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December 2, 1924
of the coal lands within the said reservation, with an area of about 400 hectares, without any further formality,
contract or lease. Of the 30,000 shares of stock issued by the company, the Government of the Philippine Islands is
the owner of 29,809 shares, that is, of 99 1/3 per centum of the whole capital stock.
If we understand the theory of the plaintiff-appellee, it is, that it claims to be the owner of the land from which it
has mined the coal in question and is therefore subject to the provisions of section 15 of Act No. 2719 and not to
the provisions of the section 1496 of the Administrative Code. That contention of the plaintiff leads us to an
examination of the evidence upon the question of the ownership of the land from which the coal in question was
mined. Was the plaintiff the owner of the land from which the coal in question was mined? If the evidence shows
the affirmative, then the judgment should be affirmed. If the evidence shows that the land does not belong to the
plaintiff, then the judgment should be reversed, unless the plaintiff's rights fall under section 3 of said Act.
The only witness presented by the plaintiff upon the question of the ownership of the land in question was Mr.
Dalmacio Costas, who stated that he was a member of the board of directors of the plaintiff corporation; that the
plaintiff corporation took possession of the land in question by virtue of the proclamation of the Governor-General,
known as Proclamation No. 39 of the year 1917; that no document had been issued in favor of the plaintiff
corporation; that said corporation had received no permission from the Secretary of Agriculture and Natural
Resources; that it took possession of said lands covering an area of about 400 hectares, from which the coal in
question was mined, solely, by virtue of said proclamation (Exhibit B, No. 39).
Said proclamation (Exhibit B) was issued by Francis Burton Harrison, then Governor-General, on the 18th day of
October, 1917, and provided: "Pursuant to the provision of section 71 of Act No. 926, I hereby withdraw from
settlement, entry, sale, or other disposition, all coal-bearing public lands within the Province of Zamboanga,
Department of Mindanao and Sulu, and the Island of Polillo, Province of Tayabas." It will be noted that said
proclamation only provided that all coal-bearing public lands within said province and island should be withdrawn
from settlement, entry, sale, or other disposition. There is nothing in said proclamation which authorizes the
plaintiff or any other person to enter upon said reversations and to mine coal, and no provision of law has been
called to our attention, by virtue of which the plaintiff was entitled to enter upon any of the lands so reserved by
said proclamation without first obtaining permission therefor.
The plaintiff is a private corporation. The mere fact that the Government happens to the majority stockholder does
not make it a public corporation. Act No. 2705, as amended by Act No. 2822, makes it subject to all of the
provisions of the Corporation Law, in so far as they are not inconsistent with said Act (No. 2705). No provisions of
Act No. 2705 are found to be inconsistent with the provisions of the Corporation Law. As a private corporation, it
has no greater rights, powers or privileges than any other corporation which might be organized for the same
purpose under the Corporation Law, and certainly it was not the intention of the Legislature to give it a preference
or right or privilege over other legitimate private corporations in the mining of coal. While it is true that said
proclamation No. 39 withdrew "from settlement, entry, sale, or other disposition of coal-bearing public lands
within the Province of Zamboanga . . . and the Island of Polillo," it made no provision for the occupation and
operation by the plaintiff, to the exclusion of other persons or corporations who might, under proper permission,
enter upon the operate coal mines.
On the 14th day of May, 1917, and before the issuance of said proclamation, the Legislature of the Philippine
Island in "an Act for the leasing and development of coal lands in the Philippine Islands" (Act No. 2719), made
liberal provision. Section 1 of said Act provides: "Coal-bearing lands of the public domain in the Philippine Island
shall not be disposed of in any manner except as provided in this Act," thereby giving a clear indication that no
"coal-bearing lands of the public domain" had been disposed of by virtue of said proclamation.
Neither is there any provision in Act No. 2705 creating the National Coal Company, nor in the amendments thereof
found in Act No. 2822, which authorizes the National Coal Company to enter upon any of the reserved coal lands
without first having obtained permission from the Secretary of Agriculture and Natural Resources.lawphi1.net
The following propositions are fully sustained by the facts and the law:
(1) The National Coal Company is an ordinary private corporation organized under Act No. 2705, and has no
greater powers nor privileges than the ordinary private corporation, except those mentioned, perhaps, in section 10
of Act No. 2719, and they do not change the situation here.
(2) It mined on public lands between the month of July, 1920, and the months of March, 1922, 24,089.3 tons of
coal.
