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 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, 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.

between the above by-law and the command of a court decree, the latter is
to be followed.

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

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.

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

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.

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.

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.

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

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
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.

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.

EN BANC
[G.R. Nos. 84132-33 : December 10, 1990.]
192 SCRA 257
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. 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.

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.

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."

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.

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

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.
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 abovecited 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

SO ORDERED.

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
b) Interest at 12% per annum
c) Liquidated damages at 7% per annum
d) Costs of suit
e) Attorney's fees
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

P50,000.00
operation, the whole assets, furnitures and equipments, the total liabilities,
and Net Worth, books of accounts, etc., etc." of the petitioner corporation
was, handed down. On June 9, the petitioner, thru counsel, presented an
"Urgent Petition for Postponement of Auction Sale and for Release of Levy
on the Business Name and Right to Operate of Defendant JRS Business
Corporation", stating that petitioners were busy negotiating for a loan with
which to pay the judgment debt; that the judgment was for money only and,
therefore, plaintiff (respondent Insurance Company) was not authorized to
take over and appropriate for its own use, the business name of the
defendants; that the right to operate under the franchise, was not
transferable and could not be considered a personal or immovable, property,
subject to levy and sale. On June 10, 1962, a Supplemental Motion for
Release of Execution, was filed by counsel of petitioner JRS Business
Corporation, claiming that the capital stocks thereof, could not be levied upon
and sold under execution. Under date of June 20, 1962, petitioner's counsel
presented a pleading captioned "Very Urgent Motion for Postponement of
Public Auction Sale and for Ruling on Motion for Release of Levy on
the Business Name, Right to Operate and Capital Stocks of JRS Business
Corporation". The auction sale was set for June 21, 1962. In said motion,
petitioners alleged that the loan they had applied for, was to be secured
within the next ten (10) days, and they would be able to discharge the
judgment debt. Respondents opposed the said motion and on June 21, 1962,
the lower court denied the motion for postponement of the auction sale.
In the sale which was conducted in the premises of the JRS Business
Corporation at 1341 Perez St., Paco, Manila, all the properties of said
corporation contained in the Notices of Sale dated May 26, 1962, and June
2, 1962 (the latter notice being for the whole capital stocks of the defendant,
JRS Business Corporation, the business name, right of operation, the whole
assets, furnitures and equipments, the total liabilities and Net Worth, books
of accounts, etc., etc.), were bought by respondent Imperial Insurance, Inc.,
for P10,000.00, which was the highest bid offered. Immediately after the sale,
respondent Insurance Company took possession of the proper ties and
started running the affairs and operating the business of the JRS Business
Corporation. Hence, the present appeal.
It would seem that the matters which need determination are (1) whether the
respondent Judge acted without or in excess of his jurisdiction or with grave
abuse of discretion in promulgating the Order of June 21, 1962, denying the
motion for postponement of the scheduled sale at public auction, of the
properties of petitioner; and (2) whether the business name or trade name,
franchise (right to operate) and 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 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.

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.

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 in-memorial". The answer further
alleges that registration of the land in dispute was obtained by plaintiff or its
predecessors in interest thru "fraud or error and without knowledge (of) or
interest either personal or thru publication to defendant and/or predecessors
in interest." The answer therefore prays that the complaint be dismissed with
costs and plaintiff required to reconvey the land to defendant or pay its value.
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:

Araneta and Araneta for appellee.

Jose A. Buendia for appellant.

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.

REYES, J.:

II. The trial court erred in admitting the third amended complaint.

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.

III. The trial court erred in denying defendant's motion to strike.

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

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 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.

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.

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

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

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.

(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

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

(1) Cumulative voting for directors:

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

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 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, Rollo75975-76)
On the other hand, the petitioners in G.R. No. 75951 contend that:
I
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

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)
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 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.
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).
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 9man 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 not be used as a device to enable ASI to achieve stealthily or
indirectly what they cannot accomplish openly. There are substantial
safeguards in the Agreement which are intended to preserve the majority
status of the Filipino investors as well as to maintain the minority status of the
foreign investors group as earlier discussed. They should be maintained.
WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are
DISMISSED and the petition in G.R. No. 75951 is partly GRANTED. The
amended decision of the Court of Appeals is MODIFIED in that Messrs.
Wolfgang Aurbach John Griffin, David Whittingham Emesto V. Lagdameo,

Baldwin Young, Raul A. Boncan, Ernesto R. Lagdameo, Jr., Enrique

Lagdameo, and George F. Lee are declared as the duly elected directors of
Saniwares at the March 8,1983 annual stockholders' meeting. In all other
respects, the questioned decision is AFFIRMED. Costs against the
petitioners in G.R. Nos. 75975-76 and G.R. No. 75875.
SO ORDERED.
G.R. No. 15574

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.

September 17, 1919

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

vs.
JOAQUIN NATIVIDAD, Collector of Customs of the port of
Cebu, respondent.
Ross and Lawrence for petitioner.
Attorney-General Paredes for respondent.
MALCOLM, J.:
A writ of mandamus is prayed for by Smith, Bell & Co. (Ltd.), against Joaquin
Natividad, Collector of Customs of the port of Cebu, Philippine Islands, to
compel him to issue a certificate of Philippine registry to the petitioner for its
motor vessel Bato. The Attorney-General, acting as counsel for respondent,
demurs to the petition on the general ground that it does not state facts
sufficient to constitute a cause of action. While the facts are thus admitted,
and while, moreover, the pertinent provisions of law are clear and
understandable, and interpretative American jurisprudence is found in
abundance, yet the issue submitted is not lightly to be resolved. The
question, flatly presented, is, whether Act. No. 2761 of the Philippine
Legislature is valid or, more directly stated, whether the Government of
the Philippine Islands, through its Legislature, can deny the registry of
vessels in its coastwise trade to corporations having alien stockholders.
FACTS.
Smith, Bell & Co., (Ltd.), is a corporation organized and existing under the
laws of the Philippine Islands. A majority of its stockholders are British
subjects. It is the owner of a motor vessel known as the Bato built for it in the
Philippine Islands in 1916, of more than fifteen tons gross The Bato was
brought to Cebu in the present year for the purpose of transporting plaintiff's
merchandise between ports in the Islands. Application was made at Cebu,

The Act of Congress of April 29, 1908, repealing the Shipping Act of April 30,
1906 but reenacting a portion of section 3 of this Law, and still in force,
provides in its section 1:
That until Congress shall have authorized the registry as vessels of
the United States of vessels owned in the Philippine Islands, the
Government of the Philippine Islands is hereby authorized to adopt,
from time to time, and enforce regulations governing the
transportation of merchandise and passengers between ports or
places in the Philippine Archipelago. (35 Stat. at L., 70; Section
3912, U. S. Comp Stat. [1916]; 7 Pub. Laws, 364.)
The Act of Congress of August 29, 1916, commonly known as the Jones
Law, still in force, provides in section 3, (first paragraph, first sentence), 6, 7,
8, 10, and 31, as follows.
SEC. 3. That no law shall be enacted in said Islands which shall
deprive any person of life, liberty, or property without due process of
law, or deny to any person therein the equal protection of the laws. . .
.
SEC. 6. That the laws now in force in the Philippines shall continue in
force and effect, except as altered, amended, or modified herein,
until altered, amended, or repealed by the legislative authority herein
provided or by Act of Congress of the United States.
SEC. 7. That the legislative authority herein provided shall have
power, when not inconsistent with this Act, by due enactment to
amend, alter modify, or repeal any law, civil or criminal, continued in
force by this Act as it may from time to time see fit
This power shall specifically extend with the limitation herein
provided as to the tariff to all laws relating to revenue provided as to

the tariff to all laws relating to revenue and taxation in effect in the
Philippines.
SEC. 8. That general legislative power, except as otherwise herein
provided, is hereby granted to the Philippine Legislature, authorized
by this Act.
SEC. 10. That while this Act provides that the Philippine government
shall have the authority to enact a tariff law the trade relations
between the islands and the United States shall continue to be
governed exclusively by laws of the Congress of the United
States: Provided, That tariff acts or acts amendatory to the tariff of
the Philippine Islands shall not become law until they shall receive
the approval of the President of the United States, nor shall any act
of the Philippine Legislature affecting immigration or the currency or
coinage laws of the Philippines become a law until it has been
approved by the President of the United States: Provided
further, That the President shall approve or disapprove any act
mentioned in the foregoing proviso within six months from and after
its enactment and submission for his approval, and if not
disapproved within such time it shall become a law the same as if it
had been specifically approved.
SEC. 31. That all laws or parts of laws applicable to the Philippines
not in conflict with any of the provisions of this Act are hereby
continued in force and effect." (39 Stat at L., 546.)
On February 23, 1918, the Philippine Legislature enacted Act No. 2761. The
first section of this law amended section 1172 of the Administrative Code to
read as follows:
SEC. 1172. Certificate of Philippine register. Upon registration of a
vessel of domestic ownership, and of more than fifteen tons gross, a
certificate of Philippine register shall be issued for it. If the vessel is
of domestic ownership and of fifteen tons gross or less, the taking of
the certificate of Philippine register shall be optional with the owner.
"Domestic ownership," as used in this section, means ownership
vested in some one or more of the following classes of persons: (a)
Citizens or native inhabitants of the Philippine Islands; (b) citizens of
the United States residing in the Philippine Islands; (c) any
corporation or company composed wholly of citizens of the
Philippine Islands or of the United States or of both, created under

the laws of the United States, or of any State thereof, or of thereof, or

the managing agent or master of the vessel resides in the Philippine
Islands
Any vessel of more than fifteen gross tons which on February eighth,
nineteen hundred and eighteen, had a certificate of Philippine
register under existing law, shall likewise be deemed a vessel of
domestic ownership so long as there shall not be any change in the
ownership thereof nor any transfer of stock of the companies or
corporations owning such vessel to person not included under the
last preceding paragraph.
Sections 2 and 3 of Act No. 2761 amended sections 1176 and 1202 of the
Administrative Code to read as follows:
SEC. 1176. Investigation into character of vessel. No application
for a certificate of Philippine register shall be approved until the
collector of customs is satisfied from an inspection of the vessel that
it is engaged or destined to be engaged in legitimate trade and that it
is of domestic ownership as such ownership is defined in section
eleven hundred and seventy-two of this Code.
The collector of customs may at any time inspect a vessel or
examine its owner, master, crew, or passengers in order to ascertain
whether the vessel is engaged in legitimate trade and is entitled to
have or retain the certificate of Philippine register.
SEC. 1202. Limiting number of foreign officers and engineers on
board vessels. No Philippine vessel operating in the coastwise
trade or on the high seas shall be permitted to have on board more
than one master or one mate and one engineer who are not citizens
of the United States or of the Philippine Islands, even if they hold
licenses under section one thousand one hundred and ninety-nine
hereof. No other person who is not a citizen of the United States or
of the Philippine Islands shall be an officer or a member of the crew
of such vessel. Any such vessel which fails to comply with the terms
of this section shall be required to pay an additional tonnage tax of
fifty centavos per net ton per month during the continuance of said
failure.
ISSUES.

