma. Clara T. Lazatin-Magat should also be
returned to the LAZATINs as a necessary consequence of the order of rescission of contract. The reason for the existence of the
Escrow Agreement has ceased to exist when the joint venture agreement was rescinded.49
Respondents stress that petitioners must bear any damages or losses they may have suffered. They likewise stress that they did not
enrich themselves at the expense of petitioners.
In reply, petitioners assert that it is unjust and inequitable for respondents to retain the improvements even if their share in
the P1,041,524.26 of the net income of the property and the sale of the land were to be deducted from the value of the improvements,
plus administrative and marketing expenses in the total amount ofP40,000,000.00. Petitioners will still be entitled to an accounting from
respondents. Respondents cannot deny the existence and nature of said improvements as they are visible to the naked eye.
The threshold issues are the following: (1) whether respondents are entitled to the possession of the parcels of land covered by the JVA
and the improvements thereon introduced by petitioners as their contribution to the JVA; (2) whether petitioners are entitled to
reimbursement for the value of the improvements on the parcels of land.
The petition has no merit.
On the first issue, we agree with petitioners that respondents did not specifically pray in their complaint below that possession of the
improvements on the parcels of land which they contributed to the JVA be transferred to them. Respondents made a specific prayer in
their complaint that, upon the rescission of the JVA, they be placed in possession of the parcels of land subject of the agreement, and
for other "reliefs and such other remedies as are just and equitable in the premises." However, the trial court was not precluded from
awarding possession of the improvements on the parcels of land to respondents in its decision. Section 2(c), Rule 7 of the Rules of
Court provides that a pleading shall specify the relief sought but it may add as general prayer for such further or other relief as may be
deemed just and equitable. Even without the prayer for a specific remedy, proper relief may be granted by the court if the facts alleged
in the complaint and the evidence introduced so warrant.50 The court shall grant relief warranted by the allegations and the proof even if
no such relief is prayed for.51 The prayer in the complaint for other reliefs equitable and just in the premises justifies the grant of a relief
not otherwise specifically prayed for.52

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The trial court was not proscribed from placing respondents in possession of the parcels of land and the improvements on the said
parcels of land. It bears stressing that the parcels of land, as well as the improvements made thereon, were contributed by the parties
to the joint venture under the JVA, hence, formed part of the assets of the joint venture.53 The trial court declared that respondents were
entitled to the possession not only of the parcels of land but also of the improvements thereon as a consequence of its finding that
petitioners breached their agreement and defrauded respondents of the net income under the JVA.
On the second issue, we agree with the CA ruling that petitioner Primelink and respondents entered into a joint venture as evidenced by
their JVA which, under the Courts ruling in Aurbach, is a form of partnership, and as such is to be governed by the laws on partnership.
When the RTC rescinded the JVA on complaint of respondents based on the evidence on record that petitioners willfully and
persistently committed a breach of the JVA, the court thereby dissolved/cancelled the partnership.54With the rescission of the JVA on
account of petitioners fraudulent acts, all authority of any partner to act for the partnership is terminated except so far as may be
necessary to wind up the partnership affairs or to complete transactions begun but not yet finished.55 On dissolution, the partnership is
not terminated but continues until the winding up of partnership affairs is completed.56 Winding up means the administration of the
assets of the partnership for the purpose of terminating the business and discharging the obligations of the partnership.
The transfer of the possession of the parcels of land and the improvements thereon to respondents was only for a specific purpose: the
winding up of partnership affairs, and the partition and distribution of the net partnership assets as provided by law.57 After all, Article
1836 of the New Civil Code provides that unless otherwise agreed by the parties in their JVA, respondents have the right to wind up the
partnership affairs:
Art. 1836. Unless otherwise agreed, the partners who have not wrongfully dissolved the partnership or the legal representative of the
last surviving partner, not insolvent, has the right to wind up the partnership affairs, provided, however, that any partner, his legal
representative or his assignee, upon cause shown, may obtain winding up by the court.
It must be stressed, too, that although respondents acquired possession of the lands and the improvements thereon, the said lands and
improvements remained partnership property, subject to the rights and obligations of the parties, inter se, of the creditors and of third
parties under Articles 1837 and 1838 of the New Civil Code, and subject to the outcome of the settlement of the accounts between the
parties as provided in Article 1839 of the New Civil Code, absent any agreement of the parties in their JVA to the contrary.58 Until the
partnership accounts are determined, it cannot be ascertained how much any of the parties is entitled to, if at all.
It was thus premature for petitioner Primelink to be demanding that it be indemnified for the value of the improvements on the parcels of
land owned by the joint venture/partnership. Notably, the JVA of the parties does not contain any provision designating any party to
wind up the affairs of the partnership.
Thus, under Article 1837 of the New Civil Code, the rights of the parties when dissolution is caused in contravention of the partnership
agreement are as follows:
(1) Each partner who has not caused dissolution wrongfully shall have:
(a) All the rights specified in the first paragraph of this article, and
(b) The right, as against each partner who has caused the dissolution wrongfully, to damages for breach of the
agreement.
(2) The partners who have not caused the dissolution wrongfully, if they all desire to continue the business in the same name
either by themselves or jointly with others, may do so, during the agreed term for the partnership and for that purpose may
possess the partnership property, provided they secure the payment by bond approved by the court, or pay to any partner who
has caused the dissolution wrongfully, the value of his interest in the partnership at the dissolution, less any damages
recoverable under the second paragraph, No. 1(b) of this article, and in like manner indemnify him against all present or future
partnership liabilities.
(3) A partner who has caused the dissolution wrongfully shall have:
(a) If the business is not continued under the provisions of the second paragraph, No. 2, all the rights of a partner
under the first paragraph, subject to liability for damages in the second paragraph, No. 1(b), of this article.
(b) If the business is continued under the second paragraph, No. 2, of this article, the right as against his co-partners
and all claiming through them in respect of their interests in the partnership, to have the value of his interest in the
partnership, less any damage caused to his co-partners by the dissolution, ascertained and paid to him in cash, or

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the payment secured by a bond approved by the court, and to be released from all existing liabilities of the
partnership; but in ascertaining the value of the partners interest the value of the good-will of the business shall not
be considered.
And under Article 1838 of the New Civil Code, the party entitled to rescind is, without prejudice to any other right, entitled:
(1) To a lien on, or right of retention of, the surplus of the partnership property after satisfying the partnership liabilities to third
persons for any sum of money paid by him for the purchase of an interest in the partnership and for any capital or advances
contributed by him;
(2) To stand, after all liabilities to third persons have been satisfied, in the place of the creditors of the partnership for any
payments made by him in respect of the partnership liabilities; and
(3) To be indemnified by the person guilty of the fraud or making the representation against all debts and liabilities of the
partnership.
The accounts between the parties after dissolution have to be settled as provided in Article 1839 of the New Civil Code:
Art. 1839. In settling accounts between the partners after dissolution, the following rules shall be observed, subject to any agreement to
the contrary:
(1) The assets of the partnership are:
(a) The partnership property,
(b) The contributions of the partners necessary for the payment of all the liabilities specified in No. 2.
(2) The liabilities of the partnership shall rank in order of payment, as follows:
(a) Those owing to creditors other than partners,
(b) Those owing to partners other than for capital and profits,
(c) Those owing to partners in respect of capital,
(d) Those owing to partners in respect of profits.
(3) The assets shall be applied in the order of their declaration in No. 1 of this article to the satisfaction of the liabilities.
(4) The partners shall contribute, as provided by article 1797, the amount necessary to satisfy the liabilities.
(5) An assignee for the benefit of creditors or any person appointed by the court shall have the right to enforce the
contributions specified in the preceding number.
(6) Any partner or his legal representative shall have the right to enforce the contributions specified in No. 4, to the extent of
the amount which he has paid in excess of his share of the liability.
(7) The individual property of a deceased partner shall be liable for the contributions specified in No. 4.
(8) When partnership property and the individual properties of the partners are in possession of a court for distribution,
partnership creditors shall have priority on partnership property and separate creditors on individual property, saving the rights
of lien or secured creditors.
(9) Where a partner has become insolvent or his estate is insolvent, the claims against his separate property shall rank in the
following order:
(a) Those owing to separate creditors;

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(b) Those owing to partnership creditors;
(c) Those owing to partners by way of contribution.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The assailed Decision and Resolution of the Court of Appeals in CA-G.R.
CV No. 69200 are AFFIRMED insofar as they conform to this Decision of the Court.
Costs against petitioners.

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G.R. No. 15574

September 17, 1919

SMITH, BELL & COMPANY (LTD.), petitioner,


vs.
JOAQUIN NATIVIDAD, Collector of Customs of the port of Cebu, respondent.
Ross and Lawrence for petitioner.
Attorney-General Paredes for respondent.
MALCOLM, J.:
A writ of mandamus is prayed for by Smith, Bell & Co. (Ltd.), against Joaquin Natividad, Collector of Customs of the port of Cebu,
Philippine Islands, to compel him to issue a certificate of Philippine registry to the petitioner for its motor vessel Bato. The AttorneyGeneral, acting as counsel for respondent, demurs to the petition on the general ground that it does not state facts sufficient to
constitute a cause of action. While the facts are thus admitted, and while, moreover, the pertinent provisions of law are clear and
understandable, and interpretative American jurisprudence is found in abundance, yet the issue submitted is not lightly to be resolved.
The question, flatly presented, is, whether Act. No. 2761 of the Philippine Legislature is valid or, more directly stated, whether the
Government of the Philippine Islands, through its Legislature, can deny the registry of vessels in its coastwise trade to corporations
having alien stockholders.
FACTS.
Smith, Bell & Co., (Ltd.), is a corporation organized and existing under the laws of the Philippine Islands. A majority of its stockholders
are British subjects. It is the owner of a motor vessel known as the Bato built for it in the Philippine Islands in 1916, of more than fifteen
tons gross The Bato was brought to Cebu in the present year for the purpose of transporting plaintiff's merchandise between ports in
the Islands. Application was made at Cebu, the home port of the vessel, to the Collector of Customs for a certificate of Philippine
registry. The Collector refused to issue the certificate, giving as his reason that all the stockholders of Smith, Bell & Co., Ltd., were not
citizens either of the United States or of the Philippine Islands. The instant action is the result.
LAW.
The Act of Congress of April 29, 1908, repealing the Shipping Act of April 30, 1906 but reenacting a portion of section 3 of this Law, and
still in force, provides in its section 1:
That until Congress shall have authorized the registry as vessels of the United States of vessels owned in the Philippine
Islands, the Government of the Philippine Islands is hereby authorized to adopt, from time to time, and enforce regulations
governing the transportation of merchandise and passengers between ports or places in the Philippine Archipelago. (35 Stat.
at L., 70; Section 3912, U. S. Comp Stat. [1916]; 7 Pub. Laws, 364.)
The Act of Congress of August 29, 1916, commonly known as the Jones Law, still in force, provides in section 3, (first paragraph, first
sentence), 6, 7, 8, 10, and 31, as follows.
SEC. 3. That no law shall be enacted in said Islands which shall deprive any person of life, liberty, or property without due
process of law, or deny to any person therein the equal protection of the laws. . . .
SEC. 6. That the laws now in force in the Philippines shall continue in force and effect, except as altered, amended, or
modified herein, until altered, amended, or repealed by the legislative authority herein provided or by Act of Congress of the
United States.
SEC. 7. That the legislative authority herein provided shall have power, when not inconsistent with this Act, by due enactment
to amend, alter modify, or repeal any law, civil or criminal, continued in force by this Act as it may from time to time see fit
This power shall specifically extend with the limitation herein provided as to the tariff to all laws relating to revenue provided as
to the tariff to all laws relating to revenue and taxation in effect in the Philippines.

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SEC. 8. That general legislative power, except as otherwise herein provided, is hereby granted to the Philippine Legislature,
authorized by this Act.
SEC. 10. That while this Act provides that the Philippine government shall have the authority to enact a tariff law the trade
relations between the islands and the United States shall continue to be governed exclusively by laws of the Congress of the
United States: Provided, That tariff acts or acts amendatory to the tariff of the Philippine Islands shall not become law until they
shall receive the approval of the President of the United States, nor shall any act of the Philippine Legislature affecting
immigration or the currency or coinage laws of the Philippines become a law until it has been approved by the President of the
United States: Provided further, That the President shall approve or disapprove any act mentioned in the foregoing proviso
within six months from and after its enactment and submission for his approval, and if not disapproved within such time it shall
become a law the same as if it had been specifically approved.
SEC. 31. That all laws or parts of laws applicable to the Philippines not in conflict with any of the provisions of this Act are
hereby continued in force and effect." (39 Stat at L., 546.)
On February 23, 1918, the Philippine Legislature enacted Act No. 2761. The first section of this law amended section 1172 of the
Administrative Code to read as follows:
SEC. 1172. Certificate of Philippine register. Upon registration of a vessel of domestic ownership, and of more than fifteen
tons gross, a certificate of Philippine register shall be issued for it. If the vessel is of domestic ownership and of fifteen tons
gross or less, the taking of the certificate of Philippine register shall be optional with the owner.
"Domestic ownership," as used in this section, means ownership vested in some one or more of the following classes of
persons: (a) Citizens or native inhabitants of the Philippine Islands; (b) citizens of the United States residing in the Philippine
Islands; (c) any corporation or company composed wholly of citizens of the Philippine Islands or of the United States or of
both, created under the laws of the United States, or of any State thereof, or of thereof, or the managing agent or master of the
vessel resides in the Philippine Islands
Any vessel of more than fifteen gross tons which on February eighth, nineteen hundred and eighteen, had a certificate of
Philippine register under existing law, shall likewise be deemed a vessel of domestic ownership so long as there shall not be
any change in the ownership thereof nor any transfer of stock of the companies or corporations owning such vessel to person
not included under the last preceding paragraph.
Sections 2 and 3 of Act No. 2761 amended sections 1176 and 1202 of the Administrative Code to read as follows:
SEC. 1176. Investigation into character of vessel. No application for a certificate of Philippine register shall be approved
until the collector of customs is satisfied from an inspection of the vessel that it is engaged or destined to be engaged in
legitimate trade and that it is of domestic ownership as such ownership is defined in section eleven hundred and seventy-two
of this Code.
The collector of customs may at any time inspect a vessel or examine its owner, master, crew, or passengers in order to
ascertain whether the vessel is engaged in legitimate trade and is entitled to have or retain the certificate of Philippine register.
SEC. 1202. Limiting number of foreign officers and engineers on board vessels. No Philippine vessel operating in the
coastwise trade or on the high seas shall be permitted to have on board more than one master or one mate and one engineer
who are not citizens of the United States or of the Philippine Islands, even if they hold licenses under section one thousand
one hundred and ninety-nine hereof. No other person who is not a citizen of the United States or of the Philippine Islands shall
be an officer or a member of the crew of such vessel. Any such vessel which fails to comply with the terms of this section shall
be required to pay an additional tonnage tax of fifty centavos per net ton per month during the continuance of said failure.
ISSUES.
Predicated on these facts and provisions of law, the issues as above stated recur, namely, whether Act No 2761 of the Philippine
Legislature is valid in whole or in part whether the Government of the Philippine Islands, through its Legislature, can deny the
registry of vessel in its coastwise trade to corporations having alien stockholders .

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OPINION.
1. Considered from a positive standpoint, there can exist no measure of doubt as to the power of the Philippine Legislature to enact Act
No. 2761. The Act of Congress of April 29, 1908, with its specific delegation of authority to the Government of the Philippine Islands to
regulate the transportation of merchandise and passengers between ports or places therein, the liberal construction given to the
provisions of the Philippine Bill, the Act of Congress of July 1, 1902, by the courts, and the grant by the Act of Congress of August 29,
1916, of general legislative power to the Philippine Legislature, are certainly superabundant authority for such a law. While the Act of
the local legislature may in a way be inconsistent with the Act of Congress regulating the coasting trade of the Continental United
States, yet the general rule that only such laws of the United States have force in the Philippines as are expressly extended thereto,
and the abnegation of power by Congress in favor of the Philippine Islands would leave no starting point for convincing argument. As a
matter of fact, counsel for petitioner does not assail legislative action from this direction (See U. S. vs. Bull [1910], 15 Phil., 7;
Sinnot vs. Davenport [1859] 22 How., 227.)
2. It is from the negative, prohibitory standpoint that counsel argues against the constitutionality of Act No. 2761. The first paragraph of
the Philippine Bill of Rights of the Philippine Bill, repeated again in the first paragraph of the Philippine Bill of Rights as set forth in the
Jones Law, provides "That no law shall be enacted in said Islands which shall deprive any person of life, liberty, or property without due
process of law, or deny to any person therein the equal protection of the laws." Counsel says that Act No. 2761 denies to Smith, Bell &
Co., Ltd., the equal protection of the laws because it, in effect, prohibits the corporation from owning vessels, and because classification
of corporations based on the citizenship of one or more of their stockholders is capricious, and that Act No. 2761 deprives the
corporation of its properly without due process of law because by the passage of the law company was automatically deprived of every
beneficial attribute of ownership in the Bato and left with the naked title to a boat it could not use .
The guaranties extended by the Congress of the United States to the Philippine Islands have been used in the same sense as like
provisions found in the United States Constitution. While the "due process of law and equal protection of the laws" clause of the
Philippine Bill of Rights is couched in slightly different words than the corresponding clause of the Fourteenth Amendment to the United
States Constitution, the first should be interpreted and given the same force and effect as the latter. (Kepner vs. U.S. [1904], 195 U. S.,
100; Sierra vs. Mortiga [1907], 204 U. S.,.470; U. S. vs. Bull [1910], 15 Phil., 7.) The meaning of the Fourteenth Amendment has been
announced in classic decisions of the United States Supreme Court. Even at the expense of restating what is so well known, these
basic principles must again be set down in order to serve as the basis of this decision.
The guaranties of the Fourteenth Amendment and so of the first paragraph of the Philippine Bill of Rights, are universal in their
application to all person within the territorial jurisdiction, without regard to any differences of race, color, or nationality. The word
"person" includes aliens. (Yick Wo vs. Hopkins [1886], 118 U. S., 356; Truaxvs. Raich [1915], 239 U. S., 33.) Private corporations,
likewise, are "persons" within the scope of the guaranties in so far as their property is concerned. (Santa Clara County vs. Southern
Pac. R. R. Co. [1886], 118.U. S., 394; Pembina Mining Co. vs. Pennsylvania [1888],.125 U. S., 181 Covington & L. Turnpike Road
Co. vs. Sandford [1896], 164 U. S., 578.) Classification with the end in view of providing diversity of treatment may be made among
corporations, but must be based upon some reasonable ground and not be a mere arbitrary selection (Gulf, Colorado & Santa Fe
Railway Co. vs. Ellis [1897],.165 U. S., 150.) Examples of laws held unconstitutional because of unlawful discrimination against aliens
could be cited. Generally, these decisions relate to statutes which had attempted arbitrarily to forbid aliens to engage in ordinary kinds
of business to earn their living. (Statevs. Montgomery [1900], 94 Maine, 192, peddling but see. Commonwealth vs. Hana [1907], 195
Mass., 262; Templar vs. Board of Examiners of Barbers [1902], 131 Mich., 254, barbers; Yick Wo vs. Hopkins [1886], 118 U. S.,.356,
discrimination against Chinese; Truax vs. Raich [1915], 239 U. S., 33; In re Parrott [1880], 1 Fed , 481; Fraser vs. McConway & Torley
Co. [1897], 82 Fed , 257; Juniata Limestone Co. vs. Fagley [1898], 187 Penn., 193, all relating to the employment of aliens by private
corporations.)
A literal application of general principles to the facts before us would, of course, cause the inevitable deduction that Act No. 2761 is
unconstitutional by reason of its denial to a corporation, some of whole members are foreigners, of the equal protection of the laws.
Like all beneficient propositions, deeper research discloses provisos. Examples of a denial of rights to aliens notwithstanding the
provisions of the Fourteenth Amendment could be cited. (Tragesser vs. Gray [1890], 73 Md., 250, licenses to sell spirituous liquors
denied to persons not citizens of the United States; Commonwealth vs. Hana [1907], 195 Mass , 262, excluding aliens from the right to
peddle; Patsone vs. Commonwealth of Pennsylvania [1914], 232 U. S. , 138, prohibiting the killing of any wild bird or animal by any
unnaturalized foreign-born resident; Ex parte Gilleti [1915], 70 Fla., 442, discriminating in favor of citizens with reference to the taking
for private use of the common property in fish and oysters found in the public waters of the State; Heim vs. McCall [1915], 239 U.
S.,.175, and Crane vs. New York [1915], 239 U. S., 195, limiting employment on public works by, or for, the State or a municipality to
citizens of the United States.)

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One of the exceptions to the general rule, most persistent and far reaching in influence is, that neither the Fourteenth Amendment to
the United States Constitution, broad and comprehensive as it is, nor any other amendment, "was designed to interfere with the power
of the State, sometimes termed its `police power,' to prescribe regulations to promote the health, peace, morals, education, and good
order of the people, and legislate so as to increase the industries of the State, develop its resources and add to its wealth and
prosperity. From the very necessities of society, legislation of a special character, having these objects in view, must often be had in
certain districts." (Barbier vs. Connolly [1884], 113 U.S., 27; New Orleans Gas Co. vs. Lousiana Light Co. [1885], 115 U.S., 650.) This is
the same police power which the United States Supreme Court say "extends to so dealing with the conditions which exist in the state as
to bring out of them the greatest welfare in of its people." (Bacon vs. Walker [1907], 204 U.S., 311.) For quite similar reasons, none of
the provision of the Philippine Organic Law could could have had the effect of denying to the Government of the Philippine Islands,
acting through its Legislature, the right to exercise that most essential, insistent, and illimitable of powers, the sovereign police power, in
the promotion of the general welfare and the public interest. (U. S. vs. Toribio [1910], 15 Phil., 85; Churchill and Tait vs. Rafferty [1915],
32 Phil., 580; Rubi vs. Provincial Board of Mindoro [1919], 39 Phil., 660.) Another notable exception permits of the regulation or
distribution of the public domain or the common property or resources of the people of the State, so that use may be limited to its
citizens. (Ex parte Gilleti [1915], 70 Fla., 442; McCready vs. Virginia [1876], 94 U. S., 391; Patsone vs. Commonwealth of Pennsylvania
[1914], 232U. S., 138.) Still another exception permits of the limitation of employment in the construction of public works by, or for, the
State or a municipality to citizens of the United States or of the State. (Atkin vs. Kansas [1903],191 U. S., 207; Heim vs. McCall [1915],
239 U.S., 175; Crane vs. New York [1915], 239 U. S., 195.) Even as to classification, it is admitted that a State may classify with
reference to the evil to be prevented; the question is a practical one, dependent upon experience. (Patsone vs. Commonwealth of
Pennsylvania [1914], 232 U. S., 138.)
To justify that portion of Act no. 2761 which permits corporations or companies to obtain a certificate of Philippine registry only on
condition that they be composed wholly of citizens of the Philippine Islands or of the United States or both, as not infringing Philippine
Organic Law, it must be done under some one of the exceptions here mentioned This must be done, moreover, having particularly in
mind what is so often of controlling effect in this jurisdiction our local experience and our peculiar local conditions.
To recall a few facts in geography, within the confines of Philippine jurisdictional limits are found more than three thousand islands.
Literally, and absolutely, steamship lines are, for an Insular territory thus situated, the arteries of commerce. If one be severed, the lifeblood of the nation is lost. If on the other hand these arteries are protected, then the security of the country and the promotion of the
general welfare is sustained. Time and again, with such conditions confronting it, has the executive branch of the Government of the
Philippine Islands, always later with the sanction of the judicial branch, taken a firm stand with reference to the presence of undesirable
foreigners. The Government has thus assumed to act for the all-sufficient and primitive reason of the benefit and protection of its own
citizens and of the self-preservation and integrity of its dominion. (In re Patterson [1902], 1 Phil., 93; Forbes vs. Chuoco, Tiaco and
Crossfield [1910], 16 Phil., 534;.228 U.S., 549; In re McCulloch Dick [1918], 38 Phil., 41.) Boats owned by foreigners, particularly by
such solid and reputable firms as the instant claimant, might indeed traverse the waters of the Philippines for ages without doing any
particular harm. Again, some evilminded foreigner might very easily take advantage of such lavish hospitality to chart Philippine waters,
to obtain valuable information for unfriendly foreign powers, to stir up insurrection, or to prejudice Filipino or American commerce.
Moreover, under the Spanish portion of Philippine law, the waters within the domestic jurisdiction are deemed part of the national
domain, open to public use. (Book II, Tit. IV, Ch. I, Civil Code; Spanish Law of Waters of August 3, 1866, arts 1, 2, 3.) Common carriers
which in the Philippines as in the United States and other countries are, as Lord Hale said, "affected with a public interest," can only be
permitted to use these public waters as a privilege and under such conditions as to the representatives of the people may seem wise.
(See De Villata vs. Stanley [1915], 32 Phil., 541.)
In Patsone vs. Commonwealth of Pennsylvania ([1913], 232 U.S., 138), a case herein before mentioned, Justice Holmes delivering the
opinion of the United States Supreme Court said:
This statute makes it unlawful for any unnaturalized foreign-born resident to kill any wild bird or animal except in defense of
person or property, and `to that end' makes it unlawful for such foreign-born person to own or be possessed of a shotgun or
rifle; with a penalty of $25 and a forfeiture of the gun or guns. The plaintiff in error was found guilty and was sentenced to pay
the abovementioned fine. The judgment was affirmed on successive appeals. (231 Pa., 46; 79 Atl., 928.) He brings the case to
this court on the ground that the statute is contrary to the 14th Amendment and also is in contravention of the treaty between
the United States and Italy, to which latter country the plaintiff in error belongs .
Under the 14th Amendment the objection is twofold; unjustifiably depriving the alien of property, and discrimination against
such aliens as a class. But the former really depends upon the latter, since it hardly can be disputed that if the lawful object,
the protection of wild life (Geer vs. Connecticut, 161 U.S., 519; 40 L. ed., 793; 16 Sup. Ct. Rep., 600), warrants the
discrimination, the, means adopted for making it effective also might be adopted. . . .

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The discrimination undoubtedly presents a more difficult question. But we start with reference to the evil to be prevented, and
that if the class discriminated against is or reasonably might be considered to define those from whom the evil mainly is to be
feared, it properly may be picked out. A lack of abstract symmetry does not matter. The question is a practical one, dependent
upon experience. . . .
The question therefore narrows itself to whether this court can say that the legislature of Pennsylvania was not warranted in
assuming as its premise for the law that resident unnaturalized aliens were the peculiar source of the evil that it desired to
prevent. (Barrett vs. Indiana,. 229 U.S., 26, 29; 57 L. ed., 1050, 1052; 33 Sup. Ct. Rep., 692.)
Obviously the question, so stated, is one of local experience, on which this court ought to be very slow to declare that the state
legislature was wrong in its facts (Adams vs. Milwaukee, 228 U.S., 572, 583; 57 L. ed., 971,.977; 33 Sup. Ct. Rep., 610.) If we
might trust popular speech in some states it was right; but it is enough that this court has no such knowledge of local
conditions as to be able to say that it was manifestly wrong. . . .
Judgment affirmed.
We are inclined to the view that while Smith, Bell & Co. Ltd., a corporation having alien stockholders, is entitled to the protection
afforded by the due-process of law and equal protection of the laws clause of the Philippine Bill of Rights, nevertheless, Act No. 2761 of
the Philippine Legislature, in denying to corporations such as Smith, Bell &. Co. Ltd., the right to register vessels in the Philippines
coastwise trade, does not belong to that vicious species of class legislation which must always be condemned, but does fall within
authorized exceptions, notably, within the purview of the police power, and so does not offend against the constitutional provision.
This opinion might well be brought to a close at this point. It occurs to us, however, that the legislative history of the United States and
the Philippine Islands, and, probably, the legislative history of other countries, if we were to take the time to search it out, might disclose
similar attempts at restriction on the right to enter the coastwise trade, and might thus furnish valuable aid by which to ascertain and, if
possible, effectuate legislative intention.
3. The power to regulate commerce, expressly delegated to the Congress by the Constitution, includes the power to
nationalize ships built and owned in the United States by registries and enrollments, and the recording of the muniments of
title of American vessels. The Congress "may encourage or it may entirely prohibit such commerce, and it may regulate in any
way it may see fit between these two extremes." (U.S.vs. Craig [1886], 28 Fed., 795; Gibbons vs. Ogden [1824], 9 Wheat., 1;
The Passenger Cases [1849], 7 How., 283.)
Acting within the purview of such power, the first Congress of the United States had not been long convened before it enacted on
September 1, 1789, "An Act for Registering and Clearing Vessels, Regulating the Coasting Trade, and for other purposes." Section 1 of
this law provided that for any ship or vessel to obtain the benefits of American registry, it must belong wholly to a citizen or citizens of
the United States "and no other." (1 Stat. at L., 55.) That Act was shortly after repealed, but the same idea was carried into the Acts of
Congress of December 31, 1792 and February 18, 1793. (1 Stat. at L., 287, 305.).Section 4 of the Act of 1792 provided that in order to
obtain the registry of any vessel, an oath shall be taken and subscribed by the owner, or by one of the owners thereof, before the officer
authorized to make such registry, declaring, "that there is no subject or citizen of any foreign prince or state, directly or indirectly, by way
of trust, confidence, or otherwise, interested in such vessel, or in the profits or issues thereof." Section 32 of the Act of 1793 even went
so far as to say "that if any licensed ship or vessel shall be transferred to any person who is not at the time of such transfer a citizen of
and resident within the United States, ... every such vessel with her tackle, apparel, and furniture, and the cargo found on board her,
shall be forefeited." In case of alienation to a foreigner, Chief Justice Marshall said that all the privileges of an American bottom
were ipso facto forfeited. (U.S. vs. Willings and Francis [1807], 4 Cranch, 48.) Even as late as 1873, the Attorney-General of the United
States was of the opinion that under the provisions of the Act of December 31, 1792, no vessel in which a foreigner is directly or
indirectly interested can lawfully be registered as a vessel of the United. States. (14 Op. Atty.-Gen. [U.S.], 340.)
These laws continued in force without contest, although possibly the Act of March 3, 1825, may have affected them, until amended by
the Act of May 28, 1896 (29 Stat. at L., 188) which extended the privileges of registry from vessels wholly owned by a citizen or citizens
of the United States to corporations created under the laws of any of the states thereof. The law, as amended, made possible the
deduction that a vessel belonging to a domestic corporation was entitled to registry or enrollment even though some stock of the
company be owned by aliens. The right of ownership of stock in a corporation was thereafter distinct from the right to hold the property
by the corporation (Humphreys vs. McKissock [1890], 140 U.S., 304; Queen vs. Arnaud [1846], 9 Q. B., 806; 29 Op. Atty.-Gen.
[U.S.],188.)

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On American occupation of the Philippines, the new government found a substantive law in operation in the Islands with a civil law
history which it wisely continued in force Article fifteen of the Spanish Code of Commerce permitted any foreigner to engage in
Philippine trade if he had legal capacity to do so under the laws of his nation. When the Philippine Commission came to enact the
Customs Administrative Act (No. 355) in 1902, it returned to the old American policy of limiting the protection and flag of the United
States to vessels owned by citizens of the United States or by native inhabitants of the Philippine Islands (Sec. 117.) Two years later,
the same body reverted to the existing Congressional law by permitting certification to be issued to a citizen of the United States or to a
corporation or company created under the laws of the United States or of any state thereof or of the Philippine Islands (Act No. 1235,
sec. 3.) The two administration codes repeated the same provisions with the necessary amplification of inclusion of citizens or native
inhabitants of the Philippine Islands (Adm. Code of 1916, sec. 1345; Adm. Code of 1917, sec. 1172). And now Act No. 2761 has
returned to the restrictive idea of the original Customs Administrative Act which in turn was merely a reflection of the statutory language
of the first American Congress.
Provisions such as those in Act No. 2761, which deny to foreigners the right to a certificate of Philippine registry, are thus found not to
be as radical as a first reading would make them appear.
Without any subterfuge, the apparent purpose of the Philippine Legislature is seen to be to enact an anti-alien shipping act. The
ultimate purpose of the Legislature is to encourage Philippine ship-building. This, without doubt, has, likewise, been the intention of the
United States Congress in passing navigation or tariff laws on different occasions. The object of such a law, the United States Supreme
Court once said, was to encourage American trade, navigation, and ship-building by giving American ship-owners exclusive privileges.
(Old Dominion Steamship Co. vs. Virginia [1905], 198 U.S., 299; Kent's Commentaries, Vol. 3, p. 139.)
In the concurring opinion of Justice Johnson in Gibbons vs. Ogden ([1824], 9 Wheat., 1) is found the following:
Licensing acts, in fact, in legislation, are universally restraining acts; as, for example, acts licensing gaming houses, retailers of
spirituous liquors, etc. The act, in this instance, is distinctly of that character, and forms part of an extensive system, the object
of which is to encourage American shipping, and place them on an equal footing with the shipping of other nations. Almost
every commercial nation reserves to its own subjects a monopoly of its coasting trade; and a countervailing privilege in favor
of American shipping is contemplated, in the whole legislation of the United States on this subject. It is not to give the vessel
an American character, that the license is granted; that effect has been correctly attributed to the act of her enrollment. But it is
to confer on her American privileges, as contradistinguished from foreign; and to preserve the. Government from fraud by
foreigners, in surreptitiously intruding themselves into the American commercial marine, as well as frauds upon the revenue in
the trade coastwise, that this whole system is projected.
The United States Congress in assuming its grave responsibility of legislating wisely for a new country did so imbued with a spirit of
Americanism. Domestic navigation and trade, it decreed, could only be carried on by citizens of the United States. If the representatives
of the American people acted in this patriotic manner to advance the national policy, and if their action was accepted without protest in
the courts, who can say that they did not enact such beneficial laws under the all-pervading police power, with the prime motive of
safeguarding the country and of promoting its prosperity? Quite similarly, the Philippine Legislature made up entirely of Filipinos,
representing the mandate of the Filipino people and the guardian of their rights, acting under practically autonomous powers, and
imbued with a strong sense of Philippinism, has desired for these Islands safety from foreign interlopers, the use of the common
property exclusively by its citizens and the citizens of the United States, and protection for the common good of the people. Who can
say, therefore, especially can a court, that with all the facts and circumstances affecting the Filipino people before it, the Philippine
Legislature has erred in the enactment of Act No. 2761?
Surely, the members of the judiciary are not expected to live apart from active life, in monastic seclusion amidst dusty tomes and
ancient records, but, as keen spectators of passing events and alive to the dictates of the general the national welfare, can incline
the scales of their decisions in favor of that solution which will most effectively promote the public policy. All the presumption is in favor
of the constitutionally of the law and without good and strong reasons, courts should not attempt to nullify the action of the Legislature.
"In construing a statute enacted by the Philippine Commission (Legislature), we deem it our duty not to give it a construction which
would be repugnant to an Act of Congress, if the language of the statute is fairly susceptible of another construction not in conflict with
the higher law." (In re Guaria [1913], 24. Phil., 36; U.S. vs. Ten Yu [1912], 24 Phil., 1.) That is the true construction which will best carry
legislative intention into effect.
With full consciousness of the importance of the question, we nevertheless are clearly of the opinion that the limitation of domestic
ownership for purposes of obtaining a certificate of Philippine registry in the coastwise trade to citizens of the Philippine Islands, and to

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citizens of the United States, does not violate the provisions of paragraph 1 of section 3 of the Act of Congress of August 29, 1916 No
treaty right relied upon Act No. 2761 of the Philippine Legislature is held valid and constitutional .
The petition for a writ of mandamus is denied, with costs against the petitioner. So ordered.
G.R. No. L-19550

June 19, 1967

HARRY S. STONEHILL, ROBERT P. BROOKS, JOHN J. BROOKS and KARL BECK, petitioners,
vs.
HON. JOSE W. DIOKNO, in his capacity as SECRETARY OF JUSTICE; JOSE LUKBAN, in his capacity as Acting Director,
National Bureau of Investigation; SPECIAL PROSECUTORS PEDRO D. CENZON, EFREN I. PLANA and MANUEL VILLAREAL,
JR. and ASST. FISCAL MANASES G. REYES; JUDGE AMADO ROAN, Municipal Court of Manila; JUDGE ROMAN CANSINO,
Municipal Court of Manila; JUDGE HERMOGENES CALUAG, Court of First Instance of Rizal-Quezon City Branch, and JUDGE
DAMIAN JIMENEZ, Municipal Court of Quezon City, respondents.
Paredes, Poblador, Cruz and Nazareno and Meer, Meer and Meer and Juan T. David for petitioners.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Pacifico P. de Castro, Assistant Solicitor General Frine C.
Zaballero, Solicitor Camilo D. Quiason and Solicitor C. Padua for respondents.
CONCEPCION, C.J.:
Upon application of the officers of the government named on the margin1 hereinafter referred to as Respondents-Prosecutors
several judges2 hereinafter referred to as Respondents-Judges issued, on different dates,3 a total of 42 search warrants against
petitioners herein4 and/or the corporations of which they were officers,5 directed to the any peace officer, to search the persons abovenamed and/or the premises of their offices, warehouses and/or residences, and to seize and take possession of the following personal
property to wit:
Books of accounts, financial records, vouchers, correspondence, receipts, ledgers, journals, portfolios, credit journals,
typewriters, and other documents and/or papers showing all business transactions including disbursements receipts, balance
sheets and profit and loss statements and Bobbins (cigarette wrappers).
as "the subject of the offense; stolen or embezzled and proceeds or fruits of the offense," or "used or intended to be used as the means
of committing the offense," which is described in the applications adverted to above as "violation of Central Bank Laws, Tariff and
Customs Laws, Internal Revenue (Code) and the Revised Penal Code."
Alleging that the aforementioned search warrants are null and void, as contravening the Constitution and the Rules of Court
because, inter alia: (1) they do not describe with particularity the documents, books and things to be seized; (2) cash money, not
mentioned in the warrants, were actually seized; (3) the warrants were issued to fish evidence against the aforementioned petitioners in
deportation cases filed against them; (4) the searches and seizures were made in an illegal manner; and (5) the documents, papers
and cash money seized were not delivered to the courts that issued the warrants, to be disposed of in accordance with law on March
20, 1962, said petitioners filed with the Supreme Court this original action for certiorari, prohibition, mandamus and injunction, and
prayed that, pending final disposition of the present case, a writ of preliminary injunction be issued restraining RespondentsProsecutors, their agents and /or representatives from using the effects seized as aforementioned or any copies thereof, in the
deportation cases already adverted to, and that, in due course, thereafter, decision be rendered quashing the contested search
warrants and declaring the same null and void, and commanding the respondents, their agents or representatives to return to
petitioners herein, in accordance with Section 3, Rule 67, of the Rules of Court, the documents, papers, things and cash moneys seized
or confiscated under the search warrants in question.
In their answer, respondents-prosecutors alleged, 6 (1) that the contested search warrants are valid and have been issued in
accordance with law; (2) that the defects of said warrants, if any, were cured by petitioners' consent; and (3) that, in any event, the
effects seized are admissible in evidence against herein petitioners, regardless of the alleged illegality of the aforementioned searches
and seizures.
On March 22, 1962, this Court issued the writ of preliminary injunction prayed for in the petition. However, by resolution dated June 29,
1962, the writ was partially lifted or dissolved, insofar as the papers, documents and things seized from the offices of the corporations