(3) Upon demand of the Collector of Internal Revenue it paid a tax of P0.50 a ton, as taxes under the provisions of
article 1946 of the Administrative Code on the 15th day of December, 1922.
(4) It is admitted that it is neither the owner nor the lessee of the lands upon which said coal was mined.
(5) The proclamation of Francis Burton Harrison, Governor-General, of the 18th day of October, 1917, by
authority of section 1 of Act No. 926, withdrawing from settlement, entry, sale, or other dispositon all coal-bearing
public lands within the Province of Zamboanga and the Island of Polillo, was not a reservation for the benefit of
the National Coal Company, but for any person or corporation of the Philippine Islands or of the United States.
(6) That the National Coal Company entered upon said land and mined said coal, so far as the record shows,
without any lease or other authority from either the Secretary of Agriculture and Natural Resources or any person
having the power to grant a leave or authority.
From all of the foregoing facts we find that the issue is well defined between the plaintiff and the defendant. The
plaintiff contends that it was liable only to pay the internal revenue and other fees and taxes provided for under
section 15 of Act No. 2719; while the defendant contends, under the facts of record, the plaintiff is obliged to pay
the internal revenue duty provided for in section 1496 of the Administrative Code. That being the issue, an
examination of the provisions of Act No. 2719 becomes necessary.
An examination of said Act (No. 2719) discloses the following facts important for consideration here:
First. All "coal-bearing lands of the public domain in the Philippine Islands shall not be disposed of in any manner
except as provided in this Act." Second. Provisions for leasing by the Secretary of Agriculture and Natural
Resources of "unreserved, unappropriated coal-bearing public lands," and the obligation to the Government which
shall be imposed by said Secretary upon the lessee.lawphi1.net
Third. The internal revenue duty and tax which must be paid upon coal-bearing lands owned by any person, firm,
association or corporation.
To repeat, it will be noted, first, that Act No. 2719 provides an internal revenue duty and tax upon unreserved,
unappropriated coal-bearing public lands which may be leased by the Secretary of Agriculture and Natural
Resources; and, second, that said Act (No. 2719) provides an internal revenue duty and tax imposed upon any
person, firm, association or corporation, who may be the owner of "coal-bearing lands." A reading of said Act
clearly shows that the tax imposed thereby is imposed upon two classes of persons only lessees and owners.
The lower court had some trouble in determining what was the correct interpretation of section 15 of said Act, by
reason of what he believed to be some difference in the interpretation of the language used in Spanish and English.
While there is some ground for confusion in the use of the language in Spanish and English, we are persuaded,
considering all the provisions of said Act, that said section 15 has reference only to persons, firms, associations or
corporations which had already, prior to the existence of said Act, become the owners of coal lands. Section 15
cannot certainty refer to "holders or lessees of coal lands' for the reason that practically all of the other provisions
of said Act has reference to lessees or holders. If section 15 means that the persons, firms, associations, or
corporation mentioned therein are holders or lessees of coal lands only, it is difficult to understand why the internal
revenue duty and tax in said section was made different from the obligations mentioned in section 3 of said Act,
imposed upon lessees or holders.
From all of the foregoing, it seems to be made plain that the plaintiff is neither a lessee nor an owner of coalbearing lands, and is, therefore, not subject to any other provisions of Act No. 2719. But, is the plaintiff subject to
the provisions of section 1496 of the Administrative Code?
Section 1496 of the Administrative Code provides that "on all coal and coke there shall be collected, per metric
ton, fifty centavos." Said section (1496) is a part of article, 6 which provides for specific taxes. Said article
provides for a specific internal revenue tax upon all things manufactured or produced in the Philippine Islands for
domestic sale or consumption, and upon things imported from the United States or foreign countries. It having
been demonstrated that the plaintiff has produced coal in the Philippine Islands and is not a lessee or owner of the
land from which the coal was produced, we are clearly of the opinion, and so hold, that it is subject to pay the
internal revenue tax under the provisions of section 1496 of the Administrative Code, and is not subject to the
payment of the internal revenue tax under section 15 of Act No. 2719, nor to any other provisions of said Act.
Therefore, the judgment appealed from is hereby revoked, and the defendant is hereby relieved from all
responsibility under the complaint. And, without any finding as to costs, it is so ordered.
Petitioners,
- versus -
Members:
PUNO, C.J.
QUISUMBING,
YNARES-SANTIAGO,
SANDOVAL-GUTIERREZ,
CARPIO,
AUSTRIA-MARTINEZ,
CORONA,
CARPIO-MORALES,
AZCUNA,
TINGA,
CHICO-NAZARIO,
GARCIA,
VELASCO, JR.,
NACHURA, and
REYES, JJ.