Predicated on these facts and provisions of law, the issues as above stated
recur, namely, whether Act No 2761 of the Philippine Legislature is valid in
whole or in part whether the Government of the Philippine Islands, through
its Legislature, can deny the registry of vessel in its coastwise trade to
corporations having alien stockholders .
OPINION.
1. Considered from a positive standpoint, there can exist no measure of
doubt as to the power of the Philippine Legislature to enact Act No. 2761.
The Act of Congress of April 29, 1908, with its specific delegation of authority
to the Government of the Philippine Islands to regulate the transportation of
merchandise and passengers between ports or places therein, the liberal
construction given to the provisions of the Philippine Bill, the Act of Congress
of July 1, 1902, by the courts, and the grant by the Act of Congress of August
29, 1916, of general legislative power to the Philippine Legislature, are
certainly superabundant authority for such a law. While the Act of the local
legislature may in a way be inconsistent with the Act of Congress regulating
the coasting trade of the Continental United States, yet the general rule that
only such laws of the United States have force in the Philippines as are
expressly extended thereto, and the abnegation of power by Congress in
favor of the Philippine Islands would leave no starting point for convincing
argument. As a matter of fact, counsel for petitioner does not assail
legislative action from this direction (See U. S. vs. Bull [1910], 15 Phil., 7;
Sinnot vs. Davenport [1859] 22 How., 227.)
2. It is from the negative, prohibitory standpoint that counsel argues against
the constitutionality of Act No. 2761. The first paragraph of the Philippine Bill
of Rights of the Philippine Bill, repeated again in the first paragraph of the
Philippine Bill of Rights as set forth in the Jones Law, provides "That no law
shall be enacted in said Islands which shall deprive any person of life, liberty,
or property without due process of law, or deny to any person therein the
equal protection of the laws." Counsel says that Act No. 2761 denies to
Smith, Bell & Co., Ltd., the equal protection of the laws because it, in effect,
prohibits the corporation from owning vessels, and because classification of
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.)

dependent upon experience. (Patsone vs. Commonwealth of Pennsylvania

[1914], 232 U. S., 138.)

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,

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 life-blood 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 allsufficient 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.)

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.

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. . . .
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 dueprocess 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 AttorneyGeneral of the United States was of the opinion that under the provisions of
the Act of December 31, 1792, no vessel in which a foreigner is directly or
indirectly interested can lawfully be registered as a vessel of the United.
States. (14 Op. Atty.-Gen. [U.S.], 340.)
These laws continued in force without contest, although possibly the Act of
March 3, 1825, may have affected them, until amended by the Act of May 28,
1896 (29 Stat. at L., 188) which extended the privileges of registry from
vessels wholly owned by a citizen or citizens of the United States to
corporations created under the laws of any of the states thereof. The law, as
amended, made possible the deduction that a vessel belonging to a domestic
corporation was entitled to registry or enrollment even though some stock of
the company be owned by aliens. The right of ownership of stock in a
corporation was thereafter distinct from the right to hold the property by the
corporation (Humphreys vs. McKissock [1890], 140 U.S., 304;
Queen vs. Arnaud [1846], 9 Q. B., 806; 29 Op. Atty.-Gen. [U.S.],188.)
On American occupation of the Philippines, the new government found a
substantive law in operation in the Islands with a civil law history which it
wisely continued in force Article fifteen of the Spanish Code of Commerce
permitted any foreigner to engage in Philippine trade if he had legal capacity
to do so under the laws of his nation. When the Philippine Commission came
to enact the Customs Administrative Act (No. 355) in 1902, it returned to the
old American policy of limiting the protection and flag of the United States to
vessels owned by citizens of the United States or by native inhabitants of the
Philippine Islands (Sec. 117.) Two years later, the same body reverted to the
existing Congressional law by permitting certification to be issued to a citizen
of the United States or to a corporation or company created under the laws of
the United States or of any state thereof or of the Philippine Islands (Act No.
1235, sec. 3.) The two administration codes repeated the same provisions
with the necessary amplification of inclusion of citizens or native inhabitants
of the Philippine Islands (Adm. Code of 1916, sec. 1345; Adm. Code of 1917,
sec. 1172). And now Act No. 2761 has returned to the restrictive idea of the
original Customs Administrative Act which in turn was merely a reflection of
the statutory language of the first American Congress.
Provisions such as those in Act No. 2761, which deny to foreigners the right
to a certificate of Philippine registry, are thus found not to be as radical as a
first reading would make them appear.

Without any subterfuge, the apparent purpose of the Philippine Legislature is

seen to be to enact an anti-alien shipping act. The ultimate purpose of the
Legislature is to encourage Philippine ship-building. This, without doubt, has,
likewise, been the intention of the United States Congress in passing
navigation or tariff laws on different occasions. The object of such a law, the
United States Supreme Court once said, was to encourage American trade,
navigation, and ship-building by giving American ship-owners exclusive
privileges. (Old Dominion Steamship Co. vs. Virginia [1905], 198 U.S., 299;
Kent's Commentaries, Vol. 3, p. 139.)
In the concurring opinion of Justice Johnson in Gibbons vs. Ogden ([1824], 9
Wheat., 1) is found the following:
Licensing acts, in fact, in legislation, are universally restraining acts;
as, for example, acts licensing gaming houses, retailers of spirituous
liquors, etc. The act, in this instance, is distinctly of that character,
and forms part of an extensive system, the object of which is to
encourage American shipping, and place them on an equal footing
with the shipping of other nations. Almost every commercial nation
reserves to its own subjects a monopoly of its coasting trade; and a
countervailing privilege in favor of American shipping is
contemplated, in the whole legislation of the United States on this
subject. It is not to give the vessel an American character, that the
license is granted; that effect has been correctly attributed to the act
of her enrollment. But it is to confer on her American privileges, as
contradistinguished from foreign; and to preserve the. Government
from fraud by foreigners, in surreptitiously intruding themselves into
the American commercial marine, as well as frauds upon the
revenue in the trade coastwise, that this whole system is projected.
The United States Congress in assuming its grave responsibility of legislating
wisely for a new country did so imbued with a spirit of Americanism.
Domestic navigation and trade, it decreed, could only be carried on by
citizens of the United States. If the representatives of the American people
acted in this patriotic manner to advance the national policy, and if their
action was accepted without protest in the courts, who can say that they did
not enact such beneficial laws under the all-pervading police power, with the
prime motive of safeguarding the country and of promoting its prosperity?
Quite similarly, the Philippine Legislature made up entirely of Filipinos,
representing the mandate of the Filipino people and the guardian of their
rights, acting under practically autonomous powers, and imbued with a
strong sense of Philippinism, has desired for these Islands safety from
foreign interlopers, the use of the common property exclusively by its citizens

and the citizens of the United States, and protection for the common good of
the people. Who can say, therefore, especially can a court, that with all the
facts and circumstances affecting the Filipino people before it, the Philippine
Legislature has erred in the enactment of Act No. 2761?
Surely, the members of the judiciary are not expected to live apart from
active life, in monastic seclusion amidst dusty tomes and ancient records,
but, as keen spectators of passing events and alive to the dictates of the
general the national welfare, can incline the scales of their decisions in
favor of that solution which will most effectively promote the public policy. All
the presumption is in favor of the constitutionally of the law and without good
and strong reasons, courts should not attempt to nullify the action of the
Legislature. "In construing a statute enacted by the Philippine Commission
(Legislature), we deem it our duty not to give it a construction which would be
repugnant to an Act of Congress, if the language of the statute is fairly
susceptible of another construction not in conflict with the higher law." (In
re 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 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 margin 1
hereinafter referred to as Respondents-Prosecutors several judges 2
hereinafter referred to as Respondents-Judges issued, on different
dates,3 a total of 42 search warrants against petitioners herein 4 and/or the
corporations of which they were officers,5 directed to the any peace officer, to
search the persons above-named and/or the premises of their offices,
warehouses and/or residences, and to seize and take possession of the
following personal property to wit:
Books of accounts, financial records, vouchers, correspondence,
receipts, ledgers, journals, portfolios, credit journals, typewriters, and
other documents and/or papers showing all business transactions
including disbursements receipts, balance sheets and profit and loss
statements and Bobbins (cigarette wrappers).
as "the subject of the offense; stolen or embezzled and proceeds or fruits of
the offense," or "used or intended to be used as the means of committing the
offense," which is described in the applications adverted to above as
"violation of Central Bank Laws, Tariff and Customs Laws, Internal Revenue
(Code) and the Revised Penal Code."
Alleging that the aforementioned search warrants are null and void, as
contravening the Constitution and the Rules of Court because, inter alia:
(1) they do not describe with particularity the documents, books and things to
be seized; (2) cash money, not mentioned in the warrants, were actually
seized; (3) the warrants were issued to fish evidence against the
aforementioned petitioners in deportation cases filed against them; (4) the
searches and seizures were made in an illegal manner; and (5) the
documents, papers and cash money seized were not delivered to the courts
that issued the warrants, to be disposed of in accordance with law on
March 20, 1962, said petitioners filed with the Supreme Court this original
action for certiorari, prohibition, mandamus and injunction, and prayed that,