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above mentioned are concerned; but, the injunction was maintained as regards the papers, documents and things found and seized in
the residences of petitioners herein.7
Thus, the documents, papers, and things seized under the alleged authority of the warrants in question may be split into two (2) major
groups, namely: (a) those found and seized in the offices of the aforementioned corporations, and (b) those found and seized in the
residences of petitioners herein.
As regards the first group, we hold that petitioners herein have no cause of action to assail the legality of the contested warrants and of
the seizures made in pursuance thereof, for the simple reason that said corporations have their respective personalities, separate and
distinct from the personality of herein petitioners, regardless of the amount of shares of stock or of the interest of each of them in said
corporations, and whatever the offices they hold therein may be.8 Indeed, it is well settled that the legality of a seizure can be
contested only by the party whose rights have been impaired thereby,9 and that the objection to an unlawful search and seizure
is purely personal and cannot be availed of by third parties. 10 Consequently, petitioners herein may not validly object to the use in
evidence against them of the documents, papers and things seized from the offices and premises of the corporations adverted to
above, since the right to object to the admission of said papers in evidence belongsexclusively to the corporations, to whom the seized
effects belong, and may not be invoked by the corporate officers in proceedings against them in their individual capacity. 11 Indeed, it
has been held:
. . . that the Government's action in gaining possession of papers belonging to the corporation did not relate to nor did it affect
the personal defendants. If these papers were unlawfully seized and thereby the constitutional rights of or any one were
invaded, they were the rights of the corporation and not the rights of the other defendants. Next, it is clear that a question of
the lawfulness of a seizure can be raised only by one whose rights have been invaded. Certainly, such a seizure, if unlawful,
could not affect the constitutional rights of defendants whose property had not been seized or the privacy of whose homes had
not been disturbed; nor could they claim for themselves the benefits of the Fourth Amendment, when its violation, if any, was
with reference to the rights of another. Remus vs. United States (C.C.A.)291 F. 501, 511. It follows, therefore, that the question
of the admissibility of the evidence based on an alleged unlawful search and seizure does not extend to the personal
defendants but embraces only the corporation whose property was taken. . . . (A Guckenheimer & Bros. Co. vs. United States,
[1925] 3 F. 2d. 786, 789, Emphasis supplied.)
With respect to the documents, papers and things seized in the residences of petitioners herein, the aforementioned resolution of June
29, 1962, lifted the writ of preliminary injunction previously issued by this Court,12 thereby, in effect, restraining herein RespondentsProsecutors from using them in evidence against petitioners herein.
In connection with said documents, papers and things, two (2) important questions need be settled, namely: (1) whether the search
warrants in question, and the searches and seizures made under the authority thereof, are valid or not, and (2) if the answer to the
preceding question is in the negative, whether said documents, papers and things may be used in evidence against petitioners
herein.1wph1.t
Petitioners maintain that the aforementioned search warrants are in the nature of general warrants and that accordingly, the seizures
effected upon the authority there of are null and void. In this connection, the Constitution13 provides:
The right of the people to be secure in their persons, houses, papers, and effects against unreasonable searches and seizures
shall not be violated, and no warrants shall issue but upon probable cause, to be determined by the judge after examination
under oath or affirmation of the complainant and the witnesses he may produce, and particularly describing the place to be
searched, and the persons or things to be seized.
Two points must be stressed in connection with this constitutional mandate, namely: (1) that no warrant shall issue but upon
probable cause, to be determined by the judge in the manner set forth in said provision; and (2) that the warrant
shall particularly describe the things to be seized.
None of these requirements has been complied with in the contested warrants. Indeed, the same were issued upon applications stating
that the natural and juridical person therein named had committed a "violation of Central Ban Laws, Tariff and Customs Laws, Internal
Revenue (Code) and Revised Penal Code." In other words, nospecific offense had been alleged in said applications. The averments
thereof with respect to the offense committed were abstract. As a consequence, it was impossible for the judges who issued the
warrants to have found the existence of probable cause, for the same presupposes the introduction of competent proof that the party

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against whom it is sought has performed particular acts, or committed specific omissions, violating a given provision of our criminal
laws. As a matter of fact, the applications involved in this case do not allege any specific acts performed by herein petitioners. It would
be the legal heresy, of the highest order, to convict anybody of a "violation of Central Bank Laws, Tariff and Customs Laws, Internal
Revenue (Code) and Revised Penal Code," as alleged in the aforementioned applications without reference to any determinate
provision of said laws or
To uphold the validity of the warrants in question would be to wipe out completely one of the most fundamental rights guaranteed in our
Constitution, for it would place the sanctity of the domicile and the privacy of communication and correspondence at the mercy of the
whims caprice or passion of peace officers. This is precisely the evil sought to be remedied by the constitutional provision above quoted
to outlaw the so-called general warrants. It is not difficult to imagine what would happen, in times of keen political strife, when the
party in power feels that the minority is likely to wrest it, even though by legal means.
Such is the seriousness of the irregularities committed in connection with the disputed search warrants, that this Court deemed it fit to
amend Section 3 of Rule 122 of the former Rules of Court 14 by providing in its counterpart, under the Revised Rules of Court 15 that "a
search warrant shall not issue but upon probable cause in connection with one specific offense." Not satisfied with this qualification, the
Court added thereto a paragraph, directing that "no search warrant shall issue for more than one specific offense."
The grave violation of the Constitution made in the application for the contested search warrants was compounded by the description
therein made of the effects to be searched for and seized, to wit:
Books of accounts, financial records, vouchers, journals, correspondence, receipts, ledgers, portfolios, credit journals,
typewriters, and other documents and/or papers showing all business transactions including disbursement receipts, balance
sheets and related profit and loss statements.
Thus, the warrants authorized the search for and seizure of records pertaining to all business transactions of petitioners herein,
regardless of whether the transactions were legal or illegal. The warrants sanctioned the seizure of all records of the petitioners and the
aforementioned corporations, whatever their nature, thus openly contravening the explicit command of our Bill of Rights that the
things to be seized be particularly described as well as tending to defeat its major objective: the elimination of general warrants.
Relying upon Moncado vs. People's Court (80 Phil. 1), Respondents-Prosecutors maintain that, even if the searches and seizures
under consideration were unconstitutional, the documents, papers and things thus seized are admissible in evidence against petitioners
herein. Upon mature deliberation, however, we are unanimously of the opinion that the position taken in the Moncado case must be
abandoned. Said position was in line with the American common law rule, that the criminal should not be allowed to go free merely
"because the constable has blundered," 16 upon the theory that the constitutional prohibition against unreasonable searches and
seizures is protected by means other than the exclusion of evidence unlawfully obtained, 17 such as the common-law action for
damages against the searching officer, against the party who procured the issuance of the search warrant and against those assisting
in the execution of an illegal search, their criminal punishment, resistance, without liability to an unlawful seizure, and such other legal
remedies as may be provided by other laws.
However, most common law jurisdictions have already given up this approach and eventually adopted the exclusionary rule, realizing
that this is the only practical means of enforcing the constitutional injunction against unreasonable searches and seizures. In the
language of Judge Learned Hand:
As we understand it, the reason for the exclusion of evidence competent as such, which has been unlawfully acquired, is that
exclusion is the only practical way of enforcing the constitutional privilege. In earlier times the action of trespass against the
offending official may have been protection enough; but that is true no longer. Only in case the prosecution which itself
controls the seizing officials, knows that it cannot profit by their wrong will that wrong be repressed.18
In fact, over thirty (30) years before, the Federal Supreme Court had already declared:
If letters and private documents can thus be seized and held and used in evidence against a citizen accused of an offense, the
protection of the 4th Amendment, declaring his rights to be secure against such searches and seizures, is of no value, and, so
far as those thus placed are concerned, might as well be stricken from the Constitution. The efforts of the courts and their
officials to bring the guilty to punishment, praiseworthy as they are, are not to be aided by the sacrifice of those great

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principles established by years of endeavor and suffering which have resulted in their embodiment in the fundamental law of
the land.19
This view was, not only reiterated, but, also, broadened in subsequent decisions on the same Federal Court. 20After reviewing previous
decisions thereon, said Court held, in Mapp vs. Ohio (supra.):
. . . Today we once again examine the Wolf's constitutional documentation of the right of privacy free from unreasonable state
intrusion, and after its dozen years on our books, are led by it to close the only courtroom door remaining open to evidence
secured by official lawlessness in flagrant abuse of that basic right, reserved to all persons as a specific guarantee against that
very same unlawful conduct. We hold that all evidence obtained by searches and seizures in violation of the Constitution is, by
that same authority, inadmissible in a State.
Since the Fourth Amendment's right of privacy has been declared enforceable against the States through the Due Process
Clause of the Fourteenth, it is enforceable against them by the same sanction of exclusion as it used against the Federal
Government. Were it otherwise, then just as without the Weeks rule the assurance against unreasonable federal searches and
seizures would be "a form of words," valueless and underserving of mention in a perpetual charter of inestimable human
liberties, so too, without that rule the freedom from state invasions of privacy would be so ephemeral and so neatly severed
from its conceptual nexus with the freedom from all brutish means of coercing evidence as not to permit this Court's high
regard as a freedom "implicit in the concept of ordered liberty." At the time that the Court held in Wolf that the amendment was
applicable to the States through the Due Process Clause, the cases of this Court as we have seen, had steadfastly held that
as to federal officers the Fourth Amendment included the exclusion of the evidence seized in violation of its provisions. Even
Wolf "stoutly adhered" to that proposition. The right to when conceded operatively enforceable against the States, was not
susceptible of destruction by avulsion of the sanction upon which its protection and enjoyment had always been deemed
dependent under the Boyd, Weeks and Silverthorne Cases. Therefore, in extending the substantive protections of due process
to all constitutionally unreasonable searches state or federal it was logically and constitutionally necessarily that the
exclusion doctrine an essential part of the right to privacy be also insisted upon as an essential ingredient of the right
newly recognized by the Wolf Case. In short, the admission of the new constitutional Right by Wolf could not tolerate denial of
its most important constitutional privilege, namely, the exclusion of the evidence which an accused had been forced to give by
reason of the unlawful seizure. To hold otherwise is to grant the right but in reality to withhold its privilege and enjoyment. Only
last year the Court itself recognized that the purpose of the exclusionary rule to "is to deter to compel respect for the
constitutional guaranty in the only effectively available way by removing the incentive to disregard it" . . . .
The ignoble shortcut to conviction left open to the State tends to destroy the entire system of constitutional restraints on which
the liberties of the people rest. Having once recognized that the right to privacy embodied in the Fourth Amendment is
enforceable against the States, and that the right to be secure against rude invasions of privacy by state officers is, therefore
constitutional in origin, we can no longer permit that right to remain an empty promise. Because it is enforceable in the same
manner and to like effect as other basic rights secured by its Due Process Clause, we can no longer permit it to be revocable
at the whim of any police officer who, in the name of law enforcement itself, chooses to suspend its enjoyment. Our decision,
founded on reason and truth, gives to the individual no more than that which the Constitution guarantees him to the police
officer no less than that to which honest law enforcement is entitled, and, to the courts, that judicial integrity so necessary in
the true administration of justice. (emphasis ours.)
Indeed, the non-exclusionary rule is contrary, not only to the letter, but also, to the spirit of the constitutional injunction against
unreasonable searches and seizures. To be sure, if the applicant for a search warrant has competent evidence to establish probable
cause of the commission of a given crime by the party against whom the warrant is intended, then there is no reason why the applicant
should not comply with the requirements of the fundamental law. Upon the other hand, if he has no such competent evidence, then it
is not possible for the Judge to find that there is probable cause, and, hence, no justification for the issuance of the warrant. The only
possible explanation (not justification) for its issuance is the necessity of fishing evidence of the commission of a crime. But, then, this
fishing expedition is indicative of the absence of evidence to establish a probable cause.
Moreover, the theory that the criminal prosecution of those who secure an illegal search warrant and/or make unreasonable searches
or seizures would suffice to protect the constitutional guarantee under consideration, overlooks the fact that violations thereof are, in
general, committed By agents of the party in power, for, certainly, those belonging to the minority could not possibly abuse a power they
do not have. Regardless of the handicap under which the minority usually but, understandably finds itself in prosecuting agents of
the majority, one must not lose sight of the fact that the psychological and moral effect of the possibility 21 of securing their conviction, is
watered down by the pardoning power of the party for whose benefit the illegality had been committed.

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In their Motion for Reconsideration and Amendment of the Resolution of this Court dated June 29, 1962, petitioners allege that Rooms
Nos. 81 and 91 of Carmen Apartments, House No. 2008, Dewey Boulevard, House No. 1436, Colorado Street, and Room No. 304 of
the Army-Navy Club, should be included among the premises considered in said Resolution as residences of herein petitioners, Harry
S. Stonehill, Robert P. Brook, John J. Brooks and Karl Beck, respectively, and that, furthermore, the records, papers and other effects
seized in the offices of the corporations above referred to include personal belongings of said petitioners and other effects under their
exclusive possession and control, for the exclusion of which they have a standing under the latest rulings of the federal courts of federal
courts of the United States. 22
We note, however, that petitioners' theory, regarding their alleged possession of and control over the aforementioned records, papers
and effects, and the alleged "personal" nature thereof, has Been Advanced, notin their petition or amended petition herein, but in the
Motion for Reconsideration and Amendment of the Resolution of June 29, 1962. In other words, said theory would appear to be
readjustment of that followed in said petitions, to suit the approach intimated in the Resolution sought to be reconsidered and amended.
Then, too, some of the affidavits or copies of alleged affidavits attached to said motion for reconsideration, or submitted in support
thereof, contain either inconsistent allegations, or allegations inconsistent with the theory now advanced by petitioners herein.
Upon the other hand, we are not satisfied that the allegations of said petitions said motion for reconsideration, and the contents of the
aforementioned affidavits and other papers submitted in support of said motion, have sufficiently established the facts or conditions
contemplated in the cases relied upon by the petitioners; to warrant application of the views therein expressed, should we agree
thereto. At any rate, we do not deem it necessary to express our opinion thereon, it being best to leave the matter open for
determination in appropriate cases in the future.
We hold, therefore, that the doctrine adopted in the Moncado case must be, as it is hereby, abandoned; that the warrants for the search
of three (3) residences of herein petitioners, as specified in the Resolution of June 29, 1962, are null and void; that the searches and
seizures therein made are illegal; that the writ of preliminary injunction heretofore issued, in connection with the documents, papers and
other effects thus seized in said residences of herein petitioners is hereby made permanent; that the writs prayed for are granted,
insofar as the documents, papers and other effects so seized in the aforementioned residences are concerned; that the aforementioned
motion for Reconsideration and Amendment should be, as it is hereby, denied; and that the petition herein is dismissed and the writs
prayed for denied, as regards the documents, papers and other effects seized in the twenty-nine (29) places, offices and other
premises enumerated in the same Resolution, without special pronouncement as to costs.
It is so ordered.

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[G.R. No. L-32409. February 27, 1971.]
BACHE & CO. (PHIL.), INC. and FREDERICK E. SEGGERMAN, Petitioners, v. HON. JUDGE VIVENCIO M.
RUIZ, MISAEL P. VERA, in his capacity as Commissioner of Internal Revenue, ARTURO LOGRONIO,
RODOLFO DE LEON, GAVINO VELASQUEZ, MIMIR DELLOSA, NICANOR ALCORDO, JOHN DOE, JOHN DOE,
JOHN DOE, and JOHN DOE, Respondents.
San Juan, Africa, Gonzales & San Agustin, for Petitioners.
Solicitor General Felix Q. Antonio, Assistant Solicitor General Crispin V . Bautista, Solicitor Pedro A.
Ramirez and Special Attorney Jaime M. Maza for Respondents.

DECISION

VILLAMOR, J.:

This is an original action of certiorari, prohibition and mandamus, with prayer for a writ of preliminary mandatory and
prohibitory injunction. In their petition Bache & Co. (Phil.), Inc., a corporation duly organized and existing under the
laws of the Philippines, and its President, Frederick E. Seggerman, pray this Court to declare null and void Search
Warrant No. 2-M-70 issued by respondent Judge on February 25, 1970; to order respondents to desist from enforcing
the same and/or keeping the documents, papers and effects seized by virtue thereof, as well as from enforcing the tax
assessments on petitioner corporation alleged by petitioners to have been made on the basis of the said documents,
papers and effects, and to order the return of the latter to petitioners. We gave due course to the petition but did not
issue the writ of preliminary injunction prayed for therein.
The pertinent facts of this case, as gathered from record, are as follows:chanrob1es virtual 1aw library
On February 24, 1970, respondent Misael P. Vera, Commissioner of Internal Revenue, wrote a letter addressed to
respondent Judge Vivencio M. Ruiz requesting the issuance of a search warrant against petitioners for violation of
Section 46(a) of the National Internal Revenue Code, in relation to all other pertinent provisions thereof, particularly
Sections 53, 72, 73, 208 and 209, and authorizing Revenue Examiner Rodolfo de Leon, one of herein respondents, to
make and file the application for search warrant which was attached to the letter.
In the afternoon of the following day, February 25, 1970, respondent De Leon and his witness, respondent Arturo
Logronio, went to the Court of First Instance of Rizal. They brought with them the following papers: respondent Veras
aforesaid letter-request; an application for search warrant already filled up but still unsigned by respondent De Leon;
an affidavit of respondent Logronio subscribed before respondent De Leon; a deposition in printed form of respondent
Logronio already accomplished and signed by him but not yet subscribed; and a search warrant already accomplished
but still unsigned by respondent Judge.
At that time respondent Judge was hearing a certain case; so, by means of a note, he instructed his Deputy Clerk of
Court to take the depositions of respondents De Leon and Logronio. After the session had adjourned, respondent
Judge was informed that the depositions had already been taken. The stenographer, upon request of respondent
Judge, read to him her stenographic notes; and thereafter, respondent Judge asked respondent Logronio to take the
oath and warned him that if his deposition was found to be false and without legal basis, he could be charged for
perjury. Respondent Judge signed respondent de Leons application for search warrant and respondent Logronios
deposition, Search Warrant No. 2-M-70 was then sign by respondent Judge and accordingly issued.
Three days later, or on February 28, 1970, which was a Saturday, the BIR agents served the search warrant
petitioners at the offices of petitioner corporation on Ayala Avenue, Makati, Rizal. Petitioners lawyers protested the
search on the ground that no formal complaint or transcript of testimony was attached to the warrant. The agents
nevertheless proceeded with their search which yielded six boxes of documents.
On March 3, 1970, petitioners filed a petition with the Court of First Instance of Rizal praying that the search warrant
be quashed, dissolved or recalled, that preliminary prohibitory and mandatory writs of injunction be issued, that the
search warrant be declared null and void, and that the respondents be ordered to pay petitioners, jointly and
severally, damages and attorneys fees. On March 18, 1970, the respondents, thru the Solicitor General, filed an

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answer to the petition. After hearing, the court, presided over by respondent Judge, issued on July 29, 1970, an order
dismissing the petition for dissolution of the search warrant. In the meantime, or on April 16, 1970, the Bureau of
Internal Revenue made tax assessments on petitioner corporation in the total sum of P2,594,729.97, partly, if not
entirely, based on the documents thus seized. Petitioners came to this Court.
The petition should be granted for the following reasons:chanrob1es virtual 1aw library
1. Respondent Judge failed to personally examine the complainant and his witness.
The pertinent provisions of the Constitution of the Philippines and of the Revised Rules of Court
are:jgc:chanrobles.com.ph
"(3) The right of the people to be secure in their persons, houses, papers and effects against unreasonable searches
and seizures shall not be violated, and no warrants shall issue but upon probable cause, to be determined by the
judge after examination under oath or affirmation of the complainant and the witnesses he may produce, and
particularly describing the place to be searched, and the persons or things to be seized." (Art. III, Sec. 1,
Constitution.)
"SEC. 3. Requisites for issuing search warrant. A search warrant shall not issue but upon probable cause in
connection with one specific offense to be determined by the judge or justice of the peace after examination under
oath or affirmation of the complainant and the witnesses he may produce, and particularly describing the place to be
searched and the persons or things to be seized.
"No search warrant shall issue for more than one specific offense.
"SEC. 4. Examination of the applicant. The judge or justice of the peace must, before issuing the warrant,
personally examine on oath or affirmation the complainant and any witnesses he may produce and take their
depositions in writing, and attach them to the record, in addition to any affidavits presented to him." (Rule 126,
Revised Rules of Court.)
The examination of the complainant and the witnesses he may produce, required by Art. III, Sec. 1, par. 3, of the
Constitution, and by Secs. 3 and 4, Rule 126 of the Revised Rules of Court, should be conducted by the judge himself
and not by others. The phrase "which shall be determined by the judge after examination under oath or affirmation of
the complainant and the witnesses he may produce," appearing in the said constitutional provision, was introduced by
Delegate Francisco as an amendment to the draft submitted by the Sub-Committee of Seven. The following discussion
in the Constitutional Convention (Laurel, Proceedings of the Philippine Constitutional Convention, Vol. III, pp. 755757) is enlightening:jgc:chanrobles.com.ph
"SR. ORENSE. Vamos a dejar compaero los piropos y vamos al grano.
En los casos de una necesidad de actuar inmediatamente para que no se frusten los fines de la justicia mediante el
registro inmediato y la incautacion del cuerpo del delito, no cree Su Seoria que causaria cierta demora el
procedimiento apuntado en su enmienda en tal forma que podria frustrar los fines de la justicia o si Su Seoria
encuentra un remedio para esto casos con el fin de compaginar los fines de la justicia con los derechos del individuo
en su persona, bienes etcetera, etcetera.
"SR. FRANCISCO. No puedo ver en la practica el caso hipottico que Su Seoria pregunta por la siguiente razon: el que
solicita un mandamiento de registro tiene que hacerlo por escrito y ese escrito no aparecer en la Mesa del Juez sin
que alguien vaya el juez a presentar ese escrito o peticion de sucuestro. Esa persona que presenta el registro puede
ser el mismo denunciante o alguna persona que solicita dicho mandamiento de registro. Ahora toda la enmienda en
esos casos consiste en que haya peticion de registro y el juez no se atendra solamente a sea peticion sino que el juez
examiner a ese denunciante y si tiene testigos tambin examiner a los testigos.
"SR. ORENSE. No cree Su Seoria que el tomar le declaracion de ese denunciante por escrito siempre requeriria algun
tiempo?.
"SR. FRANCISCO. Seria cuestio de un par de horas, pero por otro lado minimizamos en todo lo posible las vejaciones
injustas con la expedicion arbitraria de los mandamientos de registro. Creo que entre dos males debemos escoger. el
menor.
x

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"MR. LAUREL. . . . The reason why we are in favor of this amendment is because we are incorporating in our
constitution something of a fundamental character. Now, before a judge could issue a search warrant, he must be
under the obligation to examine personally under oath the complainant and if he has any witness, the witnesses that
he may produce . . ."cralaw virtua1aw library
The implementing rule in the Revised Rules of Court, Sec. 4, Rule 126, is more emphatic and candid, for it requires
the judge, before issuing a search warrant, to "personally examine on oath or affirmation the complainant and any
witnesses he may produce . . ."cralaw virtua1aw library
Personal examination by the judge of the complainant and his witnesses is necessary to enable him to determine the
existence or non-existence of a probable cause, pursuant to Art. III, Sec. 1, par. 3, of the Constitution, and Sec. 3,
Rule 126 of the Revised Rules of Court, both of which prohibit the issuance of warrants except "upon probable cause."
The determination of whether or not a probable cause exists calls for the exercise of judgment after a judicial
appraisal of facts and should not be allowed to be delegated in the absence of any rule to the contrary.
In the case at bar, no personal examination at all was conducted by respondent Judge of the complainant (respondent
De Leon) and his witness (respondent Logronio). While it is true that the complainants application for search warrant
and the witness printed-form deposition were subscribed and sworn to before respondent Judge, the latter did not ask
either of the two any question the answer to which could possibly be the basis for determining whether or not there
was probable cause against herein petitioners. Indeed, the participants seem to have attached so little significance to
the matter that notes of the proceedings before respondent Judge were not even taken. At this juncture it may be well
to recall the salient facts. The transcript of stenographic notes (pp. 61-76, April 1, 1970, Annex J-2 of the Petition)
taken at the hearing of this case in the court below shows that per instruction of respondent Judge, Mr. Eleodoro V.
Gonzales, Special Deputy Clerk of Court, took the depositions of the complainant and his witness, and that
stenographic notes thereof were taken by Mrs. Gaspar. At that time respondent Judge was at the sala hearing a case.
After respondent Judge was through with the hearing, Deputy Clerk Gonzales, stenographer Gaspar, complainant De
Leon and witness Logronio went to respondent Judges chamber and informed the Judge that they had finished the
depositions. Respondent Judge then requested the stenographer to read to him her stenographic notes. Special
Deputy Clerk Gonzales testified as follows:jgc:chanrobles.com.ph
"A And after finishing reading the stenographic notes, the Honorable Judge requested or instructed them, requested
Mr. Logronio to raise his hand and warned him if his deposition will be found to be false and without legal basis, he can
be charged criminally for perjury. The Honorable Court told Mr. Logronio whether he affirms the facts contained in his
deposition and the affidavit executed before Mr. Rodolfo de Leon.
"Q And thereafter?
"A And thereafter, he signed the deposition of Mr. Logronio.
"Q Who is this he?
"A The Honorable Judge.
"Q The deposition or the affidavit?
"A The affidavit, Your Honor."cralaw virtua1aw library
Thereafter, respondent Judge signed the search warrant.
The participation of respondent Judge in the proceedings which led to the issuance of Search Warrant No. 2-M-70 was
thus limited to listening to the stenographers readings of her notes, to a few words of warning against the
commission of perjury, and to administering the oath to the complainant and his witness. This cannot be consider a
personal examination. If there was an examination at all of the complainant and his witness, it was the one conducted
by the Deputy Clerk of Court. But, as stated, the Constitution and the rules require a personal examination by the
judge. It was precisely on account of the intention of the delegates to the Constitutional Convention to make it a duty
of the issuing judge to personally examine the complainant and his witnesses that the question of how much time
would be consumed by the judge in examining them came up before the Convention, as can be seen from the record
of the proceedings quoted above. The reading of the stenographic notes to respondent Judge did not constitute
sufficient compliance with the constitutional mandate and the rule; for by that manner respondent Judge did not have
the opportunity to observe the demeanor of the complainant and his witness, and to propound initial and follow-up

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questions which the judicial mind, on account of its training, was in the best position to conceive. These were
important in arriving at a sound inference on the all-important question of whether or not there was probable cause.
2. The search warrant was issued for more than one specific offense.
Search Warrant No. 2-M-70 was issued for" [v]iolation of Sec. 46(a) of the National Internal Revenue Code in relation
to all other pertinent provisions thereof particularly Secs. 53, 72, 73, 208 and 209." The question is: Was the said
search warrant issued "in connection with one specific offense," as required by Sec. 3, Rule 126?
To arrive at the correct answer it is essential to examine closely the provisions of the Tax Code referred to above. Thus
we find the following:chanrob1es virtual 1aw library
Sec. 46(a) requires the filing of income tax returns by corporations.
Sec. 53 requires the withholding of income taxes at source.
Sec. 72 imposes surcharges for failure to render income tax returns and for rendering false and fraudulent returns.
Sec. 73 provides the penalty for failure to pay the income tax, to make a return or to supply the information required
under the Tax Code.
Sec. 208 penalizes" [a]ny person who distills, rectifies, repacks, compounds, or manufactures any article subject to a
specific tax, without having paid the privilege tax therefore, or who aids or abets in the conduct of illicit distilling,
rectifying, compounding, or illicit manufacture of any article subject to specific tax . . .," and provides that in the case
of a corporation, partnership, or association, the official and/or employee who caused the violation shall be
responsible.
Sec. 209 penalizes the failure to make a return of receipts, sales, business, or gross value of output removed, or to
pay the tax due thereon.
The search warrant in question was issued for at least four distinct offenses under the Tax Code. The first is the
violation of Sec. 46(a), Sec. 72 and Sec. 73 (the filing of income tax returns), which are interrelated. The second is
the violation of Sec. 53 (withholding of income taxes at source). The third is the violation of Sec. 208 (unlawful pursuit
of business or occupation); and the fourth is the violation of Sec. 209 (failure to make a return of receipts, sales,
business or gross value of output actually removed or to pay the tax due thereon). Even in their classification the six
above-mentioned provisions are embraced in two different titles: Secs. 46(a), 53, 72 and 73 are under Title II
(Income Tax); while Secs. 208 and 209 are under Title V (Privilege Tax on Business and Occupation).
Respondents argue that Stonehill, Et. Al. v. Diokno, Et Al., L-19550, June 19, 1967 (20 SCRA 383), is not applicable,
because there the search warrants were issued for "violation of Central Bank Laws, Internal Revenue (Code) and
Revised Penal Code;" whereas, here Search Warrant No 2-M-70 was issued for violation of only one code, i.e., the
National Internal Revenue Code. The distinction more apparent than real, because it was precisely on account of the
Stonehill incident, which occurred sometime before the present Rules of Court took effect on January 1, 1964, that
this Court amended the former rule by inserting therein the phrase "in connection with one specific offense," and
adding the sentence "No search warrant shall issue for more than one specific offense," in what is now Sec. 3, Rule
126. Thus we said in Stonehill:jgc:chanrobles.com.ph
"Such is the seriousness of the irregularities committed in connection with the disputed search warrants, that this
Court deemed it fit to amend Section 3 of Rule 122 of the former Rules of Court that a search warrant shall not issue
but upon probable cause in connection with one specific offense. Not satisfied with this qualification, the Court added
thereto a paragraph, directing that no search warrant shall issue for more than one specific offense."
3. The search warrant does not particularly describe the things to be seized.
The documents, papers and effects sought to be seized are described in Search Warrant No. 2-M-70 in this
manner:jgc:chanrobles.com.ph
"Unregistered and private books of accounts (ledgers, journals, columnars, receipts and disbursements books,
customers ledgers); receipts for payments received; certificates of stocks and securities; contracts, promissory notes
and deeds of sale; telex and coded messages; business communications, accounting and business records; checks
and check stubs; records of bank deposits and withdrawals; and records of foreign remittances, covering the years
1966 to 1970."cralaw virtua1aw library

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The description does not meet the requirement in Art III, Sec. 1, of the Constitution, and of Sec. 3, Rule 126 of the
Revised Rules of Court, that the warrant should particularly describe the things to be seized.
In Stonehill, this Court, speaking thru Mr. Chief Justice Roberto Concepcion, said:jgc:chanrobles.com.ph
"The grave violation of the Constitution made in the application for the contested search warrants was compounded by
the description therein made of the effects to be searched for and seized, to wit:chanrob1es virtual 1aw library
Books of accounts, financial records, vouchers, journals, correspondence, receipts, ledgers, portfolios, credit journals,
typewriters, and other documents and/or paper showing all business transactions including disbursement receipts,
balance sheets and related profit and loss statements.
"Thus, the warrants authorized the search for and seizure of records pertaining to all business transactions of
petitioners herein, regardless of whether the transactions were legal or illegal. The warrants sanctioned the seizure of
all records of the petitioners and the aforementioned corporations, whatever their nature, thus openly contravening
the explicit command of our Bill of Rights that the things to be seized be particularly described as well as tending
to defeat its major objective: the elimination of general warrants."cralaw virtua1aw library
While the term "all business transactions" does not appear in Search Warrant No. 2-M-70, the said warrant
nevertheless tends to defeat the major objective of the Bill of Rights, i.e., the elimination of general warrants, for the
language used therein is so all-embracing as to include all conceivable records of petitioner corporation, which, if
seized, could possibly render its business inoperative.
In Uy Kheytin, Et. Al. v. Villareal, etc., Et Al., 42 Phil. 886, 896, this Court had occasion to explain the purpose of the
requirement that the warrant should particularly describe the place to be searched and the things to be seized, to
wit:jgc:chanrobles.com.ph
". . . Both the Jones Law (sec. 3) and General Orders No. 58 (sec. 97) specifically require that a search warrant should
particularly describe the place to be searched and the things to be seized. The evident purpose and intent of this
requirement is to limit the things to be seized to those, and only those, particularly described in the search warrant
to leave the officers of the law with no discretion regarding what articles they shall seize, to the end that
unreasonable searches and seizures may not be made, that abuses may not be committed. That this is the correct
interpretation of this constitutional provision is borne out by American authorities."cralaw virtua1aw library
The purpose as thus explained could, surely and effectively, be defeated under the search warrant issued in this case.
A search warrant may be said to particularly describe the things to be seized when the description therein is as
specific as the circumstances will ordinarily allow (People v. Rubio; 57 Phil. 384); or when the description expresses a
conclusion of fact not of law by which the warrant officer may be guided in making the search and seizure
(idem., dissent of Abad Santos, J.,); or when the things described are limited to those which bear direct relation to the
offense for which the warrant is being issued (Sec. 2, Rule 126, Revised Rules of Court). The herein search warrant
does not conform to any of the foregoing tests. If the articles desired to be seized have any direct relation to an
offense committed, the applicant must necessarily have some evidence, other than those articles, to prove the said
offense; and the articles subject of search and seizure should come in handy merely to strengthen such evidence. In
this event, the description contained in the herein disputed warrant should have mentioned, at least, the dates,
amounts, persons, and other pertinent data regarding the receipts of payments, certificates of stocks and securities,
contracts, promissory notes, deeds of sale, messages and communications, checks, bank deposits and withdrawals,
records of foreign remittances, among others, enumerated in the warrant.
Respondents contend that certiorari does not lie because petitioners failed to file a motion for reconsideration of
respondent Judges order of July 29, 1970. The contention is without merit. In the first place, when the questions
raised before this Court are the same as those which were squarely raised in and passed upon by the court below, the
filing of a motion for reconsideration in said court before certiorari can be instituted in this Court is no longer a
prerequisite. (Pajo, etc., Et. Al. v. Ago, Et Al., 108 Phil., 905). In the second place, the rule requiring the filing of a
motion for reconsideration before an application for a writ of certiorari can be entertained was never intended to be
applied without considering the circumstances. (Matutina v. Buslon, Et Al., 109 Phil., 140.) In the case at bar time is of
the essence in view of the tax assessments sought to be enforced by respondent officers of the Bureau of Internal
Revenue against petitioner corporation, On account of which immediate and more direct action becomes necessary.
(Matute v. Court of Appeals, Et Al., 26 SCRA 768.) Lastly, the rule does not apply where, as in this case, the
deprivation of petitioners fundamental right to due process taints the proceeding against them in the court below not
only with irregularity but also with nullity. (Matute v. Court of Appeals, Et Al., supra.)

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It is next contended by respondents that a corporation is not entitled to protection against unreasonable search and
seizures. Again, we find no merit in the contention.
"Although, for the reasons above stated, we are of the opinion that an officer of a corporation which is charged with a
violation of a statute of the state of its creation, or of an act of Congress passed in the exercise of its constitutional
powers, cannot refuse to produce the books and papers of such corporation, we do not wish to be understood as
holding that a corporation is not entitled to immunity, under the 4th Amendment, against unreasonable searches and
seizures. A corporation is, after all, but an association of individuals under an assumed name and with a distinct legal
entity. In organizing itself as a collective body it waives no constitutional immunities appropriate to such body. Its
property cannot be taken without compensation. It can only be proceeded against by due process of law, and is
protected, under the 14th Amendment, against unlawful discrimination . . ." (Hale v. Henkel, 201 U.S. 43, 50 L. ed.
652.)
"In Linn v. United States, 163 C.C.A. 470, 251 Fed. 476, 480, it was thought that a different rule applied to a
corporation, the ground that it was not privileged from producing its books and papers. But the rights of a corporation
against unlawful search and seizure are to be protected even if the same result might have been achieved in a lawful
way." (Silverthorne Lumber Company, Et. Al. v. United States of America, 251 U.S. 385, 64 L. ed. 319.)
In Stonehill, Et. Al. v. Diokno, Et Al., supra, this Court impliedly recognized the right of a corporation to object against
unreasonable searches and seizures, thus:jgc:chanrobles.com.ph
"As regards the first group, we hold that petitioners herein have no cause of action to assail the legality of the
contested warrants and of the seizures made in pursuance thereof, for the simple reason that said corporations have
their respective personalities, separate and distinct from the personality of herein petitioners, regardless of the
amount of shares of stock or the interest of each of them in said corporations, whatever, the offices they hold therein
may be. Indeed, it is well settled that the legality of a seizure can be contested only by the party whose rights have
been impaired thereby, and that the objection to an unlawful search and seizure is purely personal and cannot be
availed of by third parties. Consequently, petitioners herein may not validly object to the use in evidence against them
of the documents, papers and things seized from the offices and premises of the corporations adverted to above, since
the right to object to the admission of said papers in evidence belongs exclusively to the corporations, to whom the
seized effects belong, and may not be invoked by the corporate officers in proceedings against them in their individual
capacity . . ."cralaw virtua1aw library
In the Stonehill case only the officers of the various corporations in whose offices documents, papers and effects were
searched and seized were the petitioners. In the case at bar, the corporation to whom the seized documents belong,
and whose rights have thereby been impaired, is itself a petitioner. On that score, petitioner corporation here stands
on a different footing from the corporations in Stonehill.
The tax assessments referred to earlier in this opinion were, if not entirely as claimed by petitioners at least
partly as in effect admitted by respondents based on the documents seized by virtue of Search Warrant No. 2-M70. Furthermore, the fact that the assessments were made some one and one-half months after the search and
seizure on February 25, 1970, is a strong indication that the documents thus seized served as basis for the
assessments. Those assessments should therefore not be enforced.
PREMISES CONSIDERED, the petition is granted. Accordingly, Search Warrant No. 2-M-70 issued by respondent Judge
is declared null and void; respondents are permanently enjoined from enforcing the said search warrant; the
documents, papers and effects seized thereunder are ordered to be returned to petitioners; and respondent officials
the Bureau of Internal Revenue and their representatives are permanently enjoined from enforcing the assessments
mentioned in Annex "G" of the present petition, as well as other assessments based on the documents, papers and
effects seized under the search warrant herein nullified, and from using the same against petitioners in any criminal or
other proceeding. No pronouncement as to costs.

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G.R. No. 75885 May 27, 1987
BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO), petitioner,
vs.
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, CHAIRMAN JOVITO SALONGA, COMMISSIONER MARY
CONCEPCION BAUTISTA, COMMISSIONER RAMON DIAZ, COMMISSIONER RAUL R. DAZA, COMMISSIONER QUINTIN S.
DOROMAL, CAPT. JORGE B. SIACUNCO, et al., respondents.
Apostol, Bernas, Gumaru, Ona and Associates for petitioner.
Vicente G. Sison for intervenor A.T. Abesamis.