COMMISSION ON AUDIT,
DIR. RODULFO J. ARIESGA
(in his official capacity as Director
of the Commission on Audit), MS.
MERLE M. VALENTIN and MS.
SUSAN GUARDIAN (in their official
capacities as Team Leader and Team
Member, respectively, of the audit
Team of the Commission on Audit),
Promulgated:
Respondents.
September 25, 2007
x----------------------------------------------------------- x
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a special civil action for Certiorari and Prohibition under Rule 65 of the Rules of
Court, in relation to Section 2 of Rule 64, filed by the petitioner assailing Office Order No. 2005021[1] dated September 14, 2005 issued by the respondents which constituted the audit team, as well as its
September 23, 2005 Letter[2] informing the petitioner that respondents audit team shall conduct an audit
survey on the petitioner for a detailed audit of its accounts, operations, and financial transactions. No
temporary restraining order was issued.
The petitioner was incorporated as a juridical entity over one hundred years ago by virtue of Act No.
1285, enacted on January 19, 1905, by the Philippine Commission. The petitioner, at the time it was
created, was composed of animal aficionados and animal propagandists. The objects of the petitioner, as
stated in Section 2 of its charter, shall be to enforce laws relating to cruelty inflicted upon animals or the
protection of animals in the Philippine Islands, and generally, to do and perform all things which may tend
in any way to alleviate the suffering of animals and promote their welfare.[3]
At the time of the enactment of Act No. 1285, the original Corporation Law, Act No. 1459, was not
yet in existence. Act No. 1285 antedated both the Corporation Law and the constitution of the Securities
and Exchange Commission. Important to note is that the nature of the petitioner as a corporate entity is
distinguished from the sociedad anonimas under the Spanish Code of Commerce.
For the purpose of enhancing its powers in promoting animal welfare and enforcing laws for the
protection of animals, the petitioner was initially imbued under its charter with the power to apprehend
violators of animal welfare laws. In addition, the petitioner was to share one-half (1/2) of the fines
imposed and collected through its efforts for violations of the laws related thereto. As originally worded,
Sections 4 and 5 of Act No. 1285 provide:
SEC. 4. The said society is authorized to appoint not to exceed five agents in the
City of Manila, and not to exceed two in each of the provinces of the Philippine Islands who
shall have all the power and authority of a police officer to make arrests for violation of the
laws enacted for the prevention of cruelty to animals and the protection of animals, and to
serve any process in connection with the execution of such laws; and in addition thereto, all
the police force of the Philippine Islands, wherever organized, shall, as occasion requires,
assist said society, its members or agents, in the enforcement of all such laws.
SEC. 5. One-half of all the fines imposed and collected through the efforts of said
society, its members or its agents, for violations of the laws enacted for the prevention of
cruelty to animals and for their protection, shall belong to said society and shall be used to
promote its objects.
(emphasis supplied)
Subsequently, however, the power to make arrests as well as the privilege to retain a portion of the
fines collected for violation of animal-related laws were recalled by virtue of Commonwealth Act (C.A.)
No. 148,[4] which reads, in its entirety, thus:
Be it enacted by the National Assembly of the Philippines:
Section 1. Section four of Act Numbered Twelve hundred and eighty-five as
amended by Act Numbered Thirty five hundred and forty-eight, is hereby further amended
so as to read as follows:
Sec. 4. The said society is authorized to appoint not to exceed ten
agents in the City of Manila, and not to exceed one in each municipality of
the Philippines who shall have the authority to denounce to regular peace
officers any violation of the laws enacted for the prevention of cruelty to
animals and the protection of animals and to cooperate with said peace
officers in the prosecution of transgressors of such laws.
Sec. 2. The full amount of the fines collected for violation of the laws against cruelty
to animals and for the protection of animals,shall accrue to the general fund of the
Municipality where the offense was committed.
Sec. 3. This Act shall take effect upon its approval.