pending final disposition of the present case, a writ of preliminary injunction

be issued restraining Respondents-Prosecutors, their agents and /or
representatives from using the effects seized as aforementioned or any
copies thereof, in the deportation cases already adverted to, and that, in due
course, thereafter, decision be rendered quashing the contested search
warrants and declaring the same null and void, and commanding the
respondents, their agents or representatives to return to petitioners herein, in
accordance with Section 3, Rule 67, of the Rules of Court, the documents,
papers, things and cash moneys seized or confiscated under the search
warrants in question.
In their answer, respondents-prosecutors alleged, 6 (1) that the contested
search warrants are valid and have been issued in accordance with law; (2)
that the defects of said warrants, if any, were cured by petitioners' consent;
and (3) that, in any event, the effects seized are admissible in evidence
against herein petitioners, regardless of the alleged illegality of the
aforementioned searches and seizures.
On March 22, 1962, this Court issued the writ of preliminary injunction prayed
for in the petition. However, by resolution dated June 29, 1962, the writ was
partially lifted or dissolved, insofar as the papers, documents and things
seized from the offices of the corporations above mentioned are concerned;
but, the injunction was maintained as regards the papers, documents and
things found and seized in the residences of petitioners herein. 7
Thus, the documents, papers, and things seized under the alleged authority
of the warrants in question may be split into two (2) major groups, namely:
(a) those found and seized in the offices of the aforementioned corporations,
and (b) those found and seized in the residences of petitioners herein.
As regards the first group, we hold that petitioners herein have no cause of
action to assail the legality of the contested warrants and of the seizures
made in pursuance thereof, for the simple reason that said corporations have
their respective personalities, separate and distinct from the personality of
herein petitioners, regardless of the amount of shares of stock or of the
interest of each of them in said corporations, and whatever the offices they
hold therein may be.8 Indeed, it is well settled that the legality of a seizure
can be contested only by the party whose rights have been impaired
thereby,9 and that the objection to an unlawful search and seizure is purely
personal and cannot be availed of by third parties. 10 Consequently,
petitioners herein may not validly object to the use in evidence against them
of the documents, papers and things seized from the offices and premises of
the corporations adverted to above, since the right to object to the admission

of said papers in evidence belongsexclusively to the corporations, to whom

the seized effects belong, and may not be invoked by the corporate officers
in proceedings against them in their individual capacity. 11 Indeed, it has been
held:
. . . that the Government's action in gaining possession of papers
belonging to the corporation did not relate to nor did it affect
the personal defendants. If these papers were unlawfully seized and
thereby the constitutional rights of or any one were invaded, they
were the rights of the corporation and not the rights of the other
defendants. Next, it is clear that a question of the lawfulness of a
seizure can be raised only by one whose rights have been invaded.
Certainly, such a seizure, if unlawful, could not affect the
constitutional rights of defendants whose property had not been
seized or the privacy of whose homes had not been disturbed; nor
could they claim for themselves the benefits of the Fourth
Amendment, when its violation, if any, was with reference to the
rights of another. Remus vs. United States (C.C.A.)291 F. 501, 511. It
follows, therefore, that the question of the admissibility of the
evidence based on an alleged unlawful search and seizure
does not extend to the personal defendants but
embraces only the corporation whose property was taken. . . . (A
Guckenheimer & Bros. Co. vs. United States, [1925] 3 F. 2d. 786,
789, Emphasis supplied.)
With respect to the documents, papers and things seized in the residences of
petitioners herein, the aforementioned resolution of June 29, 1962, lifted the
writ of preliminary injunction previously issued by this Court, 12 thereby, in
effect, restraining herein Respondents-Prosecutors from using them in
evidence against petitioners herein.
In connection with said documents, papers and things, two (2) important
questions need be settled, namely: (1) whether the search warrants in
question, and the searches and seizures made under the authority thereof,
are valid or not, and (2) if the answer to the preceding question is in the
negative, whether said documents, papers and things may be used in
evidence against petitioners herein.
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
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

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.

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.

Relying upon Moncado vs. People's Court (80 Phil. 1), RespondentsProsecutors 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.

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

However, most common law jurisdictions have already given up this

approach and eventually adopted the exclusionary rule, realizing that this

is the only practical means of enforcing the constitutional injunction against

unreasonable searches and seizures. In the language of Judge Learned
Hand:
As we understand it, the reason for the exclusion of evidence
competent as such, which has been unlawfully acquired, is that
exclusion is the only practical way of enforcing the constitutional
privilege. In earlier times the action of trespass against the offending
official may have been protection enough; but that is true no longer.
Only in case the prosecution which itself controls the seizing officials,
knows that it cannot profit by their wrong will that wrong be
repressed.18
In fact, over thirty (30) years before, the Federal Supreme Court had already
declared:
If letters and private documents can thus be seized and held and
used in evidence against a citizen accused of an offense, the
protection of the 4th Amendment, declaring his rights to be secure
against such searches and seizures, is of no value, and, so far as
those thus placed are concerned, might as well be stricken from the
Constitution. The efforts of the courts and their officials to bring the
guilty to punishment, praiseworthy as they are, are not to be aided
by the sacrifice of those great principles established by years of
endeavor and suffering which have resulted in their embodiment in
the fundamental law of the land.19
This view was, not only reiterated, but, also, broadened in subsequent
decisions on the same Federal Court. 20After reviewing previous decisions
thereon, said Court held, in Mapp vs. Ohio (supra.):
. . . Today we once again examine the Wolf's constitutional
documentation of the right of privacy free from unreasonable state
intrusion, and after its dozen years on our books, are led by it to
close the only courtroom door remaining open to evidence secured
by official lawlessness in flagrant abuse of that basic right, reserved
to all persons as a specific guarantee against that very same
unlawful conduct. We hold that all evidence obtained by searches
and seizures in violation of the Constitution is, by that same authority,
inadmissible in a State.
Since the Fourth Amendment's right of privacy has been declared
enforceable against the States through the Due Process Clause of

the Fourteenth, it is enforceable against them by the same sanction

of exclusion as it used against the Federal Government. Were it
otherwise, then just as without the Weeks rule the assurance against
unreasonable federal searches and seizures would be "a form of
words," valueless and underserving of mention in a perpetual charter
of inestimable human liberties, so too, without that rule the freedom
from state invasions of privacy would be so ephemeral and so neatly
severed from its conceptual nexus with the freedom from all brutish
means of coercing evidence as not to permit this Court's high regard
as a freedom "implicit in the concept of ordered liberty." At the time
that the Court held in Wolf that the amendment was applicable to the
States through the Due Process Clause, the cases of this Court as
we have seen, had steadfastly held that as to federal officers the
Fourth Amendment included the exclusion of the evidence seized in
violation of its provisions. Even Wolf "stoutly adhered" to that
proposition. The right to when conceded operatively enforceable
against the States, was not susceptible of destruction by avulsion of
the sanction upon which its protection and enjoyment had always
been deemed dependent under the Boyd, Weeks and Silverthorne
Cases. Therefore, in extending the substantive protections of due
process to all constitutionally unreasonable searches state or
federal it was logically and constitutionally necessarily that the
exclusion doctrine an essential part of the right to privacy be
also insisted upon as an essential ingredient of the right newly
recognized by the Wolf Case. In short, the admission of the new
constitutional Right by Wolf could not tolerate denial of its most
important constitutional privilege, namely, the exclusion of the
evidence which an accused had been forced to give by reason of the
unlawful seizure. To hold otherwise is to grant the right but in reality
to withhold its privilege and enjoyment. Only last year the Court itself
recognized that the purpose of the exclusionary rule to "is to deter
to compel respect for the constitutional guaranty in the only
effectively available way by removing the incentive to disregard
it" . . . .
The ignoble shortcut to conviction left open to the State tends to
destroy the entire system of constitutional restraints on which the
liberties of the people rest. Having once recognized that the right to
privacy embodied in the Fourth Amendment is enforceable against
the States, and that the right to be secure against rude invasions of
privacy by state officers is, therefore constitutional in origin, we can
no longer permit that right to remain an empty promise. Because it is
enforceable in the same manner and to like effect as other basic

rights secured by its Due Process Clause, we can no longer permit it

to be revocable at the whim of any police officer who, in the name of
law enforcement itself, chooses to suspend its enjoyment. Our
decision, founded on reason and truth, gives to the individual no
more than that which the Constitution guarantees him to the police
officer no less than that to which honest law enforcement is entitled,
and, to the courts, that judicial integrity so necessary in the true
administration of justice. (emphasis ours.)
Indeed, the non-exclusionary rule is contrary, not only to the letter, but also,
to the spirit of the constitutional injunction against unreasonable searches
and seizures. To be sure, if the applicant for a search warrant has competent
evidence to establish probable cause of the commission of a given crime by
the party against whom the warrant is intended, then there is no reason why
the applicant should not comply with the requirements of the fundamental
law. Upon the other hand, if he has no such competent evidence, then it
is not possible for the Judge to find that there is probable cause, and, hence,
no justification for the issuance of the warrant. The only possible explanation
(not justification) for its issuance is the necessity of fishing evidence of the
commission of a crime. But, then, this fishing expedition is indicative of the
absence of evidence to establish a probable cause.
Moreover, the theory that the criminal prosecution of those who secure an
illegal search warrant and/or make unreasonable searches or seizures would
suffice to protect the constitutional guarantee under consideration, overlooks
the fact that violations thereof are, in general, committed By agents of the
party in power, for, certainly, those belonging to the minority could not
possibly abuse a power they do not have. Regardless of the handicap under
which the minority usually but, understandably finds itself in
prosecuting agents of the majority, one must not lose sight of the fact that the
psychological and moral effect of the possibility 21 of securing their conviction,
is watered down by the pardoning power of the party for whose benefit the
illegality had been committed.
In their Motion for Reconsideration and Amendment of the Resolution of this
Court dated June 29, 1962, petitioners allege that Rooms Nos. 81 and 91 of
Carmen Apartments, House No. 2008, Dewey Boulevard, House No. 1436,
Colorado Street, and Room No. 304 of the Army-Navy Club, should be
included among the premises considered in said Resolution as residences of
herein petitioners, Harry S. Stonehill, Robert P. Brook, John J. Brooks and
Karl Beck, respectively, and that, furthermore, the records, papers and other
effects seized in the offices of the corporations above referred to include
personal belongings of said petitioners and other effects under their

exclusive possession and control, for the exclusion of which they have a
standing under the latest rulings of the federal courts of federal courts of the
United States. 22
We note, however, that petitioners' theory, regarding their alleged possession
of and control over the aforementioned records, papers and effects, and the
alleged "personal" nature thereof, has Been Advanced, notin their petition or
amended petition herein, but in the Motion for Reconsideration and
Amendment of the Resolution of June 29, 1962. In other words, said theory
would appear to be readjustment of that followed in said petitions, to suit the
approach intimated in the Resolution sought to be reconsidered and
amended. Then, too, some of the affidavits or copies of alleged affidavits
attached to said motion for reconsideration, or submitted in support thereof,
contain either inconsistent allegations, or allegations inconsistent with the
theory now advanced by petitioners herein.
Upon the other hand, we are not satisfied that the allegations of said petitions
said motion for reconsideration, and the contents of the aforementioned
affidavits and other papers submitted in support of said motion, have
sufficiently established the facts or conditions contemplated in the cases
relied upon by the petitioners; to warrant application of the views therein
expressed, should we agree thereto. At any rate, we do not deem it
necessary to express our opinion thereon, it being best to leave the matter
open for determination in appropriate cases in the future.
We hold, therefore, that the doctrine adopted in the Moncado case must be,
as it is hereby, abandoned; that the warrants for the search of three (3)
residences of herein petitioners, as specified in the Resolution of June 29,
1962, are null and void; that the searches and seizures therein made are
illegal; that the writ of preliminary injunction heretofore issued, in connection
with the documents, papers and other effects thus seized in said residences
of herein petitioners is hereby made permanent; that the writs prayed for are
granted, insofar as the documents, papers and other effects so seized in the
aforementioned residences are concerned; that the aforementioned motion
for Reconsideration and Amendment should be, as it is hereby, denied; and
that the petition herein is dismissed and the writs prayed for denied, as
regards the documents, papers and other effects seized in the twenty-nine
(29) places, offices and other premises enumerated in the same Resolution,
without special pronouncement as to costs.
It is so ordered.

Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar and Sanchez, JJ.,
concur.
CASTRO, J., concurring and dissenting:
From my analysis of the opinion written by Chief Justice Roberto Concepcion
and from the import of the deliberations of the Court on this case, I gather the
following distinct conclusions:
1. All the search warrants served by the National Bureau of
Investigation in this case are general warrants and are therefore
proscribed by, and in violation of, paragraph 3 of section 1 of Article
III (Bill of Rights) of the Constitution;
2. All the searches and seizures conducted under the authority of the
said search warrants were consequently illegal;
3. The non-exclusionary rule enunciated in Moncado vs. People, 80
Phil. 1, should be, and is declared, abandoned;
4. The search warrants served at the three residences of the
petitioners are expressly declared null and void the searches and
seizures therein made are expressly declared illegal; and the writ of
preliminary injunction heretofore issued against the use of the
documents, papers and effect seized in the said residences is made
permanent; and
5. Reasoning that the petitioners have not in their pleadings
satisfactorily demonstrated that they have legal standing to move for
the suppression of the documents, papers and effects seized in the
places other than the three residences adverted to above, the
opinion written by the Chief Justice refrains from expresslydeclaring
as null and void the such warrants served at such other places and
as illegal the searches and seizures made therein, and leaves "the
matter open for determination in appropriate cases in the future."
It is precisely the position taken by the Chief Justice summarized in the
immediately preceding paragraph (numbered 5) with which I am not in
accord.
I do not share his reluctance or unwillingness to expressly declare, at this
time, the nullity of the search warrants served at places other than the three

residences, and the illegibility of the searches and seizures conducted under
the authority thereof. In my view even the exacerbating passions and
prejudices inordinately generated by the environmental political and moral
developments of this case should not deter this Court from forthrightly laying
down the law not only for this case but as well for future cases and future
generations. All the search warrants, without exception, in this case are
admittedly general, blanket and roving warrants and are therefore admittedly
and indisputably outlawed by the Constitution; and the searches and
seizures made were therefore unlawful. That the petitioners, let us assume
in gratia argumente, have no legal standing to ask for the suppression of the
papers, things and effects seized from places other than their residences, to
my mind, cannot in any manner affect, alter or otherwise modify the intrinsic
nullity of the search warrants and the intrinsic illegality of the searches and
seizures made thereunder. Whether or not the petitioners possess legal
standing the said warrants are void and remain void, and the searches and
seizures were illegal and remain illegal. No inference can be drawn from the
words of the Constitution that "legal standing" or the lack of it is a
determinant of the nullity or validity of a search warrant or of the lawfulness
or illegality of a search or seizure.
On the question of legal standing, I am of the conviction that, upon the
pleadings submitted to this Court the petitioners have the requisite legal
standing to move for the suppression and return of the documents, papers
and effects that were seized from places other than their family residences.
Our constitutional provision on searches and seizures was derived
almost verbatim from the Fourth Amendment to the United States
Constitution. In the many years of judicial construction and interpretation of
the said constitutional provision, our courts have invariably regarded as
doctrinal the pronouncement made on the Fourth Amendment by federal
courts, especially the Federal Supreme Court and the Federal Circuit Courts
of Appeals.
The U.S. doctrines and pertinent cases on standing to move for the
suppression or return of documents, papers and effects which are the fruits
of an unlawful search and seizure, may be summarized as follows; (a)
ownership of documents, papers and effects gives "standing;" (b) ownership
and/or control or possession actual or constructive of premises
searched gives "standing"; and (c) the "aggrieved person" doctrine where the
search warrant and the sworn application for search warrant are "primarily"
directed solely and exclusively against the "aggrieved person," gives
"standing."

An examination of the search warrants in this case will readily show that,
excepting three, all were directed against the petitioners personally. In some
of them, the petitioners were named personally, followed by the designation,
"the President and/or General Manager" of the particular corporation. The
three warrants excepted named three corporate defendants. But the
"office/house/warehouse/premises" mentioned in the said three warrants
were also the same "office/house/warehouse/premises" declared to be
owned by or under the control of the petitioners in all the other search
warrants directed against the petitioners and/or "the President and/or
General Manager" of the particular corporation. (see pages 5-24 of
Petitioners' Reply of April 2, 1962). The searches and seizures were to be
made, and were actually made, in the "office/house/warehouse/premises"
owned by or under the control of the petitioners.

desk drawer, or in his pocket, he has the right to know it will be

secure from an unreasonable search or an unreasonable seizure. So
it was that the Fourth Amendment could not tolerate the warrantless
search of the hotel room in Jeffers, the purloining of the petitioner's
private papers in Gouled, or the surreptitious electronic surveilance
in Silverman. Countless other cases which have come to this Court
over the years have involved a myriad of differing factual contexts in
which the protections of the Fourth Amendment have been
appropriately invoked. No doubt, the future will bring countless
others. By nothing we say here do we either foresee or foreclose
factual situations to which the Fourth Amendment may be applicable.
(Hoffa vs. U.S., 87 S. Ct. 408 (December 12, 1966). See also U.S.
vs. Jeffers, 342 U.S. 48, 72 S. Ct. 93 (November 13, 1951).
(Emphasis supplied).

Ownership of matters seized gives "standing."

Control of premises searched gives "standing."
Ownership of the properties seized alone entitles the petitioners to bring a
motion to return and suppress, and gives them standing as persons
aggrieved by an unlawful search and seizure regardless of their location at
the time of seizure. Jones vs. United States, 362 U.S. 257, 261 (1960)
(narcotics stored in the apartment of a friend of the defendant); Henzel vs.
United States, 296 F. 2d. 650, 652-53 (5th Cir. 1961), (personal and
corporate papers of corporation of which the defendant was
president), United States vs. Jeffers, 342 U.S. 48 (1951) (narcotics seized in
an apartment not belonging to the defendant); Pielow vs. United States, 8 F.
2d 492, 493 (9th Cir. 1925) (books seized from the defendant's sister but
belonging to the defendant); Cf. Villano vs. United States, 310 F. 2d 680, 683
(10th Cir. 1962) (papers seized in desk neither owned by nor in exclusive
possession of the defendant).
In a very recent case (decided by the U.S. Supreme Court on December 12,
1966), it was held that under the constitutional provision against unlawful
searches and seizures, a person places himself or his property within a
constitutionally protected area, be it his home or his office, his hotel room or
his automobile:
Where the argument falls is in its misapprehension of the
fundamental nature and scope of Fourth Amendment protection.
What the Fourth Amendment protects is the security a man relies
upon when heplaces himself or his property within a constitutionally
protected area, be it his home or his office, his hotel room or his
automobile. There he is protected from unwarranted governmental
intrusion. And when he puts some thing in his filing cabinet, in his

Independent of ownership or other personal interest in the records and

documents seized, the petitioners have standing to move for return and
suppression by virtue of their proprietary or leasehold interest in many of the
premises searched. These proprietary and leasehold interests have been
sufficiently set forth in their motion for reconsideration and need not be
recounted here, except to emphasize that the petitioners paid rent, directly or
indirectly, for practically all the premises searched (Room 91, 84 Carmen
Apts; Room 304, Army & Navy Club; Premises 2008, Dewey Boulevard;
1436 Colorado Street); maintained personal offices within the corporate
offices (IBMC, USTC); had made improvements or furnished such offices; or
had paid for the filing cabinets in which the papers were stored (Room 204,
Army & Navy Club); and individually, or through their respective spouses,
owned the controlling stock of the corporations involved. The petitioners'
proprietary interest in most, if not all, of the premises searched therefore
independently gives them standing to move for the return and suppression of
the books, papers and affects seized therefrom.
In Jones vs. United States, supra, the U.S. Supreme Court delineated the
nature and extent of the interest in the searched premises necessary to
maintain a motion to suppress. After reviewing what it considered to be the
unduly technical standard of the then prevailing circuit court decisions, the
Supreme Court said (362 U.S. 266):
We do not lightly depart from this course of decisions by the lower
courts. We are persuaded, however, that it is unnecessarily and illadvised to import into the law surrounding the constitutional right to

be free from unreasonable searches and seizures subtle distinctions,

developed and refined by the common law in evolving the body of
private property law which, more than almost any other branch of
law, has been shaped by distinctions whose validity is largely
historical. Even in the area from which they derive, due consideration
has led to the discarding of those distinctions in the homeland of the
common law. See Occupiers' Liability Act, 1957, 5 and 6 Eliz. 2, c.
31, carrying out Law Reform Committee, Third Report, Cmd. 9305.
Distinctions such as those between "lessee", "licensee," "invitee,"
"guest," often only of gossamer strength, ought not be determinative
in fashioning procedures ultimately referable to constitutional
safeguards. See also Chapman vs. United States, 354 U.S. 610,
616-17 (1961).
It has never been held that a person with requisite interest in the premises
searched must own the property seized in order to have standing in a motion
to return and suppress. In Alioto vs. United States, 216 F. Supp. 48 (1963), a
Bookkeeper for several corporations from whose apartment the corporate
records were seized successfully moved for their return. In United States vs.
Antonelli, Fireworks Co., 53 F. Supp. 870, 873 (W D. N. Y. 1943), the
corporation's president successfully moved for the return and suppression is
to him of both personal and corporate documents seized from his home
during the course of an illegal search:
The lawful possession by Antonelli of documents and property,
"either his own or the corporation's was entitled to protection against
unreasonable search and seizure. Under the circumstances in the
case at bar, the search and seizure were unreasonable and unlawful.
The motion for the return of seized article and the suppression of the
evidence so obtained should be granted. (Emphasis supplied).
Time was when only a person who had property in interest in either the place
searched or the articles seize had the necessary standing to invoke the
protection of the exclusionary rule. But in MacDonald vs. Unite States, 335
U.S. 461 (1948), Justice Robert Jackson joined by Justice Felix Frankfurter,
advanced the view that "even a guest may expect the shelter of the rooftree
he is under against criminal intrusion." This view finally became the official
view of the U.S. Supreme Court and was articulated in United States vs.
Jeffers, 432 U.S 48 (1951). Nine years later, in 1960, in Jones vs. Unite
States, 362 U.S. 257, 267, the U.S. Supreme Court went a step further.
Jones was a mere guest in the apartment unlawfully searched but the Court
nonetheless declared that the exclusionary rule protected him as well. The
concept of "person aggrieved by an unlawful search and seizure" was