NARVASA, J.:
Challenged in this special civil action of certiorari and prohibition by a private corporation known as the Bataan Shipyard and
Engineering Co., Inc. are: (1) Executive Orders Numbered 1 and 2, promulgated by President Corazon C. Aquino on February 28, 1986
and March 12, 1986, respectively, and (2) the sequestration, takeover, and other orders issued, and acts done, in accordance with said
executive orders by the Presidential Commission on Good Government and/or its Commissioners and agents, affecting said
corporation.
1. The Sequestration, Takeover, and Other Orders Complained of
a. The Basic Sequestration Order
The sequestration order which, in the view of the petitioner corporation, initiated all its misery was issued on April 14, 1986 by
Commissioner Mary Concepcion Bautista. It was addressed to three of the agents of the Commission, hereafter simply referred to as
PCGG. It reads as follows:
RE: SEQUESTRATION ORDER
By virtue of the powers vested in the Presidential Commission on Good Government, by authority of the President of
the Philippines, you are hereby directed to sequester the following companies.
1. Bataan Shipyard and Engineering Co., Inc. (Engineering Island Shipyard and Mariveles
Shipyard)
2. Baseco Quarry
3. Philippine Jai-Alai Corporation
4. Fidelity Management Co., Inc.
5. Romson Realty, Inc.
6. Trident Management Co.
7. New Trident Management
8. Bay Transport
9. And all affiliate companies of Alfredo "Bejo" Romualdez
You are hereby ordered:

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1. To implement this sequestration order with a minimum disruption of these companies' business activities.
2. To ensure the continuity of these companies as going concerns, the care and maintenance of these assets until
such time that the Office of the President through the Commission on Good Government should decide otherwise.
3. To report to the Commission on Good Government periodically.
Further, you are authorized to request for Military/Security Support from the Military/Police authorities, and such other
acts essential to the achievement of this sequestration order. 1
b. Order for Production of Documents
On the strength of the above sequestration order, Mr. Jose M. Balde, acting for the PCGG, addressed a letter dated April 18, 1986 to
the President and other officers of petitioner firm, reiterating an earlier request for the production of certain documents, to wit:
1. Stock Transfer Book
2. Legal documents, such as:
2.1. Articles of Incorporation
2.2. By-Laws
2.3. Minutes of the Annual Stockholders Meeting from 1973 to 1986
2.4. Minutes of the Regular and Special Meetings of the Board of Directors from 1973 to 1986
2.5. Minutes of the Executive Committee Meetings from 1973 to 1986
2.6. Existing contracts with suppliers/contractors/others.
3. Yearly list of stockholders with their corresponding share/stockholdings from 1973 to 1986 duly certified by the
Corporate Secretary.
4. Audited Financial Statements such as Balance Sheet, Profit & Loss and others from 1973 to December 31, 1985.
5. Monthly Financial Statements for the current year up to March 31, 1986.
6. Consolidated Cash Position Reports from January to April 15, 1986.
7. Inventory listings of assets up dated up to March 31, 1986.
8. Updated schedule of Accounts Receivable and Accounts Payable.
9. Complete list of depository banks for all funds with the authorized signatories for withdrawals thereof.
10. Schedule of company investments and placements. 2
The letter closed with the warning that if the documents were not submitted within five days, the officers would be cited for "contempt in
pursuance with Presidential Executive Order Nos. 1 and 2."
c. Orders Re Engineer Island
(1) Termination of Contract for Security Services

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A third order assailed by petitioner corporation, hereafter referred to simply as BASECO, is that issued on April 21, 1986 by a Capt.
Flordelino B. Zabala, a member of the task force assigned to carry out the basic sequestration order. He sent a letter to BASECO's
Vice-President for Finance, 3 terminating the contract for security services within the Engineer Island compound between BASECO and
"Anchor and FAIRWAYS" and "other civilian security agencies," CAPCOM military personnel having already been assigned to the area,
(2) Change of Mode of Payment of Entry Charges
On July 15, 1986, the same Capt. Zabala issued a Memorandum addressed to "Truck Owners and Contractors," particularly a "Mr.
Buddy Ondivilla National Marine Corporation," advising of the amendment in part of their contracts with BASECO in the sense that the
stipulated charges for use of the BASECO road network were made payable "upon entry and not anymore subject to monthly billing as
was originally agreed upon." 4
d. Aborted Contract for Improvement of Wharf at Engineer Island
On July 9, 1986, a PCGG fiscal agent, S. Berenguer, entered into a contract in behalf of BASECO with Deltamarine Integrated Port
Services, Inc., in virtue of which the latter undertook to introduce improvements costing approximately P210,000.00 on the BASECO
wharf at Engineer Island, allegedly then in poor condition, avowedly to "optimize its utilization and in return maximize the revenue which
would flow into the government coffers," in consideration of Deltamarine's being granted "priority in using the improved portion of the
wharf ahead of anybody" and exemption "from the payment of any charges for the use of wharf including the area where it may install
its bagging equipments" "until the improvement remains in a condition suitable for port operations." 5 It seems however that this contract
was never consummated. Capt. Jorge B. Siacunco, "Head- (PCGG) BASECO Management Team," advised Deltamarine by letter dated
July 30, 1986 that "the new management is not in a position to honor the said contract" and thus "whatever improvements * * (may be
introduced) shall be deemed unauthorized * * and shall be at * * (Deltamarine's) own risk." 6
e. Order for Operation of Sesiman Rock Quarry, Mariveles, Bataan
By Order dated June 20, 1986, Commissioner Mary Bautista first directed a PCGG agent, Mayor Melba O. Buenaventura, "to plan and
implement progress towards maximizing the continuous operation of the BASECO Sesiman Rock Quarry * * by conventional methods;"
but afterwards, Commissioner Bautista, in representation of the PCGG, authorized another party, A.T. Abesamis, to operate the quarry,
located at Mariveles, Bataan, an agreement to this effect having been executed by them on September 17, 1986. 7
f. Order to Dispose of Scrap, etc.
By another Order of Commissioner Bautista, this time dated June 26, 1986, Mayor Buenaventura was also "authorized to clean and
beautify the Company's compound," and in this connection, to dispose of or sell "metal scraps" and other materials, equipment and
machineries no longer usable, subject to specified guidelines and safeguards including audit and verification. 8
g. The TAKEOVER Order
By letter dated July 14, 1986, Commissioner Ramon A. Diaz decreed the provisional takeover by the PCGG of BASECO, "the
Philippine Dockyard Corporation and all their affiliated companies." 9 Diaz invoked the provisions of Section 3 (c) of Executive Order No.
1, empowering the Commission
* * To provisionally takeover in the public interest or to prevent its disposal or dissipation, business enterprises and
properties taken over by the government of the Marcos Administration or by entities or persons close to former
President Marcos, until the transactions leading to such acquisition by the latter can be disposed of by the
appropriate authorities.
A management team was designated to implement the order, headed by Capt. Siacunco, and was given the following powers:
1. Conducts all aspects of operation of the subject companies;
2. Installs key officers, hires and terminates personnel as necessary;
3. Enters into contracts related to management and operation of the companies;
4. Ensures that the assets of the companies are not dissipated and used effectively and efficiently; revenues are duly
accounted for; and disburses funds only as may be necessary;

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5. Does actions including among others, seeking of military support as may be necessary, that will ensure compliance
to this order;
6. Holds itself fully accountable to the Presidential Commission on Good Government on all aspects related to this
take-over order.
h. Termination of Services of BASECO Officers
Thereafter, Capt. Siacunco, sent letters to Hilario M. Ruiz, Manuel S. Mendoza, Moises M. Valdez, Gilberto Pasimanero, and Benito R.
Cuesta I, advising of the termination of their services by the PCGG. 10
2. Petitioner's Plea and Postulates
It is the foregoing specific orders and acts of the PCGG and its members and agents which, to repeat, petitioner BASECO would have
this Court nullify. More particularly, BASECO prays that this Court1) declare unconstitutional and void Executive Orders Numbered 1 and 2;
2) annul the sequestration order dated April- 14, 1986, and all other orders subsequently issued and acts done on the basis thereof,
inclusive of the takeover order of July 14, 1986 and the termination of the services of the BASECO executives. 11
a. Re Executive Orders No. 1 and 2, and the Sequestration and Takeover Orders
While BASECO concedes that "sequestration without resorting to judicial action, might be made within the context of Executive Orders
Nos. 1 and 2 before March 25, 1986 when the Freedom Constitution was promulgated, under the principle that the law promulgated by
the ruler under a revolutionary regime is the law of the land, it ceased to be acceptable when the same ruler opted to promulgate the
Freedom Constitution on March 25, 1986 wherein under Section I of the same, Article IV (Bill of Rights) of the 1973 Constitution was
adopted providing, among others, that "No person shall be deprived of life, liberty and property without due process of law." (Const., Art.
I V, Sec. 1)." 12
It declares that its objection to the constitutionality of the Executive Orders "as well as the Sequestration Order * * and Takeover Order *
* issued purportedly under the authority of said Executive Orders, rests on four fundamental considerations: First, no notice and hearing
was accorded * * (it) before its properties and business were taken over; Second, the PCGG is not a court, but a purely investigative
agency and therefore not competent to act as prosecutor and judge in the same cause; Third, there is nothing in the issuances which
envisions any proceeding, process or remedy by which petitioner may expeditiously challenge the validity of the takeover after the
same has been effected; and Fourthly, being directed against specified persons, and in disregard of the constitutional presumption of
innocence and general rules and procedures, they constitute a Bill of Attainder." 13
b. Re Order to Produce Documents
It argues that the order to produce corporate records from 1973 to 1986, which it has apparently already complied with, was issued
without court authority and infringed its constitutional right against self-incrimination, and unreasonable search and seizure. 14
c. Re PCGG's Exercise of Right of Ownership and Management
BASECO further contends that the PCGG had unduly interfered with its right of dominion and management of its business affairs by
1) terminating its contract for security services with Fairways & Anchor, without the consent and against the will of the contracting
parties; and amending the mode of payment of entry fees stipulated in its Lease Contract with National Stevedoring & Lighterage
Corporation, these acts being in violation of the non-impairment clause of the constitution; 15
2) allowing PCGG Agent Silverio Berenguer to enter into an "anomalous contract" with Deltamarine Integrated Port Services, Inc.,
giving the latter free use of BASECO premises; 16
3) authorizing PCGG Agent, Mayor Melba Buenaventura, to manage and operate its rock quarry at Sesiman, Mariveles; 17
4) authorizing the same mayor to sell or dispose of its metal scrap, equipment, machinery and other materials; 18
5) authorizing the takeover of BASECO, Philippine Dockyard Corporation, and all their affiliated companies;

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6) terminating the services of BASECO executives: President Hilario M. Ruiz; EVP Manuel S. Mendoza; GM Moises M. Valdez; Finance
Mgr. Gilberto Pasimanero; Legal Dept. Mgr. Benito R. Cuesta I; 19
7) planning to elect its own Board of Directors; 20
8) allowing willingly or unwillingly its personnel to take, steal, carry away from petitioner's premises at Mariveles * * rolls of cable wires,
worth P600,000.00 on May 11, 1986; 21
9) allowing "indiscriminate diggings" at Engineer Island to retrieve gold bars supposed to have been buried therein. 22
3. Doubts, Misconceptions regarding Sequestration, Freeze and Takeover Orders
Many misconceptions and much doubt about the matter of sequestration, takeover and freeze orders have been engendered by
misapprehension, or incomplete comprehension if not indeed downright ignorance of the law governing these remedies. It is needful
that these misconceptions and doubts be dispelled so that uninformed and useless debates about them may be avoided, and
arguments tainted b sophistry or intellectual dishonesty be quickly exposed and discarded. Towards this end, this opinion will essay an
exposition of the law on the matter. In the process many of the objections raised by BASECO will be dealt with.
4. The Governing Law
a. Proclamation No. 3
The impugned executive orders are avowedly meant to carry out the explicit command of the Provisional Constitution, ordained by
Proclamation No. 3, 23 that the President-in the exercise of legislative power which she was authorized to continue to wield "(until a
legislature is elected and convened under a new Constitution" "shall give priority to measures to achieve the mandate of the people,"
among others to (r)ecover ill-gotten properties amassed by the leaders and supporters of the previous regime and protect the interest
of the people through orders of sequestration or freezing of assets or accounts." 24
b. Executive Order No. 1
Executive Order No. 1 stresses the "urgent need to recover all ill-gotten wealth," and postulates that "vast resources of the government
have been amassed by former President Ferdinand E. Marcos, his immediate family, relatives, and close associates both here and
abroad." 25 Upon these premises, the Presidential Commission on Good Government was created, 26 "charged with the task of assisting
the President in regard to (certain specified) matters," among which was precisely* * The recovery of all in-gotten wealth accumulated by former President Ferdinand E. Marcos, his immediate family,
relatives, subordinates and close associates, whether located in the Philippines or abroad, including the takeover or
sequestration of all business enterprises and entities owned or controlled by them, during his administration, directly
or through nominees, by taking undue advantage of their public office and/or using their powers, authority, influence,
connections or relationship. 27
In relation to the takeover or sequestration that it was authorized to undertake in the fulfillment of its mission, the PCGG was granted
"power and authority" to do the following particular acts, to wit:
1. To sequester or place or cause to be placed under its control or possession any building or office wherein any illgotten wealth or properties may be found, and any records pertaining thereto, in order to prevent their destruction,
concealment or disappearance which would frustrate or hamper the investigation or otherwise prevent the
Commission from accomplishing its task.
2. To provisionally take over in the public interest or to prevent the disposal or dissipation, business enterprises and
properties taken over by the government of the Marcos Administration or by entities or persons close to former
President Marcos, until the transactions leading to such acquisition by the latter can be disposed of by the
appropriate authorities.
3. To enjoin or restrain any actual or threatened commission of acts by any person or entity that may render moot and
academic, or frustrate or otherwise make ineffectual the efforts of the Commission to carry out its task under this
order. 28

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So that it might ascertain the facts germane to its objectives, it was granted power to conduct investigations; require submission of
evidence by subpoenae ad testificandum and duces tecum; administer oaths; punish for contempt. 29 It was given power also to
promulgate such rules and regulations as may be necessary to carry out the purposes of * * (its creation). 30
c. Executive Order No. 2
Executive Order No. 2 gives additional and more specific data and directions respecting "the recovery of ill-gotten properties amassed
by the leaders and supporters of the previous regime." It declares that:
1) * * the Government of the Philippines is in possession of evidence showing that there are assets and properties
purportedly pertaining to former Ferdinand E. Marcos, and/or his wife Mrs. Imelda Romualdez Marcos, their close
relatives, subordinates, business associates, dummies, agents or nominees which had been or were acquired by
them directly or indirectly, through or as a result of the improper or illegal use of funds or properties owned by the
government of the Philippines or any of its branches, instrumentalities, enterprises, banks or financial institutions, or
by taking undue advantage of their office, authority, influence, connections or relationship, resulting in their unjust
enrichment and causing grave damage and prejudice to the Filipino people and the Republic of the Philippines:" and
2) * * said assets and properties are in the form of bank accounts, deposits, trust accounts, shares of stocks,
buildings, shopping centers, condominiums, mansions, residences, estates, and other kinds of real and personal
properties in the Philippines and in various countries of the world." 31
Upon these premises, the President1) froze "all assets and properties in the Philippines in which former President Marcos and/or his wife, Mrs. Imelda
Romualdez Marcos, their close relatives, subordinates, business associates, dummies, agents, or nominees have
any interest or participation;
2) prohibited former President Ferdinand Marcos and/or his wife * *, their close relatives, subordinates, business
associates, duties, agents, or nominees from transferring, conveying, encumbering, concealing or dissipating said
assets or properties in the Philippines and abroad, pending the outcome of appropriate proceedings in the Philippines
to determine whether any such assets or properties were acquired by them through or as a result of improper or
illegal use of or the conversion of funds belonging to the Government of the Philippines or any of its branches,
instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of their official position,
authority, relationship, connection or influence to unjustly enrich themselves at the expense and to the grave damage
and prejudice of the Filipino people and the Republic of the Philippines;
3) prohibited "any person from transferring, conveying, encumbering or otherwise depleting or concealing such
assets and properties or from assisting or taking part in their transfer, encumbrance, concealment or dissipation
under pain of such penalties as are prescribed by law;" and
4) required "all persons in the Philippines holding such assets or properties, whether located in the Philippines or
abroad, in their names as nominees, agents or trustees, to make full disclosure of the same to the Commission on
Good Government within thirty (30) days from publication of * (the) Executive Order, * *. 32
d. Executive Order No. 14
A third executive order is relevant: Executive Order No. 14, 33 by which the PCGG is empowered, "with the assistance of the Office of
the Solicitor General and other government agencies, * * to file and prosecute all cases investigated by it * * as may be warranted by its
findings." 34 All such cases, whether civil or criminal, are to be filed "with the Sandiganbayanwhich shall have exclusive and original
jurisdiction thereof." 35 Executive Order No. 14 also pertinently provides that civil suits for restitution, reparation of damages, or
indemnification for consequential damages, forfeiture proceedings provided for under Republic Act No. 1379, or any other civil actions
under the Civil Code or other existing laws, in connection with * * (said Executive Orders Numbered 1 and 2) may be filed separately
from and proceed independently of any criminal proceedings and may be proved by a preponderance of evidence;" and that, moreover,
the "technical rules of procedure and evidence shall not be strictly applied to* * (said)civil cases." 36
5. Contemplated Situations
The situations envisaged and sought to be governed are self-evident, these being:
1) that "(i)ll-gotten properties (were) amassed by the leaders and supporters of the previous regime";37

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a) more particularly, that ill-gotten wealth (was) accumulated by former President Ferdinand E. Marcos, his immediate
family, relatives, subordinates and close associates, * * located in the Philippines or abroad, * * (and) business
enterprises and entities (came to be) owned or controlled by them, during * * (the Marcos) administration, directly or
through nominees, by taking undue advantage of their public office and/or using their powers, authority, influence,
Connections or relationship; 38
b) otherwise stated, that "there are assets and properties purportedly pertaining to former President Ferdinand E.
Marcos, and/or his wife Mrs. Imelda Romualdez Marcos, their close relatives, subordinates, business associates,
dummies, agents or nominees which had been or were acquired by them directly or indirectly, through or as a result
of the improper or illegal use of funds or properties owned by the Government of the Philippines or any of its
branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of their office,
authority, influence, connections or relationship, resulting in their unjust enrichment and causing grave damage and
prejudice to the Filipino people and the Republic of the Philippines"; 39
c) that "said assets and properties are in the form of bank accounts. deposits, trust. accounts, shares of stocks,
buildings, shopping centers, condominiums, mansions, residences, estates, and other kinds of real and personal
properties in the Philippines and in various countries of the world;" 40 and
2) that certain "business enterprises and properties (were) taken over by the government of the Marcos
Administration or by entities or persons close to former President Marcos. 41
6. Government's Right and Duty to Recover All Ill-gotten Wealth
There can be no debate about the validity and eminent propriety of the Government's plan "to recover all ill-gotten wealth."
Neither can there be any debate about the proposition that assuming the above described factual premises of the Executive Orders and
Proclamation No. 3 to be true, to be demonstrable by competent evidence, the recovery from Marcos, his family and his dominions of
the assets and properties involved, is not only a right but a duty on the part of Government.
But however plain and valid that right and duty may be, still a balance must be sought with the equally compelling necessity that a
proper respect be accorded and adequate protection assured, the fundamental rights of private property and free enterprise which are
deemed pillars of a free society such as ours, and to which all members of that society may without exception lay claim.
* * Democracy, as a way of life enshrined in the Constitution, embraces as its necessary components freedom of
conscience, freedom of expression, and freedom in the pursuit of happiness. Along with these freedoms are included
economic freedom and freedom of enterprise within reasonable bounds and under proper control. * * Evincing much
concern for the protection of property, the Constitution distinctly recognizes the preferred position which real estate
has occupied in law for ages. Property is bound up with every aspect of social life in a democracy as democracy is
conceived in the Constitution. The Constitution realizes the indispensable role which property, owned in reasonable
quantities and used legitimately, plays in the stimulation to economic effort and the formation and growth of a solid
social middle class that is said to be the bulwark of democracy and the backbone of every progressive and happy
country. 42
a. Need of Evidentiary Substantiation in Proper Suit
Consequently, the factual premises of the Executive Orders cannot simply be assumed. They will have to be duly established by
adequate proof in each case, in a proper judicial proceeding, so that the recovery of the ill-gotten wealth may be validly and properly
adjudged and consummated; although there are some who maintain that the fact-that an immense fortune, and "vast resources of the
government have been amassed by former President Ferdinand E. Marcos, his immediate family, relatives, and close associates both
here and abroad," and they have resorted to all sorts of clever schemes and manipulations to disguise and hide their illicit acquisitionsis within the realm of judicial notice, being of so extensive notoriety as to dispense with proof thereof, Be this as it may, the requirement
of evidentiary substantiation has been expressly acknowledged, and the procedure to be followed explicitly laid down, in Executive
Order No. 14.
b. Need of Provisional Measures to Collect and Conserve Assets Pending Suits
Nor may it be gainsaid that pending the institution of the suits for the recovery of such "ill-gotten wealth" as the evidence at hand may
reveal, there is an obvious and imperative need for preliminary, provisional measures to prevent the concealment, disappearance,
destruction, dissipation, or loss of the assets and properties subject of the suits, or to restrain or foil acts that may render moot and
academic, or effectively hamper, delay, or negate efforts to recover the same.

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7. Provisional Remedies Prescribed by Law
To answer this need, the law has prescribed three (3) provisional remedies. These are: (1) sequestration; (2) freeze orders; and (3)
provisional takeover.
Sequestration and freezing are remedies applicable generally to unearthed instances of "ill-gotten wealth." The remedy of "provisional
takeover" is peculiar to cases where "business enterprises and properties (were) taken over by the government of the Marcos
Administration or by entities or persons close to former President Marcos."43
a. Sequestration
By the clear terms of the law, the power of the PCGG to sequester property claimed to be "ill-gotten" means to place or cause to be
placed under its possession or control said property, or any building or office wherein any such property and any records pertaining
thereto may be found, including "business enterprises and entities,"-for the purpose of preventing the destruction, concealment or
dissipation of, and otherwise conserving and preserving, the same-until it can be determined, through appropriate judicial proceedings,
whether the property was in truth will- gotten," i.e., acquired through or as a result of improper or illegal use of or the conversion of
funds belonging to the Government or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking
undue advantage of official position, authority relationship, connection or influence, resulting in unjust enrichment of the ostensible
owner and grave damage and prejudice to the State. 44 And this, too, is the sense in which the term is commonly understood in other
jurisdictions. 45
b. "Freeze Order"
A "freeze order" prohibits the person having possession or control of property alleged to constitute "ill-gotten wealth" "from transferring,
conveying, encumbering or otherwise depleting or concealing such property, or from assisting or taking part in its transfer,
encumbrance, concealment, or dissipation." 46 In other words, it commands the possessor to hold the property and conserve it subject
to the orders and disposition of the authority decreeing such freezing. In this sense, it is akin to a garnishment by which the possessor
or ostensible owner of property is enjoined not to deliver, transfer, or otherwise dispose of any effects or credits in his possession or
control, and thus becomes in a sense an involuntary depositary thereof. 47
c. Provisional Takeover
In providing for the remedy of "provisional takeover," the law acknowledges the apparent distinction between "ill gotten" "business
enterprises and entities" (going concerns, businesses in actual operation), generally, as to which the remedy of sequestration applies, it
being necessarily inferred that the remedy entails no interference, or the least possible interference with the actual management and
operations thereof; and "business enterprises which were taken over by the government government of the Marcos Administration or by
entities or persons close to him," in particular, as to which a "provisional takeover" is authorized, "in the public interest or to prevent
disposal or dissipation of the enterprises." 48 Such a "provisional takeover" imports something more than sequestration or freezing,
more than the placing of the business under physical possession and control, albeit without or with the least possible interference with
the management and carrying on of the business itself. In a "provisional takeover," what is taken into custody is not only the physical
assets of the business enterprise or entity, but the business operation as well. It is in fine the assumption of control not only over things,
but over operations or on- going activities. But, to repeat, such a "provisional takeover" is allowed only as regards "business enterprises
* * taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos."
d. No Divestment of Title Over Property Seized
It may perhaps be well at this point to stress once again the provisional, contingent character of the remedies just described. Indeed the
law plainly qualifies the remedy of take-over by the adjective, "provisional." These remedies may be resorted to only for a particular
exigency: to prevent in the public interest the disappearance or dissipation of property or business, and conserve it pending adjudgment
in appropriate proceedings of the primary issue of whether or not the acquisition of title or other right thereto by the apparent owner was
attended by some vitiating anomaly. None of the remedies is meant to deprive the owner or possessor of his title or any right to the
property sequestered, frozen or taken over and vest it in the sequestering agency, the Government or other person. This can be done
only for the causes and by the processes laid down by law.
That this is the sense in which the power to sequester, freeze or provisionally take over is to be understood and exercised, the
language of the executive orders in question leaves no doubt. Executive Order No. 1 declares that the sequestration of property the
acquisition of which is suspect shall last "until the transactions leading to such acquisition * * can be disposed of by the appropriate
authorities." 49 Executive Order No. 2 declares that the assets or properties therein mentioned shall remain frozen "pending the
outcome of appropriate proceedings in the Philippines to determine whether any such assets or properties were acquired" by illegal
means. Executive Order No. 14 makes clear that judicial proceedings are essential for the resolution of the basic issue of whether or
not particular assets are "ill-gotten," and resultant recovery thereof by the Government is warranted.

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e. State of Seizure Not To Be Indefinitely Maintained; The Constitutional Command
There is thus no cause for the apprehension voiced by BASECO 50 that sequestration, freezing or provisional takeover is designed to be
an end in itself, that it is the device through which persons may be deprived of their property branded as "ill-gotten," that it is intended to
bring about a permanent, rather than a passing, transitional state of affairs. That this is not so is quite explicitly declared by the
governing rules.
Be this as it may, the 1987 Constitution should allay any lingering fears about the duration of these provisional remedies. Section 26 of
its Transitory Provisions, 51 lays down the relevant rule in plain terms, apart from extending ratification or confirmation (although not
really necessary) to the institution by presidential fiat of the remedy of sequestration and freeze orders:
SEC. 26. The authority to issue sequestration or freeze orders under Proclamation No. 3 dated March 25, 1986 in
relation to the recovery of ill-gotten wealth shag remain operative for not more than eighteen months after the
ratification of this Constitution. However, in the national interest, as certified by the President, the Congress may
extend said period.
A sequestration or freeze order shall be issued only upon showing of a prima facie case. The order and the list of the
sequestered or frozen properties shall forthwith be registered with the proper court. For orders issued before the
ratification of this Constitution, the corresponding judicial action or proceeding shall be filed within six months from its
ratification. For those issued after such ratification, the judicial action or proceeding shall be commenced within six
months from the issuance thereof.
The sequestration or freeze order is deemed automatically lifted if no judicial action or proceeding is commenced as
herein provided. 52
f. Kinship to Attachment Receivership
As thus described, sequestration, freezing and provisional takeover are akin to the provisional remedy of preliminary attachment, or
receivership. 53 By attachment, a sheriff seizes property of a defendant in a civil suit so that it may stand as security for the satisfaction
of any judgment that may be obtained, and not disposed of, or dissipated, or lost intentionally or otherwise, pending the action. 54 By
receivership, property, real or personal, which is subject of litigation, is placed in the possession and control of a receiver appointed by
the Court, who shall conserve it pending final determination of the title or right of possession over it. 55 All these remedies
sequestration, freezing, provisional, takeover, attachment and receivership are provisional, temporary, designed for-particular
exigencies, attended by no character of permanency or finality, and always subject to the control of the issuing court or agency.
g. Remedies, Non-Judicial
Parenthetically, that writs of sequestration or freeze or takeover orders are not issued by a court is of no moment. The Solicitor General
draws attention to the writ of distraint and levy which since 1936 the Commissioner of Internal Revenue has been by law authorized to
issue against property of a delinquent taxpayer. 56 BASECO itself declares that it has not manifested "a rigid insistence on sequestration
as a purely judicial remedy * * (as it feels) that the law should not be ossified to a point that makes it insensitive to change." What it
insists on, what it pronounces to be its "unyielding position, is that any change in procedure, or the institution of a new one, should
conform to due process and the other prescriptions of the Bill of Rights of the Constitution." 57 It is, to be sure, a proposition on which
there can be no disagreement.
h. Orders May Issue Ex Parte
Like the remedy of preliminary attachment and receivership, as well as delivery of personal property in replevinsuits, sequestration and
provisional takeover writs may issue ex parte. 58 And as in preliminary attachment, receivership, and delivery of personality, no objection
of any significance may be raised to the ex parte issuance of an order of sequestration, freezing or takeover, given its fundamental
character of temporariness or conditionality; and taking account specially of the constitutionally expressed "mandate of the people to
recover ill-gotten properties amassed by the leaders and supporters of the previous regime and protect the interest of the people;" 59 as
well as the obvious need to avoid alerting suspected possessors of "ill-gotten wealth" and thereby cause that disappearance or loss of
property precisely sought to be prevented, and the fact, just as self-evident, that "any transfer, disposition, concealment or
disappearance of said assets and properties would frustrate, obstruct or hamper the efforts of the Government" at the just recovery
thereof.60
8. Requisites for Validity

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What is indispensable is that, again as in the case of attachment and receivership, there exist a prima facie factual foundation, at least,
for the sequestration, freeze or takeover order, and adequate and fair opportunity to contest it and endeavor to cause its negation or
nullification. 61
Both are assured under the executive orders in question and the rules and regulations promulgated by the PCGG.
a. Prima Facie Evidence as Basis for Orders
Executive Order No. 14 enjoins that there be "due regard to the requirements of fairness and due process." 62Executive Order No. 2
declares that with respect to claims on allegedly "ill-gotten" assets and properties, "it is the position of the new democratic government
that President Marcos * * (and other parties affected) be afforded fair opportunity to contest these claims before appropriate Philippine
authorities." 63 Section 7 of the Commission's Rules and Regulations provides that sequestration or freeze (and takeover) orders issue
upon the authority of at least two commissioners, based on the affirmation or complaint of an interested party, or motu proprio when the
Commission has reasonable grounds to believe that the issuance thereof is warranted. 64 A similar requirement is now found in Section
26, Art. XVIII of the 1987 Constitution, which requires that a "sequestration or freeze order shall be issued only upon showing of
a prima facie case."65
b. Opportunity to Contest
And Sections 5 and 6 of the same Rules and Regulations lay down the procedure by which a party may seek to set aside a writ of
sequestration or freeze order, viz:
SECTION 5. Who may contend.-The person against whom a writ of sequestration or freeze or hold order is directed
may request the lifting thereof in writing, either personally or through counsel within five (5) days from receipt of the
writ or order, or in the case of a hold order, from date of knowledge thereof.
SECTION 6. Procedure for review of writ or order.-After due hearing or motu proprio for good cause shown, the
Commission may lift the writ or order unconditionally or subject to such conditions as it may deem necessary, taking
into consideration the evidence and the circumstance of the case. The resolution of the commission may be appealed
by the party concerned to the Office of the President of the Philippines within fifteen (15) days from receipt thereof.
Parenthetically, even if the requirement for a prima facie showing of "ill- gotten wealth" were not expressly imposed by some rule or
regulation as a condition to warrant the sequestration or freezing of property contemplated in the executive orders in question, it would
nevertheless be exigible in this jurisdiction in which the Rule of Law prevails and official acts which are devoid of rational basis in fact or
law, or are whimsical and capricious, are condemned and struck down. 66
9. Constitutional Sanction of Remedies
If any doubt should still persist in the face of the foregoing considerations as to the validity and propriety of sequestration, freeze and
takeover orders, it should be dispelled by the fact that these particular remedies and the authority of the PCGG to issue them have
received constitutional approbation and sanction. As already mentioned, the Provisional or "Freedom" Constitution recognizes the
power and duty of the President to enact "measures to achieve the mandate of the people to * * * (recover ill- gotten properties
amassed by the leaders and supporters of the previous regime and protect the interest of the people through orders of sequestration or
freezing of assets or accounts." And as also already adverted to, Section 26, Article XVIII of the 1987 Constitution67 treats of, and
ratifies the "authority to issue sequestration or freeze orders under Proclamation No. 3 dated March 25, 1986."
The institution of these provisional remedies is also premised upon the State's inherent police power, regarded, as t lie power of
promoting the public welfare by restraining and regulating the use of liberty and property," 68 and as "the most essential, insistent and
illimitable of powers * * in the promotion of general welfare and the public interest," 69and said to be co-extensive with self-protection
and * * not inaptly termed (also) the'law of overruling necessity." " 70
10. PCGG not a "Judge"; General Functions
It should also by now be reasonably evident from what has thus far been said that the PCGG is not, and was never intended to act as,
a judge. Its general function is to conduct investigations in order to collect evidenceestablishing instances of "ill-gotten wealth;" issue
sequestration, and such orders as may be warranted by the evidence thus collected and as may be necessary to preserve and
conserve the assets of which it takes custody and control and prevent their disappearance, loss or dissipation; and eventually file and
prosecute in the proper court of competent jurisdiction all cases investigated by it as may be warranted by its findings. It does not try
and decide, or hear and determine, or adjudicate with any character of finality or compulsion, cases involving the essential issue of
whether or not property should be forfeited and transferred to the State because "ill-gotten" within the meaning of the Constitution and
the executive orders. This function is reserved to the designated court, in this case, the Sandiganbayan. 71 There can therefore be no

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serious regard accorded to the accusation, leveled by BASECO, 72 that the PCGG plays the perfidious role of prosecutor and judge at
the same time.
11. Facts Preclude Grant of Relief to Petitioner
Upon these premises and reasoned conclusions, and upon the facts disclosed by the record, hereafter to be discussed, the petition
cannot succeed. The writs of certiorari and prohibition prayed for will not be issued.
The facts show that the corporation known as BASECO was owned or controlled by President Marcos "during his administration,
through nominees, by taking undue advantage of his public office and/or using his powers, authority, or influence, " and that it was by
and through the same means, that BASECO had taken over the business and/or assets of the National Shipyard and Engineering Co.,
Inc., and other government-owned or controlled entities.
12. Organization and Stock Distribution of BASECO
BASECO describes itself in its petition as "a shiprepair and shipbuilding company * * incorporated as a domestic private corporation * *
(on Aug. 30, 1972) by a consortium of Filipino shipowners and shipping executives. Its main office is at Engineer Island, Port Area,
Manila, where its Engineer Island Shipyard is housed, and its main shipyard is located at Mariveles Bataan." 73 Its Articles of
Incorporation disclose that its authorized capital stock is P60,000,000.00 divided into 60,000 shares, of which 12,000 shares with a
value of P12,000,000.00 have been subscribed, and on said subscription, the aggregate sum of P3,035,000.00 has been paid by the
incorporators. 74 The same articles Identify the incorporators, numbering fifteen (15), as follows: (1) Jose A. Rojas, (2) Anthony P. Lee,
(3) Eduardo T. Marcelo, (4) Jose P. Fernandez, (5) Generoso Tanseco, (6) Emilio T. Yap, (7) Antonio M. Ezpeleta, (8) Zacarias Amante,
(9) Severino de la Cruz, (10) Jose Francisco, (11) Dioscoro Papa, (12) Octavio Posadas, (13) Manuel S. Mendoza, (14) Magiliw Torres,
and (15) Rodolfo Torres.
By 1986, however, of these fifteen (15) incorporators, six (6) had ceased to be stockholders, namely: (1) Generoso Tanseco, (2) Antonio
Ezpeleta, (3) Zacarias Amante, (4) Octavio Posadas, (5) Magiliw Torres, and (6) Rodolfo Torres. As of this year, 1986, there were
twenty (20) stockholders listed in BASECO's Stock and Transfer Book. 75 Their names and the number of shares respectively held by
them are as follows:

Property of J.Z.B.

1. Jose A. Rojas

1,248 shares

2. Severino G. de la
Cruz

1,248 shares

3. Emilio T. Yap

2,508 shares

4. Jose Fernandez

1,248 shares

5. Jose Francisco

128 shares

6. Manuel S.
Mendoza

96 shares

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Corporation Law (Business Organization II)

Property of J.Z.B.

7. Anthony P. Lee

1,248 shares

8. Hilario M. Ruiz

32 shares

9. Constante L.
Farias

8 shares

10. Fidelity
Management, Inc.

65,882 shares

11. Trident
Management

7,412 shares

12. United Phil. Lines

1,240 shares

13. Renato M.
Tanseco

8 shares

14. Fidel Ventura

8 shares

15. Metro Bay


Drydock

136,370
shares

16. Manuel Jacela

1 share

17. Jonathan G. Lu

1 share

18. Jose J.
Tanchanco

1 share

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19. Dioscoro Papa

128 shares

20. Edward T.
Marcelo

4 shares

TOTAL

218,819
shares.

13 Acquisition of NASSCO by BASECO


Barely six months after its incorporation, BASECO acquired from National Shipyard & Steel Corporation, or NASSCO, a governmentowned or controlled corporation, the latter's shipyard at Mariveles, Bataan, known as the Bataan National Shipyard (BNS), and
except for NASSCO's Engineer Island Shops and certain equipment of the BNS, consigned for future negotiation all its structures,
buildings, shops, quarters, houses, plants, equipment and facilities, in stock or in transit. This it did in virtue of a "Contract of Purchase
and Sale with Chattel Mortgage" executed on February 13, 1973. The price was P52,000,000.00. As partial payment thereof, BASECO
delivered to NASSCO a cash bond of P11,400,000.00, convertible into cash within twenty-four (24) hours from completion of the
inventory undertaken pursuant to the contract. The balance of P41,600,000.00, with interest at seven percent (7%) per annum,
compounded semi-annually, was stipulated to be paid in equal semi-annual installments over a term of nine (9) years, payment to
commence after a grace period of two (2) years from date of turnover of the shipyard to BASECO. 76
14. Subsequent Reduction of Price; Intervention of Marcos
Unaccountably, the price of P52,000,000.00 was reduced by more than one-half, to P24,311,550.00, about eight (8) months later. A
document to this effect was executed on October 9, 1973, entitled "Memorandum Agreement," and was signed for NASSCO by Arturo
Pacificador, as Presiding Officer of the Board of Directors, and David R. Ines, as General Manager. 77 This agreement bore, at the top
right corner of the first page, the word "APPROVED" in the handwriting of President Marcos, followed by his usual full signature. The
document recited that a down payment of P5,862,310.00 had been made by BASECO, and the balance of P19,449,240.00 was
payable in equal semi-annual installments over nine (9) years after a grace period of two (2) years, with interest at 7% per annum.
15. Acquisition of 300 Hectares from Export Processing Zone Authority
On October 1, 1974, BASECO acquired three hundred (300) hectares of land in Mariveles from the Export Processing Zone Authority
for the price of P10,047,940.00 of which, as set out in the document of sale, P2,000.000.00 was paid upon its execution, and the
balance stipulated to be payable in installments. 78
16. Acquisition of Other Assets of NASSCO; Intervention of Marcos
Some nine months afterwards, or on July 15, 1975, to be precise, BASECO, again with the intervention of President Marcos, acquired
ownership of the rest of the assets of NASSCO which had not been included in the first two (2) purchase documents. This was
accomplished by a deed entitled "Contract of Purchase and Sale," 79which, like the Memorandum of Agreement dated October 9,
1973 supra also bore at the upper right-hand corner of its first page, the handwritten notation of President Marcos reading,
"APPROVED, July 29, 1973," and underneath it, his usual full signature. Transferred to BASECO were NASSCO's "ownership and all
its titles, rights and interests over all equipment and facilities including structures, buildings, shops, quarters, houses, plants and
expendable or semi-expendable assets, located at the Engineer Island, known as the Engineer Island Shops, including all the
equipment of the Bataan National Shipyards (BNS) which were excluded from the sale of NBS to BASECO but retained by BASECO
and all other selected equipment and machineries of NASSCO at J. Panganiban Smelting Plant." In the same deed, NASSCO
committed itself to cooperate with BASECO for the acquisition from the National Government or other appropriate Government entity of
Engineer Island. Consideration for the sale was set at P5,000,000.00; a down payment of P1,000,000.00 appears to have been made,
and the balance was stipulated to be paid at 7% interest per annum in equal semi annual installments over a term of nine (9) years, to
commence after a grace period of two (2) years. Mr. Arturo Pacificador again signed for NASSCO, together with the general manager,
Mr. David R. Ines.
17. Loans Obtained

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It further appears that on May 27, 1975 BASECO obtained a loan from the NDC, taken from "the last available Japanese war damage
fund of $19,000,000.00," to pay for "Japanese made heavy equipment (brand new)." 80On September 3, 1975, it got another loan also
from the NDC in the amount of P30,000,000.00 (id.). And on January 28, 1976, it got still another loan, this time from the GSIS, in the
sum of P12,400,000.00. 81 The claim has been made that not a single centavo has been paid on these loans. 82
18. Reports to President Marcos
In September, 1977, two (2) reports were submitted to President Marcos regarding BASECO. The first was contained in a letter dated
September 5, 1977 of Hilario M. Ruiz, BASECO president. 83 The second was embodied in a confidential memorandum dated
September 16, 1977 of Capt. A.T. Romualdez. 84 They further disclose the fine hand of Marcos in the affairs of BASECO, and that of a
Romualdez, a relative by affinity.
a. BASECO President's Report
In his letter of September 5, 1977, BASECO President Ruiz reported to Marcos that there had been "no orders or demands for ship
construction" for some time and expressed the fear that if that state of affairs persisted, BASECO would not be able to pay its debts to
the Government, which at the time stood at the not inconsiderable amount of P165,854,000.00. 85 He suggested that, to "save the
situation," there be a "spin-off (of their) shipbuilding activities which shall be handled exclusively by an entirely new corporation to be
created;" and towards this end, he informed Marcos that BASECO was
* * inviting NDC and LUSTEVECO to participate by converting the NDC shipbuilding loan to BASECO amounting to
P341.165M and assuming and converting a portion of BASECO's shipbuilding loans from REPACOM amounting to
P52.2M or a total of P83.365M as NDC's equity contribution in the new corporation. LUSTEVECO will participate by
absorbing and converting a portion of the REPACOM loan of Bay Shipyard and Drydock, Inc., amounting to
P32.538M. 86
b. Romualdez' Report
Capt. A.T. Romualdez' report to the President was submitted eleven (11) days later. It opened with the following caption:
MEMORANDUM:
FOR : The President
SUBJECT: An Evaluation and Re-assessment of a Performance of a Mission
FROM: Capt. A.T. Romualdez.
Like Ruiz, Romualdez wrote that BASECO faced great difficulties in meeting its loan obligations due chiefly to the fact that "orders to
build ships as expected * * did not materialize."
He advised that five stockholders had "waived and/or assigned their holdings inblank," these being: (1) Jose A. Rojas, (2) Severino de
la Cruz, (3) Rodolfo Torres, (4) Magiliw Torres, and (5) Anthony P. Lee. Pointing out that "Mr. Magiliw Torres * * is already dead and Mr.
Jose A. Rojas had a major heart attack," he made the following quite revealing, and it may be added, quite cynical and indurate
recommendation, to wit:
* * (that) their replacements (be effected) so we can register their names in the stock book prior to the implementation
of your instructions to pass a board resolution to legalize the transfers under SEC regulations;
2. By getting their replacements, the families cannot question us later on; and
3. We will owe no further favors from them. 87
He also transmitted to Marcos, together with the report, the following documents: 88
1. Stock certificates indorsed and assigned in blank with assignments and waivers; 89
2. The articles of incorporation, the amended articles, and the by-laws of BASECO;

Property of J.Z.B.