Approved, November 8, 1936. (Emphasis supplied)
Immediately thereafter, then President Manuel L. Quezon issued Executive Order (E.O.) No. 63
dated November 12, 1936, portions of which provide:
Whereas, during the first regular session of the National Assembly, Commonwealth
Act Numbered One Hundred Forty Eight wasenacted depriving the agents of the Society for
the Prevention of Cruelty to Animals of their power to arrest persons who have violated the
laws prohibiting cruelty to animals thereby correcting a serious defect in one of the laws
existing in our statute books.
xxxx
Whereas, the cruel treatment of animals is an offense against the State, penalized
under our statutes, which the Government is duty bound to enforce;
Now, therefore, I, Manuel L. Quezon, President of the Philippines, pursuant to the
authority conferred upon me by the Constitution, hereby decree, order, and direct the
Commissioner of Public Safety, the Provost Marshal General as head of the Constabulary
Division of the Philippine Army, every Mayor of a chartered city, and every municipal
president to detail and organize special members of the police force, local, national, and the
Constabulary to watch, capture, and prosecute offenders against the laws enacted to prevent
cruelty to animals. (Emphasis supplied)
On December 1, 2003, an audit team from respondent Commission on Audit (COA) visited the office
of the petitioner to conduct an audit survey pursuant to COA Office Order No. 2003-051 dated November
18, 2003[5] addressed to the petitioner. The petitioner demurred on the ground that it was a private entity
not under the jurisdiction of COA, citing Section 2(1) of Article IX of the Constitution which specifies the
general jurisdiction of the COA, viz:
Section 1. General Jurisdiction. The Commission on Audit shall have the power,
authority, and duty to examine, audit, and settle all accounts pertaining to the revenue and
receipts of, and expenditures or uses of funds and property, owned or held in trust by, or
pertaining to the Government, or any of its subdivisions, agencies, or instrumentalities,
including government-owned and controlled corporations with original charters, and on a
post-audit basis: (a) constitutional bodies, commissions and officers that have been granted
fiscal autonomy under the Constitution; (b) autonomous state colleges and universities; (c)
other government-owned or controlled corporations and their subsidiaries; and (d) such
non-governmental entities receiving subsidy or equity, directly or indirectly, from or through
the government, which are required by law or the granting institution to submit to such
audit as a condition of subsidy or equity. However, where the internal control system of the
audited agencies is inadequate, the Commission may adopt such measures, including
temporary or special pre-audit, as are necessary and appropriate to correct the
deficiencies. It shall keep the general accounts of the Government, and for such period as
may be provided by law, preserve the vouchers and other supporting papers pertaining
thereto. (Emphasis supplied)
Petitioner explained thus:
a.
Although the petitioner was created by special legislation, this necessarily came about because
in January 1905 there was as yet neither a Corporation Law or any other general law under
which it may be organized and incorporated, nor a Securities and Exchange Commission which
would have passed upon its organization and incorporation.
b.
That Executive Order No. 63, issued during the Commonwealth period, effectively deprived
the petitioner of its power to make arrests, and that the petitioner lost its operational funding,
underscore the fact that it exercises no governmental function. In fine, the government itself, by
its overt acts, confirmed petitioners status as a private juridical entity.
The COA General Counsel issued a Memorandum [6] dated May 6, 2004, asserting that the petitioner
was subject to its audit authority. In a letter dated May 17, 2004,[7] respondent COA informed the petitioner
of the result of the evaluation, furnishing it with a copy of said Memorandum dated May 6, 2004 of the
General Counsel.
Petitioner thereafter filed with the respondent COA a Request for Re-evaluation dated May 19, 2004,
[8]
13, 2004,[9] affirmed her earlier opinion that the petitioner was a government entity that was subject to the
audit jurisdiction of respondent COA. In a letter dated September 14, 2004, the respondent COA informed
the petitioner of the result of the re-evaluation, maintaining its position that the petitioner was subject to its
audit jurisdiction, and requested an initial conference with the respondents.
In a Memorandum dated September 16, 2004, Director Delfin Aguilar reported to COA Assistant
Commissioner JuanitoEspino, Corporate Government Sector, that the audit survey was not conducted due
to the refusal of the petitioner because the latter maintained that it was a private corporation.
Petitioner received on September 27, 2005 the subject COA Office Order 2005-021 dated September
14, 2005 and the COA Letter dated September 23, 2005.
The essential question before this Court is whether the petitioner qualifies as a government agency
that may be subject to audit by respondent COA.