enlarged to include "anyone legitimately on premise where the search

occurs."
Shortly after the U.S. Supreme Court's Jones decision the U.S. Court of
Appeals for the Fifth Circuit held that the defendant organizer, sole
stockholder and president of a corporation had standing in a mail fraud
prosecution against him to demand the return and suppression of corporate
property. Henzel vs. United States, 296 F 2d 650, 652 (5th Cir. 1961), supra.
The court conclude that the defendant had standing on two independent
grounds:First he had a sufficient interest in the property seized,
and second he had an adequate interest in the premises searched (just
like in the case at bar). A postal inspector had unlawfully searched the
corporation' premises and had seized most of the corporation's book and
records. Looking to Jones, the court observed:
Jones clearly tells us, therefore, what is not required qualify one as a
"person aggrieved by an unlawful search and seizure." It tells us that
appellant should not have been precluded from objecting to the
Postal Inspector's search and seizure of the corporation's books and
records merely because the appellant did not show ownership or
possession of the books and records or a substantial possessory
interest in the invade premises . . . (Henzel vs. United States, 296 F.
2d at 651). .
Henzel was soon followed by Villano vs. United States, 310 F. 2d 680, 683,
(10th Cir. 1962). In Villano, police officers seized two notebooks from a desk
in the defendant's place of employment; the defendant did not claim
ownership of either; he asserted that several employees (including himself)
used the notebooks. The Court held that the employee had a protected
interest and that there also was an invasion of privacy.
Both Henzel andVillano considered also the fact that the search and seizure
were "directed at" the moving defendant. Henzel vs. United States, 296 F. 2d
at 682; Villano vs. United States, 310 F. 2d at 683.
In a case in which an attorney closed his law office, placed his files in storage
and went to Puerto Rico, the Court of Appeals for the Eighth Circuit
recognized his standing to move to quash as unreasonable search and
seizure under the Fourth Amendment of the U.S. Constitution a grand jury
subpoena duces tecum directed to the custodian of his files. The
Government contended that the petitioner had no standing because the
books and papers were physically in the possession of the custodian, and
because the subpoena was directed against the custodian. The court
rejected the contention, holding that

Schwimmer legally had such possession, control and unrelinquished

personal rights in the books and papers as not to enable the
question of unreasonable search and seizure to be escaped through
the mere procedural device of compelling a third-party naked
possessor to produce and deliver them. Schwimmer vs. United
States, 232 F. 2d 855, 861 (8th Cir. 1956).
Aggrieved person doctrine where the search warrant s primarily directed
against said person gives "standing."
The latest United States decision squarely in point is United States vs. Birrell,
242 F. Supp. 191 (1965, U.S.D.C. S.D.N.Y.). The defendant had stored with
an attorney certain files and papers, which attorney, by the name of Dunn,
was not, at the time of the seizing of the records, Birrell's attorney. * Dunn, in
turn, had stored most of the records at his home in the country and on a farm
which, according to Dunn's affidavit, was under his (Dunn's) "control and
management." The papers turned out to be private, personal and business
papers together with corporate books and records of certain unnamed
corporations in which Birrell did not even claim ownership. (All of these type
records were seized in the case at bar). Nevertheless, the search in Birrell
was held invalid by the court which held that even though Birrell did not own
the premises where the records were stored, he had "standing" to move for
the return of all the papers and properties seized. The court, relying
on Jones vs. U.S.,supra; U.S. vs. Antonelli Fireworks Co., 53 F. Supp. 870,
Aff'd 155 F. 2d 631: Henzel vs. U.S., supra; andSchwimmer vs. U.S., supra,
pointed out that
It is overwhelmingly established that the searches here in question
were directed solely and exclusively against Birrell. The only person
suggested in the papers as having violated the law was Birrell. The
first search warrant described the records as having been used "in
committing a violation of Title 18, United States Code, Section 1341,
by the use of the mails by one Lowell M. Birrell, . . ." The second
search warrant was captioned: "United States of America vs. Lowell
M. Birrell. (p. 198)
Possession (actual or constructive), no less than ownership, gives
standing to move to suppress. Such was the rule even before Jones.
(p. 199)
If, as thus indicated Birrell had at least constructive possession of the
records stored with Dunn, it matters not whether he had any interest
in the premises searched. See also Jeffers v. United States, 88 U.S.

Appl. D.C. 58, 187 F. 2d 498 (1950), affirmed 432 U.S. 48, 72 S. Ct.
93, 96 L. Ed. 459 (1951).
The ruling in the Birrell case was reaffirmed on motion for reargument; the
United States did not appeal from this decision. The factual situation
in Birrell is strikingly similar to the case of the present petitioners; as in Birrell,
many personal and corporate papers were seized from premises not
petitioners' family residences; as in Birrell, the searches were "PRIMARILY
DIRECTED SOLETY AND EXCLUSIVELY" against the petitioners. Still both
types of documents were suppressed in Birrell because of the illegal search.
In the case at bar, the petitioners connection with the premises raided is
much closer than in Birrell.
Thus, the petitioners have full standing to move for the quashing of all the
warrants regardless whether these were directed against residences in the
narrow sense of the word, as long as the documents were personal papers of
the petitioners or (to the extent that they were corporate papers) were held
by them in a personal capacity or under their personal control.
Prescinding a from the foregoing, this Court, at all events, should order the
return to the petitioners all personaland private papers and effects seized, no
matter where these were seized, whether from their residences or corporate
offices or any other place or places. The uncontradicted sworn statements of
the petitioners in their, various pleadings submitted to this Court indisputably
show that amongst the things seized from the corporate offices and other
places were personal and private papers and effects belonging to the
petitioners.
If there should be any categorization of the documents, papers and things
which where the objects of the unlawful searches and seizures, I submit that
the grouping should be: (a) personal or private papers of the petitioners were
they were unlawfully seized, be it their family residences offices, warehouses
and/or premises owned and/or possessed (actually or constructively) by
them as shown in all the search and in the sworn applications filed in
securing the void search warrants and (b) purely corporate papers belonging
to corporations. Under such categorization or grouping, the determination of
which unlawfully seized papers, documents and things arepersonal/private of
the petitioners or purely corporate papers will have to be left to the lower
courts which issued the void search warrants in ultimately effecting the
suppression and/or return of the said documents.
And as unequivocally indicated by the authorities above cited, the petitioners
likewise have clear legal standing to move for the suppression of purely

corporate papers as "President and/or General Manager" of the corporations

involved as specifically mentioned in the void search warrants.

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.

Finally, I must articulate my persuasion that although the cases cited in my

disquisition were criminal prosecutions, the great clauses of the constitutional
proscription on illegal searches and seizures do not withhold the mantle of
their protection from cases not criminal in origin or nature.

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.

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:

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 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.

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

The petition should be granted for the following reasons:

chanrob1es virtual 1aw library

1. Respondent Judge failed to personally examine the complainant and his

witness.
The pertinent provisions of the Constitution of the Philippines and of the

Revised Rules of Court are:

jgc:chanrobles.com .ph

"(3) The right of the people to be secure in their persons, houses, papers and
effects against unreasonable searches and seizures shall not be violated, and
no warrants shall issue but upon probable cause, to be determined by the
judge after examination under oath or affirmation of the complainant and the
witnesses he may produce, and particularly describing the place to be
searched, and the persons or things to be seized." (Art. III, Sec. 1,
Constitution.)
"SEC. 3. Requisites for issuing search warrant. A search warrant shall not
issue but upon probable cause in connection with one specific offense to be
determined by the judge or justice of the peace after examination under oath
or affirmation of the complainant and the witnesses he may produce, and
particularly describing the place to be searched and the persons or things to be
seized.
"No search warrant shall issue for more than one specific offense.
"SEC. 4. Examination of the applicant. The judge or justice of the peace
must, before issuing the warrant, personally examine on oath or affirmation
the complainant and any witnesses he may produce and take their depositions
in writing, and attach them to the record, in addition to any affidavits
presented to him." (Rule 126, Revised Rules of Court.)
The examination of the complainant and the witnesses he may produce,
required by Art. III, Sec. 1, par. 3, of the Constitution, and by Secs. 3 and 4,
Rule 126 of the Revised Rules of Court, should be conducted by the judge
himself and not by others. The phrase "which shall be determined by the judge
after examination under oath or affirmation of the complainant and the
witnesses he may produce," appearing in the said constitutional provision, was
introduced by Delegate Francisco as an amendment to the draft submitted by
the Sub-Committee of Seven. The following discussion in the Constitutional
Convention (Laurel, Proceedings of the Philippine Constitutional Convention,
Vol. III, pp. 755-757) is enlightening:

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

"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.

jgc:chanroble s.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

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:chanroble s.com.ph

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

"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 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

Sec. 46(a) requires the filing of income tax returns by corporations.