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3. Deed of Sales, wherein NASSCO sold to BASECO four (4) parcels of land in "Engineer Island", Port Area, Manila;
4. Transfer Certificate of Title No. 124822 in the name of BASECO, covering "Engineer Island";
5. Contract dated October 9, 1973, between NASSCO and BASECO re-structure and equipment at Mariveles,
Bataan;
6. Contract dated July 16, 1975, between NASSCO and BASECO re-structure and equipment at Engineer Island,
Port Area Manila;
7. Contract dated October 1, 1974, between EPZA and BASECO re 300 hectares of land at Mariveles, Bataan;
8. List of BASECO's fixed assets;
9. Loan Agreement dated September 3, 1975, BASECO's loan from NDC of P30,000,000.00;
10. BASECO-REPACOM Agreement dated May 27, 1975;
11. GSIS loan to BASECO dated January 28, 1976 of P12,400,000.00 for the housing facilities for BASECO's rankand-file employees. 90
Capt. Romualdez also recommended that BASECO's loans be restructured "until such period when BASECO will have enough orders
for ships in order for the company to meet loan obligations," and that
An LOI may be issued to government agencies using floating equipment, that a linkage scheme be applied to a
certain percent of BASECO's net profit as part of BASECO's amortization payments tomake it justifiable for you,
Sir. 91
It is noteworthy that Capt. A.T. Romualdez does not appear to be a stockholder or officer of BASECO, yet he has presented a report on
BASECO to President Marcos, and his report demonstrates intimate familiarity with the firm's affairs and problems.
19. Marcos' Response to Reports
President Marcos lost no time in acting on his subordinates' recommendations, particularly as regards the "spin-off" and the "linkage
scheme" relative to "BASECO's amortization payments."
a. Instructions re "Spin-Off"
Under date of September 28, 1977, he addressed a Memorandum to Secretary Geronimo Velasco of the Philippine National Oil
Company and Chairman Constante Farias of the National Development Company, directing them "to participate in the formation of a
new corporation resulting from the spin-off of the shipbuilding component of BASECO along the following guidelines:
a. Equity participation of government shall be through LUSTEVECO and NDC in the amount of P115,903,000
consisting of the following obligations of BASECO which are hereby authorized to be converted to equity of the said
new corporation, to wit:
1. NDC P83,865,000 (P31.165M loan & P52.2M Reparation)
2. LUSTEVECO P32,538,000 (Reparation)
b. Equity participation of government shall be in the form of non- voting shares.
For immediate compliance. 92
Mr. Marcos' guidelines were promptly complied with by his subordinates. Twenty-two (22) days after receiving their president's
memorandum, Messrs. Hilario M. Ruiz, Constante L. Farias and Geronimo Z. Velasco, in representation of their respective
corporations, executed a PRE-INCORPORATION AGREEMENT dated October 20, 1977. 93 In it, they undertook to form a shipbuilding

Property of J.Z.B.

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Corporation Law (Business Organization II)


corporation to be known as "PHIL-ASIA SHIPBUILDING CORPORATION," to bring to realization their president's instructions. It would
seem that the new corporation ultimately formed was actually named "Philippine Dockyard Corporation (PDC)." 94
b. Letter of Instructions No. 670
Mr. Marcos did not forget Capt. Romualdez' recommendation for a letter of instructions. On February 14, 1978, he issued Letter of
Instructions No. 670 addressed to the Reparations Commission REPACOM the Philippine National Oil Company (PNOC), the Luzon
Stevedoring Company (LUSTEVECO), and the National Development Company (NDC). What is commanded therein is summarized by
the Solicitor General, with pithy and not inaccurate observations as to the effects thereof (in italics), as follows:
* * 1) the shipbuilding equipment procured by BASECO through reparations be transferred to NDC subject to
reimbursement by NDC to BASECO (of) the amount of s allegedly representing the handling and incidental expenses
incurred by BASECO in the installation of said equipment (so instead of NDC getting paid on its loan to BASECO, it
was made to pay BASECO instead the amount of P18.285M); 2) the shipbuilding equipment procured from
reparations through EPZA, now in the possession of BASECO and BSDI (Bay Shipyard & Drydocking, Inc.) be
transferred to LUSTEVECO through PNOC; and 3) the shipbuilding equipment (thus) transferred be invested by
LUSTEVECO, acting through PNOC and NDC, as the government's equity participation in a shipbuilding corporation
to be established in partnership with the private sector.
xxx xxx xxx
And so, through a simple letter of instruction and memorandum, BASECO's loan obligation to NDC and REPACOM *
* in the total amount of P83.365M and BSD's REPACOM loan of P32.438M were wiped out and converted into nonvoting preferred shares. 95
20. Evidence of Marcos'
Ownership of BASECO
It cannot therefore be gainsaid that, in the context of the proceedings at bar, the actuality of the control by President Marcos of
BASECO has been sufficiently shown.
Other evidence submitted to the Court by the Solicitor General proves that President Marcos not only exercised control over BASECO,
but also that he actually owns well nigh one hundred percent of its outstanding stock.
It will be recalled that according to petitioner- itself, as of April 23, 1986, there were 218,819 shares of stock outstanding, ostensibly
owned by twenty (20) stockholders. 96 Four of these twenty are juridical persons: (1) Metro Bay Drydock, recorded as holding 136,370
shares; (2) Fidelity Management, Inc., 65,882 shares; (3) Trident Management,7,412 shares; and (4) United Phil. Lines, 1,240 shares.
The first three corporations, among themselves, own an aggregate of 209,664 shares of BASECO stock, or 95.82% of the outstanding
stock.
Now, the Solicitor General has drawn the Court's attention to the intriguing circumstance that found in Malacanang shortly after the
sudden flight of President Marcos, were certificates corresponding to more thanninety-five percent (95%) of all the outstanding shares
of stock of BASECO, endorsed in blank, together with deeds of assignment of practically all the outstanding shares of stock of the three
(3) corporations above mentioned (which hold 95.82% of all BASECO stock), signed by the owners thereof although not notarized. 97
More specifically, found in Malacanang (and now in the custody of the PCGG) were:
1) the deeds of assignment of all 600 outstanding shares of Fidelity Management Inc. which supposedly owns as
aforesaid 65,882 shares of BASECO stock;
2) the deeds of assignment of 2,499,995 of the 2,500,000 outstanding shares of Metro Bay Drydock Corporation
which allegedly owns 136,370 shares of BASECO stock;
3) the deeds of assignment of 800 outstanding shares of Trident Management Co., Inc. which allegedly owns
7,412 shares of BASECO stock, assigned in blank; 98 and
4) stock certificates corresponding to 207,725 out of the 218,819 outstanding shares of BASECO stock; that is, all but
5 % all endorsed in blank. 99

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While the petitioner's counsel was quick to dispute this asserted fact, assuring this Court that the BASECO stockholders were still in
possession of their respective stock certificates and had "never endorsed * * them in blank or to anyone else," 100 that denial is
exposed by his own prior and subsequent recorded statements as a mere gesture of defiance rather than a verifiable factual
declaration.
By resolution dated September 25, 1986, this Court granted BASECO's counsel a period of 10 days "to SUBMIT,as undertaken by
him, * * the certificates of stock issued to the stockholders of * * BASECO as of April 23, 1986, as listed in Annex 'P' of the
petition.' 101 Counsel thereafter moved for extension; and in his motion dated October 2, 1986, he declared inter alia that "said
certificates of stock are in the possession of third parties, among whom being the respondents themselves * * and petitioner is still
endeavoring to secure copies thereof from them." 102 On the same day he filed another motion praying that he be allowed "to secure
copies of the Certificates of Stock in the name of Metro Bay Drydock, Inc., and of all other Certificates, of Stock of petitioner's
stockholders in possession of respondents." 103
In a Manifestation dated October 10, 1986,, 104 the Solicitor General not unreasonably argued that counsel's aforestated motion to
secure copies of the stock certificates "confirms the fact that stockholders of petitioner corporation are not in possession of * * (their)
certificates of stock," and the reason, according to him, was "that 95% of said shares * * have been endorsed in blank and found in
Malacaang after the former President and his family fled the country." To this manifestation BASECO's counsel replied on November
5, 1986, as already mentioned, Stubbornly insisting that the firm's stockholders had not really assigned their stock. 105
In view of the parties' conflicting declarations, this Court resolved on November 27, 1986 among other things "to require * * the
petitioner * * to deposit upon proper receipt with Clerk of Court Juanito Ranjo the originals of the stock certificates alleged to be in its
possession or accessible to it, mentioned and described in Annex 'P' of its petition, (and other pleadings) * * within ten (10) days from
notice." 106 In a motion filed on December 5, 1986, 107 BASECO's counsel made the statement, quite surprising in the premises, that
"it will negotiate with the owners (of the BASECO stock in question) to allow petitioner to borrow from them, if available, the certificates
referred to" but that "it needs a more sufficient time therefor" (sic). BASECO's counsel however eventually had to confess inability to
produce the originals of the stock certificates, putting up the feeble excuse that while he had "requested the stockholders to allow * *
(him) to borrow said certificates, * * some of * * (them) claimed that they had delivered the certificates to third parties by way of pledge
and/or to secure performance of obligations, while others allegedly have entrusted them to third parties in view of last national
emergency." 108 He has conveniently omitted, nor has he offered to give the details of the transactions adverted to by him, or to explain
why he had not impressed on the supposed stockholders the primordial importance of convincing this Court of their present custody of
the originals of the stock, or if he had done so, why the stockholders are unwilling to agree to some sort of arrangement so that the
originals of their certificates might at the very least be exhibited to the Court. Under the circumstances, the Court can only conclude that
he could not get the originals from the stockholders for the simple reason that, as the Solicitor General maintains, said stockholders in
truth no longer have them in their possession, these having already been assigned in blank to then President Marcos.
21. Facts Justify Issuance of Sequestration and Takeover Orders
In the light of the affirmative showing by the Government that, prima facie at least, the stockholders and directors of BASECO as of
April, 1986 109 were mere "dummies," nominees or alter egos of President Marcos; at any rate, that they are no longer owners of any
shares of stock in the corporation, the conclusion cannot be avoided that said stockholders and directors have no basis and no
standing whatever to cause the filing and prosecution of the instant proceeding; and to grant relief to BASECO, as prayed for in the
petition, would in effect be to restore the assets, properties and business sequestered and taken over by the PCGG to persons who are
"dummies," nominees or alter egos of the former president.
From the standpoint of the PCGG, the facts herein stated at some length do indeed show that the private corporation known as
BASECO was "owned or controlled by former President Ferdinand E. Marcos * * during his administration, * * through nominees, by
taking advantage of * * (his) public office and/or using * * (his) powers, authority, influence * *," and that NASSCO and other property of
the government had been taken over by BASECO; and the situation justified the sequestration as well as the provisional takeover of the
corporation in the public interest, in accordance with the terms of Executive Orders No. 1 and 2, pending the filing of the requisite
actions with the Sandiganbayan to cause divestment of title thereto from Marcos, and its adjudication in favor of the Republic pursuant
to Executive Order No. 14.
As already earlier stated, this Court agrees that this assessment of the facts is correct; accordingly, it sustains the acts of sequestration
and takeover by the PCGG as being in accord with the law, and, in view of what has thus far been set out in this opinion, pronounces to
be without merit the theory that said acts, and the executive orders pursuant to which they were done, are fatally defective in not
according to the parties affected prior notice and hearing, or an adequate remedy to impugn, set aside or otherwise obtain relief
therefrom, or that the PCGG had acted as prosecutor and judge at the same time.
22. Executive Orders Not a Bill of Attainder

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Neither will this Court sustain the theory that the executive orders in question are a bill of attainder. 110 "A bill of attainder is a legislative
act which inflicts punishment without judicial trial." 111 "Its essence is the substitution of a legislative for a judicial determination of
guilt." 112
In the first place, nothing in the executive orders can be reasonably construed as a determination or declaration of guilt. On the
contrary, the executive orders, inclusive of Executive Order No. 14, make it perfectly clear that any judgment of guilt in the amassing or
acquisition of "ill-gotten wealth" is to be handed down by a judicial tribunal, in this case, the Sandiganbayan, upon complaint filed and
prosecuted by the PCGG. In the second place, no punishment is inflicted by the executive orders, as the merest glance at their
provisions will immediately make apparent. In no sense, therefore, may the executive orders be regarded as a bill of attainder.
23. No Violation of Right against Self-Incrimination and Unreasonable Searches and Seizures
BASECO also contends that its right against self incrimination and unreasonable searches and seizures had been transgressed by the
Order of April 18, 1986 which required it "to produce corporate records from 1973 to 1986 under pain of contempt of the Commission if
it fails to do so." The order was issued upon the authority of Section 3 (e) of Executive Order No. 1, treating of the PCGG's power to
"issue subpoenas requiring * * the production of such books, papers, contracts, records, statements of accounts and other documents
as may be material to the investigation conducted by the Commission, " and paragraph (3), Executive Order No. 2 dealing with its
power to "require all persons in the Philippines holding * * (alleged "ill-gotten") assets or properties, whether located in the Philippines
or abroad, in their names as nominees, agents or trustees, to make full disclosure of the same * *." The contention lacks merit.
It is elementary that the right against self-incrimination has no application to juridical persons.
While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute, it
does not follow that a corporation, vested with special privileges and franchises, may refuse to show its hand when
charged with an abuse ofsuchprivileges * * 113
Relevant jurisprudence is also cited by the Solicitor General. 114
* * corporations are not entitled to all of the constitutional protections which private individuals have. * * They are not
at all within the privilege against self-incrimination, although this court more than once has said that the privilege runs
very closely with the 4th Amendment's Search and Seizure provisions. It is also settled that an officer of the company
cannot refuse to produce its records in its possession upon the plea that they will either incriminate him or may
incriminate it." (Oklahoma Press Publishing Co. v. Walling, 327 U.S. 186; emphasis, the Solicitor General's).
* * The corporation is a creature of the state. It is presumed to be incorporated for the benefit of the public. It received
certain special privileges and franchises, and holds them subject to the laws of the state and the limitations of its
charter. Its powers are limited by law. It can make no contract not authorized by its charter. Its rights to act as a
corporation are only preserved to it so long as it obeys the laws of its creation. There is a reserve right in the
legislature to investigate its contracts and find out whether it has exceeded its powers. It would be a strange anomaly
to hold that a state, having chartered a corporation to make use of certain franchises, could not, in the exercise of
sovereignty, inquire how these franchises had been employed, and whether they had been abused, and demand the
production of the corporate books and papers for that purpose. The defense amounts to this, that an officer of the
corporation which is charged with a criminal violation of the statute may plead the criminality of such corporation as a
refusal to produce its books. To state this proposition is to answer it. While an individual may lawfully refuse to
answer incriminating questions unless protected by an immunity statute, it does not follow that a corporation, vested
with special privileges and franchises may refuse to show its hand when charged with an abuse of such
privileges. (Wilson v. United States, 55 Law Ed., 771, 780 [emphasis, the Solicitor General's])
At any rate, Executive Order No. 14-A, amending Section 4 of Executive Order No. 14 assures protection to individuals required to
produce evidence before the PCGG against any possible violation of his right against self-incrimination. It gives them immunity from
prosecution on the basis of testimony or information he is compelled to present. As amended, said Section 4 now provides that
xxx xxx xxx
The witness may not refuse to comply with the order on the basis of his privilege against self-incrimination; but no
testimony or other information compelled under the order (or any information directly or indirectly derived from such
testimony, or other information) may be used against the witness in any criminal case, except a prosecution for
perjury, giving a false statement, or otherwise failing to comply with the order.
The constitutional safeguard against unreasonable searches and seizures finds no application to the case at bar either. There has been
no search undertaken by any agent or representative of the PCGG, and of course no seizure on the occasion thereof.

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24. Scope and Extent of Powers of the PCGG
One other question remains to be disposed of, that respecting the scope and extent of the powers that may be wielded by the PCGG
with regard to the properties or businesses placed under sequestration or provisionally taken over. Obviously, it is not a question to
which an answer can be easily given, much less one which will suffice for every conceivable situation.
a. PCGG May Not Exercise Acts of Ownership
One thing is certain, and should be stated at the outset: the PCGG cannot exercise acts of dominion over property sequestered, frozen
or provisionally taken over. AS already earlier stressed with no little insistence, the act of sequestration; freezing or provisional takeover
of property does not import or bring about a divestment of title over said property; does not make the PCGG the owner thereof. In
relation to the property sequestered, frozen or provisionally taken over, the PCGG is a conservator, not an owner. Therefore, it can not
perform acts of strict ownership; and this is specially true in the situations contemplated by the sequestration rules where, unlike cases
of receivership, for example, no court exercises effective supervision or can upon due application and hearing, grant authority for the
performance of acts of dominion.
Equally evident is that the resort to the provisional remedies in question should entail the least possible interference with business
operations or activities so that, in the event that the accusation of the business enterprise being "ill gotten" be not proven, it may be
returned to its rightful owner as far as possible in the same condition as it was at the time of sequestration.
b. PCGG Has Only Powers of Administration
The PCGG may thus exercise only powers of administration over the property or business sequestered or provisionally taken over,
much like a court-appointed receiver, 115 such as to bring and defend actions in its own name; receive rents; collect debts due; pay
outstanding debts; and generally do such other acts and things as may be necessary to fulfill its mission as conservator and
administrator. In this context, it may in addition enjoin or restrain any actual or threatened commission of acts by any person or entity
that may render moot and academic, or frustrate or otherwise make ineffectual its efforts to carry out its task; punish for direct or
indirect contempt in accordance with the Rules of Court; and seek and secure the assistance of any office, agency or instrumentality of
the government. 116 In the case of sequestered businesses generally (i.e., going concerns, businesses in current operation), as in the
case of sequestered objects, its essential role, as already discussed, is that of conservator, caretaker, "watchdog" or overseer. It is not
that of manager, or innovator, much less an owner.
c. Powers over Business Enterprises Taken Over by Marcos or Entities or Persons Close to him; Limitations Thereon
Now, in the special instance of a business enterprise shown by evidence to have been "taken over by the government of the Marcos
Administration or by entities or persons close to former President Marcos," 117 the PCGG is given power and authority, as already
adverted to, to "provisionally take (it) over in the public interest or to prevent * * (its) disposal or dissipation;" and since the term is
obviously employed in reference to going concerns, or business enterprises in operation, something more than mere physical custody
is connoted; the PCGG may in this case exercise some measure of control in the operation, running, or management of the business
itself. But even in this special situation, the intrusion into management should be restricted to the minimum degree necessary to
accomplish the legislative will, which is "to prevent the disposal or dissipation" of the business enterprise. There should be no hasty,
indiscriminate, unreasoned replacement or substitution of management officials or change of policies, particularly in respect of viable
establishments. In fact, such a replacement or substitution should be avoided if at all possible, and undertaken only when justified by
demonstrably tenable grounds and in line with the stated objectives of the PCGG. And it goes without saying that where replacement of
management officers may be called for, the greatest prudence, circumspection, care and attention - should accompany that undertaking
to the end that truly competent, experienced and honest managers may be recruited. There should be no role to be played in this area
by rank amateurs, no matter how wen meaning. The road to hell, it has been said, is paved with good intentions. The business is not to
be experimented or played around with, not run into the ground, not driven to bankruptcy, not fleeced, not ruined. Sight should never be
lost sight of the ultimate objective of the whole exercise, which is to turn over the business to the Republic, once judicially established to
be "ill-gotten." Reason dictates that it is only under these conditions and circumstances that the supervision, administration and control
of business enterprises provisionally taken over may legitimately be exercised.
d. Voting of Sequestered Stock; Conditions Therefor
So, too, it is within the parameters of these conditions and circumstances that the PCGG may properly exercise the prerogative to vote
sequestered stock of corporations, granted to it by the President of the Philippines through a Memorandum dated June 26, 1986. That
Memorandum authorizes the PCGG, "pending the outcome of proceedings to determine the ownership of * * (sequestered) shares of
stock," "to vote such shares of stock as it may have sequestered in corporations at all stockholders' meetings called for the election of
directors, declaration of dividends, amendment of the Articles of Incorporation, etc." The Memorandum should be construed in such a
manner as to be consistent with, and not contradictory of the Executive Orders earlier promulgated on the same matter. There should
be no exercise of the right to vote simply because the right exists, or because the stocks sequestered constitute the controlling or a
substantial part of the corporate voting power. The stock is not to be voted to replace directors, or revise the articles or by-laws, or

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otherwise bring about substantial changes in policy, program or practice of the corporation except for demonstrably weighty and
defensible grounds, and always in the context of the stated purposes of sequestration or provisional takeover, i.e., to prevent the
dispersion or undue disposal of the corporate assets. Directors are not to be voted out simply because the power to do so exists.
Substitution of directors is not to be done without reason or rhyme, should indeed be shunned if at an possible, and undertaken only
when essential to prevent disappearance or wastage of corporate property, and always under such circumstances as assure that the
replacements are truly possessed of competence, experience and probity.
In the case at bar, there was adequate justification to vote the incumbent directors out of office and elect others in their stead because
the evidence showed prima facie that the former were just tools of President Marcos and were no longer owners of any stock in the
firm, if they ever were at all. This is why, in its Resolution of October 28, 1986; 118 this Court declared that
Petitioner has failed to make out a case of grave abuse or excess of jurisdiction in respondents' calling and holding of
a stockholders' meeting for the election of directors as authorized by the Memorandum of the President * * (to the
PCGG) dated June 26, 1986, particularly, where as in this case, the government can, through its designated
directors, properly exercise control and management over what appear to be properties and assets owned and
belonging to the government itself and over which the persons who appear in this case on behalf of BASECO have
failed to show any right or even any shareholding in said corporation.
It must however be emphasized that the conduct of the PCGG nominees in the BASECO Board in the management of the company's
affairs should henceforth be guided and governed by the norms herein laid down. They should never for a moment allow themselves to
forget that they are conservators, not owners of the business; they are fiduciaries, trustees, of whom the highest degree of diligence
and rectitude is, in the premises, required.
25. No Sufficient Showing of Other Irregularities
As to the other irregularities complained of by BASECO, i.e., the cancellation or revision, and the execution of certain contracts,
inclusive of the termination of the employment of some of its executives, 119 this Court cannot, in the present state of the evidence on
record, pass upon them. It is not necessary to do so. The issues arising therefrom may and will be left for initial determination in the
appropriate action. But the Court will state that absent any showing of any important cause therefor, it will not normally substitute its
judgment for that of the PCGG in these individual transactions. It is clear however, that as things now stand, the petitioner cannot be
said to have established the correctness of its submission that the acts of the PCGG in question were done without or in excess of its
powers, or with grave abuse of discretion.
WHEREFORE, the petition is dismissed. The temporary restraining order issued on October 14, 1986 is lifted.

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G.R. No. L-22619

December 2, 1924

NATIONAL COAL COMPANY, plaintiff-appellee,


vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellant.
Attorney-General Villa-Real for appellant.
Perfecto J. Salas Rodriguez for appellee.

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

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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).
Said proclamation (Exhibit B) was issued by Francis Burton Harrison, then Governor-General, on the 18th day of October, 1917, and
provided: "Pursuant to the provision of section 71 of Act No. 926, I hereby withdraw from settlement, entry, sale, or other disposition, all
coal-bearing public lands within the Province of Zamboanga, Department of Mindanao and Sulu, and the Island of Polillo, Province of
Tayabas." It will be noted that said proclamation only provided that all coal-bearing public lands within said province and island should
be withdrawn from settlement, entry, sale, or other disposition. There is nothing in said proclamation which authorizes the plaintiff or any
other person to enter upon said reversations and to mine coal, and no provision of law has been called to our attention, by virtue of
which the plaintiff was entitled to enter upon any of the lands so reserved by said proclamation without first obtaining permission
therefor.
The plaintiff is a private corporation. The mere fact that the Government happens to the majority stockholder does not make it a public
corporation. Act No. 2705, as amended by Act No. 2822, makes it subject to all of the provisions of the Corporation Law, in so far as
they are not inconsistent with said Act (No. 2705). No provisions of Act No. 2705 are found to be inconsistent with the provisions of the
Corporation Law. As a private corporation, it has no greater rights, powers or privileges than any other corporation which might be
organized for the same purpose under the Corporation Law, and certainly it was not the intention of the Legislature to give it a
preference or right or privilege over other legitimate private corporations in the mining of coal. While it is true that said proclamation No.
39 withdrew "from settlement, entry, sale, or other disposition of coal-bearing public lands within the Province of Zamboanga . . . and
the Island of Polillo," it made no provision for the occupation and operation by the plaintiff, to the exclusion of other persons or
corporations who might, under proper permission, enter upon the operate coal mines.
On the 14th day of May, 1917, and before the issuance of said proclamation, the Legislature of the Philippine Island in "an Act for the
leasing and development of coal lands in the Philippine Islands" (Act No. 2719), made liberal provision. Section 1 of said Act provides:
"Coal-bearing lands of the public domain in the Philippine Island shall not be disposed of in any manner except as provided in this Act,"
thereby giving a clear indication that no "coal-bearing lands of the public domain" had been disposed of by virtue of said proclamation.
Neither is there any provision in Act No. 2705 creating the National Coal Company, nor in the amendments thereof found in Act No.
2822, which authorizes the National Coal Company to enter upon any of the reserved coal lands without first having obtained
permission from the Secretary of Agriculture and Natural Resources.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, except those mentioned, perhaps, in section 10 of Act No. 2719, and they do not
change the situation here.
(2) It mined on public lands between the month of July, 1920, and the months of March, 1922, 24,089.3 tons of coal.

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(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 coalbearing 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 "coalbearing 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.

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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.

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G.R. No. 169752

September 25, 2007

PHILIPPINE SOCIETY FOR THE PREVENTION OF CRUELTY TO ANIMALS, Petitioners,


vs.
COMMISSION ON AUDIT, DIR. RODULFO J. ARIESGA (in his official capacity as Director of the Commission on Audit), MS.
MERLE M. VALENTIN and MS. SUSAN GUARDIAN (in their official capacities as Team Leader and Team Member, respectively,
of the audit Team of the Commission on Audit),Respondents.
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. 2005-0211 dated September 14, 2005 issued by the respondents which
constituted the audit team, as well as its September 23, 2005 Letter2informing 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 thesociedad 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.
(emphasis supplied)
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 fortyeight, is hereby further amended so as to read as follows:

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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.
xxxx
Whereas, the cruel treatment of animals is an offense against the State, penalized under our statutes, which the Government is duty
bound to enforce;
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 watch, capture, and prosecute offenders against the laws enacted to prevent
cruelty to animals. (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, 20035addressed 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:
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 non-governmental 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.

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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.
The COA General Counsel issued a Memorandum6 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.
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.
Acting on the said request, the General Counsel of respondent COA, in a Memorandum dated July 13, 2004,9affirmed 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 re-evaluation, 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

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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 23,11Title 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
laws12 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

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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 optioneither 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.

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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.1wphi1
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 fourthpoint.
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 bylaws, 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:

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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.241wphi1
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 corporations
as 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:
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

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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.

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G.R. No. 175352
DANTE V. LIBAN, REYNALDO M. BERNARDO, and SALVADOR M. VIARI, Petitioners,
vs.
RICHARD J. GORDON, Respondent.
DECISION
CARPIO, J.:
The Case
This is a petition to declare Senator Richard J. Gordon (respondent) as having forfeited his seat in the Senate.
The Facts
Petitioners Dante V. Liban, Reynaldo M. Bernardo, and Salvador M. Viari (petitioners) filed with this Court a Petition to Declare Richard
J. Gordon as Having Forfeited His Seat in the Senate. Petitioners are officers of the Board of Directors of the Quezon City Red Cross
Chapter while respondent is Chairman of the Philippine National Red Cross (PNRC) Board of Governors.
During respondents incumbency as a member of the Senate of the Philippines,1 he was elected Chairman of the PNRC during the 23
February 2006 meeting of the PNRC Board of Governors. Petitioners allege that by accepting the chairmanship of the PNRC Board of
Governors, respondent has ceased to be a member of the Senate as provided in Section 13, Article VI of the Constitution, which reads:
SEC. 13. No Senator or Member of the House of Representatives may hold any other office or employment in the Government, or any
subdivision, agency, or instrumentality thereof, including government-owned or controlled corporations or their subsidiaries, during his
term without forfeiting his seat. Neither shall he be appointed to any office which may have been created or the emoluments thereof
increased during the term for which he was elected.
Petitioners cite Camporedondo v. NLRC,2 which held that the PNRC is a government-owned or controlled corporation. Petitioners claim
that in accepting and holding the position of Chairman of the PNRC Board of Governors, respondent has automatically forfeited his seat
in the Senate, pursuant to Flores v. Drilon,3 which held that incumbent national legislators lose their elective posts upon their
appointment to another government office.
In his Comment, respondent asserts that petitioners have no standing to file this petition which appears to be an action for quo
warranto, since the petition alleges that respondent committed an act which, by provision of law, constitutes a ground for forfeiture of his
public office. Petitioners do not claim to be entitled to the Senate office of respondent. Under Section 5, Rule 66 of the Rules of Civil
Procedure, only a person claiming to be entitled to a public office usurped or unlawfully held by another may bring an action for quo
warranto in his own name. If the petition is one for quo warranto, it is already barred by prescription since under Section 11, Rule 66 of
the Rules of Civil Procedure, the action should be commenced within one year after the cause of the public officers forfeiture of office.
In this case, respondent has been working as a Red Cross volunteer for the past 40 years. Respondent was already Chairman of the
PNRC Board of Governors when he was elected Senator in May 2004, having been elected Chairman in 2003 and re-elected in 2005.
Respondent contends that even if the present petition is treated as a taxpayers suit, petitioners cannot be allowed to raise a
constitutional question in the absence of any claim that they suffered some actual damage or threatened injury as a result of the
allegedly illegal act of respondent. Furthermore, taxpayers are allowed to sue only when there is a claim of illegal disbursement of
public funds, or that public money is being diverted to any improper purpose, or where petitioners seek to restrain respondent from
enforcing an invalid law that results in wastage of public funds.
Respondent also maintains that if the petition is treated as one for declaratory relief, this Court would have no jurisdiction since original
jurisdiction for declaratory relief lies with the Regional Trial Court.

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Respondent further insists that the PNRC is not a government-owned or controlled corporation and that the prohibition under Section
13, Article VI of the Constitution does not apply in the present case since volunteer service to the PNRC is neither an office nor an
employment.
In their Reply, petitioners claim that their petition is neither an action for quo warranto nor an action for declaratory relief. Petitioners
maintain that the present petition is a taxpayers suit questioning the unlawful disbursement of funds, considering that respondent has
been drawing his salaries and other compensation as a Senator even if he is no longer entitled to his office. Petitioners point out that
this Court has jurisdiction over this petition since it involves a legal or constitutional issue which is of transcendental importance.
The Issues
Petitioners raise the following issues:
1. Whether the Philippine National Red Cross (PNRC) is a government- owned or controlled corporation;
2. Whether Section 13, Article VI of the Philippine Constitution applies to the case of respondent who is Chairman of the PNRC
and at the same time a Member of the Senate;
3. Whether respondent should be automatically removed as a Senator pursuant to Section 13, Article VI of the Philippine
Constitution; and
4. Whether petitioners may legally institute this petition against respondent.4
The substantial issue boils down to whether the office of the PNRC Chairman is a government office or an office in a governmentowned or controlled corporation for purposes of the prohibition in Section 13, Article VI of the Constitution.
The Courts Ruling
We find the petition without merit.
Petitioners Have No Standing to File this Petition
A careful reading of the petition reveals that it is an action for quo warranto. Section 1, Rule 66 of the Rules of Court provides:
Section 1. Action by Government against individuals. An action for the usurpation of a public office, position or franchise may be
commenced by a verified petition brought in the name of the Republic of the Philippines against:
(a) A person who usurps, intrudes into, or unlawfully holds or exercises a public office, position or franchise;
(b) A public officer who does or suffers an act which by provision of law, constitutes a ground for the forfeiture of his office; or
(c) An association which acts as a corporation within the Philippines without being legally incorporated or without lawful
authority so to act. (Emphasis supplied)
Petitioners allege in their petition that:
4. Respondent became the Chairman of the PNRC when he was elected as such during the First Regular Luncheon-Meeting
of the Board of Governors of the PNRC held on February 23, 2006, the minutes of which is hereto attached and made integral
part hereof as Annex "A."
5. Respondent was elected as Chairman of the PNRC Board of Governors, during his incumbency as a Member of the House
of Senate of the Congress of the Philippines, having been elected as such during the national elections last May 2004.

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6. Since his election as Chairman of the PNRC Board of Governors, which position he duly accepted, respondent has been
exercising the powers and discharging the functions and duties of said office, despite the fact that he is still a senator.
7. It is the respectful submission of the petitioner[s] that by accepting the chairmanship of the Board of Governors of the
PNRC, respondent has ceased to be a Member of the House of Senate as provided in Section 13, Article VI of the Philippine
Constitution, x x x
xxxx
10. It is respectfully submitted that in accepting the position of Chairman of the Board of Governors of the PNRC on February
23, 2006, respondent has automatically forfeited his seat in the House of Senate and, therefore, has long ceased to be a
Senator, pursuant to the ruling of this Honorable Court in the case of FLORES, ET AL. VS. DRILON AND GORDON, G.R. No.
104732, x x x
11. Despite the fact that he is no longer a senator, respondent continues to act as such and still performs the powers, functions
and duties of a senator, contrary to the constitution, law and jurisprudence.
12. Unless restrained, therefore, respondent will continue to falsely act and represent himself as a senator or member of the
House of Senate, collecting the salaries, emoluments and other compensations, benefits and privileges appertaining and due
only to the legitimate senators, to the damage, great and irreparable injury of the Government and the Filipino
people.5 (Emphasis supplied)
Thus, petitioners are alleging that by accepting the position of Chairman of the PNRC Board of Governors, respondent has
automatically forfeited his seat in the Senate. In short, petitioners filed an action for usurpation of public office against respondent, a
public officer who allegedly committed an act which constitutes a ground for the forfeiture of his public office. Clearly, such an action is
for quo warranto, specifically under Section 1(b), Rule 66 of the Rules of Court.
Quo warranto is generally commenced by the Government as the proper party plaintiff. However, under Section 5, Rule 66 of the Rules
of Court, an individual may commence such an action if he claims to be entitled to the public office allegedly usurped by another, in
which case he can bring the action in his own name. The person instituting quo warranto proceedings in his own behalf must claim and
be able to show that he is entitled to the office in dispute, otherwise the action may be dismissed at any stage. 6 In the present case,
petitioners do not claim to be entitled to the Senate office of respondent. Clearly, petitioners have no standing to file the present petition.
Even if the Court disregards the infirmities of the petition and treats it as a taxpayers suit, the petition would still fail on the merits.
PNRC is a Private Organization Performing Public Functions
On 22 March 1947, President Manuel A. Roxas signed Republic Act No. 95,7 otherwise known as the PNRC Charter. The PNRC is a
non-profit, donor-funded, voluntary, humanitarian organization, whose mission is to bring timely, effective, and compassionate
humanitarian assistance for the most vulnerable without consideration of nationality, race, religion, gender, social status, or political
affiliation.8 The PNRC provides six major services: Blood Services, Disaster Management, Safety Services, Community Health and
Nursing, Social Services and Voluntary Service.9
The Republic of the Philippines, adhering to the Geneva Conventions, established the PNRC as a voluntary organization for the
purpose contemplated in the Geneva Convention of 27 July 1929.10 The Whereas clauses of the PNRC Charter read:
WHEREAS, there was developed at Geneva, Switzerland, on August 22, 1864, a convention by which the nations of the world were
invited to join together in diminishing, so far lies within their power, the evils inherent in war;
WHEREAS, more than sixty nations of the world have ratified or adhered to the subsequent revision of said convention, namely the
"Convention of Geneva of July 29 [sic], 1929 for the Amelioration of the Condition of the Wounded and Sick of Armies in the Field"
(referred to in this Charter as the Geneva Red Cross Convention);

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WHEREAS, the Geneva Red Cross Convention envisages the establishment in each country of a voluntary organization to assist in
caring for the wounded and sick of the armed forces and to furnish supplies for that purpose;
WHEREAS, the Republic of the Philippines became an independent nation on July 4, 1946 and proclaimed its adherence to the
Geneva Red Cross Convention on February 14, 1947, and by that action indicated its desire to participate with the nations of the world
in mitigating the suffering caused by war and to establish in the Philippines a voluntary organization for that purpose as contemplated
by the Geneva Red Cross Convention;
WHEREAS, there existed in the Philippines since 1917 a Charter of the American National Red Cross which must be terminated in view
of the independence of the Philippines; and
WHEREAS, the volunteer organizations established in the other countries which have ratified or adhered to the Geneva Red Cross
Convention assist in promoting the health and welfare of their people in peace and in war, and through their mutual assistance and
cooperation directly and through their international organizations promote better understanding and sympathy among the peoples of the
world. (Emphasis supplied)
The PNRC is a member National Society of the International Red Cross and Red Crescent Movement (Movement), which is composed
of the International Committee of the Red Cross (ICRC), the International Federation of Red Cross and Red Crescent Societies
(International Federation), and the National Red Cross and Red Crescent Societies (National Societies). The Movement is united and
guided by its seven Fundamental Principles:
1. HUMANITY The International Red Cross and Red Crescent Movement, born of a desire to bring assistance without
discrimination to the wounded on the battlefield, endeavors, in its international and national capacity, to prevent and alleviate
human suffering wherever it may be found. Its purpose is to protect life and health and to ensure respect for the human being.
It promotes mutual understanding, friendship, cooperation and lasting peace amongst all peoples.
2. IMPARTIALITY It makes no discrimination as to nationality, race, religious beliefs, class or political opinions. It endeavors
to relieve the suffering of individuals, being guided solely by their needs, and to give priority to the most urgent cases of
distress.
3. NEUTRALITY In order to continue to enjoy the confidence of all, the Movement may not take sides in hostilities or engage
at any time in controversies of a political, racial, religious or ideological nature.
4. INDEPENDENCE The Movement is independent. The National Societies, while auxiliaries in the humanitarian services of
their governments and subject to the laws of their respective countries, must always maintain their autonomy so that they may
be able at all times to act in accordance with the principles of the Movement.
5. VOLUNTARY SERVICE It is a voluntary relief movement not prompted in any manner by desire for gain.
6. UNITY There can be only one Red Cross or one Red Crescent Society in any one country. It must be open to all. It must
carry on its humanitarian work throughout its territory.
7. UNIVERSALITY The International Red Cross and Red Crescent Movement, in which all Societies have equal status and
share equal responsibilities and duties in helping each other, is worldwide. (Emphasis supplied)
The Fundamental Principles provide a universal standard of reference for all members of the Movement. The PNRC, as a member
National Society of the Movement, has the duty to uphold the Fundamental Principles and ideals of the Movement. In order to be
recognized as a National Society, the PNRC has to be autonomous and must operate in conformity with the Fundamental Principles of
the Movement.11
The reason for this autonomy is fundamental. To be accepted by warring belligerents as neutral workers during international or internal
armed conflicts, the PNRC volunteers must not be seen as belonging to any side of the armed conflict. In the Philippines where there is
a communist insurgency and a Muslim separatist rebellion, the PNRC cannot be seen as government-owned or controlled, and neither
can the PNRC volunteers be identified as government personnel or as instruments of government policy. Otherwise, the insurgents or