Petitioner argues: first, even though it was created by special legislation in 1905 as there was no
general law then existing under which it may be organized or incorporated, it exercises no governmental
functions because these have been revoked by C.A. No. 148 and E.O. No. 63; second, nowhere in its
charter is it indicated that it is a public corporation, unlike, for instance, C.A. No. 111 which created the
Boy Scouts of the Philippines, defined its powers and purposes, and specifically stated that it was An Act
to Create a Public Corporation in which, even as amended by Presidential Decree No. 460, the law still
adverted to the Boy Scouts of the Philippines as a public corporation, all of which are not obtaining in
the charter of the petitioner; third, if it were a government body, there would have been no need for the
State to grant it tax exemptions under Republic Act No. 1178, and the fact that it was so exempted
strengthens its position that it is a private institution; fourth, the employees of the petitioner are registered
and covered by the Social Security System at the latters initiative and not through the Government Service
Insurance System, which should have been the case had the employees been considered government
employees; fifth, the petitioner does not receive any form of financial assistance from the government,
since C.A. No. 148, amending Section 5 of Act No. 1285, states that the full amount of the fines, collected
for violation of the laws against cruelty to animals and for the protection of animals, shall accrue to the
general fund of the Municipality where the offense was committed; sixth, C.A. No. 148 effectively
deprived the petitioner of its powers to make arrests and serve processes as these functions were placed in
the hands of the police force; seventh, no government appointee or representative sits on the board of
trustees of the petitioner; eighth, a reading of the provisions of its charter (Act No. 1285) fails to show that
any act or decision of the petitioner is subject to the approval of or control by any government agency,
except to the extent that it is governed by the law on private corporations in general; and finally, ninth, the
Committee on Animal Welfare, under the Animal Welfare Act of 1998, includes members from both the
private and the public sectors.
The respondents contend that since the petitioner is a body politic created by virtue of a special
legislation and endowed with a governmental purpose, then, indubitably, the COA may audit the financial
activities of the latter. Respondents in effect divide their contentions into six strains: first, the test to
determine whether an entity is a government corporation lies in the manner of its creation, and, since the
petitioner was created by virtue of a special charter, it is thus a government corporation subject to
respondents auditing power; second, the petitioner exercises sovereign powers, that is, it is tasked to
enforce the laws for the protection and welfare of animals which ultimately redound to the public good
and welfare, and, therefore, it is deemed to be a government instrumentality as defined under the
Administrative Code of 1987, the purpose of which is connected with the administration of government, as
purportedly affirmed by American jurisprudence; third, by virtue of Section 23, [11] Title II, Book III of the
same Code, the Office of the President exercises supervision or control over the petitioner; fourth, under
the same Code, the requirement under its special charter for the petitioner to render a report to the Civil
Governor, whose functions have been inherited by the Office of the President, clearly reflects the nature of
the petitioner as a government instrumentality; fifth, despite the passage of the Corporation Code, the law
creating the petitioner had not been abolished, nor had it been re-incorporated under any general
10
corporation law; and finally, sixth, Republic Act No. 8485, otherwise known as the Animal Welfare Act of
1998, designates the petitioner as a member of its Committee on Animal Welfare which is attached to the
Department of Agriculture.
In view of the phrase One-half of all the fines imposed and collected through the efforts of said
society, the Court, in a Resolution dated January 30, 2007, required the Office of the Solicitor General
(OSG) and the parties to comment on: a) petitioner's authority to impose fines and the validity of the
provisions of Act No. 1285 and Commonwealth Act No. 148 considering that there are no standard
measures provided for in the aforecited laws as to the manner of implementation, the specific violations of
the law, the person/s authorized to impose fine and in what amount; and, b) the effect of the 1935 and 1987
Constitutions on whether petitioner continues to exist or should organize as a private corporation under the
Corporation Code, B.P. Blg. 68 as amended.
Petitioner and the OSG filed their respective Comments. Respondents filed a Manifestation stating
that since they were being represented by the OSG which filed its Comment, they opted to dispense with
the filing of a separate one and adopt for the purpose that of the OSG.
The petitioner avers that it does not have the authority to impose fines for violation of animal welfare
laws; it only enjoyed the privilege of sharing in the fines imposed and collected from its efforts in the
enforcement of animal welfare laws; such privilege, however, was subsequently abolished by C.A. No.
148; that it continues to exist as a private corporation since it was created by the Philippine Commission
before the effectivity of the Corporation law, Act No. 1459; and the 1935 and 1987 Constitutions.
The OSG submits that Act No. 1285 and its amendatory laws did not give petitioner the authority to
impose fines for violation of laws[12] relating to the prevention of cruelty to animals and the protection of
animals; that even prior to the amendment of Act No. 1285, petitioner was only entitled to share in the fines
imposed; C.A. No. 148 abolished that privilege to share in the fines collected; that petitioner is a public
corporation and has continued to exist since Act No. 1285; petitioner was not repealed by the 1935 and
1987 Constitutions which contain transitory provisions maintaining all laws issued not inconsistent
therewith until amended, modified or repealed.