Sec. 53 requires the withholding of income taxes at source.
Sec. 72 imposes surcharges for failure to render income tax returns and for
rendering false and fraudulent returns.
Sec. 73 provides the penalty for failure to pay the income tax, to make a
return or to supply the information required under the Tax Code.
Sec. 208 penalizes" [a]ny person who distills, rectifies, repacks, compounds, or
manufactures any article subject to a specific tax, without having paid the
privilege tax therefore, or who aids or abets in the conduct of illicit distilling,
rectifying, compounding, or illicit manufacture of any article subject to specific
tax . . .," and provides that in the case of a corporation, partnership, or
association, the official and/or employee who caused the violation shall be
responsible.
Sec. 209 penalizes the failure to make a return of receipts, sales, business, or
gross value of output removed, or to pay the tax due thereon.
The search warrant in question was issued for at least four distinct offenses
under the Tax Code. The first is the violation of Sec. 46(a), Sec. 72 and Sec. 73
(the filing of income tax returns), which are interrelated. The second is the
violation of Sec. 53 (withholding of income taxes at source). The third is the
violation of Sec. 208 (unlawful pursuit of business or occupation); and the
fourth is the violation of Sec. 209 (failure to make a return of receipts, sales,
business or gross value of output actually removed or to pay the tax due
thereon). Even in their classification the six above-mentioned provisions are
embraced in two different titles: Secs. 46(a), 53, 72 and 73 are under Title II
(Income Tax); while Secs. 208 and 209 are under Title V (Privilege Tax on
Business and Occupation).
Respondents argue that Stonehill, Et. Al. v. Diokno, Et Al., L-19550, June 19,
1967 (20 SCRA 383), is not applicable, because there the search warrants
were issued for "violation of Central Bank Laws, Internal Revenue (Code) and
Revised Penal Code;" whereas, here Search Warrant No 2-M-70 was issued for
violation of only one code, i.e., the National Internal Revenue Code. The
distinction more apparent than real, because it was precisely on account of the
Stonehill incident, which occurred sometime before the present Rules of Court
took effect on January 1, 1964, that this Court amended the former rule by
inserting therein the phrase "in connection with one specific offense," and
adding the sentence "No search warrant shall issue for more than one specific
offense," in what is now Sec. 3, Rule 126. Thus we said in Stonehill:
jgc:chanrobles.com .ph

"Such is the seriousness of the irregularities committed in connection with the

disputed search warrants, that this Court deemed it fit to amend Section 3 of
Rule 122 of the former Rules of Court that a search warrant shall not issue but
upon probable cause in connection with one specific offense. Not satisfied with
this qualification, the Court added thereto a paragraph, directing that no
search warrant shall issue for more than one specific offense."
3. The search warrant does not particularly describe the things to be seized.
The documents, papers and effects sought to be seized are described in Search
Warrant No. 2-M-70 in this manner:
jgc:chanrobles.com .ph

"Unregistered and private books of accounts (ledgers, journals, columnars,

receipts and disbursements books, customers ledgers); receipts for payments
received; certificates of stocks and securities; contracts, promissory notes and
deeds of sale; telex and coded messages; business communications,
accounting and business records; checks and check stubs; records of bank
deposits and withdrawals; and records of foreign remittances, covering the
years 1966 to 1970."
cralaw virtua1aw library

The description does not meet the requirement in Art III, Sec. 1, of the
Constitution, and of Sec. 3, Rule 126 of the Revised Rules of Court, that the
warrant should particularly describe the things to be seized.
In Stonehill, this Court, speaking thru Mr. Chief Justice Roberto Concepcion,
said:
jgc:chanroble s.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:chanroble s.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.)

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.)

that score, petitioner corporation here stands on a different footing from the
corporations in Stonehill.
The tax assessments referred to earlier in this opinion were, if not entirely
as claimed by petitioners at least partly as in effect admitted by
respondents based on the documents seized by virtue of Search Warrant No.
2-M-70. Furthermore, the fact that the assessments were made some one and
one-half months after the search and seizure on February 25, 1970, is a strong
indication that the documents thus seized served as basis for the assessments.
Those assessments should therefore not be enforced.
PREMISES CONSIDERED, the petition is granted. Accordingly, Search Warrant
No. 2-M-70 issued by respondent Judge is declared null and void; respondents
are permanently enjoined from enforcing the said search warrant; the
documents, papers and effects seized thereunder are ordered to be returned to
petitioners; and respondent officials the Bureau of Internal Revenue and their
representatives are permanently enjoined from enforcing the assessments
mentioned in Annex "G" of the present petition, as well as other assessments
based on the documents, papers and effects seized under the search warrant
herein nullified, and from using the same against petitioners in any criminal or
other proceeding. No pronouncement as to costs.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Fernando, Teehankee and
Makasiar, JJ., concur.
Reyes, J.B.L., J., concurs with Mr. Justice Barredo.

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:

Castro, J., concurs in the result.

"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 . . ."

G.R. No. 75885 May 27, 1987

jgc:chanroble s.com.ph

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.

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

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:

9. And all affiliate companies of Alfredo

"Bejo" Romualdez
You are hereby ordered:
1. To implement this sequestration order with a minimum
disruption of these companies' business activities.
2. To ensure the continuity of these companies as going
concerns, the care and maintenance of these assets until
such time that the Office of the President through the
Commission on Good Government should decide otherwise.
3. To report to the Commission on Good Government
periodically.

RE: SEQUESTRATION ORDER

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

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.

b. Order for Production of Documents

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

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) Change of Mode of Payment of Entry

Charges

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.

The letter closed with the warning that if the documents were not submitted
within five days, the officers would be cited for "contempt in pursuance with
Presidential Executive Order Nos. 1 and 2."
c. Orders Re Engineer Island
(1) Termination of Contract for Security
Services
A third order assailed by petitioner corporation, hereafter referred to simply
as BASECO, is that issued on April 21, 1986 by a Capt. Flordelino B. Zabala,
a member of the task force assigned to carry out the basic sequestration
order. He sent a letter to BASECO's Vice-President for Finance, 3 terminating
the contract for security services within the Engineer Island compound between

BASECO and "Anchor and FAIRWAYS" and "other civilian security agencies,"
CAPCOM military personnel having already been assigned to the area,

On July 15, 1986, the same Capt. Zabala issued a Memorandum addressed
to "Truck Owners and Contractors," particularly a "Mr. Buddy Ondivilla
National Marine Corporation," advising of the amendment in part of their
contracts with BASECO in the sense that the stipulated charges for use of
the BASECO road network were made payable "upon entry and not anymore
subject to monthly billing as was originally agreed upon." 4
d. Aborted Contract for Improvement of Wharf at Engineer
Island
On July 9, 1986, a PCGG fiscal agent, S. Berenguer, entered into a contract
in behalf of BASECO with Deltamarine Integrated Port Services, Inc., in
virtue of which the latter undertook to introduce improvements costing
approximately P210,000.00 on the BASECO wharf at Engineer Island,
allegedly then in poor condition, avowedly to "optimize its utilization and in
return maximize the revenue which would flow into the government coffers,"
in consideration of Deltamarine's being granted "priority in using the
improved portion of the wharf ahead of anybody" and exemption "from the
payment of any charges for the use of wharf including the area where it may
install its bagging equipments" "until the improvement remains in a condition
suitable for port operations." 5 It seems however that this contract was never
consummated. Capt. Jorge B. Siacunco, "Head- (PCGG) BASECO Management
Team," advised Deltamarine by letter dated July 30, 1986 that "the new management
is not in a position to honor the said contract" and thus "whatever improvements * *
(may be introduced) shall be deemed unauthorized * * and shall be at * *
(Deltamarine's) own risk." 6

e. Order for Operation of Sesiman Rock Quarry, Mariveles,

Bataan
By Order dated June 20, 1986, Commissioner Mary Bautista first directed a
PCGG agent, Mayor Melba O. Buenaventura, "to plan and implement
progress towards maximizing the continuous operation of the BASECO
Sesiman Rock Quarry * * by conventional methods;" but afterwards,
Commissioner Bautista, in representation of the PCGG, authorized another
party, A.T. Abesamis, to operate the quarry, located at Mariveles, Bataan, an
agreement to this effect having been executed by them on September 17,
1986. 7
f. Order to Dispose of Scrap, etc.

By another Order of Commissioner Bautista, this time dated June 26, 1986,
Mayor Buenaventura was also "authorized to clean and beautify the
Company's compound," and in this connection, to dispose of or sell "metal
scraps" and other materials, equipment and machineries no longer usable,
subject to specified guidelines and safeguards including audit and
verification. 8
g. The TAKEOVER Order
By letter dated July 14, 1986, Commissioner Ramon A. Diaz decreed the
provisional takeover by the PCGG of BASECO, "the Philippine Dockyard
Corporation and all their affiliated companies." 9 Diaz invoked the provisions of
Section 3 (c) of Executive Order No. 1, empowering the Commission

* * To provisionally takeover in the public interest or to

prevent its disposal or dissipation, business enterprises and
properties taken over by the government of the Marcos
Administration or by entities or persons close to former
President Marcos, until the transactions leading to such
acquisition by the latter can be disposed of by the
appropriate authorities.
A management team was designated to implement the order, headed by
Capt. Siacunco, and was given the following powers:
1. Conducts all aspects of operation of the subject
companies;
2. Installs key officers, hires and terminates personnel as
necessary;
3. Enters into contracts related to management and
operation of the companies;
4. Ensures that the assets of the companies are not
dissipated and used effectively and efficiently; revenues are
duly accounted for; and disburses funds only as may be
necessary;
5. Does actions including among others, seeking of military
support as may be necessary, that will ensure compliance to
this order;

6. Holds itself fully accountable to the Presidential

Commission on Good Government on all aspects related to
this take-over order.
h. Termination of Services of BASECO
Officers
Thereafter, Capt. Siacunco, sent letters to Hilario M. Ruiz, Manuel S.
Mendoza, Moises M. Valdez, Gilberto Pasimanero, and Benito R. Cuesta I,
advising of the termination of their services by the PCGG. 10
2. Petitioner's Plea and Postulates
It is the foregoing specific orders and acts of the PCGG and its members and
agents which, to repeat, petitioner BASECO would have this Court nullify.
More particularly, BASECO prays that this 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

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

b. Re Order to Produce Documents

It argues that the order to produce corporate records from 1973 to 1986,
which it has apparently already complied with, was issued without court
authority and infringed its constitutional right against self-incrimination, and
unreasonable search and seizure. 14
c. Re PCGG's Exercise of Right of Ownership and
Management
BASECO further contends that the PCGG had unduly interfered with its right
of dominion and management of its business affairs by
1) terminating its contract for security services with Fairways & Anchor,
without the consent and against the will of the contracting parties; and
amending the mode of payment of entry fees stipulated in its Lease Contract
with National Stevedoring & Lighterage Corporation, these acts being in
violation of the non-impairment clause of the constitution; 15
2) allowing PCGG Agent Silverio Berenguer to enter into an "anomalous
contract" with Deltamarine Integrated Port Services, Inc., giving the latter free
use of BASECO premises; 16
3) authorizing PCGG Agent, Mayor Melba Buenaventura, to manage and
operate its rock quarry at Sesiman, Mariveles; 17
4) authorizing the same mayor to sell or dispose of its metal scrap,
equipment, machinery and other materials; 18
5) authorizing the takeover of BASECO, Philippine Dockyard Corporation,
and all their affiliated companies;
6) terminating the services of BASECO executives: President Hilario M. Ruiz;
EVP Manuel S. Mendoza; GM Moises M. Valdez; Finance Mgr. Gilberto
Pasimanero; Legal Dept. Mgr. Benito R. Cuesta I; 19
7) planning to elect its own Board of Directors;

20

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
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,

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
33

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

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 acquisitions-is within the
realm of judicial notice, being of so extensive notoriety as to dispense with
proof thereof, Be this as it may, the requirement of evidentiary substantiation
has been expressly acknowledged, and the procedure to be followed
explicitly laid down, in Executive Order No. 14.
b. Need of Provisional Measures to Collect and Conserve
Assets Pending Suits