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separatists will treat PNRC volunteers as enemies when the volunteers tend to the wounded in the battlefield or the displaced civilians
in conflict areas.
Thus, the PNRC must not only be, but must also be seen to be, autonomous, neutral and independent in order to conduct its activities
in accordance with the Fundamental Principles. The PNRC must not appear to be an instrument or agency that implements government
policy; otherwise, it cannot merit the trust of all and cannot effectively carry out its mission as a National Red Cross Society.12 It is
imperative that the PNRC must be autonomous, neutral, and independent in relation to the State.
To ensure and maintain its autonomy, neutrality, and independence, the PNRC cannot be owned or controlled by the government.
Indeed, the Philippine government does not own the PNRC. The PNRC does not have government assets and does not receive any
appropriation from the Philippine Congress.13 The PNRC is financed primarily by contributions from private individuals and private
entities obtained through solicitation campaigns organized by its Board of Governors, as provided under Section 11 of the PNRC
Charter:
SECTION 11. As a national voluntary organization, the Philippine National Red Cross shall be financed primarily by contributions
obtained through solicitation campaigns throughout the year which shall be organized by the Board of Governors and conducted by the
Chapters in their respective jurisdictions. These fund raising campaigns shall be conducted independently of other fund drives by other
organizations. (Emphasis supplied)
The government does not control the PNRC. Under the PNRC Charter, as amended, only six of the thirty members of the PNRC Board
of Governors are appointed by the President of the Philippines. Thus, twenty-four members, or four-fifths (4/5), of the PNRC Board of
Governors are not appointed by the President. Section 6 of the PNRC Charter, as amended, provides:
SECTION 6. The governing powers and authority shall be vested in a Board of Governors composed of thirty members, six of whom
shall be appointed by the President of the Philippines, eighteen shall be elected by chapter delegates in biennial conventions and the
remaining six shall be selected by the twenty-four members of the Board already chosen. x x x.
Thus, of the twenty-four members of the PNRC Board, eighteen are elected by the chapter delegates of the PNRC, and six are elected
by the twenty-four members already chosen a select group where the private sector members have three-fourths majority. Clearly,
an overwhelming majority of four-fifths of the PNRC Board are elected or chosen by the private sector members of the PNRC.
The PNRC Board of Governors, which exercises all corporate powers of the PNRC, elects the PNRC Chairman and all other officers of
the PNRC. The incumbent Chairman of PNRC, respondent Senator Gordon, was elected, as all PNRC Chairmen are elected, by a
private sector-controlled PNRC Board four-fifths of whom are private sector members of the PNRC. The PNRC Chairman is not
appointed by the President or by any subordinate government official.
Under Section 16, Article VII of the Constitution,14 the President appoints all officials and employees in the Executive branch whose
appointments are vested in the President by the Constitution or by law. The President also appoints those whose appointments are not
otherwise provided by law. Under this Section 16, the law may also authorize the "heads of departments, agencies, commissions, or
boards" to appoint officers lower in rank than such heads of departments, agencies, commissions or boards.15 In Rufino v. Endriga,16 the
Court explained appointments under Section 16 in this wise:
Under Section 16, Article VII of the 1987 Constitution, the President appoints three groups of officers. The first group refers to the heads
of the Executive departments, ambassadors, other public ministers and consuls, officers of the armed forces from the rank of colonel or
naval captain, and other officers whose appointments are vested in the President by the Constitution. The second group refers to those
whom the President may be authorized by law to appoint. The third group refers to all other officers of the Government whose
appointments are not otherwise provided by law.
Under the same Section 16, there is a fourth group of lower-ranked officers whose appointments Congress may by law vest in the
heads of departments, agencies, commissions, or boards. x x x
xxx
In a department in the Executive branch, the head is the Secretary. The law may not authorize the Undersecretary, acting as such
Undersecretary, to appoint lower-ranked officers in the Executive department. In an agency, the power is vested in the head of the

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agency for it would be preposterous to vest it in the agency itself. In a commission, the head is the chairperson of the commission. In a
board, the head is also the chairperson of the board. In the last three situations, the law may not also authorize officers other than the
heads of the agency, commission, or board to appoint lower-ranked officers.
xxx
The Constitution authorizes Congress to vest the power to appoint lower-ranked officers specifically in the "heads" of the specified
offices, and in no other person. The word "heads" refers to the chairpersons of the commissions or boards and not to their members, for
several reasons.
The President does not appoint the Chairman of the PNRC. Neither does the head of any department, agency, commission or board
appoint the PNRC Chairman. Thus, the PNRC Chairman is not an official or employee of the Executive branch since his appointment
does not fall under Section 16, Article VII of the Constitution. Certainly, the PNRC Chairman is not an official or employee of the
Judiciary or Legislature. This leads us to the obvious conclusion that the PNRC Chairman is not an official or employee of the Philippine
Government. Not being a government official or employee, the PNRC Chairman, as such, does not hold a government office or
employment.
Under Section 17, Article VII of the Constitution,17 the President exercises control over all government offices in the Executive branch. If
an office is legally not under the control of the President, then such office is not part of the Executive branch. In Rufino v.
Endriga,18 the Court explained the Presidents power of control over all government offices as follows:
Every government office, entity, or agency must fall under the Executive, Legislative, or Judicial branches, or must belong to one of the
independent constitutional bodies, or must be a quasi-judicial body or local government unit. Otherwise, such government office, entity,
or agency has no legal and constitutional basis for its existence.
The CCP does not fall under the Legislative or Judicial branches of government. The CCP is also not one of the independent
constitutional bodies. Neither is the CCP a quasi-judicial body nor a local government unit. Thus, the CCP must fall under the Executive
branch. Under the Revised Administrative Code of 1987, any agency "not placed by law or order creating them under any specific
department" falls "under the Office of the President."
Since the President exercises control over "all the executive departments, bureaus, and offices," the President necessarily exercises
control over the CCP which is an office in the Executive branch. In mandating that the President "shall have control of all executive . . .
offices," Section 17, Article VII of the 1987 Constitution does not exempt any executive office one performing executive functions
outside of the independent constitutional bodies from the Presidents power of control. There is no dispute that the CCP performs
executive, and not legislative, judicial, or quasi-judicial functions.
The Presidents power of control applies to the acts or decisions of all officers in the Executive branch. This is true whether such officers
are appointed by the President or by heads of departments, agencies, commissions, or boards. The power of control means the power
to revise or reverse the acts or decisions of a subordinate officer involving the exercise of discretion.
In short, the President sits at the apex of the Executive branch, and exercises "control of all the executive departments, bureaus, and
offices." There can be no instance under the Constitution where an officer of the Executive branch is outside the control of the
President. The Executive branch is unitary since there is only one President vested with executive power exercising control over the
entire Executive branch. Any office in the Executive branch that is not under the control of the President is a lost command whose
existence is without any legal or constitutional basis. (Emphasis supplied)
An overwhelming four-fifths majority of the PNRC Board are private sector individuals elected to the PNRC Board by the private sector
members of the PNRC. The PNRC Board exercises all corporate powers of the PNRC. The PNRC is controlled by private sector
individuals. Decisions or actions of the PNRC Board are not reviewable by the President. The President cannot reverse or modify the
decisions or actions of the PNRC Board. Neither can the President reverse or modify the decisions or actions of the PNRC Chairman. It
is the PNRC Board that can review, reverse or modify the decisions or actions of the PNRC Chairman. This proves again that the office
of the PNRC Chairman is a private office, not a government office.1avvphi1
Although the State is often represented in the governing bodies of a National Society, this can be justified by the need for proper
coordination with the public authorities, and the government representatives may take part in decision-making within a National Society.

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However, the freely-elected representatives of a National Societys active members must remain in a large majority in a National
Societys governing bodies.19
The PNRC is not government-owned but privately owned. The vast majority of the thousands of PNRC members are private individuals,
including students. Under the PNRC Charter, those who contribute to the annual fund campaign of the PNRC are entitled to
membership in the PNRC for one year. Thus, any one between 6 and 65 years of age can be a PNRC member for one year upon
contributing P35, P100, P300, P500 or P1,000 for the year.20 Even foreigners, whether residents or not, can be members of the PNRC.
Section 5 of the PNRC Charter, as amended by Presidential Decree No. 1264,21 reads:
SEC. 5. Membership in the Philippine National Red Cross shall be open to the entire population in the Philippines regardless of
citizenship. Any contribution to the Philippine National Red Cross Annual Fund Campaign shall entitle the contributor to membership for
one year and said contribution shall be deductible in full for taxation purposes.
Thus, the PNRC is a privately owned, privately funded, and privately run charitable organization. The PNRC is not a government-owned
or controlled corporation.
Petitioners anchor their petition on the 1999 case of Camporedondo v. NLRC,22 which ruled that the PNRC is a government-owned or
controlled corporation. In ruling that the PNRC is a government-owned or controlled corporation, the simple test used was whether the
corporation was created by its own special charter for the exercise of a public function or by incorporation under the general corporation
law. Since the PNRC was created under a special charter, the Court then ruled that it is a government corporation. However,
the Camporedondoruling failed to consider the definition of a government-owned or controlled corporation as provided under Section
2(13) of the Introductory Provisions of the Administrative Code of 1987:
SEC. 2. General Terms Defined. x x x
(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation, vested with
functions relating to public needs whether governmental or proprietary in nature, and owned by the Government directly or through its
instrumentalities either wholly, or where applicable as in the case of stock corporations, to the extent of at least fifty-one (51) percent of
its capital stock: Provided, That government-owned or controlled corporations may be further categorized by the Department of the
Budget, the Civil Service Commission, and the Commission on Audit for purposes of the exercise and discharge of their respective
powers, functions and responsibilities with respect to such corporations.(Boldfacing and underscoring supplied)
A government-owned or controlled corporation must be owned by the government, and in the case of a stock corporation, at least a
majority of its capital stock must be owned by the government. In the case of a non-stock corporation, by analogy at least a majority of
the members must be government officials holding such membership by appointment or designation by the government. Under this
criterion, and as discussed earlier, the government does not own or control PNRC.
The PNRC Charter is Violative of the Constitutional Proscription against the Creation of Private Corporations by Special Law
The 1935 Constitution, as amended, was in force when the PNRC was created by special charter on 22 March 1947. Section 7, Article
XIV of the 1935 Constitution, as amended, reads:
SEC. 7. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations,
unless such corporations are owned or controlled by the Government or any subdivision or instrumentality thereof.
The subsequent 1973 and 1987 Constitutions contain similar provisions prohibiting Congress from creating private corporations except
by general law. Section 1 of the PNRC Charter, as amended, creates the PNRC as a "body corporate and politic," thus:
SECTION 1. There is hereby created in the Republic of the Philippines a body corporate and politic to be the voluntary organization
officially designated to assist the Republic of the Philippines in discharging the obligations set forth in the Geneva Conventions and to
perform such other duties as are inherent upon a National Red Cross Society. The national headquarters of this Corporation shall be
located in Metropolitan Manila. (Emphasis supplied)
In Feliciano v. Commission on Audit,23 the Court explained the constitutional provision prohibiting Congress from creating private
corporations in this wise:

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We begin by explaining the general framework under the fundamental law. The Constitution recognizes two classes of corporations.
The first refers to private corporations created under a general law. The second refers to government-owned or controlled corporations
created by special charters. Section 16, Article XII of the 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.
The Constitution emphatically prohibits the creation of private corporations except by general law applicable to all citizens. The purpose
of this constitutional provision is to ban private corporations created by special charters, which historically gave certain individuals,
families or groups special privileges denied to other citizens.
In short, Congress cannot enact a law creating a private corporation with a special charter. Such legislation would be unconstitutional.
Private corporations may exist only under a general law. If the corporation is private, it must necessarily exist under a general law.
Stated differently, only corporations created under a general law can qualify as private corporations. Under existing laws, the general
law is the Corporation Code, except that the Cooperative Code governs the incorporation of cooperatives.
The Constitution authorizes Congress to create government-owned or controlled corporations through special charters. Since private
corporations cannot have special charters, it follows that Congress can create corporations with special charters only if such
corporations are government-owned or controlled.24 (Emphasis supplied)
In Feliciano, the Court held that the Local Water Districts are government-owned or controlled corporations since they exist by virtue of
Presidential Decree No. 198, which constitutes their special charter. The seed capital assets of the Local Water Districts, such as
waterworks and sewerage facilities, were public property which were managed, operated by or under the control of the city, municipality
or province before the assets were transferred to the Local Water Districts. The Local Water Districts also receive subsidies and loans
from the Local Water Utilities Administration (LWUA). In fact, under the 2009 General Appropriations Act, 25 the LWUA has a budget
amounting to P400,000,000 for its subsidy requirements.26 There is no private capital invested in the Local Water Districts. The
capital assets and operating funds of the Local Water Districts all come from the government, either through transfer of assets, loans,
subsidies or the income from such assets or funds.
The government also controls the Local Water Districts because the municipal or city mayor, or the provincial governor, appoints all the
board directors of the Local Water Districts. Furthermore, the board directors and other personnel of the Local Water Districts are
government employees subject to civil service laws and anti-graft laws. Clearly, the Local Water Districts are considered governmentowned or controlled corporations not only because of their creation by special charter but also because the government in fact owns
and controls the Local Water Districts.
Just like the Local Water Districts, the PNRC was created through a special charter. However, unlike the Local Water Districts, the
elements of government ownership and control are clearly lacking in the PNRC. Thus, although the PNRC is created by a special
charter, it cannot be considered a government-owned or controlled corporation in the absence of the essential elements of ownership
and control by the government. In creating the PNRC as a corporate entity, Congress was in fact creating a private corporation.
However, the constitutional prohibition against the creation of private corporations by special charters provides no exception even for
non-profit or charitable corporations. Consequently, the PNRC Charter, insofar as it creates the PNRC as a private corporation and
grants it corporate powers,27 is void for being unconstitutional. Thus, Sections 1,28 2,29 3,304(a),31 5,32 6,33 7,34 8,35 9,36 10,37 11,38 12,39 and
1340 of the PNRC Charter, as amended, are void.
The other provisions41 of the PNRC Charter remain valid as they can be considered as a recognition by the State that the
unincorporated PNRC is the local National Society of the International Red Cross and Red Crescent Movement, and thus entitled to the
benefits, exemptions and privileges set forth in the PNRC Charter. The other provisions of the PNRC Charter implement the Philippine
Governments treaty obligations under Article 4(5) of the Statutes of the International Red Cross and Red Crescent Movement, which
provides that to be recognized as a National Society, the Society must be "duly recognized by the legal government of its country on the
basis of the Geneva Conventions and of the national legislation as a voluntary aid society, auxiliary to the public authorities in the
humanitarian field."
In sum, we hold that the office of the PNRC Chairman is not a government office or an office in a government-owned or controlled
corporation for purposes of the prohibition in Section 13, Article VI of the 1987 Constitution. However, since the PNRC Charter is void

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insofar as it creates the PNRC as a private corporation, the PNRC should incorporate under the Corporation Code and register with the
Securities and Exchange Commission if it wants to be a private corporation.
WHEREFORE, we declare that the office of the Chairman of the Philippine National Red Cross is not a government office or an office in
a government-owned or controlled corporation for purposes of the prohibition in Section 13, Article VI of the 1987 Constitution. We also
declare that Sections 1, 2, 3, 4(a), 5, 6, 7, 8, 9, 10, 11, 12, and 13 of the Charter of the Philippine National Red Cross, or Republic Act
No. 95, as amended by Presidential Decree Nos. 1264 and 1643, are VOID because they create the PNRC as a private corporation or
grant it corporate powers.

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G. R. No. 175352

January 18, 2011

DANTE V. LIBAN, REYNALDO M. BERNARDO and SALVADOR M. VIARI, Petitioners,


vs.
RICHARD J. GORDON, Respondent.
PHILIPPINE NATIONAL RED CROSS, Intervenor.
RESOLUTION
LEONARDO-DE CASTRO, J.:
This resolves the Motion for Clarification and/or for Reconsideration1 filed on August 10, 2009 by respondent Richard J. Gordon
(respondent) of the Decision promulgated by this Court on July 15, 2009 (the Decision), the Motion for Partial Reconsideration2 filed on
August 27, 2009 by movant-intervenor Philippine National Red Cross (PNRC), and the latters Manifestation and Motion to Admit
Attached Position Paper3 filed on December 23, 2009.
In the Decision,4 the Court held that respondent did not forfeit his seat in the Senate when he accepted the chairmanship of the PNRC
Board of Governors, as "the office of the PNRC Chairman is not a government office or an office in a government-owned or controlled
corporation for purposes of the prohibition in Section 13, Article VI of the 1987 Constitution."5 The Decision, however, further declared
void the PNRC Charter "insofar as it creates the PNRC as a private corporation" and consequently ruled that "the PNRC should
incorporate under the Corporation Code and register with the Securities and Exchange Commission if it wants to be a private
corporation."6 The dispositive portion of the Decision reads as follows:
WHEREFORE, we declare that the office of the Chairman of the Philippine National Red Cross is not a government office or an office in
a government-owned or controlled corporation for purposes of the prohibition in Section 13, Article VI of the 1987 Constitution. We also
declare that Sections 1, 2, 3, 4(a), 5, 6, 7, 8, 9, 10, 11, 12, and 13 of the Charter of the Philippine National Red Cross, or Republic Act
No. 95, as amended by Presidential Decree Nos. 1264 and 1643, are VOID because they create the PNRC as a private corporation or
grant it corporate powers.7
In his Motion for Clarification and/or for Reconsideration, respondent raises the following grounds: (1) as the issue of constitutionality of
Republic Act (R.A.) No. 95 was not raised by the parties, the Court went beyond the case in deciding such issue; and (2) as the Court
decided that Petitioners did not have standing to file the instant Petition, the pronouncement of the Court on the validity of R.A. No. 95
should be considered obiter.8
Respondent argues that the validity of R.A. No. 95 was a non-issue; therefore, it was unnecessary for the Court to decide on that
question. Respondent cites Laurel v. Garcia,9 wherein the Court said that it "will not pass upon a constitutional question although
properly presented by the record if the case can be disposed of on some other ground" and goes on to claim that since this Court, in
the Decision, disposed of the petition on some other ground, i.e., lack of standing of petitioners, there was no need for it to delve into
the validity of R.A. No. 95, and the rest of the judgment should be deemed obiter.
In its Motion for Partial Reconsideration, PNRC prays that the Court sustain the constitutionality of its Charter on the following grounds:
A. THE ASSAILED DECISION DECLARING UNCONSTITUTIONAL REPUBLIC ACT NO. 95 AS AMENDED DEPRIVED INTERVENOR
PNRC OF ITS CONSTITUTIONAL RIGHT TO DUE PROCESS.
1. INTERVENOR PNRC WAS NEVER A PARTY TO THE INSTANT CONTROVERSY.
2. THE CONSTITUTIONALITY OF REPUBLIC ACT NO. 95, AS AMENDED WAS NEVER AN ISSUE IN THIS CASE.
B. THE CURRENT CHARTER OF PNRC IS PRESIDENTIAL DECREE NO. 1264 AND NOT REPUBLIC ACT NO. 95. PRESIDENTIAL
DECREE NO. 1264 WAS NOT A CREATION OF CONGRESS.

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C. PNRCS STRUCTURE IS SUI GENERIS; IT IS A CLASS OF ITS OWN. WHILE IT IS PERFORMING HUMANITARIAN FUNCTIONS
AS AN AUXILIARY TO GOVERNMENT, IT IS A NEUTRAL ENTITY SEPARATE AND INDEPENDENT OF GOVERNMENT CONTROL,
YET IT DOES NOT QUALIFY AS STRICTLY PRIVATE IN CHARACTER.
In his Comment and Manifestation10 filed on November 9, 2009, respondent manifests: (1) that he agrees with the position taken by the
PNRC in its Motion for Partial Reconsideration dated August 27, 2009; and (2) as of the writing of said Comment and Manifestation,
there was pending before the Congress of the Philippines a proposed bill entitled "An Act Recognizing the PNRC as an Independent,
Autonomous, Non-Governmental Organization Auxiliary to the Authorities of the Republic of the Philippines in the Humanitarian Field, to
be Known as The Philippine Red Cross."11
After a thorough study of the arguments and points raised by the respondent as well as those of movant-intervenor in their respective
motions, we have reconsidered our pronouncements in our Decision dated July 15, 2009 with regard to the nature of the PNRC and the
constitutionality of some provisions of the PNRC Charter, R.A. No. 95, as amended.
As correctly pointed out in respondents Motion, the issue of constitutionality of R.A. No. 95 was not raised by the parties, and was not
among the issues defined in the body of the Decision; thus, it was not the very lis mota of the case. We have reiterated the rule as to
when the Court will consider the issue of constitutionality in Alvarez v. PICOP Resources, Inc.,12 thus:
This Court will not touch the issue of unconstitutionality unless it is the very lis mota. It is a well-established rule that a court should not
pass upon a constitutional question and decide a law to be unconstitutional or invalid, unless such question is raised by the parties and
that when it is raised, if the record also presents some other ground upon which the court may [rest] its judgment, that course will be
adopted and the constitutional question will be left for consideration until such question will be unavoidable.13
Under the rule quoted above, therefore, this Court should not have declared void certain sections of R.A. No. 95, as amended by
Presidential Decree (P.D.) Nos. 1264 and 1643, the PNRC Charter. Instead, the Court should have exercised judicial restraint on this
matter, especially since there was some other ground upon which the Court could have based its judgment. Furthermore, the PNRC,
the entity most adversely affected by this declaration of unconstitutionality, which was not even originally a party to this case, was being
compelled, as a consequence of the Decision, to suddenly reorganize and incorporate under the Corporation Code, after more than
sixty (60) years of existence in this country.
Its existence as a chartered corporation remained unchallenged on ground of unconstitutionality notwithstanding that R.A. No. 95 was
enacted on March 22, 1947 during the effectivity of the 1935 Constitution, which provided for a proscription against the creation of
private corporations by special law, to wit:
SEC. 7. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations,
unless such corporations are owned and controlled by the Government or any subdivision or instrumentality thereof. (Art. XIV, 1935
Constitution.)
Similar provisions are found in Article XIV, Section 4 of the 1973 Constitution and Article XII, Section 16 of the 1987 Constitution. The
latter reads:
SECTION 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.
Since its enactment, the PNRC Charter was amended several times, particularly on June 11, 1953, August 16, 1971, December 15,
1977, and October 1, 1979, by virtue of R.A. No. 855, R.A. No. 6373, P.D. No. 1264, and P.D. No. 1643, respectively. The passage of
several laws relating to the PNRCs corporate existence notwithstanding the effectivity of the constitutional proscription on the creation
of private corporations by law, is a recognition that the PNRC is not strictly in the nature of a private corporation contemplated by the
aforesaid constitutional ban.
A closer look at the nature of the PNRC would show that there is none like it not just in terms of structure, but also in terms of history,
public service and official status accorded to it by the State and the international community. There is merit in PNRCs contention that its
structure is sui generis.

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The PNRC succeeded the chapter of the American Red Cross which was in existence in the Philippines since 1917. It was created by
an Act of Congress after the Republic of the Philippines became an independent nation on July 6, 1946 and proclaimed on February
14, 1947 its adherence to the Convention of Geneva of July 29, 1929 for the Amelioration of the Condition of the Wounded and Sick of
Armies in the Field (the "Geneva Red Cross Convention"). By that action the Philippines indicated its desire to participate with the
nations of the world in mitigating the suffering caused by war and to establish in the Philippines a voluntary organization for that
purpose and like other volunteer organizations established in other countries which have ratified the Geneva Conventions, to promote
the health and welfare of the people in peace and in war.14
The provisions of R.A. No. 95, as amended by R.A. Nos. 855 and 6373, and further amended by P.D. Nos. 1264 and 1643, show the
historical background and legal basis of the creation of the PNRC by legislative fiat, as a voluntary organization impressed with public
interest. Pertinently R.A. No. 95, as amended by P.D. 1264, provides:
WHEREAS, during the meeting in Geneva, Switzerland, on 22 August 1894, the nations of the world unanimously agreed to diminish
within their power the evils inherent in war;
WHEREAS, more than one hundred forty nations of the world have ratified or adhered to the Geneva Conventions of August 12, 1949
for the Amelioration of the Condition of the Wounded and Sick of Armed Forces in the Field and at Sea, The Prisoners of War, and The
Civilian Population in Time of War referred to in this Charter as the Geneva Conventions;
WHEREAS, the Republic of the Philippines became an independent nation on July 4, 1946, and proclaimed on February 14, 1947 its
adherence to the Geneva Conventions of 1929, and by the action, indicated its desire to participate with the nations of the world in
mitigating the suffering caused by war and to establish in the Philippines a voluntary organization for that purpose as contemplated by
the Geneva Conventions;
WHEREAS, there existed in the Philippines since 1917 a chapter of the American National Red Cross which was terminated in view of
the independence of the Philippines; and
WHEREAS, the volunteer organizations established in other countries which have ratified or adhered to the Geneva Conventions assist
in promoting the health and welfare of their people in peace and in war, and through their mutual assistance and cooperation directly
and through their international organizations promote better understanding and sympathy among the people of the world;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested in me by the
Constitution as Commander-in-Chief of all the Armed Forces of the Philippines and pursuant to Proclamation No. 1081 dated
September 21, 1972, and General Order No. 1 dated September 22, 1972, do hereby decree and order that Republic Act No. 95,
Charter of the Philippine National Red Cross (PNRC) as amended by Republic Acts No. 855 and 6373, be further amended as follows:
Section 1. There is hereby created in the Republic of the Philippines a body corporate and politic to be the voluntary organization
officially designated to assist the Republic of the Philippines in discharging the obligations set forth in the Geneva Conventions and to
perform such other duties as are inherent upon a national Red Cross Society. The national headquarters of this Corporation shall be
located in Metropolitan Manila. (Emphasis supplied.)
The significant public service rendered by the PNRC can be gleaned from Section 3 of its Charter, which provides:
Section 3. That the purposes of this Corporation shall be as follows:
(a) To provide volunteer aid to the sick and wounded of armed forces in time of war, in accordance with the spirit of and under
the conditions prescribed by the Geneva Conventions to which the Republic of the Philippines proclaimed its adherence;
(b) For the purposes mentioned in the preceding sub-section, to perform all duties devolving upon the Corporation as a result
of the adherence of the Republic of the Philippines to the said Convention;
(c) To act in matters of voluntary relief and in accordance with the authorities of the armed forces as a medium of
communication between people of the Republic of the Philippines and their Armed Forces, in time of peace and in time of war,
and to act in such matters between similar national societies of other governments and the Governments and people and the
Armed Forces of the Republic of the Philippines;

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(d) To establish and maintain a system of national and international relief in time of peace and in time of war and apply the
same in meeting and emergency needs caused by typhoons, flood, fires, earthquakes, and other natural disasters and to
devise and carry on measures for minimizing the suffering caused by such disasters;
(e) To devise and promote such other services in time of peace and in time of war as may be found desirable in improving the
health, safety and welfare of the Filipino people;
(f) To devise such means as to make every citizen and/or resident of the Philippines a member of the Red Cross.
The PNRC is one of the National Red Cross and Red Crescent Societies, which, together with the International Committee of the Red
Cross (ICRC) and the IFRC and RCS, make up the International Red Cross and Red Crescent Movement (the Movement). They
constitute a worldwide humanitarian movement, whose mission is:
[T]o prevent and alleviate human suffering wherever it may be found, to protect life and health and ensure respect for the human being,
in particular in times of armed conflict and other emergencies, to work for the prevention of disease and for the promotion of health and
social welfare, to encourage voluntary service and a constant readiness to give help by the members of the Movement, and a universal
sense of solidarity towards all those in need of its protection and assistance.15
The PNRC works closely with the ICRC and has been involved in humanitarian activities in the Philippines since 1982. Among others,
these activities in the country include:
1. Giving protection and assistance to civilians displaced or otherwise affected by armed clashes between the government and
armed opposition groups, primarily in Mindanao;
2. Working to minimize the effects of armed hostilities and violence on the population;
3. Visiting detainees; and
4. Promoting awareness of international humanitarian law in the public and private sectors.16
National Societies such as the PNRC act as auxiliaries to the public authorities of their own countries in the humanitarian field and
provide a range of services including disaster relief and health and social programmes.
The International Federation of Red Cross (IFRC) and Red Crescent Societies (RCS) Position Paper,17 submitted by the PNRC, is
instructive with regard to the elements of the specific nature of the National Societies such as the PNRC, to wit:
National Societies, such as the Philippine National Red Cross and its sister Red Cross and Red Crescent Societies, have certain
specificities deriving from the 1949 Geneva Convention and the Statutes of the International Red Cross and Red Crescent Movement
(the Movement). They are also guided by the seven Fundamental Principles of the Red Cross and Red Crescent Movement: Humanity,
Impartiality, Neutrality, Independence, Voluntary Service, Unity and Universality.
A National Society partakes of a sui generis character. It is a protected component of the Red Cross movement under Articles 24 and
26 of the First Geneva Convention, especially in times of armed conflict. These provisions require that the staff of a National Society
shall be respected and protected in all circumstances. Such protection is not ordinarily afforded by an international treaty to ordinary
private entities or even non-governmental organisations (NGOs). This sui generis character is also emphasized by the Fourth Geneva
Convention which holds that an Occupying Power cannot require any change in the personnel or structure of a National
Society.National societies are therefore organizations that are directly regulated by international humanitarian law, in contrast
to other ordinary private entities, including NGOs.
xxxx
In addition, National Societies are not only officially recognized by their public authorities as voluntary aid societies, auxiliary to the
public authorities in the humanitarian field, but also benefit from recognition at the International level. This is considered to be an
element distinguishing National Societies from other organisations (mainly NGOs) and other forms of humanitarian response.

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x x x. No other organisation belongs to a world-wide Movement in which all Societies have equal status and share equal responsibilities
and duties in helping each other. This is considered to be the essence of the Fundamental Principle of Universality.
Furthermore, the National Societies are considered to be auxiliaries to the public authorities in the humanitarian field. x x x.
The auxiliary status of [a] Red Cross Society means that it is at one and the same time a private institution and a public service
organization because the very nature of its work implies cooperation with the authorities, a link with the State. In carrying out
their major functions, Red Cross Societies give their humanitarian support to official bodies, in general having larger resources than the
Societies, working towards comparable ends in a given sector.
x x x No other organization has a duty to be its governments humanitarian partner while remaining independent.18 (Emphases ours.)
It is in recognition of this sui generis character of the PNRC that R.A. No. 95 has remained valid and effective from the time of its
enactment in March 22, 1947 under the 1935 Constitution and during the effectivity of the 1973 Constitution and the 1987 Constitution.
The PNRC Charter and its amendatory laws have not been questioned or challenged on constitutional grounds, not even in this case
before the Court now.
In the Decision, the Court, citing Feliciano v. Commission on Audit,19 explained that the purpose of the constitutional provision
prohibiting Congress from creating private corporations was to prevent the granting of special privileges to certain individuals, families,
or groups, which were denied to other groups. Based on the above discussion, it can be seen that the PNRC Charter does not come
within the spirit of this constitutional provision, as it does not grant special privileges to a particular individual, family, or group, but
creates an entity that strives to serve the common good.
Furthermore, a strict and mechanical interpretation of Article XII, Section 16 of the 1987 Constitution will hinder the State in adopting
measures that will serve the public good or national interest. It should be noted that a special law, R.A. No. 9520, the Philippine
Cooperative Code of 2008, and not the general corporation code, vests corporate power and capacities upon cooperatives which are
private corporations, in order to implement the States avowed policy.
In the Decision of July 15, 2009, the Court recognized the public service rendered by the PNRC as the governments partner in the
observance of its international commitments, to wit:
The PNRC is a non-profit, donor-funded, voluntary, humanitarian organization, whose mission is to bring timely, effective, and
compassionate humanitarian assistance for the most vulnerable without consideration of nationality, race, religion, gender, social status,
or political affiliation. The PNRC provides six major services: Blood Services, Disaster Management, Safety Services, Community
Health and Nursing, Social Services and Voluntary Service.
The Republic of the Philippines, adhering to the Geneva Conventions, established the PNRC as a voluntary organization for the
purpose contemplated in the Geneva Convention of 27 July 1929. x x x.20 (Citations omitted.)
So must this Court recognize too the countrys adherence to the Geneva Convention and respect the unique status of the
PNRC in consonance with its treaty obligations. The Geneva Convention has the force and effect of law.21 Under the Constitution,
the Philippines adopts the generally accepted principles of international law as part of the law of the land.22 This constitutional provision
must be reconciled and harmonized with Article XII, Section 16 of the Constitution, instead of using the latter to negate the former.
By requiring the PNRC to organize under the Corporation Code just like any other private corporation, the Decision of July 15, 2009 lost
sight of the PNRCs special status under international humanitarian law and as an auxiliary of the State, designated to assist it in
discharging its obligations under the Geneva Conventions. Although the PNRC is called to be independent under its Fundamental
Principles, it interprets such independence as inclusive of its duty to be the governments humanitarian partner. To be recognized in the
International Committee, the PNRC must have an autonomous status, and carry out its humanitarian mission in a neutral and impartial
manner.
However, in accordance with the Fundamental Principle of Voluntary Service of National Societies of the Movement, the PNRC must be
distinguished from private and profit-making entities. It is the main characteristic of National Societies that they "are not inspired by the

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desire for financial gain but by individual commitment and devotion to a humanitarian purpose freely chosen or accepted as part of the
service that National Societies through its volunteers and/or members render to the Community."23
The PNRC, as a National Society of the International Red Cross and Red Crescent Movement, can neither "be classified as an
instrumentality of the State, so as not to lose its character of neutrality" as well as its independence, nor strictly as a private corporation
since it is regulated by international humanitarian law and is treated as an auxiliary of the State.24
Based on the above, the sui generis status of the PNRC is now sufficiently established.1wphi1 Although it is neither a subdivision,
agency, or instrumentality of the government, nor a government-owned or -controlled corporation or a subsidiary thereof, as succinctly
explained in the Decision of July 15, 2009, so much so that respondent, under the Decision, was correctly allowed to hold his position
as Chairman thereof concurrently while he served as a Senator, such a conclusion does not ipso facto imply that the PNRC is a "private
corporation" within the contemplation of the provision of the Constitution, that must be organized under the Corporation Code. As
correctly mentioned by Justice Roberto A. Abad, the sui generis character of PNRC requires us to approach controversies involving the
PNRC on a case-to-case basis.
In sum, the PNRC enjoys a special status as an important ally and auxiliary of the government in the humanitarian field in accordance
with its commitments under international law. This Court cannot all of a sudden refuse to recognize its existence, especially since the
issue of the constitutionality of the PNRC Charter was never raised by the parties. It bears emphasizing that the PNRC has responded
to almost all national disasters since 1947, and is widely known to provide a substantial portion of the countrys blood requirements. Its
humanitarian work is unparalleled. The Court should not shake its existence to the core in an untimely and drastic manner that would
not only have negative consequences to those who depend on it in times of disaster and armed hostilities but also have adverse effects
on the image of the Philippines in the international community. The sections of the PNRC Charter that were declared void must
therefore stay.
WHEREFORE, premises considered, respondent Richard J. Gordons Motion for Clarification and/or for Reconsideration and movantintervenor PNRCs Motion for Partial Reconsideration of the Decision in G.R. No. 175352 dated July 15, 2009 are GRANTED. The
constitutionality of R.A. No. 95, as amended, the charter of the Philippine National Red Cross, was not raised by the parties as an issue
and should not have been passed upon by this Court. The structure of the PNRC is sui generis being neither strictly private nor public
in nature. R.A. No. 95 remains valid and constitutional in its entirety. The dispositive portion of the Decision should therefore be
MODIFIED by deleting the second sentence, to now read as follows:
WHEREFORE, we declare that the office of the Chairman of the Philippine National Red Cross is not a government office or an office in
a government-owned or controlled corporation for purposes of the prohibition in Section 13, Article VI of the 1987 Constitution.

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G.R. No. L-6776

May 21, 1955

THE REGISTER OF DEEDS OF RIZAL, petitioner-appellee,


vs.
UNG SIU SI TEMPLE, respondent-appellant.
Alejo F. Candido for appellant.
Office of the Solicitor General Querube C. Makalintal and Solicitor Felix V. Makasiar for appellee.
REYES, J.B.L., J.:
The Register of Deeds for the province of Rizal refused to accept for record a deed of donation executed in due form on January 22,
1953, by Jesus Dy, a Filipino citizen, conveying a parcel of residential land, in Caloocan, Rizal, known as lot No. 2, block 48-D, PSD4212, G.L.R.O. Record No. 11267, in favor of the unregistered religious organization "Ung Siu Si Temple", operating through three
trustees all of Chinese nationality. The donation was duly accepted by Yu Juan, of Chinese nationality, founder and deaconess of the
Temple, acting in representation and in behalf of the latter and its trustees.
The refusal of the Registrar was elevated en Consultato the IVth Branch of the Court of First Instance of Manila. On March 14, 1953,
the Court upheld the action of the Rizal Register of Deeds, saying:
The question raised by the Register of Deeds in the above transcribed consulta is whether a deed of donation of a parcel of
land executed in favor of a religious organization whose founder, trustees and administrator are Chinese citizens should be
registered or not.
It appearing from the record of the Consulta that UNG SIU SI TEMPLE is a religious organization whose deaconess, founder,
trustees and administrator are all Chinese citizens, this Court is of the opinion and so hold that in view of the provisions of the
sections 1 and 5 of Article XIII of the Constitution of the Philippines limiting the 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:
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)].
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,

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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.
The resolution appealed from is affirmed, with costs against appellant.

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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

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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 co-incorporators, 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

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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.

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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. 148-153, 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

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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

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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.

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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.
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 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.
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:
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.

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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:

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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

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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.

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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

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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:

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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

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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

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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.

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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.).
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.).
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:

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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 ignored in describing the essentials of the
process (Rottschaeffer on Constitutional Law, 1939 ed., p. 18-19).
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.).
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

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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.
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.

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G.R. No. L-55289 June 29, 1982
REPUBLIC OF THE PHILIPPINES, represented by the Director of Lands, petitioner-appellant,
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).
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:
xxx xxx xxx
(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 Ap-04-001344 (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

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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).
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, L19535, July 10, 1967, 20 SCRA 641, 644).
As held in Oh Cho vs. Director of Lands, 75 Phil. 890, "all lands that were not acquired from the Government, either by purchase or by
grant, belong to the public domain. An exception to the rule would be any land that should have been in the possession of an occupant
and of his predecessors-in-interest 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. "
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.