The petition is impressed with merit.
The arguments of the parties, interlaced as they are, can be disposed of in five points.
First, the Court agrees with the petitioner that the charter test cannot be applied.
Essentially, the charter test as it stands today provides:
[T]he test to determine whether a corporation is government owned or controlled, or private
in nature is simple. Is it created by its own charter for the exercise of a public function, or
by incorporation under the general corporation law? Those with special charters are
government corporations subject to its provisions, and its employees are under the
11
jurisdiction of the Civil Service Commission, and are compulsory members of the
Government Service Insurance System. xxx (Emphasis supplied)[13]
The petitioner is correct in stating that the charter test is predicated, at best, on the legal regime
established by the 1935 Constitution, Section 7, Article XIII, which states:
Sec. 7. The National Assembly shall not, except by general law, provide for the
formation, organization, or regulation of private corporations, unless such corporations are
owned or controlled by the Government or any subdivision or instrumentality thereof.[14]
The foregoing proscription has been carried over to the 1973 and the 1987 Constitutions. Section
16 of Article XII of the present Constitution provides:
Sec. 16. The Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations. Government-owned or controlled
corporations may be created or established by special charters in the interest of the common
good and subject to the test of economic viability.
Section 16 is essentially a re-enactment of Section 7 of Article XVI of the 1935 Constitution and
Section 4 of Article XIV of the 1973 Constitution.
During the formulation of the 1935 Constitution, the Committee on Franchises recommended the
foregoing proscription to prevent the pressure of special interests upon the lawmaking body in the creation
of corporations or in the regulation of the same. To permit the lawmaking body by special law to provide
for the organization, formation, or regulation of private corporations would be in effect to offer to it the
temptation in many cases to favor certain groups, to the prejudice of others or to the prejudice of the
interests of the country.[15]
And since the underpinnings of the charter test had been introduced by the 1935 Constitution and
not earlier, it follows that the test cannot apply to the petitioner, which was incorporated by virtue of Act
No. 1285, enacted on January 19, 1905. Settled is the rule that laws in general have no retroactive effect,
unless the contrary is provided.[16] All statutes are to be construed as having only a prospective operation,
unless the purpose and intention of the legislature to give them a retrospective effect is expressly declared
or is necessarily implied from the language used. In case of doubt, the doubt must be resolved against the
retrospective effect.[17]
There are a few exceptions. Statutes can be given retroactive effect in the following cases: (1) when
the law itself so expressly provides; (2) in case of remedial statutes; (3) in case of curative statutes; (4) in
case of laws interpreting others; and (5) in case of laws creating new rights. [18] None of the exceptions is
present in the instant case.
The general principle of prospectivity of the law likewise applies to Act No. 1459, otherwise known
as the Corporation Law, which had been enacted by virtue of the plenary powers of the Philippine
Commission on March 1, 1906, a little over a year afterJanuary 19, 1905, the time the petitioner emerged
12
as a juridical entity. Even the Corporation Law respects the rights and powers of juridical entities
organized beforehand, viz:
SEC. 75. Any corporation or sociedad anonima formed, organized, and existing
under the laws of the Philippine Islands and lawfully transacting business in the
Philippine Islands on the date of the passage of this Act, shall be subject to the provisions
hereof
so
far
as
such
provisions may be applicable and shall
be entitled at its option either to continue business as such corporation or to reform and
organize under and by virtue of the provisions of this Act, transferring all corporate interests
to the new corporation which, if a stock corporation, is authorized to issue its shares of stock
at par to the stockholders or members of the old corporation according to their
interests. (Emphasis supplied).
As pointed out by the OSG, both the 1935 and 1987 Constitutions contain transitory provisions
maintaining all laws issued not inconsistent therewith until amended, modified or repealed. [19]
In a legal regime where the charter test doctrine cannot be applied, the mere fact that a corporation
has been created by virtue of a special law does not necessarily qualify it as a public corporation.
What then is the nature of the petitioner as a corporate entity? What legal regime governs its rights,
powers, and duties?
As stated, at the time the petitioner was formed, the applicable law was the Philippine Bill of 1902,
and, emphatically, as also stated above, no proscription similar to the charter test can be found therein.
The textual foundation of the charter test, which placed a limitation on the power of the legislature,
first appeared in the 1935 Constitution. However, the petitioner was incorporated in 1905 by virtue of Act
No. 1258, a law antedating the Corporation Law (Act No. 1459) by a year, and the 1935 Constitution, by
thirty years. There being neither a general law on the formation and organization of private corporations
nor a restriction on the legislature to create private corporations by direct legislation, the Philippine
Commission at that moment in history was well within its powers in 1905 to constitute the petitioner as a
private juridical entity.