Nor may it be gainsaid that pending the institution of the suits for the
recovery of such "ill-gotten wealth" as the evidence at hand may reveal, there
is an obvious and imperative need for preliminary, provisional measures to
prevent the concealment, disappearance, destruction, dissipation, or loss of
the assets and properties subject of the suits, or to restrain or foil acts that
may render moot and academic, or effectively hamper, delay, or negate
efforts to recover the same.
7. Provisional Remedies Prescribed by Law
To answer this need, the law has prescribed three (3) provisional remedies.
These are: (1) sequestration; (2) freeze orders; and (3) provisional takeover.
Sequestration and freezing are remedies applicable generally to unearthed
instances of "ill-gotten wealth." The remedy of "provisional takeover" is
peculiar to cases where "business enterprises and properties (were) taken
over by the government of the Marcos Administration or by entities or
persons close to former President Marcos." 43
a. Sequestration
By the clear terms of the law, the power of the PCGG to sequester
property claimed to be "ill-gotten" means to place or cause to be placed
under its possession or control said property, or any building or office wherein
any such property and any records pertaining thereto may be found,
including "business enterprises and entities,"-for the purpose of preventing
the destruction, concealment or dissipation of, and otherwise conserving and
preserving, the same-until it can be determined, through appropriate judicial
proceedings, whether the property was in truth will- gotten," i.e., acquired
through or as a result of improper or illegal use of or the conversion of funds
belonging to the Government or any of its branches, instrumentalities,
enterprises, banks or financial institutions, or by taking undue advantage of
official position, authority relationship, connection or influence, resulting in
unjust enrichment of the ostensible owner and grave damage and prejudice
to the State. 44 And this, too, is the sense in which the term is commonly understood
in other jurisdictions. 45

b. "Freeze Order"
A "freeze order" prohibits the person having possession or control of property
alleged to constitute "ill-gotten wealth" "from transferring, conveying,
encumbering or otherwise depleting or concealing such property, or from
assisting or taking part in its transfer, encumbrance, concealment, or
dissipation." 46 In other words, it commands the possessor to hold the property and
conserve it subject to the orders and disposition of the authority decreeing such

freezing. In this sense, it is akin to a garnishment by which the possessor or

ostensible owner of property is enjoined not to deliver, transfer, or otherwise dispose
of any effects or credits in his possession or control, and thus becomes in a sense an
involuntary depositary thereof. 47

c. Provisional Takeover
In providing for the remedy of "provisional takeover," the law acknowledges
the apparent distinction between "ill gotten" "business enterprises and
entities" (going concerns, businesses in actual operation), generally, as to
which the remedy of sequestration applies, it being necessarily inferred that
the remedy entails no interference, or the least possible interference with the
actual management and operations thereof; and "business enterprises which
were taken over by the government government of the Marcos
Administration or by entities or persons close to him," in particular, as to
which a "provisional takeover" is authorized, "in the public interest or to
prevent disposal or dissipation of the enterprises." 48 Such a "provisional
takeover" imports something more than sequestration or freezing, more than the
placing of the business under physical possession and control, albeit without or with
the least possible interference with the management and carrying on of the business
itself. In a "provisional takeover," what is taken into custody is not only the physical
assets of the business enterprise or entity, but the business operation as well. It is in
fine the assumption of control not only over things, but over operations or on- going
activities. But, to repeat, such a "provisional takeover" is allowed only as regards
"business enterprises * * taken over by the government of the Marcos Administration
or by entities or persons close to former President Marcos."

d. No Divestment of Title Over Property Seized

It may perhaps be well at this point to stress once again the provisional,
contingent character of the remedies just described. Indeed the law plainly
qualifies the remedy of take-over by the adjective, "provisional." These
remedies may be resorted to only for a particular exigency: to prevent in the
public interest the disappearance or dissipation of property or business, and
conserve it pending adjudgment in appropriate proceedings of the primary
issue of whether or not the acquisition of title or other right thereto by the
apparent owner was attended by some vitiating anomaly. None of the
remedies is meant to deprive the owner or possessor of his title or any right
to the property sequestered, frozen or taken over and vest it in the
sequestering agency, the Government or other person. This can be done
only for the causes and by the processes laid down by law.
That this is the sense in which the power to sequester, freeze or provisionally
take over is to be understood and exercised, the language of the executive
orders in question leaves no doubt. Executive Order No. 1 declares that the
sequestration of property the acquisition of which is suspect shall last "until
the transactions leading to such acquisition * * can be disposed of by the

appropriate authorities." 49 Executive Order No. 2 declares that the assets or

properties therein mentioned shall remain frozen "pending the outcome of appropriate
proceedings in the Philippines to determine whether any such assets or properties
were acquired" by illegal means. Executive Order No. 14 makes clear that judicial
proceedings are essential for the resolution of the basic issue of whether or not
particular assets are "ill-gotten," and resultant recovery thereof by the Government is
warranted.

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

Constitutional Command
There is thus no cause for the apprehension voiced by BASECO

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.
50

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.

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:

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

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 "illgotten 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 illgotten 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.

There can therefore be no

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.
71

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:

1. Jose A. Rojas

1,248 shares

2. Severino G. de
la Cruz

1,248 shares

Management

3. Emilio T. Yap

2,508 shares

12. United Phil.

Lines

1,240 shares

4. Jose Fernandez

1,248 shares

13. Renato M.
Tanseco

8 shares

5. Jose Francisco

128 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

6. Manuel S.
Mendoza

96 shares

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

19. Dioscoro Papa

128 shares

11. Trident

7,412 shares

20. Edward T.

4 shares

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

Marcelo

TOTAL

218,819
shares.

13 Acquisition of NASSCO by BASECO

Barely six months after its incorporation, BASECO acquired from National
Shipyard & Steel Corporation, or NASSCO, a government-owned or
controlled corporation, the latter's shipyard at Mariveles, Bataan, known as
the Bataan National Shipyard (BNS), and except for NASSCO's Engineer
Island Shops and certain equipment of the BNS, consigned for future
negotiation all its structures, buildings, shops, quarters, houses, plants,
equipment and facilities, in stock or in transit. This it did in virtue of a
"Contract of Purchase and Sale with Chattel Mortgage" executed on
February 13, 1973. The price was P52,000,000.00. As partial payment
thereof, BASECO delivered to NASSCO a cash bond of P11,400,000.00,
convertible into cash within twenty-four (24) hours from completion of the
inventory undertaken pursuant to the contract. The balance of
P41,600,000.00, with interest at seven percent (7%) per annum,
compounded semi-annually, was stipulated to be paid in equal semi-annual
installments over a term of nine (9) years, payment to commence after a
grace period of two (2) years from date of turnover of the shipyard to
BASECO. 76
14. Subsequent Reduction of Price; Intervention of Marcos
Unaccountably, the price of P52,000,000.00 was reduced by more than onehalf, 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

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

Some nine months afterwards, or on July 15, 1975, to be precise, BASECO,
again with the intervention of President Marcos, acquired ownership of the
rest of the assets of NASSCO which had not been included in the first two (2)
purchase documents. This was accomplished by a deed entitled "Contract of
Purchase and Sale," 79which, like the Memorandum of Agreement dated October 9,
1973 supra also bore at the upper right-hand corner of its first page, the handwritten
notation of President Marcos reading, "APPROVED, July 29, 1973," and underneath
it, his usual full signature. Transferred to BASECO were NASSCO's "ownership and
all its titles, rights and interests over all equipment and facilities including structures,
buildings, shops, quarters, houses, plants and expendable or semi-expendable
assets, located at the Engineer Island, known as the Engineer Island Shops, including
all the equipment of the Bataan National Shipyards (BNS) which were excluded from
the sale of NBS to BASECO but retained by BASECO and all other selected
equipment and machineries of NASSCO at J. Panganiban Smelting Plant." In the
same deed, NASSCO committed itself to cooperate with BASECO for the acquisition
from the National Government or other appropriate Government entity of Engineer
Island. Consideration for the sale was set at P5,000,000.00; a down payment of
P1,000,000.00 appears to have been made, and the balance was stipulated to be
paid at 7% interest per annum in equal semi annual installments over a term of nine
(9) years, to commence after a grace period of two (2) years. Mr. Arturo Pacificador
again signed for NASSCO, together with the general manager, Mr. David R. Ines.

17. Loans Obtained

It further appears that on May 27, 1975 BASECO obtained a loan from the
NDC, taken from "the last available Japanese war damage fund of
$19,000,000.00," to pay for "Japanese made heavy equipment (brand
new)." 80On September 3, 1975, it got another loan also from the NDC in the amount
of P30,000,000.00 (id.). And on January 28, 1976, it got still another loan, this time
from the GSIS, in the sum of P12,400,000.00. 81 The claim has been made that not a
single centavo has been paid on these loans. 82

18. Reports to President Marcos

In September, 1977, two (2) reports were submitted to President Marcos
regarding BASECO. The first was contained in a letter dated September 5,
1977 of Hilario M. Ruiz, BASECO president. 83 The second was embodied in a
confidential memorandum dated September 16, 1977 of Capt. A.T.

Romualdez. 84 They further disclose the fine hand of Marcos in the affairs of
BASECO, and that of a Romualdez, a relative by affinity.

a. BASECO President's Report

In his letter of September 5, 1977, BASECO President Ruiz reported to
Marcos that there had been "no orders or demands for ship construction" for
some time and expressed the fear that if that state of affairs persisted,
BASECO would not be able to pay its debts to the Government, which at the
time stood at the not inconsiderable amount of P165,854,000.00. 85 He
suggested that, to "save the situation," there be a "spin-off (of their) shipbuilding
activities which shall be handled exclusively by an entirely new corporation to be
created;" and towards this end, he informed Marcos that BASECO was

* * inviting NDC and LUSTEVECO to participate by

converting the NDC shipbuilding loan to BASECO amounting
to P341.165M and assuming and converting a portion of
BASECO's shipbuilding loans from REPACOM amounting to
P52.2M or a total of P83.365M as NDC's equity contribution
in the new corporation. LUSTEVECO will participate by
absorbing and converting a portion of the REPACOM loan of
Bay Shipyard and Drydock, Inc., amounting to P32.538M. 86
b. Romualdez' Report
Capt. A.T. Romualdez' report to the President was submitted eleven (11)
days later. It opened with the following caption:
MEMORANDUM:
FOR : The President
SUBJECT: An Evaluation and Re-assessment of a
Performance of a Mission
FROM: Capt. A.T. Romualdez.
Like Ruiz, Romualdez wrote that BASECO faced great difficulties in meeting
its loan obligations due chiefly to the fact that "orders to build ships as
expected * * did not materialize."
He advised that five stockholders had "waived and/or assigned their holdings
inblank," these being: (1) Jose A. Rojas, (2) Severino de la Cruz, (3) Rodolfo
Torres, (4) Magiliw Torres, and (5) Anthony P. Lee. Pointing out that "Mr.
Magiliw Torres * * is already dead and Mr. Jose A. Rojas had a major heart

attack," he made the following quite revealing, and it may be added, quite
cynical and indurate recommendation, to wit:
* * (that) their replacements (be effected) so we can register
their names in the stock book prior to the implementation
of your instructions to pass a board resolution to legalize the
transfers under SEC regulations;
2. By getting their replacements, the families cannot
question us later on; and
3. We will owe no further favors from them.