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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.
As found by the Court of Tax Appeals, the "Club Filipino, Inc. de Cebu," (Club, for short), is a civic corporation organized under the laws
of the Philippines with an original authorized capital stock of P22,000.00, which was subsequently increased to P200,000.00, among
others, to it "proporcionar, operar, y mantener un campo de golf, tenis, gimnesio (gymnasiums), juego de bolos (bowling alleys), mesas
de billar y pool, y toda clase de juegos no prohibidos por leyes generales y ordenanzas generales; y desarollar y cultivar deportes de
toda clase y denominacion cualquiera para el recreo y entrenamiento saludable de sus miembros y accionistas" (sec. 2, Escritura de
Incorporacion del Club Filipino, Inc. Exh. A). Neither in the articles or by-laws is there a provision relative to dividends and their
distribution, although it is covenanted that upon its dissolution, the Club's remaining assets, after paying debts, shall be donated to a
charitable Philippine Institution in Cebu (Art. 27, Estatutos del Club, Exh. A-a.).
The Club owns and operates a club house, a bowling alley, a golf course (on a lot leased from the government), and a bar-restaurant
where it sells wines and liquors, soft drinks, meals and short orders to its members and their guests. The bar-restaurant was a
necessary incident to the operation of the 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, B-9(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:
As percentage tax on its gross receipts
during the tax years 1946 to 1951

P9,599.07

Surcharge therein

2,399.77

As fixed tax for the years 1946 to 1952

70.00

Compromise penalty

500.00

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.
The dominant issues involved in this case are twofold:
1. Whether the respondent Club is liable for the payment of the sum of 12,068.84, as fixed and percentage taxes and surcharges
prescribed in sections 182, 183 and 191 of the Tax Code, under which the assessment was made, in connection with the operation of
its bar and restaurant, during the periods mentioned above; and
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

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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 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-expenses-basis), it stands to reason that the Club is not engaged in the business of an operator of
bar and restaurant (same authorities, cited above).
It is conceded that the Club derived profit from the operation of its bar and restaurant, but such fact does not necessarily convert it into
a profit-making enterprise. The bar and restaurant are necessary adjuncts of the Club to foster its purposes and the profits derived
therefrom are necessarily incidental to the primary object of developing and cultivating 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 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
It is claimed that unlike the two cases just cited (supra), which are non-stock, the appellee Club is a stock corporation. This is
unmeritorious. The facts that the capital stock of the respondent Club is divided into shares, does not detract from the finding of the trial
court that it is not engaged in the business of operator of bar and restaurant. What is determinative of whether or not the Club is
engaged in such business is its object or purpose, as stated in its articles and by-laws. It is a familiar rule that the actual purpose is not
controlled by the corporate form or by the commercial aspect of the business prosecuted, but may be shown by extrinsic evidence,
including the by-laws and the method of operation. From the extrinsic evidence adduced, the Tax Court concluded that the Club is not
engaged in the business as a barkeeper and restaurateur.
Moreover, for a stock corporation to exist, two requisites must be complied with, to wit: (1) a capital stock divided into shares and (2) an
authority to distribute to the holders of such shares, dividends or allotments of the surplus profits on the basis of the shares held (sec. 3,
Act No. 1459). In the case at bar, nowhere in its articles of incorporation or by-laws could be found an authority for the distribution of its
dividends or surplus profits. Strictly speaking, it cannot, therefore, be considered a stock corporation, within the contemplation of the
corporation law.
A tax is a burden, and, as such, it should not be deemed imposed upon fraternal, civic, non-profit, 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.

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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.
Virgilio E. Dulay for petitioners.
Torres, Tobias, Azura & Jocson for private respondents.

NOCON, J.:
This is a petition for review on certiorari to annul and set aside the decision 1 of the Court of Appeals affirming the decision 2 of the
Regional Trial Court of Pasay, Branch 114 Civil Cases Nos. 8198-P, and 2880-P, the dispositive portion of which reads, as follows:
Wherefore, in view of all the foregoing considerations, in this Court hereby renders judgment, as follows:
In Civil Case No. 2880-P, the petition filed by Manuel R. Dulay Enterprises, Inc. and Virgilio E. Dulay for annulment or
declaration of nullity of the decision of the Metropolitan Trial Court, Branch 46, Pasay City, in its Civil Case No. 38-81
entitled "Edgardo D. Pabalan, et al., vs. Spouses Florentino Manalastas, et al.," is dismissed for lack of merits;
In Civil Case No. 8278-P, the complaint filed by Manuel R. Dulay Enterprises, Inc. for cancellation of title of Manuel A.
Torres, Jr. (TCT No. 24799 of the Register of Deeds of Pasay City) and reconveyance, is dismissed for lack or 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

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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:
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.

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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 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:
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

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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.

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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, respondents.
Vicente Hilado for petitioners.
Antonio Barredo for respondents.
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 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.
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:

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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.

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G.R. No. L-43350 December 23, 1937
CAGAYAN FISHING DEVELOPMENT CO., INC., plaintiff-appellant,
vs.
TEODORO SANDIKO, defendant-appellee.
Arsenio P. Dizon for appellant.
Sumulong, Lavides and Sumulong for appellee.
LAUREL, J.:
This is an appeal from a judgment of the Court of First Instance of Manila absolving the defendant from the plaintiff's complaint.
Manuel Tabora is the registered owner of four parcels of land situated in the barrio of Linao, town of Aparri, Province of Cagayan, as
evidenced by transfer certificate of title No. 217 of the land records of Cagayan, a copy of which is in evidence as Exhibit 1. To
guarantee the payment of a loan in the sum of P8,000, Manuel Tabora, on August 14, 1929, executed in favor of the Philippine National
Bank a first mortgage on the four parcels of land above-mentioned. A second mortgage in favor of the same bank was in April of 1930
executed by Tabora over the same lands to guarantee the payment of another loan amounting to P7,000. A third mortgage on the same
lands was executed on April 16, 1930 in favor of Severina Buzon to whom Tabora was indebted in the sum of P2,9000. These
mortgages were registered and annotations thereof appear at the back of transfer certificate of title No. 217.
On May 31, 1930, Tabora executed a public document entitled "Escritura de Transpaso de Propiedad Inmueble" (Exhibit A) by virtue of
which the four parcels of land owned by him was sold to the plaintiff company, said to under process of incorporation, in consideration
of one peso (P1) subject to the mortgages in favor of the Philippine National Bank and Severina Buzon and, to the condition that the
certificate of title to said lands shall not be transferred to the name of the plaintiff company until the latter has fully and completely paid
Tabora's indebtedness to the Philippine National Bank.
The plaintiff company filed its article incorporation with the Bureau of Commerce and Industry on October 22, 1930 (Exhibit 2). A year
later, on October 28, 1931, the board of directors of said company adopted a resolution (Exhibit G) authorizing its president, Jose
Ventura, to sell the four parcels of lands in question to Teodoro Sandiko for P42,000. Exhibits B, C and D were thereafter made and
executed. Exhibit B is a deed of sale executed before a notary public by the terms of which the plaintiff sold ceded and transferred to
the defendant all its right, titles, and interest in and to the four parcels of land described in transfer certificate in turn obligated himself to
shoulder the three mortgages hereinbefore referred to. Exhibit C is a promisory note for P25,300. drawn by the defendant in favor of the
plaintiff, payable after one year from the date thereof. Exhibit D is a deed of mortgage executed before a notary public in accordance
with which the four parcels of land were given a security for the payment of the promissory note, Exhibit C. All these three instrument
were dated February 15, 1932.
The defendant having failed to pay the sum stated in the promissory note, plaintiff, on January 25, 1934, brought this action in the Court
of First Instance of Manila praying that judgment be rendered against the defendant for the sum of P25,300, with interest at legal rate
from the date of the filing of the complaint, and the costs of the suits. After trial, the court below, on December 18, 1934, rendered
judgment absolving the defendant, with costs against the plaintiff. Plaintiff presented a motion for new trial on January 14, 1935, which
motion was denied by the trial court on January 19 of the same year. After due exception and notice, plaintiff has appealed to this court
and makes an assignment of various errors.
In dismissing the complaint against the defendant, the court below, reached the conclusion that Exhibit B is invalid because of vice in
consent and repugnancy to law. While we do not agree with this conclusion, we have however voted to affirm the judgment appealed
from the reasons which we shall presently state.
The transfer made by Tabora to the Cagayan fishing Development Co., Inc., plaintiff herein, was affected on May 31, 1930 (Exhibit A)
and the actual incorporation of said company was affected later on October 22, 1930 (Exhibit 2). In other words, the transfer was made
almost five months before the incorporation of the company. Unquestionably, a duly organized corporation has the power to purchase
and hold such real property as the purposes for which such corporation was formed may permit and for this purpose may enter into
such contracts as may be necessary (sec. 13, pars. 5 and 9, and sec. 14, Act No. 1459). But before a corporation may be said to be
lawfully organized, many things have to be done. Among other things, the law requires the filing of articles of incorporation (secs. 6 et
seq., Act. No. 1459). Although there is a presumption that all the requirements of law have been complied with (sec. 334, par. 31 Code

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of Civil Procedure), in the case before us it can not be denied that the plaintiff was not yet incorporated when it entered into a contract
of sale, Exhibit A. The contract itself referred to the plaintiff as "una sociedad en vias de incorporacion." It was not even a de
facto corporation at the time. Not being in legal existence then, it did not possess juridical capacity to enter into the contract.
Corporations are creatures of the law, and can only come into existence in the manner prescribed by law. As has already been
stated, general law authorizing the formation of corporations are general offers to any persons who may bring themselves
within their provisions; and if conditions precedent are prescribed in the statute, or certain acts are required to be done, they
are terms of the offer, and must be complied with substantially before legal corporate existence can be acquired. (14 C. J.,
sec. 111, p. 118.)
That a corporation should have a full and complete organization and existence as an entity before it can enter into any kind of
a contract or transact any business, would seem to be self evident. . . . A corporation, until organized, has no being, franchises
or faculties. Nor do those engaged in bringing it into being have any power to bind it by contract, unless so authorized by the
charter there is not a corporation nor does it possess franchise or faculties for it or others to exercise, until it acquires a
complete existence. (Gent vs. Manufacturers and Merchant's Mutual Insurance Company, 107 Ill., 652, 658.)
Boiled down to its naked reality, the contract here (Exhibit A) was entered into not between Manuel Tabora and a non-existent
corporation but between the Manuel Tabora as owner of the four parcels of lands on the one hand and the same Manuel Tabora, his
wife and others, as mere promoters of a corporations on the other hand. For reasons that are self-evident, these promoters could not
have acted as agent for a projected corporation since that which no legal existence could have no agent. A corporation, until organized,
has no life and therefore no faculties. It is, as it were, a child in ventre sa mere. This is not saying that under no circumstances may the
acts of promoters of a corporation be ratified by the corporation if and when subsequently organized. There are, of course, exceptions
(Fletcher Cyc. of Corps., permanent edition, 1931, vol. I, secs. 207 et seq.), but under the peculiar facts and circumstances of the
present case we decline to extend the doctrine of ratification which would result in the commission of injustice or fraud to the candid and
unwary.(Massachusetts rule, Abbott vs. Hapgood, 150 Mass., 248; 22 N. E. 907, 908; 5 L. R. A., 586; 15 Am. St. Rep., 193; citing
English cases; Koppel vs. Massachusetts Brick Co., 192 Mass., 223; 78 N. E., 128; Holyoke Envelope Co., vs. U. S. Envelope Co., 182
Mass., 171; 65 N. E., 54.) It should be observed that Manuel Tabora was the registered owner of the four parcels of land, which he
succeeded in mortgaging to the Philippine National Bank so that he might have the necessary funds with which to convert and develop
them into fishery. He appeared to have met with financial reverses. He formed a corporation composed of himself, his wife, and a few
others. From the articles of incorporation, Exhibit 2, it appears that out of the P48,700, amount of capital stock subscribed, P45,000 was
subscribed by Manuel Tabora himself and P500 by his wife, Rufina Q. de Tabora; and out of the P43,300, amount paid on subscription,
P42,100 is made to appear as paid by Tabora and P200 by his wife. Both Tabora and His wife were directors and the latter was
treasurer as well. In fact, to this day, the lands remain inscribed in Tabora's name. The defendant always regarded Tabora as the owner
of the lands. He dealt with Tabora directly. Jose Ventura, president of the plaintiff corporation, intervened only to sign the contract,
Exhibit B, in behalf of the plaintiff. Even the Philippine National Bank, mortgagee of the four parcels of land, always treated Tabora as
the owner of the same. (SeeExhibits E and F.) Two civil suits (Nos. 1931 and 38641) were brought against Tabora in the Court of First
Instance of Manila and in both cases a writ of attachment against the four parcels of land was issued. The Philippine National Bank
threatened to foreclose its mortgages. Tabora approached the defendant Sandiko and succeeded in the making him sign Exhibits B, C,
and D and in making him, among other things, assume the payment of Tabora's indebtedness to the Philippine National Bank. The
promisory note, Exhibit C, was made payable to the plaintiff company so that it may not attached by Tabora's creditors, two of whom
had obtained writs of attachment against the four parcels of land.
If the plaintiff corporation could not and did not acquire the four parcels of land here involved, it follows that it did not possess any
resultant right to dispose of them by sale to the defendant, Teodoro Sandiko.
Some of the members of this court are also of the opinion that the transfer from Manuel Tabora to the Cagayan Fishing Development
Company, Inc., which transfer is evidenced by Exhibit A, was subject to a condition precedent (condicion suspensiva), namely, the
payment of the mortgage debt of said Tabora to the Philippine National Bank, and that this condition not having been complied with by
the Cagayan Fishing Development Company, Inc., the transfer was ineffective. (Art. 1114, Civil Code; Wise & Co. vs. Kelly and Lim, 37
Phil., 696; Manresa, vol. 8, p. 141.) However, having arrived at the conclusion that the transfer by Manuel Tabora to the Cagayan
Fishing Development Company, Inc. was null because at the time it was affected the corporation was non-existent, we deem it
unnecessary to discuss this point.lawphil.net
The decision of the lower court is accordingly affirmed, with costs against the appellant. So Ordered.

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G.R. No. L-20993

September 28, 1968

RIZAL LIGHT & ICE CO., INC., petitioner,


vs.
THE MUNICIPALITY OF MORONG, RIZAL and THE PUBLIC SERVICE COMMISSION, respondents.
---------------------------G.R. No. L-21221

September 28, 1968

RIZAL LIGHT & ICE CO., INC., petitioner,


vs.
THE PUBLIC SERVICE COMMISSION and MORONG ELECTRIC CO., INC., respondents.
Amado A. Amador, Jr. for petitioner.
Atilano C. Bautista and Pompeyo F. Olivas for respondents.

ZALDIVAR, J.:
These two cases, being interrelated, are decided together.
Case G.R. No. L-20993 is a petition of the Rizal Light & Ice Co., Inc. to review and set aside the orders of respondent Public Service
Commission, 1 dated August 20, 1962, and February 15, 1963, in PSC Case No. 39716, cancelling and revoking the certificate of public
convenience and necessity and forfeiting the franchise of said petitioner. In the same petition, the petitioner prayed for the issuance of a
writ of preliminary injunction ex parte suspending the effectivity of said orders and/or enjoining respondents Commission and/or
Municipality of Morong, Rizal, from enforcing in any way the cancellation and revocation of petitioner's franchise and certificate of public
convenience during the pendency of this appeal. By resolution of March 12, 1963, this Court denied the petition for injunction, for lack
of merit.
Case G. R. L-21221 is likewise a petition of the Rizal Light & Ice Co., Inc. to review and set aside the decision of the Commission dated
March 13, 1963 in PSC Case No. 62-5143 granting a certificate of public convenience and necessity to respondent Morong Electric
Co., Inc. 2 to operate an electric light, heat and power service in the municipality of Morong, Rizal. In the petition Rizal Light & Ice Co.,
Inc. also prayed for the issuance of a writ of preliminary injunction ex parte suspending the effectivity of said decision. Per resolution of
this Court, dated May 6, 1963, said petition for injunction was denied.
The facts, as they appear in the records of both cases, are as follows:
Petitioner Rizal Light & Ice Co., Inc. is a domestic corporation with business address at Morong, Rizal. On August 15, 1949, it was
granted by the Commission a certificate of public convenience and necessity for the installation, operation and maintenance of an
electric light, heat and power service in the municipality of Morong, Rizal.
In an order dated December 19, 1956, the Commission required the petitioner to appear before it on February 18, 1957 to show cause
why it should not be penalized for violation of the conditions of its certificate of public convenience and the regulations of the
Commission, and for failure to comply with the directives to raise its service voltage and maintain them within the limits prescribed in
the Revised Order No. 1 of the Commission, and to acquire and install a kilowattmeter to indcate the load in kilowatts at any particular
time of the generating unit. 3
For failure of the petitioner to appear at the hearing on February 18, 1957, the Commission ordered the cancellation and revocation of
petitioner's certificate of public convenience and necessity and the forfeiture of its franchise. Petitioner moved for reconsideration of
said order on the ground that its manager, Juan D. Francisco, was not aware of said hearing. Respondent municipality opposed the
motion alleging that petitioner has not rendered efficient and satisfactory service and has not complied with the requirements of the

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Commission for the improvement of its service. The motion was set for hearing and Mr. Pedro S. Talavera, Chief, Industrial Division of
the Commission, was authorized to conduct the hearing for the reception of the evidence of the parties. 4
Finding that the failure of the petitioner to appear at the hearing set for February 18, 1957 the sole basis of the revocation of
petitioner's certificate was really due to the illness of its manager, Juan D. Francisco, the Commission set aside its order of
revocation. Respondent municipality moved for reconsideration of this order of reinstatement of the certificate, but the motion was
denied.
In a petition dated June 25, 1958, filed in the same case, respondent municipality formally asked the Commission to revoke petitioner's
certificate of public convenience and to forfeit its franchise on the ground, among other things, that it failed to comply with the conditions
of said certificate and franchise. Said petition was set for hearing jointly with the order to show cause. The hearings had been
postponed several times.
Meanwhile, inspections had been made of petitioner's electric plant and installations by the engineers of the Commission, as follows:
April 15, 1958 by Engineer Antonio M. Alli; September 18, 1959, July 12-13, 1960, and June 21-24, 1961, by Engineer Meliton S.
Martinez. The inspection on June 21-24, 1961 was made upon the request of the petitioner who manifested during the hearing on
December 15, 1960 that improvements have been made on its service since the inspection on July 12-13, 1960, and that, on the basis
of the inspection report to be submitted, it would agree to the submission of the case for decision without further hearing.
When the case was called for hearing on July 5, 1961, petitioner failed to appear. Respondent municipality was then allowed to present
its documentary evidence, and thereafter the case was submitted for decision.
On July 7, 1961, petitioner filed a motion to reopen the case upon the ground that it had not been furnished with a copy of the report of
the June 21-24, 1961 inspection for it to reply as previously agreed. In an order dated August 25, 1961, petitioner was granted a period
of ten (10) days within which to submit its written reply to said inspection report, on condition that should it fail to do so within the said
period the case would be considered submitted for decision. Petitioner failed to file the reply. In consonance with the order of August 25,
1961, therefore, the Commission proceeded to decide the case. On July 29, 1962 petitioner's electric plant was burned.
In its decision, dated August 20, 1962, the Commission, on the basis of the inspection reports of its aforenamed engineers, found that
the petitioner had failed to comply with the directives contained in its letters dated May 21, 1954 and September 4, 1954, and had
violated the conditions of its certificate of public convenience as well as the rules and regulations of the Commission. The Commission
concluded that the petitioner "cannot render the efficient, adequate and satisfactory electric service required by its certificate and that it
is against public interest to allow it to continue its operation." Accordingly, it ordered the cancellation and revocation of petitioner's
certificate of public convenience and the forfeiture of its franchise.
On September 18, 1962, petitioner moved for reconsideration of the decision, alleging that before its electric plant was burned on July
29, 1962, its service was greatly improved and that it had still existing investment which the Commission should protect. But eight days
before said motion for reconsideration was filed, or on September 10, 1962, Morong Electric, having been granted a municipal
franchise on May 6, 1962 by respondent municipality to install, operate and maintain an electric heat, light and power service in said
municipality approved by the Provincial Board of Rizal on August 31, 1962 filed with the Commission an application for a
certificate of public convenience and necessity for said service. Said application was entitled "Morong Electric Co., Inc., Applicant", and
docketed as Case No. 62-5143.
Petitioner opposed in writing the application of Morong Electric, alleging among other things, that it is a holder of a certificate of public
convenience to operate an electric light, heat and power service in the same municipality of Morong, Rizal, and that the approval of said
application would not promote public convenience, but would only cause ruinous and wasteful competition. Although the opposition is
dated October 6, 1962, it was actually received by the Commission on November 8, 1962, or twenty four days after the order of general
default was issued in open court when the application was first called for hearing on October 15, 1962. On November 12, 1962,
however, the petitioner filed a motion to lift said order of default. But before said motion could be resolved, petitioner filed another
motion, dated January 4, 1963, this time asking for the dismissal of the application upon the ground that applicant Morong Electric had
no legal personality when it filed its application on September 10, 1962, because its certificate of incorporation was issued by the
Securities and Exchange Commission only on October 17, 1962. This motion to dismiss was denied by the Commission in a formal
order issued on January 17, 1963 on the premise that applicant Morong Electric was a de facto corporation. Consequently, the case
was heard on the merits and both parties presented their respective evidence. On the basis of the evidence adduced, the Commission,
in its decision dated March 13, 1963, found that there was an absence of electric service in the municipality of Morong and that

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applicant Morong Electric, a Filipino-owned corporation duly organized and existing under the laws of the Philippines, has the financial
capacity to maintain said service. These circumstances, considered together with the denial of the motion for reconsideration filed by
petitioner in Case No. 39715 on February, 15, 1963, such that as far as the Commission was concerned the certificate of the petitioner
was already declared revoked and cancelled, the Commission approved the application of Morong Electric and ordered the issuance in
its favor of the corresponding certificate of public convenience and necessity.1awphl.nt
On March 8, 1963, petitioner filed with this Court a petition to review the decision in Case No. 39715 (now G. R. No. L-20993). Then on
April 26, 1963, petitioner also filed a petition to review the decision in Case No. 62-5143 (now G. R. No. L-21221).
In questioning the decision of the Commission in Case No. 39715, petitioner contends: (1) that the Commission acted without or in
excess of its jurisdiction when it delegated the hearing of the case and the reception of evidence to Mr. Pedro S. Talavera who is not
allowed by law to hear the same; (2) that the cancellation of petitioner's certificate of public convenience was unwarranted because no
sufficient evidence was adduced against the petitioner and that petitioner was not able to present evidence in its defense; (3) that the
Commission failed to give protection to petitioner's investment; and (4) that the Commission erred in imposing the extreme penalty of
revocation of the certificate.
In questioning the decision in Case No. 62-5143, petitioner contends: (1) that the Commission erred in denying petitioner's motion to
dismiss and proceeding with the hearing of the application of the Morong Electric; (2) that the Commission erred in granting Morong
Electric a certificate of public convenience and necessity since it is not financially capable to render the service; (3) that the
Commission erred when it made findings of facts that are not supported by the evidence adduced by the parties at the trial; and (4) that
the Commission erred when it did not give to petitioner protection to its investment a reiteration of the third assignment of error in the
other case.1awphl.nt
We shall now discuss the appeals in these two cases separately.
G.R. No. L-20993
1. Under the first assignment of error, petitioner contends that while Mr. Pedro S. Talavera, who conducted the hearings of the case
below, is a division chief, he is not a lawyer. As such, under Section 32 of Commonwealth Act No. 146, as amended, the Commission
should not have delegated to him the authority to conduct the hearings for the reception of evidence of the parties.
We find that, really, Mr. Talavera is not a lawyer. 5 Under the second paragraph of Section 32 of Commonwealth Act No. 146, as
amended, 6 the Commission can only authorize a division chief to hear and investigate a case filed before it if he is a lawyer. However,
the petitioner is raising this question for the first time in this appeal. The record discloses that petitioner never made any objection to the
authority of Mr. Talavera to hear the case and to receive the evidence of the parties. On the contrary, we find that petitioner had
appeared and submitted evidence at the hearings conducted by Mr. Talavera, particularly the hearings relative to the motion for
reconsideration of the order of February 18, 1957 cancelling and revoking its certificate. We also find that, through counsel, petitioner
had entered into agreements with Mr. Talavera, as hearing officer, and the counsel for respondent municipality, regarding procedure in
order to abbreviate the proceedings. 7 It is only after the decision in the case turned out to be adverse to it that petitioner questioned the
proceedings held before Mr. Talavera.
This Court in several cases has ruled that objection to the delegation of authority to hear a case filed before the Commission and to
receive the evidence in connection therewith is a procedural, not a jurisdictional point, and is waived by failure to interpose timely the
objection and the case had been decided by the Commission. 8 Since petitioner has never raised any objection to the authority of Mr.
Talavera before the Commission, it should be deemed to have waived such procedural defect, and consonant with the precedents on
the matter, petitioner's claim that the Commission acted without or in excess of jurisdiction in so authorizing Mr. Talavera should be
dismissed. 9
2. Anent the second assigned error, the gist of petitioner's contention is that the evidence consisting of inspection reports upon
which the Commission based its decision is insufficient and untrustworthy in that (1) the authors of said reports had not been put to test
by way of cross-examination; (2) the reports constitute only one side of the picture as petitioner was not able to present evidence in its
defense; (3) judicial notice was not taken of the testimony of Mr. Harry B. Bernardino, former mayor of respondent municipality, in PSC
Case No. 625143 (the other case, G. R. No. L-21221) to the effect that the petitioner had improved its service before its electric power
plant was burned on July 29, 1962 which testimony contradicts the inspection reports; and (4) the Commission acted both as

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prosecutor and judge passing judgment over the very same evidence presented by it as prosecutor a situation "not conducive to
the arrival at just and equitable decisions."
Settled is the rule that in reviewing the decision of the Public Service Commission this Court is not required to examine the proof de
novo and determine for itself whether or not the preponderance of evidence really justifies the decision. The only function of this Court
is to determine whether or not there is evidence before the Commission upon which its decision might reasonably be based. This Court
will not substitute its discretion for that of the Commission on questions of fact and will not interfere in the latter's decision unless it
clearly appears that there is no evidence to support it. 10 Inasmuch as the only function of this Court in reviewing the decision of the
Commission is to determine whether there is sufficient evidence before the Commission upon which its decision can reasonably be
based, as it is not required to examine the proof de novo, the evidence that should be made the basis of this Court's determination
should be only those presented in this case before the Commission. What then was the evidence presented before the Commission
and made the basis of its decision subject of the present appeal? As stated earlier, the Commission based its decision on the inspection
reports submitted by its engineers who conducted the inspection of petitioner's electric service upon orders of the Commission. 11 Said
inspection reports specify in detail the deficiencies incurred, and violations committed, by the petitioner resulting in the inadequacy of its
service. We consider that said reports are sufficient to serve reasonably as bases of the decision in question. It should be emphasized,
in this connection that said reports, are not mere documentary proofs presented for the consideration of the Commission, but are the
results of the Commission's own observations and investigations which it can rightfully take into consideration, 12 particularly in this case
where the petitioner had not presented any evidence in its defense, and speaking of petitioner's failure to present evidence, as well as
its failure to cross-examine the authors of the inspection reports, petitioner should not complain because it had waived not only its right
to cross-examine but also its right to present evidence. Quoted hereunder are the pertinent portions of the transcripts of the
proceedings where the petitioner, through counsel, manifested in clear language said waiver and its decision to abide by the last
inspection report of Engineer Martinez:
Proceedings of December 15, 1960
COMMISSION:
It appears at the last hearing of this case on September 23, 1960, that an engineer of this Commission has been ordered to make an
inspection of all electric services in the province of Rizal and on that date the engineer of this Commission is still undertaking that
inspection and it appears that the said engineer had actually made that inspection on July 12 and 13, 1960. The engineer has
submitted his report on November 18, 1960 which is attached to the records of this case.
ATTY. LUQUE (Councel for Petitioner):
... (W)e respectfully state that while the report is, as I see it attached to the records, clear and very thorough, it was made sometime
July of this year and I understand from the respondent that there is some improvement since this report was made ... we respectfully
request that an up-to-date inspection be made ... . An inspector of this Commission can be sent to the plant and considering that the
engineer of this Commission, Engineer Meliton Martinez, is very acquainted to the points involved we pray that his report will be used
by us for the reason that he is a technical man and he knows well as he has done a good job and I think our proposition would expedite
the matter. We sincerely believe that the inspection report will be the best evidence to decide this matter.
xxx

xxx

xxx

ATTY. LUQUE:
... This is a very important matter and to show the good faith of respondent in this case we will not even cross-examine the engineer
when he makes a new report. We will agree to the findings and, your honor please, considering as we have manifested before that
Engineer Martinez is an experienced engineer of this Commission and the points reported by Engineer Martinez on the situation of the
plant now will prevent the necessity of having a hearing, of us bringing new evidence and complainant bringing new evidence. ... .
xxx

xxx

xxx

COMMISSION (to Atty. Luque):

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Q
Does the Commission understand from the counsel for applicant that if the motion is granted he will submit this order
to show cause for decision without any further hearing and the decision will be based on the report of the engineer of this
Commission?
A
We respectfully reply in this manner that we be allowed or be given an opportunity just to read the report and 99%, we
will agree that the report will be the basis of that decision. We just want to find out the contents of the report, however, we
request that we be furnished with a copy of the report before the hearing so that we will just make a manifestation that we will
agree.
COMMISSION (to Atty. Luque):
Q
In order to prevent the delay of the disposition of this case the Commission will allow counsel for the applicant to
submit his written reply to the report that the engineer of this Commission. Will he submit this case without further hearing
upon the receipt of that written reply?
A

Yes, your honor.

Proceedings of August 25, 1961


ATTY. LUQUE (Counsel for petitioner):
In order to avoid any delay in the consideration of this case we are respectfully move (sic) that instead of our witnesses testifying under
oath that we will submit a written reply under oath together with the memorandum within fifteen (15) days and we will furnish a copy and
upon our submission of said written reply under oath and memorandum we consider this case submitted. This suggestion is to
abbreviate the necessity of presenting witnesses here which may prolong the resolution of this case.
ATTY. OLIVAS (Counsel for respondent municipality):
I object on the ground that there is no resolution by this Commission on the action to reopen the case and second this case has been
closed.
ATTY. LUQUE:
With regard to the testimony on the ground for opposition we respectfully submit to this Commission our motion to submit a written reply
together with a memorandum. Also as stated to expedite the case and to avoid further hearing we will just submit our written reply.
According to our records we are furnished with a copy of the report of July 17, 1961. We submit your honor.
xxx

xxx

xxx

COMMISSION:
To give applicant a chance to have a day in court the Commission grants the request of applicant that it be given 10 days within which
to submit a written reply on the report of the engineer of the Commission who inspected the electric service, in the municipality of
Morong, Rizal, and after the submission of the said written reply within 10 days from today this case will be considered submitted for
decision.
The above-quoted manifestation of counsel for the petitioner, specifically the statement referring to the inspection report of Engineer
Martinez as the "best evidence to decide this matter," can serve as an argument against petitioner's claim that the Commision should
have taken into consideration the testimony of Mr. Bernardino. But the primary reasons why the Commission could not have taken
judicial cognizance of said testimony are: first, it is not a proper subject of judicial notice, as it is not a "known" fact that is, well
established and authoritatively settled, without qualification and contention; 13 second, it was given in a subsequent and distinct case
after the petitioner's motion for reconsideration was heard by the Commission en banc and submitted for decision, 14 and third, it was
not brought to the attention of the Commission in this case through an appropriate pleading. 15

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Regarding the contention of petitioner that the Commission had acted both as prosecutor and judge, it should be considered that there
are two matters that had to be decided in this case, namely, the order to show cause dated December 19, 1956, and the petition or
complaint by respondent municipality dated June 25, 1958. Both matters were heard jointly, and the record shows that respondent
municipality had been allowed to present its evidence to substantiate its complaint. It can not be said, therefore, that in this case the
Commission had acted as prosecutor and judge. But even assuming, for the sake of argument, that there was a commingling of the
prosecuting and investigating functions, this exercise of dual function is authorized by Section 17(a) of Commonwealth Act No. 146, as
amended, under which the Commission has power "to investigate, upon its own initiative or upon complaint in writing, any matter
concerning any public service as regards matters under its jurisdiction; to, require any public service to furnish safe, adequate, and
proper service as the public interest may require and warrant; to enforce compliance with any standard, rule, regulation, order or other
requirement of this Act or of the Commission ... ." Thus, in the case of Collector of Internal Revenue vs. Estate of F. P. Buan, L-11438,
July 31, 1958, this Court held that the power of the Commission to cancel and revoke a certificate of public convenience and necessity
may be exercised by it even without a formal charge filed by any interested party, with the only limitation that the holder of the certificate
should be given his day in court.
It may not be amiss to add that when prosecuting and investigating duties are delegated by statute to an administrative body, as in the
case of the Public Service Commission, said body may take steps it believes appropriate for the proper exercise of said duties,
particularly in the manner of informing itself whether there is probable violation of the law and/or its rules and regulations. It may initiate
an investigation, file a complaint, and then try the charge as preferred. So long as the respondent is given a day in court, there can be
no denial of due process, and objections to said procedure cannot be sustained.
3. In its third assignment of error, petitioner invokes the "protection-of-investment rule" enunciated by this Court inBatangas
Transportation Co. vs. Orlanes 16 in this wise:
The Government having taken over the control and supervision of all public utilities, so long as an operator under a prior
license complies with the terms and conditions of his license and reasonable rules and regulations for its operation and meets
the reasonable demands of the public, it is the duty of the Commission to protect rather than to destroy his investment by the
granting of the second license to another person for the same thing over the same route of travel. The granting of such a
license does not serve its convenience or promote the interests of the public.
The above-quoted rule, however, is not absolute, for nobody has exclusive right to secure a franchise or a certificate of public
convenience. 17 Where, as in the present case, it has been shown by ample evidence that the petitioner, despite ample time and
opportunity given to it by the Commission, had failed to render adequate, sufficient and satisfactory service and had violated the
important conditions of its certificate as well as the directives and the rules and regulations of the Commission, the rule cannot apply. To
apply that rule unqualifiedly is to encourage violation or disregard of the terms and conditions of the certificate and the Commission's
directives and regulations, and would close the door to other applicants who could establish, operate and provide adequate, efficient
and satisfactory service for the benefit and convenience of the inhabitants. It should be emphasized that the paramount consideration
should always be the public interest and public convenience. The duty of the Commission to protect investment of a public utility
operator refers only to operators of good standing those who comply with the laws, rules and regulations and not to operators who
are unconcerned with the public interest and whose investments have failed or deteriorated because of their own fault. 18
4. The last assignment of error assails the propriety of the penalty imposed by the Commission on the petitioner that is, the
revocation of the certificate and the forfeiture of the franchise. Petitioner contends that the imposition of a fine would have been
sufficient, as had been done by the Commission in cases of a similar nature.
It should be observed that Section 16(n) of Commonwealth Act No. 146, as amended, confers upon the Commission ample power and
discretion to order the cancellation and revocation of any certificate of public convenience issued to an operator who has violated, or
has willfully and contumaciously refused to comply with, any order, rule or regulation of the Commission or any provision of law. What
matters is that there is evidence to support the action of the Commission. In the instant case, as shown by the evidence, the
contumacious refusal of the petitioner since 1954 to comply with the directives, rules and regulations of the Commission, its violation of
the conditions of its certificate and its incapability to comply with its commitment as shown by its inadequate service, were the
circumstances that warranted the action of the Commission in not merely imposing a fine but in revoking altogether petitioner's
certificate. To allow petitioner to continue its operation would be to sacrifice public interest and convenience in favor of private interest.
A grant of a certificate of public convenience confers no property rights but is a mere license or privilege, and such privilege is
forfeited when the grantee fails to comply with his commitments behind which lies the paramount interest of the public, for

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public necessity cannot be made to wait, nor sacrificed for private convenience. (Collector of Internal Revenue v. Estate of F.
P. Buan, et al., L-11438 and Santiago Sambrano, et al. v. PSC, et al., L-11439 & L-11542-46, July 31, 1958)
(T)he Public Service Commission, ... has the power to specify and define the terms and conditions upon which the public utility
shall be operated, and to make reasonable rules and regulations for its operation and the compensation which the utility shall
receive for its services to the public, and for any failure to comply with such rules and regulations or the violation of any of the
terms and conditions for which the license was granted, the Commission has ample power to enforce the provisions of the
license or even to revoke it, for any failure or neglect to comply with any of its terms and provisions. (Batangas Trans. Co. v.
Orlanes, 52 Phil. 455, 460; emphasis supplied)
Presumably, the petitioner has in mind Section 21 of Commonwealth Act No. 146, as amended, which provides that a public utility
operator violating or failing to comply with the terms and conditions of any certificate, or any orders, decisions or regulations of the
Commission, shall be subject to a fine and that the Commission is authorized and empowered to impose such fine, after due notice and
hearing. It should be noted, however, that the last sentence of said section states that the remedy provided therein "shall not be a bar
to, or affect any other remedy provided in this Act but shall be cumulative and additional to such remedy or remedies." In other words,
the imposition of a fine may only be one of the remedies which the Commission may resort to, in its discretion. But that remedy is not
exclusive of, or has preference over, the other remedies. And this Court will not substitute its discretion for that of the Commission, as
long as there is evidence to support the exercise of that discretion by the Commission.
G. R. No. L-21221
Coming now to the other case, let it be stated at the outset that before any certificate may be granted, authorizing the operation of a
public service, three requisites must be complied with, namely: (1) the applicant must be a citizen of the Philippines or of the United
States, or a corporation or co-partnership, association or joint-stock company constituted and organized under the laws of the
Philippines, sixty per centum at least of the stock or paid-up capital of which belongs entirely to citizens of the Philippines or of the
United States; 19 (2) the applicant must be financially capable of undertaking the proposed service and meeting the responsibilities
incident to its operation; 20 and (3) the applicant must prove that the operation of the public service proposed and the authorization to do
business will promote the public interest in a proper and suitable manner. 21
As stated earlier, in the decision appealed from, the Commission found that Morong Electric is a corporation duly organized and
existing under the laws of the Philippines, the stockholders of which are Filipino citizens, that it is financially capable of operating an
electric light, heat and power service, and that at the time the decision was rendered there was absence of electric service in Morong,
Rizal. While the petitioner does not dispute the need of an electric service in Morong, Rizal, 22 it claims, in effect, that Morong Electric
should not have been granted the certificate of public convenience and necessity because (1) it did not have a corporate personality at
the time it was granted a franchise and when it applied for said certificate; (2) it is not financially capable of undertaking an electric
service, and (3) petitioner was rendering efficient service before its electric plant was burned, and therefore, being a prior operator its
investment should be protected and no new party should be granted a franchise and certificate of public convenience and necessity to
operate an electric service in the same locality.
1. The bulk of petitioner's arguments assailing the personality of Morong Electric dwells on the proposition that since a franchise is a
contract, 23 at least two competent parties are necessary to the execution thereof, and parties are not competent except when they are
in being. Hence, it is contended that until a corporation has come into being, in this jurisdiction, by the issuance of a certificate of
incorporation by the Securities and Exchange Commission (SEC) it cannot enter into any contract as a corporation. The certificate of
incorporation of the Morong Electric was issued by the SEC on October 17, 1962, so only from that date, not before, did it acquire
juridical personality and legal existence. Petitioner concludes that the franchise granted to Morong Electric on May 6, 1962 when it was
not yet in esse is null and void and cannot be the subject of the Commission's consideration. On the other hand, Morong Electric
argues, and to which argument the Commission agrees, that it was a de factocorporation at the time the franchise was granted and, as
such, it was not incapacitated to enter into any contract or to apply for and accept a franchise. Not having been incapacitated, Morong
Electric maintains that the franchise granted to it is valid and the approval or disapproval thereof can be properly determined by the
Commission.
Petitioner's contention that Morong Electric did not yet have a legal personality on May 6, 1962 when a municipal franchise was granted
to it is correct. The juridical personality and legal existence of Morong Electric began only on October 17, 1962 when its certificate of
incorporation was issued by the SEC. 24 Before that date, or pending the issuance of said certificate of incorporation, the incorporators
cannot be considered as de facto corporation.25 But the fact that Morong Electric had no corporate existence on the day the franchise
was granted in its name does not render the franchise invalid, because later Morong Electric obtained its certificate of incorporation and