Time and again the Court must caution even the most brilliant scholars of the law and all
constitutional historians on the danger of imposing legal concepts of a later date on facts of an earlier date.
[20]
The amendments introduced by C.A. No. 148 made it clear that the petitioner was a private
corporation and not an agency of the government. This was evident in Executive Order No. 63, issued by
then President of the Philippines Manuel L. Quezon, declaring that the revocation of the powers of the
petitioner to appoint agents with powers of arrest corrected a serious defect in one of the laws existing in
the statute books.
As a curative statute, and based on the doctrines so far discussed, C.A. No. 148 has to be given
retroactive effect, thereby freeing all doubt as to which class of corporations the petitioner belongs, that is,
13
it is a quasi-public corporation, a kind of private domestic corporation, which the Court will further
elaborate on under the fourth point.
Second, a reading of petitioners charter shows that it is not subject to control or supervision by any
agency of the State, unlike government-owned and -controlled corporations. No government representative
sits on the board of trustees of the petitioner. Like all private corporations, the successors of its members
are determined voluntarily and solely by the petitioner in accordance with its by-laws, and may exercise
those powers generally accorded to private corporations, such as the powers to hold property, to sue and be
sued, to use a common seal, and so forth. It may adopt by-laws for its internal operations: the petitioner
shall be managed or operated by its officers in accordance with its by-laws in force. The pertinent
provisions of the charter provide:
Section 1. Anna L. Ide, Kate S. Wright, John L. Chamberlain, William F. Tucker,
Mary S. Fergusson, Amasa S. Crossfield, Spencer Cosby, Sealy B. Rossiter, Richard P.
Strong, Jose Robles Lahesa, Josefina R. de Luzuriaga, and such other persons as may be
associated with them in conformity with this act, and their successors, are hereby constituted
and created a body politic and corporate at law, under the name and style of The
Philippines Society for the Prevention of Cruelty to Animals.
As incorporated by this Act, said society shall have the power to add to its
organization such and as many members as it desires, to provide for and choose such
officers
as
it
may
deem
advisable,
and in such manner as it may
wish, and to remove members as it shall provide.
It shall have the right to sue and be sued, to use a common seal, to
receive legacies and donations, to conduct social enterprises for the purpose
of
obtaining funds, to levy dues upon its members and provide for their collection to hold
real and personal estate such as may be necessary for the accomplishment of the purposes
of the society, and to adopt such by-laws for its government as may not be inconsistent with
law or this charter.
xxxx
Sec. 3. The said society shall be operated under the direction of its officers, in
accordance with its by-laws in force, and this charter.
xxxx
Sec. 6. The principal office of the society shall be kept in the city of Manila, and the
society shall have full power to locate and establish branch offices of the society wherever it
may deem advisable in the Philippine Islands, such branch offices to be under the
supervision and control of the principal office.
Third. The employees of the petitioner are registered and covered by the Social Security System at
the latters initiative, and not through the Government Service Insurance System, which should be the case
if the employees are considered government employees. This is another indication of petitioners nature as
a private entity. Section 1 of Republic Act No. 1161, as amended by Republic Act No. 8282, otherwise
known as the Social Security Act of 1997, defines the employer:
14
Authorities are of the view that the purpose alone of the corporation cannot be taken as a safe guide,
for the fact is that almost all corporations are nowadays created to promote the interest, good, or
convenience of the public. A bank, for example, is a private corporation; yet, it is created for a public
benefit. Private schools and universities are likewise private corporations; and yet, they are rendering
public service. Private hospitals and wards are charged with heavy social responsibilities. More so with all
common carriers. On the other hand, there may exist a public corporation even if it is endowed with gifts
or donations from private individuals.
The true criterion, therefore, to determine whether a corporation is public or private is found in the
totality of the relation of the corporation to the State. If the corporation is created by the State as the
latters own agency or instrumentality to help it in carrying out its governmental functions, then that
corporation is considered public; otherwise, it is private. Applying the above test, provinces, chartered
cities, and barangays can best exemplify public corporations. They are created by the State as its own
device and agency for the accomplishment of parts of its own public works.[25]
It is clear that the amendments introduced by C.A. No. 148 revoked the powers of the petitioner to
arrest offenders of animal welfare laws and the power to serve processes in connection therewith.