87

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

documents: 88
1. Stock certificates indorsed and assigned in blank with
assignments and waivers; 89
2. The articles of incorporation, the amended articles, and the bylaws of BASECO;

3. Deed of Sales, wherein NASSCO sold to BASECO four

(4) parcels of land in "Engineer Island", Port Area, Manila;
4. Transfer Certificate of Title No. 124822 in the name of
BASECO, covering "Engineer Island";
5. Contract dated October 9, 1973, between NASSCO and
BASECO re-structure and equipment at Mariveles, Bataan;
6. Contract dated July 16, 1975, between NASSCO and
BASECO re-structure and equipment at Engineer Island,
Port Area Manila;
7. Contract dated October 1, 1974, between EPZA and
BASECO re 300 hectares of land at Mariveles, Bataan;
8. List of BASECO's fixed assets;
9. Loan Agreement dated September 3, 1975, BASECO's
loan from NDC of P30,000,000.00;
10. BASECO-REPACOM Agreement dated May 27, 1975;

11. GSIS loan to BASECO dated January 28, 1976 of

P12,400,000.00 for the housing facilities for BASECO's rankand-file employees. 90

b. Equity participation of government shall be in the form of

non- voting shares.
For immediate compliance. 92

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)

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 PREINCORPORATION AGREEMENT dated October 20, 1977. 93 In it, they
undertook to form a shipbuilding corporation to be known as "PHIL-ASIA
SHIPBUILDING CORPORATION," to bring to realization their president's instructions.
It would seem that the new corporation ultimately formed was actually named
"Philippine Dockyard Corporation (PDC)." 94

b. Letter of Instructions No. 670

Mr. Marcos did not forget Capt. Romualdez' recommendation for a letter of
instructions. On February 14, 1978, he issued Letter of Instructions No. 670
addressed to the Reparations Commission REPACOM the Philippine
National Oil Company (PNOC), the Luzon Stevedoring Company
(LUSTEVECO), and the National Development Company (NDC). What is
commanded therein is summarized by the Solicitor General, with pithy and
not inaccurate observations as to the effects thereof (in italics), as follows:
* * 1) the shipbuilding equipment procured by BASECO
through reparations be transferred to NDC subject to
reimbursement by NDC to BASECO (of) the amount of s
allegedly representing the handling and incidental expenses
incurred by BASECO in the installation of said
equipment (so instead of NDC getting paid on its loan to
BASECO, it was made to pay BASECO instead the amount
of P18.285M); 2) the shipbuilding equipment procured from
reparations through EPZA, now in the possession of
BASECO and BSDI (Bay Shipyard & Drydocking, Inc.) be
transferred to LUSTEVECO through PNOC; and 3) the
shipbuilding equipment (thus) transferred be invested by
LUSTEVECO, acting through PNOC and NDC, as the
government's equity participation in a shipbuilding
corporation to be established in partnership with the private
sector.
xxx xxx xxx

And so, through a simple letter of instruction and

memorandum, BASECO's loan obligation to NDC and
REPACOM * * in the total amount of P83.365M and BSD's
REPACOM loan of P32.438M were wiped out and converted
into non-voting preferred shares. 95
20. Evidence of Marcos'
Ownership of BASECO
It cannot therefore be gainsaid that, in the context of the proceedings at bar,
the actuality of the control by President Marcos of BASECO has been
sufficiently shown.

3) the deeds of assignment of 800 outstanding shares of

Trident Management Co., Inc. which allegedly owns 7,412
shares of BASECO stock, assigned in blank; 98 and
4) stock certificates corresponding to 207,725 out of the
218,819 outstanding shares of BASECO stock; that is, all but
5 % all endorsed in blank. 99
While the petitioner's counsel was quick to dispute this asserted fact,
assuring this Court that the BASECO stockholders were still in possession of
their respective stock certificates and had "never endorsed * * them in blank
or to anyone else," 100 that denial is exposed by his own prior and subsequent recorded
statements as a mere gesture of defiance rather than a verifiable factual declaration.

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.

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;

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

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

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;

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
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 "illgotten") 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 selfincrimination. It gives them immunity from prosecution on the basis of
testimony or information he is compelled to present. As amended, said
Section 4 now provides that
xxx xxx xxx
The witness may not refuse to comply with the order on the
basis of his privilege against self-incrimination; but no
testimony or other information compelled under the order (or
any information directly or indirectly derived from such
testimony, or other information) may be used against the
witness in any criminal case, except a prosecution for
perjury, giving a false statement, or otherwise failing to
comply with the order.

The constitutional safeguard against unreasonable searches and seizures

finds no application to the case at bar either. There has been no search
undertaken by any agent or representative of the PCGG, and of course no
seizure on the occasion thereof.
24. Scope and Extent of Powers of the PCGG
One other question remains to be disposed of, that respecting the scope and
extent of the powers that may be wielded by the PCGG with regard to the
properties or businesses placed under sequestration or provisionally taken
over. Obviously, it is not a question to which an answer can be easily given,
much less one which will suffice for every conceivable situation.
a. PCGG May Not Exercise Acts of Ownership
One thing is certain, and should be stated at the outset: the PCGG cannot
exercise acts of dominion over property sequestered, frozen or provisionally
taken over. AS already earlier stressed with no little insistence, the act of
sequestration; freezing or provisional takeover of property does not import or
bring about a divestment of title over said property; does not make the PCGG
the owner thereof. In relation to the property sequestered, frozen or
provisionally taken over, the PCGG is a conservator, not an
owner. Therefore, it can not perform acts of strict ownership; and this is
specially true in the situations contemplated by the sequestration rules
where, unlike cases of receivership, for example, no court exercises effective
supervision or can upon due application and hearing, grant authority for the
performance of acts of dominion.
Equally evident is that the resort to the provisional remedies in question
should entail the least possible interference with business operations or
activities so that, in the event that the accusation of the business enterprise
being "ill gotten" be not proven, it may be returned to its rightful owner as far
as possible in the same condition as it was at the time of sequestration.
b. PCGG Has Only Powers of Administration
The PCGG may thus exercise only powers of administration over the
property or business sequestered or provisionally taken over, much like a
court-appointed receiver, 115 such as to bring and defend actions in its own name; receive rents;
collect debts due; pay outstanding debts; and generally do such other acts and things as may be
necessary to fulfill its mission as conservator and administrator. In this context, it may in addition enjoin
or restrain any actual or threatened commission of acts by any person or entity that may render moot
and academic, or frustrate or otherwise make ineffectual its efforts to carry out its task; punish for direct
or indirect contempt in accordance with the Rules of Court; and seek and secure the assistance of any
office, agency or instrumentality of the government. 116 In the case of sequestered businesses
generally (i.e., going concerns, businesses in current operation), as in the case of sequestered objects,

its essential role, as already discussed, is that of conservator, caretaker, "watchdog" or overseer. It is
not that of manager, or innovator, much less an owner.

c. Powers over Business Enterprises Taken Over by

Marcos or Entities or Persons Close to him; Limitations
Thereon
Now, in the special instance of a business enterprise shown by evidence to
have been "taken over by the government of the Marcos Administration or by
entities or persons close to former President Marcos," 117 the PCGG is given power
and authority, as already adverted to, to "provisionally take (it) over in the public interest or to prevent *
* (its) disposal or dissipation;" and since the term is obviously employed in reference to going
concerns, or business enterprises in operation, something more than mere physical custody is
connoted; the PCGG may in this case exercise some measure of control in the operation, running, or
management of the business itself. But even in this special situation, the intrusion into management
should be restricted to the minimum degree necessary to accomplish the legislative will, which is "to
prevent the disposal or dissipation" of the business enterprise. There should be no hasty,
indiscriminate, unreasoned replacement or substitution of management officials or change of policies,
particularly in respect of viable establishments. In fact, such a replacement or substitution should be
avoided if at all possible, and undertaken only when justified by demonstrably tenable grounds and in
line with the stated objectives of the PCGG. And it goes without saying that where replacement of
management officers may be called for, the greatest prudence, circumspection, care and attention should accompany that undertaking to the end that truly competent, experienced and honest managers
may be recruited. There should be no role to be played in this area by rank amateurs, no matter how
wen meaning. The road to hell, it has been said, is paved with good intentions. The business is not to
be experimented or played around with, not run into the ground, not driven to bankruptcy, not fleeced,
not ruined. Sight should never be lost sight of the ultimate objective of the whole exercise, which is to
turn over the business to the Republic, once judicially established to be "ill-gotten." Reason dictates
that it is only under these conditions and circumstances that the supervision, administration and control
of business enterprises provisionally taken over may legitimately be exercised.

d. Voting of Sequestered Stock; Conditions Therefor

So, too, it is within the parameters of these conditions and circumstances
that the PCGG may properly exercise the prerogative to vote sequestered
stock of corporations, granted to it by the President of the Philippines through
a Memorandum dated June 26, 1986. That Memorandum authorizes the
PCGG, "pending the outcome of proceedings to determine the ownership of *
* (sequestered) shares of stock," "to vote such shares of stock as it may
have sequestered in corporations at all stockholders' meetings called for the
election of directors, declaration of dividends, amendment of the Articles of
Incorporation, etc." The Memorandum should be construed in such a manner
as to be consistent with, and not contradictory of the Executive Orders earlier
promulgated on the same matter. There should be no exercise of the right to
vote simply because the right exists, or because the stocks sequestered
constitute the controlling or a substantial part of the corporate voting power.
The stock is not to be voted to replace directors, or revise the articles or bylaws, or otherwise bring about substantial changes in policy, program or
practice of the corporation except for demonstrably weighty and defensible
grounds, and always in the context of the stated purposes of sequestration or
provisional takeover, i.e., to prevent the dispersion or undue disposal of the

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

WHEREFORE, the petition is dismissed. The temporary restraining order

issued on October 14, 1986 is lifted.

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