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then accepted the franchise in accordance with the terms and conditions thereof. This view is sustained by eminent American
authorities. Thus, McQuiuin says:
The fact that a company is not completely incorporated at the time the grant is made to it by a municipality to use the streets
does not, in most jurisdictions, affect the validity of the grant. But such grant cannot take effect until the corporation is
organized. And in Illinois it has been decided that the ordinance granting the franchise may be presented before the
corporation grantee is fully organized, where the organization is completed before the passage and acceptance. (McQuillin,
Municipal Corporations, 3rd Ed., Vol. 12, Chap. 34, Sec. 34.21)
Fletcher says:
While a franchise cannot take effect until the grantee corporation is organized, the franchise may, nevertheless, be applied for
before the company is fully organized.
A grant of a street franchise is valid although the corporation is not created until afterwards. (Fletcher, Cyclopedia Corp.
Permanent Edition, Rev. Vol. 6-A, Sec. 2881)
And Thompson gives the reason for the rule:
(I)n the matter of the secondary franchise the authorities are numerous in support of the proposition that an ordinance granting
a privilege to a corporation is not void because the beneficiary of the ordinance is not fully organized at the time of the
introduction of the ordinance. It is enough that organization is complete prior to the passage and acceptance of the ordinance.
The reason is that a privilege of this character is a mere license to the corporation until it accepts the grant and complies with
its terms and conditions. (Thompson on Corporations, Vol. 4, 3rd Ed., Sec. 2929) 26
The incorporation of Morong Electric on October 17, 1962 and its acceptance of the franchise as shown by its action in prosecuting the
application filed with the Commission for the approval of said franchise, not only perfected a contract between the respondent
municipality and Morong Electric but also cured the deficiency pointed out by the petitioner in the application of Morong EIectric. Thus,
the Commission did not err in denying petitioner's motion to dismiss said application and in proceeding to hear the same. The efficacy
of the franchise, however, arose only upon its approval by the Commission on March 13, 1963. The reason is that
Under Act No. 667, as amended by Act No. 1022, a municipal council has the power to grant electric franchises, subject to the
approval of the provincial board and the President. However, under Section 16(b) of Commonwealth Act No. 146, as
amended, the Public Service Commission is empowered "to approve, subject to constitutional limitations any franchise or
privilege granted under the provisions of Act No. 667, as amended by Act No. 1022, by any political subdivision of the
Philippines when, in the judgment of the Commission, such franchise or privilege will properly conserve the public interests
and the Commission shall in so approving impose such conditions as to construction, equipment, maintenance, service, or
operation as the public interests and convenience may reasonably require, and to issue certificates of public convenience and
necessity when such is required or provided by any law or franchise." Thus, the efficacy of a municipal electric franchise
arises, therefore, only after the approval of the Public Service Commission. (Almendras vs. Ramos, 90 Phil. 231) .
The conclusion herein reached regarding the validity of the franchise granted to Morong Electric is not incompatible with the holding of
this Court in Cagayan Fishing Development Co., Inc. vs. Teodoro Sandiko 27upon which the petitioner leans heavily in support of its
position. In said case this Court held that a corporation should have a full and complete organization and existence as an entity before it
can enter into any kind of a contract or transact any business. It should be pointed out, however, that this Court did not say in that case
that the rule is absolute or that under no circumstances may the acts of promoters of a corporation be ratified or accepted by the
corporation if and when subsequently organized. Of course, there are exceptions. It will be noted that American courts generally hold
that a contract made by the promoters of a corporation on its behalf may be adopted, accepted or ratified by the corporation when
organized. 28
2. The validity of the franchise and the corporate personality of Morong Electric to accept the same having been shown, the next
question to be resolved is whether said company has the financial qualification to operate an electric light, heat and power service.
Petitioner challenges the financial capability of Morong Electric, by pointing out the inconsistencies in the testimony of Mr. Jose P. Ingal,
president of said company, regarding its assets and the amount of its initial investment for the electric plant. In this connection it should
be stated that on the basis of the evidence presented on the matter, the Commission has found the Morong Electric to be "financially

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qualified to install, maintain and operate the proposed electric light, heat and power service." This is essentially a factual determination
which, in a number of cases, this Court has said it will not disturb unless patently unsupported by evidence. An examination of the
record of this case readily shows that the testimony of Mr. Ingal and the documents he presented to establish the financial capability of
Morong Electric provide reasonable grounds for the above finding of the Commission.
It is now a very well-settled rule in this jurisdiction that the findings and conclusions of fact made by the Public Service
Commission, after weighing the evidence adduced by the parties in a public service case, will not be disturbed by the Supreme
Court unless those findings and conclusions appear not to be reasonably supported by evidence. (La Mallorca and Pampanga
Bus Co. vs. Mercado, L-19120, November 29, 1965)
For purposes of appeal, what is decisive is that said testimonial evidence provides reasonable support for the Public Service
Commission's findings of financial capacity on the part of applicants, rendering such findings beyond our power to disturb. (Del
Pilar Transit vs. Silva, L-21547, July 15, 1966)
It may be worthwhile to mention in this connection that per inspection report dated January 20, 1964 29 of Mr. Meliton Martinez of the
Commission, who inspected the electric service of Morong on January 15-16, 1964, Morong Electric "is serving electric service to the
entire area covered by its approved plan and has constructed its line in accordance with the plans and specifications approved by the
Commission." By reason thereof, it was recommended that the requests of Morong Electric (1) for the withdrawal of its deposit in the
amount of P1,000.00 with the Treasurer of the Philippines, and (2) for the approval of Resolution No. 160 of the Municipal Council of
Morong, Rizal, exempting the operator from making the additional P9,000.00 deposit mentioned in its petition, dated September 16,
1963, be granted. This report removes any doubt as to the financial capability of Morong Electric to operate and maintain an electric
light, heat and power service.
3. With the financial qualification of Morong Electric beyond doubt, the remaining question to be resolved is whether, or not, the findings
of fact of the Commission regarding petitioner's service are supported by evidence. It is the contention of the petitioner that the
Commission made some findings of fact prejudicial to its position but which do not find support from the evidence presented in this
case. Specifically, petitioner refers to the statements or findings that its service had "turned from bad to worse," that it miserably failed
to comply with the oft-repeated promises to bring about the needed improvement, that its equipment is unserviceable, and that it has no
longer any plant site and, therefore, has discredited itself. Petitioner further states that such statements are not only devoid of
evidentiary support but contrary to the testimony of its witness, Mr. Harry Bernardino, who testified that petitioner was rendering efficient
and satisfactory service before its electric plant was burned on July 29, 1962.
On the face of the decision appealed from, it is obvious that the Commission in describing the kind of service petitioner was rendering
before its certificate was ordered revoked and cancelled, took judicial notice of the records of the previous case (PSC Case No. 39715)
where the quality of petitioner's service had been squarely put in issue. It will be noted that the findings of the Commission were made
notwithstanding the fact that the aforementioned testimony of Mr. Bernardino had been emphasized and pointed out in petitioner's
Memorandum to the Commission. 30 The implication is simple: that as between the testimony of Mr. Bernardino and the inspection
reports of the engineers of the Commission, which served as the basis of the revocation order, the Commission gave credence to the
latter. Naturally, whatever conclusion or finding of fact that the Commission arrived at regarding the quality of petitioner's service are not
borne out by the evidence presented in this case but by evidence in the previous case. 31 In this connection, we repeat, the conclusion,
arrived at by the Commission after weighing the conflicting evidence in the two related cases, is a conclusion of fact which this Court
will not disturb.
And it has been held time and again that where the Commission has reached a conclusion of fact after weighing the conflicting
evidence, that conclusion must be respected, and the Supreme Court will not interfere unless it clearly appears that there is no
evidence to support the decision of the Commission. (La Mallorca and Pampanga Bus Co., Inc. vs. Mercado, L-19120,
November 29, 1965 citing Pangasinan Trans. Co., Inc. vs. Dela Cruz, 96 Phil. 278)
For that matter, petitioner's pretension that it has a prior right to the operation of an electric service in Morong, Rizal, is not tenable; and
its plea for protection of its investment, as in the previous case, cannot be entertained.
WHEREFORE, the two decisions of the Public Service Commission, appealed from, should be, as they are hereby affirmed, with costs
in the two cases against petitioner Rizal Light & Ice Co., Inc. It is so ordered.

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G.R. No. L-48627 June 30, 1987
FERMIN Z. CARAM, JR. and ROSA O. DE CARAM, petitioners
vs.
THE HONORABLE COURT OF APPEALS and ALBERTO V. ARELLANO, respondents.

CRUZ, J.:
We gave limited due course to this petition on the question of the solidary liability of the petitioners with their co-defendants in the lower
court 1 because of the challenge to the following paragraph in the dispositive portion of the decision of the respondent court: *
1. Defendants are hereby ordered to jointly and severally pay the plaintiff the amount of P50,000.00 for the
preparation of the project study and his technical services that led to the organization of the defendant corporation,
plus P10,000.00 attorney's fees; 2
The petitioners claim that this order has no support in fact and law because they had no contract whatsoever with the private
respondent regarding the above-mentioned services. Their position is that as mere subsequent investors in the corporation that was
later created, they should not be held solidarily liable with the Filipinas Orient Airways, a separate juridical entity, and with Barretto and
Garcia, their co-defendants in the lower court, ** who were the ones who requested the said services from the private respondent. 3
We are not concerned here with the petitioners' co-defendants, who have not appealed the decision of the respondent court and may,
for this reason, be presumed to have accepted the same. For purposes of resolving this case before us, it is not necessary to determine
whether it is the promoters of the proposed corporation, or the corporation itself after its organization, that shall be responsible for the
expenses incurred in connection with such organization.
The only question we have to decide now is whether or not the petitioners themselves are also and personallyliable for such expenses
and, if so, to what extent.
The reasons for the said order are given by the respondent court in its decision in this wise:
As to the 4th assigned error we hold that as to the remuneration due the plaintiff for the preparation of the project
study and the pre-organizational services in the amount of P50,000.00, not only the defendant corporation but the
other defendants including defendants Caram should be jointly and severally liable for this amount. As we above
related it was upon the request of defendants Barretto and Garcia that plaintiff handled the preparation of the project
study which project study was presented to defendant Caram so the latter was convinced to invest in the proposed
airlines. The project study was revised for purposes of presentation to financiers and the banks. It was on the basis of
this study that defendant corporation was actually organized and rendered operational. Defendants Garcia and
Caram, and Barretto became members of the Board and/or officers of defendant corporation. Thus, not only the
defendant corporation but all the other defendants who were involved in the preparatory stages of the incorporation,
who caused the preparation and/or benefited from the project study and the technical services of plaintiff must be
liable. 4
It would appear from the above justification that the petitioners were not really involved in the initial steps that finally led to the
incorporation of the Filipinas Orient Airways. Elsewhere in the decision, Barretto was described as "the moving spirit." The finding of the
respondent court is that the project study was undertaken by the private respondent at the request of Barretto and Garcia who, upon its
completion, presented it to the petitioners to induce them to invest in the proposed airline. The study could have been presented to
other prospective investors. At any rate, the airline was eventually organized on the basis of the project study with the petitioners as
major stockholders and, together with Barretto and Garcia, as principal officers.
The following portion of the decision in question is also worth considering:
... Since defendant Barretto was the moving spirit in the pre-organization work of defendant corporation based on his
experience and expertise, hence he was logically compensated in the amount of P200,000.00 shares of stock not as

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industrial partner but more for his technical services that brought to fruition the defendant corporation. By the same
token, We find no reason why the plaintiff should not be similarly compensated not only for having actively
participated in the preparation of the project study for several months and its subsequent revision but also in his
having been involved in the pre-organization of the defendant corporation, in the preparation of the franchise, in
inviting the interest of the financiers and in the training and screening of personnel. We agree that for these special
services of the plaintiff the amount of P50,000.00 as compensation is reasonable. 5
The above finding bolsters the conclusion that the petitioners were not involved in the initial stages of the organization of the airline,
which were being directed by Barretto as the main promoter. It was he who was putting all the pieces together, so to speak. The
petitioners were merely among the financiers whose interest was to be invited and who were in fact persuaded, on the strength of the
project study, to invest in the proposed airline.
Significantly, there was no showing that the Filipinas Orient Airways was a fictitious corporation and did not have a separate juridical
personality, to justify making the petitioners, as principal stockholders thereof, responsible for its obligations. As a bona fide corporation,
the Filipinas Orient Airways should alone be liable for its corporate acts as duly authorized by its officers and directors.
In the light of these circumstances, we hold that the petitioners cannot be held personally liable for the compensation claimed by the
private respondent for the services performed by him in the organization of the corporation. To repeat, the petitioners did not contract
such services. It was only the results of such services that Barretto and Garcia presented to them and which persuaded them to invest
in the proposed airline. The most that can be said is that they benefited from such services, but that surely is no justification to hold
them personally liable therefor. Otherwise, all the other stockholders of the corporation, including those who came in later, and
regardless of the amount of their share holdings, would be equally and personally liable also with the petitioners for the claims of the
private respondent.
The petition is rather hazy and seems to be flawed by an ambiguous ambivalence. Our impression is that it is opposed to the imposition
of solidary responsibility upon the Carams but seems to be willing, in a vague, unexpressed offer of compromise, to accept joint liability.
While it is true that it does here and there disclaim total liability, the thrust of the petition seems to be against the imposition of solidary
liability only rather than against any liability at all, which is what it should have categorically argued.
Categorically, the Court holds that the petitioners are not liable at all, jointly or jointly and severally, under the first paragraph of the
dispositive portion of the challenged decision. So holding, we find it unnecessary to examine at this time the rules on solidary
obligations, which the parties-needlessly, as it turns out have belabored unto death.
WHEREFORE, the petition is granted. The petitioners are declared not liable under the challenged decision, which is hereby modified
accordingly. It is so ordered.

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G.R. No. L-5003

June 27, 1953

NAZARIO TRILLANA, administrator-appellee,


vs.
QUEZON COLLEGE, INC., claimant-appellant.
Singson, Barnes, Yap and Blanco for appellant.
Delgado, Flores & Macapagal for appellee.
PARAS, J.:
Damasa Crisostomo sent the following letter to the Board of Trustees of the Quezon College:

June 1, 1948

The BOARD OF TRUSTEES


Quezon College
Manila
Gentlemen:
Please enter my subscription to dalawang daan (200) shares of your capital stock with a par value of P100 each. Enclosed
you will find (Babayaran kong lahat pagkatapos na ako ay makapag-pahuli ng isda) pesos as my initial payment and the
balance payable in accordance with law and the rules and regulations of the Quezon College. I hereby agree to shoulder the
expenses connected with said shares of stock. I further submit myself to all lawful demands, decisions or directives of the
Board of Trustees of the Quezon College and all its duly constituted officers or authorities (ang nasa itaas ay binasa at
ipinaliwanag sa akin sa wikang tagalog na aking nalalaman).

Very respectfully,
(Sgd.) DAMASA CRISOSTOMO
Signature of subscriber

Nilagdaan sa aming harapan:


JOSE CRISOSTOMO
EDUARDO CRISOSTOMO
Damasa Crisostomo died on October 26, 1948. As no payment appears to have been made on the subscription mentioned in the
foregoing letter, the Quezon College, Inc. presented a claim before the Court of First Instance of Bulacan in her testate proceeding, for
the collection of the sum of P20,000, representing the value of the subscription to the capital stock of the Quezon College, Inc. This
claim was opposed by the administrator of the estate, and the Court of First Instance of Bulacan, after hearing issued an order
dismissing the claim of the Quezon College, Inc. on the ground that the subscription in question was neither registered in nor
authorized by the Securities and Exchange Commission. From this order the Quezon College, Inc. has appealed.
It is not necessary for us to discuss at length appellant's various assignments of error relating to the propriety of the ground relief upon
by the trial court, since, as pointed out in the brief for the administrator and appellee, there are other decisive considerations which,
though not touched by the lower court, amply sustained the appealed order.
It appears that the application sent by Damasa Crisostomo to the Quezon College, Inc. was written on a general form indicating that an
applicant will enclose an amount as initial payment and will pay the balance in accordance with law and the regulations of the College.

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On the other hand, in the letter actually sent by Damasa Crisostomo, the latter (who requested that her subscription for 200 shares be
entered) not only did not enclose any initial payment but stated that "babayaran kong lahat pagkatapos na ako ay makapagpahuli ng
isda." There is nothing in the record to show that the Quezon College, Inc. accepted the term of payment suggested by Damasa
Crisostomo, or that if there was any acceptance the same came to her knowledge during her lifetime. As the application of Damasa
Crisostomo is obviously at variance with the terms evidenced in the form letter issued by the Quezon College, Inc., there was absolute
necessity on the part of the College to express its agreement to Damasa's offer in order to bind the latter. Conversely, said acceptance
was essential, because it would be unfair to immediately obligate the Quezon College, Inc. under Damasa's promise to pay the price of
the subscription after she had caused fish to be caught. In other words, the relation between Damasa Crisostomo and the Quezon
College, Inc. had only thus reached the preliminary stage whereby the latter offered its stock for subscription on the terms stated in the
form letter, and Damasa applied for subscription fixing her own plan of payment, a relation, in the absence as in the present case of
acceptance by the Quezon College, Inc. of the counter offer of Damasa Crisostomo, that had not ripened into an enforceable contract.
Indeed, the need for express acceptance on the part of the Quezon College, Inc. becomes the more imperative, in view of the proposal
of Damasa Crisostomo to pay the value of the subscription after she has harvested fish, a condition obviously dependent upon her sole
will and, therefore, facultative in nature, rendering the obligation void, under article 1115 of the old Civil Code which provides as follows:
"If the fulfillment of the condition should depend upon the exclusive will of the debtor, the conditional obligation shall be void. If it should
depend upon chance, or upon the will of a third person, the obligation shall produce all its effects in accordance with the provisions of
this code." It cannot be argued that the condition solely is void, because it would have served to create the obligation to pay, unlike a
case, exemplified by Osmea vs. Rama (14 Phil., 99), wherein only the potestative condition was held void because it referred merely
to the fulfillment of an already existing indebtedness.
In the case of Taylor vs. Uy Tieng Piao, et al. (43 Phil., 873, 879), this Court already held that "a condition, facultative as to the debtor,
is obnoxious to the first sentence contained in article 1115 and renders the whole obligation void."
Wherefore, the appealed order is affirmed, and it is so ordered with costs against appellant.

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G.R. Nos. L-48195 and 48196

May 1, 1942

SOFRONIO T. BAYLA, ET AL., petitioners, vs. SILANG TRAFFIC CO., INC., respondent.
SILANG TRAFFIC CO., petitioner, vs. SOFRONIO BAYLA, ET AL., respondents.
OZAETA, J.:
Petitioners in G.R. No. 48195 instituted this action in the Court of First Instance of Cavite against the respondent Silang Traffic Co., Inc.
(cross-petitioner in G.R. No. 48196), to recover certain sums of money which they had paid severally to the corporation on account of
shares of stock they individually agreed to take and pay for under certain specified terms and conditions, of which the following referring
to the petitioner Josefa Naval, is typical:
AGREEMENT FOR INSTALLMENT SALE OF SHARES IN THE "SILANG TRAFFIC COMPANY, INC.,"

Silang, Cavite, P. I.

THIS AGREEMENT, made and entered into between Mrs. Josefa Naval, of legal age, married and resident of the Municipality
of Silang, Province of Cavite, Philippine Islands, party of the First Part, hereinafter called the subscriber, and the "Silang Traffic
Company, Inc.," a corporation duly organized and existing by virtue of and under the laws of the Philippine Islands, with its
principal office in the Municipality of Silang, Province of Cavite, Philippine Islands, party of the Second Part, hereinafter called
the seller,
WITNESSETH:
That the subscriber promises to pay personally or by his duly authorized agent to the seller at the Municipality of Silang,
Province of Cavite, Philippine Islands, the sum of one thousand five hundred pesos (P1,500), Philippine currency, as purchase
price of FIFTEEN (15) shares of capital stock, said purchase price to be paid as follows, to wit: five (5%) per cent upon the
execution of the contract, the receipt whereof is hereby acknowledged and confessed, and the remainder in installments of five
per cent, payable within the first month of each and every quarter thereafter, commencing on the 1st day of July, 1935, with
interest on deferred payments at the rate of SIX (6%) per cent per annum until paid.
That the said subscriber further agrees that if he fails to pay any of said installment when due, or to perform any of the
aforesaid conditions, or if said shares shall be attached or levied upon by creditors of the said subscriber, then the said shares
are to revert to the seller and the payments already made are to be forfeited in favor of said seller, and the latter may then take
possession, without resorting to court proceedings.
The said seller upon receiving full payment, at the time and manner hereinbefore specified, agrees to execute and deliver to
said subscriber, or to his heirs and assigns, the certificate of title of said shares, free and clear of all encumbrances.
In testimony whereof, the parties have hereunto set their hands in the Municipality of Silang, Province of Cavite, Philippine
Islands, this 30th day of March, 1935.

(Sgd.) JOSEFA NAVAL


SILANG TRAFFIC COMPANY, INC.
Subscriber
By (Sgd.) LINO GOMEZ
President.
(Exhibit 1. Notarial acknowledgment omitted.)
The agreements signed by the other petitioners were of the same date (March 30, 1935) and in identical terms as the foregoing except
as to the number of shares and the corresponding purchase price. The petitioners agreed to purchase the following number of shares
and, up to April 30, 1937, had paid the following sums on account thereof:

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Sofronio T. Bayla.......

8 shares

P360

Venancio Toledo........

8 shares

375

Josefa
Naval..............

15 shares

675

Paz Toledo................

15 shares

675

Petitioners' action for the recovery of the sums above mentioned is based on a resolution by the board of directors of the respondent
corporation on August 1, 1937, of the following tenor:
A mocion sel Sr. Marcos Caparas y secundado por el Sr. Alejandro Bayla, que para el bien de la corporacion y la pronta
terminacion del asunto civil No. 3125 titulado "Vicente F. Villanueva et al. vs. Lino Gomez et al.," en el Juzgado de Primera
Instancia de Cavite, donde se gasto y se gastara no poca cantidad de la Corporacion, se resolvio y se aprobo por la Junta
Directiva los siguientes:
(a) Que se dejara sin efecto lo aprobado por la Junta Directiva el 3 de marzo, 1935, art. 11, sec. 162, sobre las cobranzas que
se haran por el Secretario Tesorero de la Corporacion a los accionistas que habian tomado o suscrito nuevas acciones y que
se permitia a estos pagar 20% del valor de las acciones suscritas en un ao, con interes de 6% y el pago o jornal que se hara
por trimestre.
(b) Se dejara sin efecto, en vista de que aun no esta pagado todo el valor de las 123 acciones, tomadas de las acciones no
expedidas (unissued stock) de la Corporacion y que fueron suscritas por los siguienes:

Lino Gomez.....................

10 Acciones

Venancio Toledo.............

8 Acciones

Melchor P. Benitez........

17 Acciones

Isaias Videa.................

14 Acciones

Esteban Velasco............

10 Acciones

Numeriano S. Aldaba....

15 Acciones

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Inocencio
Cruz.................

8 Acciones

Josefa Naval ..................

15 Acciones

Sofronio Bayla.................

8 Acciones

Dionisio Dungca.............

3 Acciones

y devolver a las personas arriba descritas toda la cantidad que estas habian pagado por las 123 acciones.
(c) Que se dejara sin efecto lo aprobado por la Junta Directiva el 3 marzo, 1935, art. V. sec. 165, sobre el cambio o trueque de
las 31 acciones del Treasury Stock, contra las 32 acciones del Sr. Numeriano Aldaba, en la corporacion Northern Luzon
Transportation Co. y que se devuelva al Sr. Numeriano Aldaba las 32 acciones mencionadas despues que el haya devuelto el
certificado de las 31 acciones de la Silang Traffic Co., Inc.
(d) Permitir al Tesorero de la Corporacion para que devuelva a las personas arriba indicadas, las cantidades pagadas por las
123 acciones. (Exhibit A-1.)
The respondent corporation set up the following defenses: (1) That the above-quoted resolution is not applicable to the petitioners
Sofronio T. Bayla, Josefa Naval, and Paz Toledo because on the date thereof "their subscribed shares of stock had already
automatically reverted to the defendant, and the installments paid by them had already been forfeited"; and (2) that said resolution of
August 1, 1937, was revoked and cancelled by a subsequent resolution of the board of directors of the defendant corporation dated
August 22, 1937.
The trial court absolved the defendant from the complaint and declared canceled (forfeited) in favor of the defendant the shares of stock
in question. It held that the resolution of August 1, 1937, was null and void, citingVelasco vs. Poizat (37 Phil., 802), wherein this Court
held that "a corporation has no legal capacity to release an original subscriber to its capital stock from the obligation to pay for shares;
and any agreement to this effect is invalid" Plaintiffs below appealed to the Court of Appeals, which modified of the trial court as follows:
That part of the judgment dismissing plaintiff's complaint is affirmed, but that part thereof declaring their subscription canceled
is reversed. Defendant is directed to grant plaintiffs 30 days after final judgment within which to pay the arrears on their
subscription. Without pronouncement as to costs.
Both parties appealed to this Court by petition and cross-petition for certiorari. Petitioners insist that they have the right to recover the
amounts involved under the resolution of August 1, 1937, while the respondent and cross-petitioner on its part contends that said
amounts have been automatically forfeited and the shares of stock have reverted to the corporation under the agreement hereinabove
quoted.
The parties litigant, the trial court, and the Court of Appeals have interpreted or considered the said agreement as a contract of
subscription to the capital stock of the respondent corporation. It should be noted, however, that said agreement is entitled "Agreement
for Installment Sale of Shares in the Silang Traffic Company, Inc.,"; that while the purchaser is designated as "subscriber," the
corporation is described as "seller"; that the agreement was entered into on March 30, 1935, long after the incorporation and
organization of the corporation, which took place in 1927; and that the price of the stock was payable in quarterly installments spread
over a period of five years. It also appears that in civil case No. 3125 of the Court of First Instance of Cavite mentioned in the resolution

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of August 1, 1937, the right of the corporation to sell the shares of stock to the person named in said resolution (including herein
petitioners) was impugned by the plaintiffs in said case, who claimed a preferred right to buy said shares.
Whether a particular contract is a subscription or a sale of stock is a matter of construction and depends upon its terms and the
intention of the parties (4 Fletcher, Cyclopedia of Corporation [permanent edition], 29, cited in Salmon, Dexter & Co. vs. Unson (47 Phil.
649, 652). In the Unson case just cited, this Court held that a subscription to stock in an existing corporation is, as between the
subscriber and the corporation, simply a contract of purchase and sale.
It seems clear from the terms of the contracts in question that they are contracts of sale and not of subscription. The lower courts erred
in overlooking the distinction between subscription and purchase "A subscription, properly speaking, is the mutual agreement of the
subscribers to take and pay for the stock of a corporation, while a purchase is an independent agreement between the individual and
the corporation to buy shares of stock from it at stipulated price." (18 C. J. S., 760.) In some particulars the rules governing
subscriptions and sales of shares are different. For instance, the provisions of our Corporation Law regarding calls for unpaid
subscription and assessment of stock (sections 37-50) do not apply to a purchase of stock. Likewise the rule that corporation has no
legal capacity to release an original subscriber to its capital stock from the obligation to pay for his shares, is inapplicable to a contract
of purchase of shares.
The next question to determine is whether under the contract between the parties the failure of the purchaser to pay any of the quarterly
installments on the purchase price automatically gave rise to the forfeiture of the amounts already paid and the reversion of the shares
to the corporation. The contract provides for interest of the rate of six per centum per annum on deferred payments. It is also provides
that if the purchaser fails to pay any of said installments when due, the said shares are to revert to the seller and the payments already
made are to be forfeited in favor of said seller. The respondent corporation contends that when the petitioners failed to pay the
installment which fell due on or before July 31, 1937, forfeiture automatically took place, that is to say, without the necessity of any
demand from the corporation, and that therefore the resolution of August 1, 1937, authorizing the refund of the installments already paid
was inapplicable to the petitioners, who had already lost any and all rights under said contract. The contention is, we think, untenable.
The provision regarding interest on deferred payments would not have been inserted if it had been the intention of the parties to provide
for automatic forfeiture and cancelation of the contract. Moreover, the contract did not expressly provide that the failure of the purchaser
to pay any installment would give rise to forfeiture and cancelation without the necessity of any demand from the seller; and under
article 1100 of the Civil Code persons obliged to deliver or do something are not in default until the moment the creditor demands of
them judicially or extrajudicially the fulfillment of their obligation, unless (1) the obligation or the law expressly provides that demand
shall not be necessary in order that default may arise, (2) by reason of the nature and circumstances of the obligation it shall appear
that the designation of the time at which that thing was to be delivered or the service rendered was the principal inducement to the
creation of the obligation.
Is the resolution of August 1, 1937, valid? The contract in question being one of purchase and not subscription as we have heretofore
pointed out, we see no legal impediment to its rescission by agreement of the parties. According to the resolution of August 1, 1937, the
recission was made for the good of the corporation and in order to terminate the then pending civil case involving the validity of the sale
of the shares in question among others. To that rescission the herein petitioners apparently agreed, as shown by their demand for the
refund of the amounts they had paid as provided in said resolution. It appears from the record that said civil case was subsequently
dismissed, and that the purchasers of shares of stock, other than the herein petitioners, who were mentioned in said resolution were
able to benefit by said resolution. It would be an unjust discrimination to deny the same benefit to the herein petitioners.
We may add that there is no intimation in this case that the corporation was insolvent, or that the right of any creditor of the same was
in any way prejudiced by the rescission.
The attempted revocation of said rescission by the resolution of August 22, 1937, was invalid, it not having been agreed to by the
petitioners.
Wherefore, the judgment of the court of appeals is hereby reversed and another judgment will be entered against the defendant Silang
Traffic Co., Inc., ordering it to pay to the plaintiffs Sofronio T. Bayla, Venancio Toledo, Josefa Naval, and Paz Toledo, the sums of P360,
P375, P675, and P675, respectively, with legal interest on each of said sums from May 28, 1938, the date of the filing of the complaint,
until the date of payment, and with costs in the three instances. So ordered.

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G.R. No. L-11528

March 15, 1918

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

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We think that Poizat is liable upon this subscription. A stock subscription is a contract between the corporation on one side, and the
subscriber on the other, and courts will enforce it for or against either. It is a rule, accepted by the Supreme Court of the United States,
that a subscription for shares of stock does not require an express promise to pay the amount subscribed, as the law implies a promise
to pay on the part of the subscriber. (7 Ruling Case Law, sec. 191.) Section 36 of the Corporation Law clearly recognizes that a stock
subscription is subsisting liability from the time the subscription is made, since it requires the subscriber to pay interest quarterly from
that date unless he is relieved from such liability by the by-laws of the corporation. The subscriber is as much bound to pay the amount
of the share subscribed by him as he would be to pay any other debt, and the right of the company to demand payment is no less
incontestable.
The provisions of the Corporation Law (Act No. 1459) given recognition of two remedies for the enforcement of stock subscriptions. The
first and most special remedy given by the statute consists in permitting the corporation to put up the unpaid stock for sale and dispose
of it for the account of the delinquent subscriber. In this case the provisions of section 38 to 48, inclusive , of the Corporation Law are
applicable and must be followed. The other remedy is by action in court, concerning which we find in section 49 the following provision:
Nothing in this Act shall prevent the directors from collecting, by action in any court of proper jurisdiction, the amount due on
any unpaid subscription, together with accrued interest and costs and expenses incurred.
It is generally accepted doctrine that the statutory right to sell the subscriber's stock is merely a remedy in addition to that which
proceeds by action in court; and it has been held that the ordinary legal remedy by action exists even though no express mention
thereof is made in the statute. (Instone vs. Frankfort Bridge Co., 2 Bibb [Ky.], 576; 5 Am. Dec., 638.)
No attempt is made in the Corporation Law to define the precise conditions under which an action may be maintained upon a stock
subscription, as such conditions should be determined with reference to the rules governing contract liability in general; and where it
appears as in this case that a matured stock subscription is unpaid, none of the provisions contained in section 38 to 48, inclusive, of
Act No. 1459 can be permitted to obstruct or impede the action to recover thereon. By virtue of the first subsection of section 36 of the
Insolvency Law (Act No. 1956) the assignee of the insolvent corporation succeeds to all the corporate rights of action vested in the
corporation prior to its insolvency; and the assignee therefore has the same freedom with respect to suing upon the stock subscription
as the directors themselves would have had under section 49 above cited.
But there is another reason why the present plaintiff must prevail in this case, even supposing that the failure of the directors to comply
with the requirements of the provisions of sections 38 to 48, inclusive, of Act No. 1459 might have been an obstacle to a recovery by
the corporation itself. That reason is this: When insolvency supervenes upon a corporation and the court assumes jurisdiction to wind
up, all unpaid stock subscriptions become payable on demand, and are at once recoverable in an action instituted by the assignee or
receiver appointed by the court. This rule apparently had origin in a recognition of the principle that a court of equity, having jurisdiction
of the insolvency proceedings, could, if necessary, make the call itself, in its capacity as successor to the powers exercised by the
board of directors of the defunct company. Later a further rule gained recognition to the effect that the receiver or assignee, in an action
instituted by proper authority, could himself proceed to collect the subscription without the necessity of any prior call whatever. This
conclusion is well supported by reference to the following authorities:
. . . a court of equity may enforce payment of the stock subscriptions, although there have been no calls for them by the
company. (Hatch vs. Dana, 101 U. S., 205.)
It is again insisted that the plaintiffs cannot recover because the suit was not preceded by a call or assessment against no right
of action accrues. In a suit by a solvent going corporation to collect a subscription, and in certain suits provided by the statute
this would be true; but it is now quite well settled that when the corporation becomes insolvent, with proceedings instituted by
creditors to wind up and distribute its assets, no call or assessment is necessary before the institution of suits to collect unpaid
balances on subscription. (Ross-Meehan Shoe F. Co. vs. Southern Malleable Iron Co., 72 Fed., 957, 960;see
also Henry vs. Vermillion etc. R. R. Co., 17 Ohio, 187, and Thompson on Corporations 2d ed., vol. 3, sec. 2697.)
It evidently cannot be permitted that a subscriber should escape from his lawful obligation by reason of the failure of the officers of the
corporation to perform their duty in making a call; and when the original model of making the call becomes impracticable, the obligation
must be treated as due upon demand. If the corporation must be treated still an active entity, and this action should be dismissed for
irregularity in the making of the call, other steps could be taken by the board to cure the defect and another action could be brought; but
where the company is being wound up, no such procedure would be practicable. The better doctrine is that when insolvency
supervenes all unpaid subscriptions become at once due and enforceable.

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The printed bill of exceptions in this cause does not contain the original complaint, nor does it state who was plaintiff therein or the date
when the action was instituted. It may, however, be gathered from the papers transmitted to this court that the action was originally
instituted in the name of the Philippine Chemical Product Co. (Ltd.), prior to its insolvency, and that later the assignee was substituted
as plaintiff and then filed the amended complaint, with the permission of the court. Now, if we concede that no right of action existed
when the original complaint was filed, a right of action certainly existed when the assignee filed his amended complaint; and as the bill
of exceptions fails to show that any exception was taken to the action of the court in allowing the amended complaint to be filed, no
objection would be here entertained on the ground that the action was prematurely brought.
The circumstance that the board of directors in their meeting of July 13, 1914, resolved to release Infante from his obligation upon a
subscription for 15 shares is no wise prejudicial to the right of the corporation or its assignee to recover from Poizat upon a subscription
made by him. In releasing Infante the board transcended its powers, and he no doubt still remained liable on such of his shares as were
not taken up and paid for by other persons.
The general doctrine is that the corporation has no legal capacity to release an original subscriber to its capital stock from the
obligation of paying for his shares, in whole or in part, . . . (10 Cyc., 450.)
The suggestion contained in Poizat's letter of July 27, 1914, to the effect that he understood that he was to be relieved upon the same
terms as Infante is, for the same reason, of no merit as matter of defense, even if an agreement to that effect had been duly proved.
From what has been said it is manifest that the defendant is liable for P1,500, the amount of his subscription upon the unpaid shares.
Under section 36 of the Corporation Law he is also liable for interest at the lawful rate from the date of his subscription, unless relieved
from this liability by the by-laws of the company. These by-laws have not been introduced in evidence and there is no proof showing the
exact date upon which the subscription was made, though it is alleged in the original complaint that the company was organized upon
March 23, 1914. This allegation is not admitted in the agreed statement of facts. The defendant, however, inferentially admits in his
letter of July 27, 1914, that his subscription had been made prior to July 13, 1914. It resulted that in our opinion he should be held liable
for interest from that date.
The judgment of the lower court is therefore reversed, and judgment will be rendered in favor of the plaintiff and against the defendant
for the sum of one thousand five hundred pesos (P1,500), with interest from July 13, 1014, and costs of both instances. So ordered.

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G.R. Nos. L-24177-85

June 29, 1968

PHILIPPINE NATIONAL BANK, plaintiff-appellee,


vs.
BITULOK SAWMILL, INC., DINGALAN LUMBER CO., INC., SIERRA MADRE LUMBER CO., INC., NASIPIT LUMBER CO., INC.,
WOODWORKS, INC., GONZALO PUYAT, TOMAS B. MORATO, FINDLAY MILLAR LUMBER CO., INC., ET AL., INSULAR LUMBER
CO., ANAKAN LUMBER CO., AND CANTILAN LUMBER CO., INC., defendants-appellees.
FERNANDO, J.:
In the face of a statutory norm, which, as interpreted in a uniform line of decisions by this Court, speaks unequivocally and is free from
doubt, the lower court with full recognition that the case for the plaintiff creditor, Philippine National Bank, "is meritorious strictly from the
legal standpoint" 1 but apparently unable to "close its eyes to the equity of the case" 2 dismissed nine (9) cases filed by it, seeking "to
recover from the defendant lumber producers [Bitulok Sawmill, Inc.; Dingalan Lumber Co., Inc., Sierra Madre Lumber Co., Inc.; Nasipit
Lumber Co., Inc.; Woodworks, Inc.; Gonzalo Puyat; Tomas B. Morato; Findlay Millar Lumber Co., Inc.; Insular Lumber Co., Inc.; Anakan
Lumber Co., Inc.; and Cantilan Lumber Co., Inc.] the balance of their stock subscriptions to the Philippine Lumber Distributing Agency,
Inc." 3 In essence then, the crucial question posed by this appeal from such a decision of the lower court is adherence to the rule of law.
Otherwise stated, would non-compliance with a plain statutory command, considering the persuasiveness of the plea that defendantsappellees would "not have subscribed to [the] capital stock" of the Philippine Lumber Distributing Agency "were it not for the assurance
of the [then] President of the Republic of the Philippines that the Government would back [it] up by investing P9.00 for every
peso" 4 subscribed, a condition which was not fulfilled, such commitment not having been complied with, be justified? The answer must
be in the negative.
It cannot be otherwise even if an element of unfairness and injustice could be predicated, as the lower court, in a rather sympathetic
mood, did find in the plaintiff bank, as creditor, compelling defendant lumber producers under the above circumstances to pay the
balance of their subscriptions. For a plain and statutory command, if applicable, must be respected. The rule of law cannot be satisfied
with anything less. The appeal must be sustained.
In these various suits decided jointly, the Philippine National Bank, as creditor, and therefore the real party in interest, was allowed by
the lower court to substitute the receiver of the Philippine Lumber Distributing Agency in these respective actions for the recovery from
defendant lumber producers the balance of their stock subscriptions. The amount sought to be collected from defendants-appellees
Bitulok Sawmill, Inc., Dingalan Lumber Co., Inc., and Sierra Madre Lumber Co., Inc., is P5,000.00, defendants-appellees having made
a partial payment of P15,000.00 of their total subscription worth P20,000.00; from defendant-appellee Nasipit Lumber Co., Inc., the sum
of P10,000.00, defendant-appellee having made a partial payment of P10,000.00 of its total subscription worth P20,000.00; from
defendant-appellee Woodworks, Inc., the sum of P10,886.00, defendant-appellee having made a partial payment of P9,114.00 of its
total subscription worth P20,000.00; from defendant-appellee Gonzalo Puyat the sum of P10,000.00, defendant-appellee having made
a partial payment of P10,000.00 of his total subscription worth P20,000.00; from defendant-appellee Tomas Morato the sum of
P10,000.00, defendant-appellee having made a partial payment of P10,000.00 of his total subscription worth P20,000.00; from
defendant-appellee Findlay Millar Lumber Co., Inc., the sum of P10,000.00, defendant-appellee having made a partial payment of
P10,000.00 of its total subscription worth P20,000.00; from defendant-appellee Insular Lumber Co., Inc., the sum of P5,000.00,
defendant-appellee having made a partial payment of P15,000.00 of its total subscription worth P20,000.00; from defendant-appellee
Anakan Lumber Co., Inc., the sum of P15,000.00, defendant-appellee having made a partial payment of P5,000.00 of its total
subscription worth P20,000.00; and from defendant-appellee Cantilan Lumber Co., Inc., the sum of P7,500.00, defendant-appellee
having made a partial payment of P2,500.00 of its total subscription worth P10,000.00, plus interest at the legal rate from the filing of
the suits and the costs of the suits in all the nine (9) cases.
The Philippine Lumber Distributing Agency, Inc., according to the lower court, "was organized sometime in the early part of 1947 upon
the initiative and insistence of the late President Manuel Roxas of the Republic of the Philippines who for the purpose, had called
several conferences between him and the subscribers and organizers of the Philippine Lumber Distributing Agency, Inc." 5 The purpose
was praiseworthy, to insure a steady supply of lumber, which could be sold at reasonable prices to enable the war sufferers to
rehabilitate their devastated homes. The decision continues: "He convinced the lumber producers to form a lumber cooperative and to
pool their sources together in order to wrest, particularly, the retail trade from aliens who were acting as middlemen in the distribution of
lumber. At the beginning, the lumber producers were reluctant to organize the cooperative agency as they believed that it would not be
easy to eliminate from the retail trade the alien middlemen who had been in this business from time immemorial, but because the late
President Roxas made it clear that such a cooperative agency would not be successful without a substantial working capital which the

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lumber producers could not entirely shoulder, and as an inducement he promised and agreed to finance the agency by making the
Government invest P9.00 by way of counterpart for every peso that the members would invest therein,...." 6
This was the assurance relied upon according to the decision, which stated that the amount thus contributed by such lumber producers
was not enough for the operation of its business especially having in mind the primary purpose of putting an end to alien domination in
the retail trade of lumber products. Nor was there any appropriation by the legislature of the counterpart fund to be put up by the
Government, namely, P9.00 for every peso invested by defendant lumber producers. Accordingly, "the late President Roxas instructed
the Hon. Emilio Abello, then Executive Secretary and Chairman of the Board of Directors of the Philippine National Bank, for the latter
to grant said agency an overdraft in the original sum of P250,000.00 which was later increased to P350,000.00, which was approved by
said Board of Directors of the Philippine National Bank on July 28, 1947, payable on or before April 30, 1958, with interest at the rate of
6% per annum, and secured by the chattel mortgages on the stock of lumber of said agency." 7 The Philippine Government did not
invest the P9.00 for every peso coming from defendant lumber producers. The loan extended to the Philippine Lumber Distributing
Agency by the Philippine National Bank was not paid. Hence, these suits.
For the lower court, the above facts sufficed for their dismissal. To its mind "it is grossly unfair and unjust for the plaintiff bank now to
compel the lumber producers to pay the balance of their subscriptions .... Indeed, when the late President Roxas made representations
to the plaintiff bank, thru the Hon. Emilio Abello, who was then the Executive Secretary and Chairman of its Board of Directors, to grant
said overdraft to the agency, it was the only way by which President Roxas could make good his commitment that the Government
would invest in said agency to the extent already mentioned because, according to said late President Roxas, the legislature had not
appropriated any amount for such counterpart. Consequently, viewing from all considerations of equity in the case, the Court finds that
plaintiff bank should not collect any more from the defendants the balance of their subscriptions to the capital stock of the Philippine
Lumber Distributing Agency, Inc." 8
Even with the case for defendant lumber producers being put forth in its strongest possible light in the appealed decision, the plaintiff
creditor, the Philippine National Bank, should have been the prevailing party. On the law as it stands, the judgment reached by the
lower court cannot be sustained. The appeal, as earlier made clear, possesses merit.
In Philippine Trust Co. v. Rivera, 9 citing the leading case of Velasco v. Poizat, 10 this Court held: "It is established doctrine that
subscriptions to the capital of a corporation constitute a fund to which creditors have a right to look for satisfaction of their claims and
that the assignee in insolvency can maintain an action upon any unpaid stock subscription in order to realize assets for the payment of
its debt.... A corporation has no power to release an original subscriber to its capital stock from the obligation of paying for his shares,
without a valuable consideration for such release; and as against creditors a reduction of the capital stock can take place only in the
manner and under the conditions prescribed by the statute or the charter or the articles of incorporation. Moreover, strict compliance
with the statutory regulations is necessary...." The Poizat doctrine found acceptance in later cases. 11One of the latest cases, Lingayen
Gulf Electric Power v. Baltazar, 12 Speaks to this effect: "In the case of Velasco v. Poizat, 13 the corporation involved was insolvent, in
which case all unpaid stock subscriptions become payable on demand and are immediately recoverable in an action instituted by the
assignee."
It would be unwarranted to ascribe to the late President Roxas the view that the payment of the stock subscriptions, as thus required by
law, could be condoned in the event that the counterpart fund to be invested by the Government would not be available. Even if such
were the case, however, and such a promise were in fact made, to further the laudable purpose to which the proposed corporation
would be devoted and the possibility that the lumber producers would lose money in the process, still the plain and specific wording of
the applicable legal provision as interpreted by this Court must be controlling. It is a well-settled principle that with all the vast powers
lodged in the Executive, he is still devoid of the prerogative of suspending the operation of any statute or any of its terms.
The emphatic and categorical language of an American decision cited by the late Justice Laurel, in People v. Vera, 14 comes to mind:
"By the twentieth article of the declaration of rights in the constitution of this commonwealth, it is declared that the power of suspending
the laws, or the execution of the laws, ought never to be exercised but by the legislature, or by authority derived from it, to be exercised
in such particular cases only as the legislature shall expressly provide for...." Nor could it be otherwise considering that the Constitution
specifically enjoins the President to see to it that all laws be faithfully executed. 15 There may be a discretion as to what a particular legal
provision requires; there can be none whatsoever as to the enforcement and application thereof once its meaning has been
ascertained. What it decrees must be followed; what it commands must be obeyed. It must be respected, the wishes of the President,
to the contrary notwithstanding, even if impelled by the most worthy of motives and the most persuasive equitable considerations. To
repeat, such is not the case here. For at no time did President Roxas ever give defendant lumber producers to understand that the
failure of the Government for any reason to put up the counterpart fund could terminate their statutory liability.

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Such is not the law. Unfortunately, the lower court was of a different mind. That is not to pay homage to the rule of law. Its decision then,
one it is to be repeated influenced by what it considered to be the "equity of the case", is not legally impeccable.
WHEREFORE, the decision of the lower court is reversed and the cases remanded to the lower court for judgment according to law,
with full consideration of the legal defenses raised by defendants-appellees, Bitulok Sawmill, Inc.; Dingalan Lumber Co., Inc.; Sierra
Madre Lumber Co., Inc.; Nasipit Lumber Co., Inc.; Woodworks, Inc.; Gonzalo Puyat; Tomas B. Morato; Findlay Millar Lumber Co., Inc.;
Anakan Lumber Co., Inc.; and Cantilan Lumber Co., Inc. No pronouncement as to costs.

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G.R. No. L-30646

January 30, 1929

THE GOVERNMENT OF THE PHILIPPINE ISLANDS, petitioner,


vs.
THE MANILA RAILROAD COMPANY and JOSE PAEZ as Manager of said Company, respondents.
Attorney-General Jaranilla for petitioner.
Jose Abreu for respondents.
JOHNSON, J.:
This is a petition in the Supreme Court of the extraordinary legal writ of mandamus presented by the Government of the Philippine
Islands, praying that the writ be issued to compel the Manila Railroad Company and Jose Paez, as its manager, to provide and equip
the telegraph poles of said company between the municipality of Paniqui, Province of Tarlac, and the Municipality of San Fernando,
Province of La Union, with crosspieces for six telegraph wires belonging to the Government, which, it is alleged, are necessary for
public service between said municipalities.
The only question raised by the petition is whether the dependant company is required to provide and equip its telegraph poles with
crosspieces to carry six telegraph wires of the Government, or whether it is only required to furnish poles with crosspieces sufficient to
carry four wires only.
It is admitted that the present poles and crosspieces between said municipalities are sufficient to carry four telegraph wires and that
they do now carry four telegraph wires, by virtue of an agreement between the respondents and the Bureau of the Posts of the
Philippine Government. It is admitted that the poles and not sufficient to carry six telegraph wires.
The petitioner relies upon the provisions of section 84 of act No. 1459. Act No. 1459 is the General Corporation Law and was adopted
by the United States Philippine Commission on March 1, 1906. (Vol. 5, Pub. Laws, pp. 224-268.) Section 84 of the said Act provides:
The railroad corporation shall establish along the whole length of the road a telegraph line for the use of the railroad. The posts
of this line may be used for Government wires and shall be of sufficient length and strength and equipped with sufficient
crosspiece to carry the number of wires which the Government may consider necessary for the public service. The
establishment, protection, and maintenance of the wires and stations necessary for the public service shall be at the cost of
the Government. (Vol. 5, P. L., p. 247.)
The plaintiff contends that under said section 84 the defendant company is required to erect and maintain posts for its telegraph wires,
of sufficient length and strength, and equipped with sufficient crosspieces to carry the number of wires which the Government may
consider necessary for the public service, and that six wires are now necessary for the public service.
The respondents answered by a general and special defense. In their special defense they contend that section 84 of Act No. 1459 has
been repealed by section 1, paragraph 8 of Act No. 1510 of the United States Philippine Commission (vol. 5, P. L., pp. 350-358), and
that under the provisions of said Act No. 1510 the Government is entitled to place on the poles of the company four wires only. Act No.
1510 is the charter of the Manila Railroad Company. It was adopted by the United States Philippine Commission on July 7, 1906.
Section 1, paragraph 8, of said Act No. 1510 provides:
8. The grantee (the Manila Railroad Company) shall have the right to construct and operate telegraph, telephone, and
electrical transmission lines over said railways for the use of the railways and their business, and also, with the approval of the
Secretary of War, for public service and commercial purposes but these latter privileges shall be subject to the following
provisions:
In the construction of telegraph or telephone lines along the right of way the grantee (the Manila Railroad Company) shall erect
and maintain poles with sufficient space thereon to permit the Philippine Government, at the expense of said Government, to
place, operate, and maintain four wires for telegraph, telephone, and electrical transmission for any Government purposes
between the termini of the lines of railways main or branch; and the Philippine Government reserves to itself the right to
construct, maintain, and operate telegraph, telephone, or electrical transmission lines over the right of way of said railways for

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commercial military, or government purposes, without unreasonably interfering with the construction, maintenance, and
operation by the grantee of its railways, telegraph, telephone, and electrical transmission lines.
To answer the question above stated, it becomes necessary to determine whether section 84 of Act No. 1459 is applicable to the Manila
Railroad Company, or whether the manila Railroad Company is governed by section 1, paragraph 8, of Act No. 1510. As has been said,
Act No. 1459 is a general law applicable to corporations generally, while Act No. 1510 is the charter of the Manila Railroad Company
and constitute a contract between it and the Government.
Inasmuch as Act No. 1510 is the charter of Manila Railroad Company and constitute a contract between it and the Governmemnt, it
would seem that the company is governd by its contract and not by the provisions of any general law upon questions covered by said
contract. From a reading of the said charter or contract it would be seen that there is no indication that the Government intended to
impose upon said company any other conditions as obligations not expressly found in said charter or contract. If that is true, then
certainly the Government cannot impose upon said company any conditions or obligations found in any general law, which does not
expressly modify said contract.
Section 84 of the Corporation Law (Act No. 1459) was intended to apply to all railways in the Philippine Islands which did not have a
special charter contract. Act No. 1510 applies only to the Manila Railroad Company, one of the respondents, and being a special
charter of said company, its adoption had the effect of superseding the provisions of the general Corporation Law which are applicable
to railraods in general. The special charter (Act No. 1510) had the effect of superseding the general Corporation Law upon all matters
covered by said special charter. Said Act, inasmuch as it contained a special provision relating to the erection of telegraph and
telephone poles, and the number of wires which the Government might place thereon, superseded the general law upon that question.
Act No. 1510 is a special charter of the respondent company. It constitutes a contract between the respondent company and the state;
and the state and the grantee of a charter are equally bound by its provisions. For the state to impose an obligation or a duty upon the
respondent company, which is not expressly provided for in the charter (Act No. 1510), would amount to a violation of said contract
between the state and the respondent company. The provisions of Act No. 1459 relating to the number of wires which the Government
may place upon the poles of the company are different and more enerous than the provisions of the charter upon the same question.
Therefore, to allow the plaintiff to require of the respondent company a compliance with said section 84 of Act No. 1459, would be to
require of the respondent company and the performance of an obligation which is not imposed upon it by its charter. The charter of a
corporation is a contract between three parties: (a) it is a contract between the state and the corporation to which the charter is granted;
(b) it is a contact between the stockholders and the state and (c) it is also a contract between the corporation and its stockholders.
(Cook on Corporations, vol. 2, sec. 494 and cases cited.)
The question is not whether Act No. 1510 repealed Act No. 1459; but whether, after the adoption of Act No. 1510, the respondents are
obliged to comply with the special provision above mentioned, contained in Act No. 1459. We must answer that question in the native.
Both laws are still in force, unless otherwise repealed. Act No. 1510 is applicable to respondents upon the question before us, while Act
No. 1459 is not applicable.
The petitioner, in view of all the foregoing facts and the law applicable thereto, has not shown itself entitled to the remedy prayed for.
The prayer of the petition must, therefore, be denied. And without any finding as to costs, it is so ordered.

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G.R. No. 96674 June 26, 1992
RURAL BANK OF SALINAS, INC., MANUEL SALUD, LUZVIMINDA TRIAS and FRANCISCO TRIAS, petitioners,
vs.
COURT OF APPEALS*, SECURITIES AND EXCHANGE COMMISSION, MELANIA A. GUERRERO, LUZ ANDICO, WILHEMINA G.
ROSALES, FRANCISCO M. GUERRERO, JR., and FRANCISCO GUERRERO , SR.,respondents.

PARAS, J.:
The basic controversy in this case is whether or not the respondent court erred in sustaining the Securities and Exchange Commission
when it compelled by Mandamus the Rural Bank of Salinas to register in its stock and transfer book the transfer of 473 shares of stock
to private respondents. Petitioners maintain that the Petition forMandamus should have been denied upon the following grounds.
(1) Mandamus cannot be a remedy cognizable by the Securities and Exchange Commission when the purpose is to register certificates
of stock in the names of claimants who are not yet stockholders of a corporation:
(2) There exist valid reasons for refusing to register the transfer of the subject of stock, namely:
(a) a pending controversy over the ownership of the certificates of stock with the Regional Trial Court;
(b) claims that the Deeds of Assignment covering the subject certificates of stock were fictitious and antedated; and
(c) claims on a resultant possible deprivation of inheritance share in relation with a conflicting claim over the subject
certificates of stock.
The facts are not disputed.
On June 10, 1979, Clemente G. Guerrero, President of the Rural Bank of Salinas, Inc., executed a Special Power of Attorney in favor of
his wife, private respondent Melania Guerrero, giving and granting the latter full power and authority to sell or otherwise dispose of
and/or mortgage 473 shares of stock of the Bank registered in his name (represented by the Bank's stock certificates nos. 26, 49 and
65), to execute the proper documents therefor, and to receive and sign receipts for the dispositions.
On February 27, 1980, and pursuant to said Special Power of Attorney, private respondent Melania Guerrero, as Attorney-in-Fact,
executed a Deed of Assignment for 472 shares out of the 473 shares, in favor of private respondents Luz Andico (457 shares),
Wilhelmina Rosales (10 shares) and Francisco Guerrero, Jr. (5 shares).
Almost four months later, or two (2) days before the death of Clemente Guerrero on June 24, 1980, private respondent Melania
Guerrero, pursuant to the same Special Power of Attorney, executed a Deed of Assignmentfor the remaining one (1) share of stock in
favor of private respondent Francisco Guerrero, Sr.
Subsequently, private respondent Melania Guerrero presented to petitioner Rural Bank of Salinas the two (2) Deeds of Assignment for
registration with a request for the transfer in the Bank's stock and transfer book of the 473 shares of stock so assigned, the cancellation
of stock certificates in the name of Clemente G. Guerrero, and the issuance of new stock certificates covering the transferred shares of
stocks in the name of the new owners thereof. However, petitioner Bank denied the request of respondent Melania Guerrero.
On December 5, 1980, private respondent Melania Guerrero filed with the Securities and Exchange Commission" (SEC) an action
for mandamus against petitioners Rural Bank of Salinas, its President and Corporate Secretary. The case was docketed as SEC Case
No. 1979.

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Petitioners filed their Answer with counterclaim on December 19, 1980 alleging the upon the death of Clemente G. Guerrero, his 473
shares of stock became the property of his estate, and his property and that of his widow should first be settled and liquidated in
accordance with law before any distribution can be effected so that petitioners may not be a party to any scheme to evade payment of
estate or inheritance tax and in order to avoid liability to any third persons or creditors of the late Clemente G. Guerrero.
On January 29, 1981, a motion for intervention was filed by Maripol Guerrero, a legally adopted daughter of the late Clemente G.
Guerrero and private respondent Melania Guerrero, who stated therein that on November 26, 1980 (almost two weeks before the filing
of the petition for Mandamus) a Petition for the administration of the estate of the late Clemente G. Guerrero had been filed with the
Regional Trial Court, Pasig, Branch XI, docketed as Special Proceedings No. 9400. Maripol Guerrero further claimed that the Deeds of
Assignment for the subject shares of stock are fictitious and antedated; that said conveyances are donations since the considerations
therefor are below the book value of the shares, the assignees/private respondents being close relatives of private respondent Melania
Guerrero; and that the transfer of the shares in question to assignees/private respondents, other than private respondent Melania
Guerrero, would deprive her (Maripol Guerrero) of her rightful share in the inheritance. The SEC hearing officer denied the Motion for
Intervention for lack of merit. On appeal, the SEC En Banc affirmed the decision of the hearing officer.
Intervenor Guerrero filed a complaint before the then Court of First Instance of Rizal, Quezon City Branch, against private respondents
for the annulment of the Deeds of Assignment, docketed as Civil Case No. Q-32050. Petitioners, on the other hand, filed a Motion to
Dismiss and/or to Suspend Hearing of SEC Case No. 1979 until after the question of whether the subject Deeds of Assignment are
fictitious, void or simulated is resolved in Civil Case No. Q-32050. The SEC Hearing Officer denied said motion.
On December 10, 1984, the SEC Hearing Officer rendered a Decision granting the writ of Mandamus prayed for by the private
respondents and directing petitioners to cancel stock certificates nos. 26, 49 and 65 of the Bank, all in the name of Clemente G.
Guerrero, and to issue new certificates in the names of private respondents, except Melania Guerrero. The dispositive, portion of the
decision reads:
WHEREFORE, judgment is hereby rendered in favor of the petitioners and against the respondents, directing the
latter, particularly the corporate secretary of respondent Rural Bank of Salinas, Inc., to register in the latter's Stock
and Transfer Book the transfer of 473 shares of stock of respondent Bank and to cancel Stock Certificates Nos. 26,
45 and 65 and issue new Stock Certificates covering the transferred shares in favor of petitioners, as follows:
1. Luz Andico 457 shares
2. Wilhelmina Rosales 10 shares
3. Francisco Guerrero, Jr. 5 shares
4. Francisco Guerrero, Sr. 1 share
and to pay to the above-named petitioners, the dividends for said shares corresponding to the years 1981, 1982,
1983 and 1984 without interest.
No pronouncement as to costs.
SO ORDERED. (p. 88, Rollo)
On appeal, the SEC En Banc affirmed the decision of the Hearing Officer. Petitioner filed a petition for review with the Court of Appeals
but said Court likewise affirmed the decision of the SEC.
We rule in favor of the respondents.
Section 5 (b) of P.D. No. 902-A grants to the SEC the original and exclusive jurisdiction to hear and decide cases involving
intracorporate controversies. An intracorporate controversy has been defined as one which arises between a stockholder and the
corporation. There is no distinction, qualification, nor any exception whatsoever (Rivera vs. Florendo, 144 SCRA 643 [1986]). The case

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at bar involves shares of stock, their registration, cancellation and issuances thereof by petitioner Rural Bank of Salinas. It is therefore
within the power of respondent SEC to adjudicate.
Respondent SEC correctly ruled in favor of the registering of the shares of stock in question in private respondent's names. Such ruling
finds support under Section 63 of the Corporation Code, to wit:
Sec. 63. . . . Shares of stock so issued are personal property and may be transferred by delivery of the certificate or
certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer. No
transfer, however, shall be valid, except as between the parties, until the transfer is recorded in the books of the
corporation . . .
In the case of Fleisher vs. Botica Nolasco, 47 Phil. 583, the Court interpreted Sec. 63 in his wise:
Said Section (Sec. 35 of Act 1459 [now Sec. 63 of the Corporation Code]) contemplates no restriction as to whom the
stocks may be transferred. It does not suggest that any discrimination may be created by the corporation in favor of,
or against a certain purchaser. The owner of shares, as owner of personal property, is at liberty, under said section to
dispose them in favor of whomever he pleases, without limitation in this respect, than the general provisions of law. . .
.
The only limitation imposed by Section 63 of the Corporation Code is when the corporation holds any unpaid claim against the
shares intended to be transferred, which is absent here.
A corporation, either by its board, its by-laws, or the act of its officers, cannot create restrictions in stock transfers, because:
. . . Restrictions in the traffic of stock must have their source in legislative enactment, as the corporation itself cannot
create such impediment. By-laws are intended merely for the protection of the corporation, and prescribe regulation,
not restriction; they are always subject to the charter of the corporation. The corporation, in the absence of such
power, cannot ordinarily inquire into or pass upon the legality of the transactions by which its stock passes from one
person to another, nor can it question the consideration upon which a sale is based. . . . (Tomson on Corporation Sec.
4137, citedin Fleisher vs. Nolasco, Supra).
The right of a transferee/assignee to have stocks transferred to his name is an inherent right flowing from his ownership of the stocks.
Thus:
Whenever a corporation refuses to transfer and register stock in cases like the present, mandamuswill lie to compel
the officers of the corporation to transfer said stock in the books of the corporation" (26, Cyc. 347, Hyer vs. Bryan, 19
Phil. 138; Fleisher vs. Botica Nolasco, 47 Phil. 583, 594).
The corporation's obligation to register is ministerial.
In transferring stock, the secretary of a corporation acts in purely ministerial capacity, and does not try to decide the
question of ownership. (Fletcher, Sec. 5528, page 434).
The duty of the corporation to transfer is a ministerial one and if it refuses to make such transaction without good
cause, it may be compelled to do so by mandamus. (See. 5518, 12 Fletcher 394)
For the petitioner Rural Bank of Salinas to refuse registration of the transferred shares in its stock and transfer book, which duty is
ministerial on its part, is to render nugatory and ineffectual the spirit and intent of Section 63 of the Corporation Code. Thus, respondent
Court of Appeals did not err in upholding the Decision of respondent SEC affirming the Decision of its Hearing Officer directing the
registration of the 473 shares in the stock and transfer book in the names of private respondents. At all events, the registration is
without prejudice to the proceedings in court to determine the validity of the Deeds of Assignment of the shares of stock in question.
WHEREFORE, the petition is DISMISSED for lack of merit.

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G.R. No. 41570

September 6, 1934

RED LINE TRANSPORTATION CO., petitioner-appellant,


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

The Bachrach Motor Company is the principal stockholder.

Q.

Please answer the question.

ESPELETA. Objecion porque la pregunta ya ha sido contestada.

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JUEZ. Puede contestar.
A.

I do not know what the legal construction or relationship existing between the two.

JUDGE. I do not know what is in your mind by not telling the real applicant in this case?
A.

It is the Rural Transit Company, Ltd.

JUDGE. As an entity by itself and not by the Bachrach Motor Company?


A.
I do not know. I have not given that phase of the matter much thought, as in previous occassion had not
necessitated.
JUDGE. In filing this application, you filed it for the operator on that line? Is it not!
A.

Yes, sir.

JUDGE. Who is that operator?


A.

The Rural Transit Company, Ltd.

JUDGE. By itself, or as a commercial name of the Bachrach Motor Company?


A.

I cannot say.

ESPELETA. The Rural Transit Company, Ltd., is a corporation duly established in accordance with the laws of the Philippine
Islands.
JUDGE. According to the records of this commission the Bachrach Motor Company is the owner of the certificates and the
Rural Transit Company, Ltd., is operating without any certificate.
JUDGE. If you filed this application for the Rural Transit Company, Ltd., and afterwards it is found out that the Rural Transit
Company, Ltd., is not an operator, everything will be turned down.
JUDGE. My question was, when you filed this application you evidently made it for the operator?
A.

Yes, sir.

JUDGE. Who was that operator you had in mind?


A.
According to the status of the ownership of the certificates of the former Rural Transit Company, the operator was the
operator authorized in case No. 23217 to whom all of the assets of the former Rural Transit Company were sold.
JUDGE. Bachrach Motor Company?
A.

All actions have been prosecuted in the name of the Rural Transit Company, Ltd.

JUDGE. You mean the Bachrach Motor Company, Inc., doing business under the name of the Rural Transit Company, Ltd.?
A.

Yes, sir.

LOCKWOOD. I move that this case be dismissed, your Honor, on the ground that this application was made in the name of
one party but the real owner is another party.

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ESPELETA. We object to that petition.
JUDGE. I will have that in mind when I decide the case. If I agree with you everything would be finished.
The Bachrach Motor Company, Inc., entered no appearance and ostensibly took no part in the hearing of the application of the Rural
Transit Company, Ltd. It may be a matter of some surprise that the commission did not on its own motion order the amendment of the
application by substituting the Bachrach Motor Company, Inc., as the applicant. However, the hearing proceeded on the application as
filed and the decision of December 2, 1932, was rendered in favor of the Rural Transit Company, Ltd., and the certificate ordered to be
issued in its name, in the face of the evidence that the said corporation was not the real party in interest. In its said decision, the
commission undertook to meet the objection by referring to its resolution of November 26, 1932, entered in another case. This
resolution in case No. 23217 concludes as follows:
Premises considered we hereby authorize the Bachrach Motor Co., Inc., to continue using the name of "Rural Transit Co.,
Ltd.," as its trade name in all the applications, motions or other petitions to be filed in this commission in connection with said
business and that this authority is given retroactive effect as of the date, of filing of the application in this case, to wit, April 29,
1930.
We know of no law that empowers the Public Service Commission or any court in this jurisdiction to authorize one corporation to
assume the name of another corporation as a trade name. Both the Rural Transit Company, Ltd., and the Bachrach Motor Co., Inc., are
Philippine corporations and the very law of their creation and continued existence requires each to adopt and certify a distinctive name.
The incorporators "constitute a body politic and corporate under the name stated in the certificate." (Section 11, Act No. 1459, as
amended.) A corporation has the power "of succession by its corporate name." (Section 13, ibid.) The name of a corporation is
therefore essential to its existence. It cannot change its name except in the manner provided by the statute. By that name alone is it
authorized to transact business. The law gives a corporation no express or implied authority to assume another name that is
unappropriated: still less that of another corporation, which is expressly set apart for it and protected by the law. If any corporation could
assume at pleasure as an unregistered trade name the name of another corporation, this practice would result in confusion and open
the door to frauds and evasions and difficulties of administration and supervision. The policy of the law expressed in our corporation
statute and the Code of Commerce is clearly against such a practice. (Cf. Scarsdale Pub. Co. Colonial Press vs. Carter, 116 New York
Supplement, 731; Svenska Nat. F. i. C. vs. Swedish Nat. Assn., 205 Illinois [Appellate Courts], 428, 434.)
The order of the commission of November 26, 1932, authorizing the Bachrach Motor Co., Incorporated, to assume the name of the
Rural Transit Co., Ltd. likewise in corporated, as its trade name being void, and accepting the order of December 21, 1932, at its face
as granting a certificate of public convenience to the applicant Rural Transit Co., Ltd., the said order last mentioned is set aside and
vacated on the ground that the Rural Transit Company, Ltd., is not the real party in interest and its application was fictitious.
In view of the dissolution of the Rural Transit Company, Ltd. by judicial decree of February 28, 1933, we do not see how we can assess
costs against said respondent, Rural Transit Company, Ltd.

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G.R. No. L-26370 July 31, 1970
PHILIPPINE FIRST INSURANCE COMPANY, INC., plaintiff-appellant,
vs.
MARIA CARMEN HARTIGAN, CGH, and O. ENGKEE, defendants-appellees.
Bausa, Ampil & Suarez for plaintiff-appellant.
Nicasio E. Martin for defendants-appellees.

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

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they will be liable for double amount of their obligation, there being no allegation that the surety has paid the
obligation to the creditor.
By way of special defense, defendants claim that there is no privity of contract between the plaintiff and the
defendants and consequently, the plaintiff has no cause of action against them, considering that the complaint does
not allege that the plaintiff and the 'Yek Tong Lin Fire and Marine Insurance Co., Ltd.' are one and the same or that
the plaintiff has acquired the rights of the latter. The parties after the admission of Exhibit A which is the amended
articles of incorporation and Exhibit 1 which is a demand letter dated August 16, 1962 signed by the manager of the
loans and discount department of the China Banking Corporation showing that the promissory note up to said date in
the sum of P4,500.00 was still unpaid, submitted the case for decision based on the pleadings.
Under date of 6 October 1962, the Court of First Instance of Manila rendered the decision appealed. It dismissed the action with costs
against the plaintiff Philippine First Insurance Co., Inc., reasoning as follows:
... With these undisputed facts in mind, the parties correctly concluded that the issues for resolution by this Court are
as follows:
(a) Whether or not the plaintiff is the real party in interest that may validly sue on the indemnity agreement signed by
the defendants and the Yek Tong Lin Fire & Marine Insurance Co., Ltd. (Annex A to plaintiff's complaint ); and
(b) Whether or not a suit for indemnity or reimbursement may under said indemnity agreement prosper without
plaintiff having yet paid the amount due under said promissory note.
In the first place, the change of name of the Yek Tong Lin Fire & Marine Insurance Co., Ltd. to the Philippines First
Insurance Co., Inc. is of dubious validity. Such change of name in effect dissolved the original corporation by a
process of dissolution not authorized by our corporation law (see Secs. 62 and 67, inclusive, of our Corporation Law).
Moreover, said change of name, amounting to a dissolution of the Yek Tong Lin Fire & Marine Insurance Co., Ltd.,
does not appear to have been effected with the written note or assent of stockholders representing at least two-thirds
of the subscribed capital stock of the corporation, a voting proportion required not only for the dissolution of a
corporation but also for any amendment of its articles of incorporation (Secs. 18 and 62, Corporation Law).
Furthermore, such change of corporate name appears to be against public policy and may be effected only by
express authority of law (Red Line Transportation Co. v. Rural Transit Co., Ltd., 60 Phil. 549, 555; Cincinnati
Cooperage Co., Ltd. vs. Vate, 26 SW 538, 539; Pilsen Brewing Co. vs. Wallace, 125 NE 714), but there is nothing in
our corporation law authorizing the change of corporate name in this jurisdiction.
In the second place, assuming that the change of name of the Yek Tong Lin Fire & Marine Insurance Co. Ltd., to
Philippines pine First Insurance Co., Inc., as accomplished on March 8, 1961, is valid, that would mean that the
original corporation, the Yek Tong Lin Fire & Marine Insurance Co., Ltd., became dissolved and of no further
existence since March 8, 1961, so that on May 15, 1961, the date the indemnity agreement, Annex A, was executed,
said original corporation bad no more power to enter into any agreement with the defendants, and the agreement
entered into by it was ineffective for lack of capacity of said dissolved corporation to enter into said agreement. At any
rate, even if we hold that said change of name is valid, the fact remains that there is no evidence showing that the
new entity, the Philippine First Insurance Co., Inc. has with the consent of the original parties, assumed the
obligations or was assigned the rights of action in the original corporation, the Yek Tong Lin Fire & Marine Insurance
Co., Ltd. In other words, there is no evidence of conventional subrogation of the Plaintiffs in the rights of the Yek Tong
Lin Fire & Marine Insurance Co., Ltd. under said indemnity agreement (Arts. 1300, 1301, New Civil Code). without
such subrogation assignment of rights, the herein plaintiff has no cause of action against the defendants, and is,
therefore, not the right party in interest as plaintiff.
Last, but not least, assuming that the said change of name was legal and operated to dissolve the original
corporation, the dissolved corporation, must pursuant to Sec. 77 of our corporation law, be deemed as continuing as
a body corporate for three (3) years from March 8, 1961 for the purpose of prosecuting and defending suits. It is,
therefore, the Yek Tong Lin Fire & Marine Insurance Co., Ltd. that is the proper party to sue the defendants under
said indemnity agreement up to March 8, 1964.

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Having arrived at the foregoing conclusions, this Court need not squarely pass upon issue (b) formulated above.
WHEREFORE, plaintiff's action is hereby dismissed, with costs against the plaintiff.
In due time, the Philippine First Insurance Company, Inc. moved for reconsideration of the decision aforesaid, but said motion was
denied on December 3, 1962 in an order worded thus:
The motion for reconsideration, dated November 8, 1962, raises no new issue that we failed to consider in rendering
our decision of October 6, 1962. However, it gives us an opportunity to amplify our decision as regards the question
of change of name of a corporation in this jurisdiction.
We find nothing in our Corporation Law authorizing a change of name of a corporation organized pursuant to its
provisions. Sec. 18 of the Corporation Law authorizes, in our opinion, amendment to the Articles of Incorporation of a
corporation only as to matters other than its corporate name. Once a corporation is organized in this jurisdiction by
the execution and registration of its Articles of Incorporation, it shall continue to exist under its corporate name for the
lifetime of its corporate existence fixed in its Articles of Incorporation, unless sooner legally dissolved (Sec. 11, Corp.
Law). Significantly, change of name is not one of the methods of dissolution of corporations expressly authorized by
our Corporation Law. Also significant is the fact that the power to change its corporate name is not one of the general
powers conferred on corporations in this jurisdiction (Sec. 13, Corp. Law). The enumeration of corporate powers
made in our Corporation Law implies the exclusion of all others (Thomas v. West Jersey R. Co., 101 U.S. 71, 25 L.
ed. 950). It is obvious, in this connection, that change of name is not one of the powers necessary to the exercise of
the powers conferred on corporations by said Sec. 13 (see Sec. 14, Corp. Law).
To rule that Sec. 18 of our Corporation Law authorizes the change of name of a corporation by amendment of its
Articles of Incorporation is to indulge in judicial legislation. We have examined the cases cited in Volume 13 of
American Jurisprudence in support of the proposition that the general power to alter or amend the charter of a
corporation necessarily includes the power to alter the name of a corporation, and find no justification for said
conclusion arrived at by the editors of American Jurisprudence. On the contrary, the annotations in favor of plaintiff's
view appear to have been based on decisions in cases where the statute itself expressly authorizes change of
corporate name by amendment of its Articles of Incorporation. The correct rule in harmony with the provisions of our
Corporation Law is well expressed in an English case as follows:
After a company has been completely register without defect or omission, so as to be incorporated
by the name set forth in the deed of settlement, such incorporated company has not the power to
change its name ... Although the King by his prerogative might incorporate by a new name, and the
newly named corporation might retain former rights, and sometimes its former name also, ... it
never appears to be such an act as the corporation could do by itself, but required the same power
as created the corporation. (Reg. v. Registrar of Joint Stock Cos 10 Q.B. 839, 59 E.C.L. 839).
The contrary view appears to represent the minority doctrine, judging from the annotations on decided cases on the
matter.
The movant invokes as persuasive precedent the action of the Securities Commissioner in tacitly approving the
Amended, Articles of Incorporation on May 26, 1961. We regret that we cannot in good conscience lend approval to
this action of the Securities and Exchange Commissioner. We find no justification, legal, moral, or practical, for
adhering to the view taken by the Securities and Exchange Commissioner that the name of a corporation in the
Philippines may be changed by mere amendment of its Articles of Incorporation as to its corporate name. A change of
corporate name would serve no useful purpose, but on the contrary would most probably cause confusion. Only a
dubious purpose could inspire a change of a corporate. name which, unlike a natural person's name, was chosen by
the incorporators themselves; and our Courts should not lend their assistance to the accomplishment of dubious
purposes.
WHEREFORE, we hereby deny plaintiff's motion for reconsideration, dated November 8, 1962, for lack of merit.
In this appeal appellant contends that

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I
THE TRIAL COURT ERRED IN HOLDING THAT IN THIS JURISDICTION, THERE IS NOTHING IN OUR
CORPORATION LAW AUTHORIZING THE CHANGE OF CORPORATE NAME;
II
THE TRIAL COURT ERRED IN DECLARING THAT A CHANGE OF CORPORATE NAME APPEARS TO BE
AGAINST PUBLIC POLICY;
III
THE TRIAL COURT ERRED IN HOLDING THAT A CHANGE OF CORPORATE NAME HAS THE LEGAL EFFECT
OF DISSOLVING THE ORIGINAL CORPORATION:
IV
THE TRIAL COURT ERRED IN HOLDING THAT THE CHANGE OF NAME OF THE YEK TONG LIN FIRE & MARINE
INSURANCE CO., LTD. IS OF DUBIOUS VALIDITY;
V
THE TRIAL COURT ERRED IN HOLDING THAT THE APPELLANT HEREIN IS NOT THE RIGHT PARTY INTEREST
TO SUE DEFENDANTS-APPELLEES;
IV
THE TRIAL COURT FINALLY ERRED IN DISMISSING THE COMPLAINT.
Appellant's Position is correct; all the above assignments of error are well taken. The whole case, however, revolves around only one
question. May a Philippine corporation change its name and still retain its original personality and individuality as such?
The answer is not difficult to find. True, under Section 6 of the Corporation Law, the first thing required to be stated in the Articles of
Incorporation of any corn corporation is its name, but it is only one among many matters equally if not more important, that must be
stated therein. Thus, it is also required, for example, to state the number and names of and residences of the incorporators and the
residence or location of the principal office of the corporation, its term of existence, the amount of its capital stock and the number of
shares into which it is divided, etc., etc.
On the other hand, Section 18 explicitly permits the articles of incorporation to be amended thus:
Sec. 18. Any corporation may for legitimate corporate purpose or purposes, amend its articles of incorporation by a
majority vote of its board of directors or trustees and the vote or written assent of two-thirds of its members, if it be a
nonstock corporation or, if it be a stock corporation, by the vote or written assent of the stockholders representing at
least two-thirds of the subscribed capital stock of the corporation Provided, however, That if such amendment to the
articles of incorporation should consist in extending the corporate existence or in any change in the rights of holders
of shares of any class, or would authorize shares with preferences in any respect superior to those of outstanding
shares of any class, or would restrict the rights of any stockholder, then any stockholder who did not vote for such
corporate action may, within forty days after the date upon which such action was authorized, object thereto in writing
and demand Payment for his shares. If, after such a demand by a stockholder, the corporation and the stockholder
cannot agree upon the value of his share or shares at the time such corporate action was authorized, such values all
be ascertained by three disinterested persons, one of whom shall be named by the stockholder, another by the
corporation, and the third by the two thus chosen. The findings of the appraisers shall be final, and if their award is
not paid by the corporation within thirty days after it is made, it may be recovered in an action by the stockholder
against the corporation. Upon payment by the corporation to the stockholder of the agreed or awarded price of his

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share or shares, the stockholder shall forthwith transfer and assign the share or shares held by him as directed by the
corporation: Provided, however, That their own shares of stock purchased or otherwise acquired by banks, trust
companies, and insurance companies, should be disposed of within six months after acquiring title thereto.
Unless and until such amendment to the articles of incorporation shall have been abandoned or the action rescinded,
the stockholder making such demand in writing shall cease to be a stockholder and shall have no rights with respect
to such shares, except the right to receive payment therefor as aforesaid.
A stockholder shall not be entitled to payment for his shares under the provisions of this section unless the value of
the corporate assets which would remain after such payment would be at least equal to the aggregate amount of its
debts and liabilities and the aggregate par value and/or issued value of the remaining subscribed capital stock.
A copy of the articles of incorporation as amended, duly certified to be correct by the president and the secretary of
the corporation and a majority of the board of directors or trustees, shall be filed with the Securities and Exchange
Commissioner, who shall attach the same to the original articles of incorporation, on file in his office. From the time of
filing such copy of the ame