15
Fifth. The respondents argue that since the charter of the petitioner requires the latter to render
periodic reports to the Civil Governor, whose functions have been inherited by the President, the petitioner
is, therefore, a government instrumentality.
This contention is inconclusive. By virtue of the fiction that all corporations owe their very existence
and powers to the State, the reportorial requirement is applicable to all corporations of whatever nature,
whether they are public, quasi-public, or private corporationsas creatures of the State, there is a reserved
right in the legislature to investigate the activities of a corporation to determine whether it acted within its
powers. In other words, the reportorial requirement is the principal means by which the State may see to it
that its creature acted according to the powers and functions conferred upon it. These principles were
extensively discussed in Bataan Shipyard & Engineering Co., Inc. v. Presidential Commission on Good
Government.[26] Here, the Court, in holding that the subject corporation could not invoke the right against
self-incrimination whenever the State demanded the production of its corporate books and papers,
extensively discussed the purpose of reportorial requirements, viz:
x x x The corporation is a creature of the state. It is presumed to be incorporated for the
benefit of the public. It received certain special privileges and franchises, and holds them
subject to the laws of the state and the limitations of its charter. Its powers are limited by
law. It can make no contract not authorized by its charter. Its rights to act as a corporation
are only preserved to it so long as it obeys the laws of its creation. There is a reserve[d] right
in the legislature to investigate its contracts and find out whether it has exceeded its
powers. It would be a strange anomaly to hold that a state, having chartered a corporation
to make use of certain franchises, could not, in the exercise of sovereignty, inquire how
these franchises had been employed, and whether they had been abused, and demand the
production of the corporate books and papers for that purpose. The defense amounts to this,
that an officer of the corporation which is charged with a criminal violation of the statute
may plead the criminality of such corporation as a refusal to produce its books. To state this
proposition is to answer it. While an individual may lawfully refuse to answer incriminating
questions unless protected by an immunity statute, it does not follow that a corporation
vested with special privileges and franchises may refuse to show its hand when charged with
an abuse of such privileges. (Wilson v. United States, 55 Law Ed., 771, 780.)[27]
16
17
18
As early as Baguio Water District v. Trajano, et al., (G.R. No. 65428, February 20, 1984, 127 SCRA 730),
We already ruled that a water district is a corporation created pursuant to a special law P.D. No. 198, as
amended, and as such its officers and employees are covered by the Civil Service Law.
In another case (Hagonoy Water District v. NLRC, G.R. No. 81490, August 31, 1988, 165 SCRA 272), We
ruled once again that local water districts are quasi-public corporations whose employees belong to the
Civil Service. The Court's pronoucement in this case, as extensively quoted in
the Tanjay case, supra, partly reads:
"The only question here is whether or not local water districts are governmkent owned or
controlled corporations whose employees are subject to the provisions of the Civil Service
Law. The Labor Arbiter asserted jurisdiction over the alleged illegal dismissal of private
respondent Villanueva by relying on Section 25 of Presidential decree No. 198, known as
the Provincial Water Utilities Act of 1973" which went onto effect in 25 May 1973, and
which provides as follows:
Exemption from Civil Service. The district and its employees, being
engaged in a proprietary function, are hereby exempt from the provisions of
the Civil Service Law. Collective Bargaining shall be available only to
personnel below supervisory levels:Provided, however, That the total of all
salaries, wages emoluments, benefits or other compensation paid to all
employees in any month shall not exceed fifty percent (50%) of average net
monthy revenue. Said net revenue representing income from water sales and
sewerage service charges, less pro-rata share of debt service and expenses for
fuel or energy for pumping during the preceding fiscal year.
The Labor Arbiter failed to take into accout the provisions of Presidential Decree No. 1479,
which went into effect on 11 June 1978, P.D. No. 1479, wiped away Section 25 of PD 198
quoted above, and Section 26 of PD 198 was renumbered as Section 25 in the following
manner:
Section 26 of the same decree PD 198 is hereby amended to read as Section 25 as follows:
Section 25. Authorization. The district may exercise all the powers which are expressly
granted by this Title or which are necessarily implied from or incidental to the powers and
purposes herein stated. For the purpose of carrying out the objectives of this Act, a district is
hereby granted the power of eminent domain, the exercise thereof shall, however, be subject
to review by the Administration.
Thus, Section 25 of PD 198 exempting the employees of water districts from the application
of the Civil Service Law was removed from the statute books:
xxx xxx xxx
We grant the petition for the following reasons:
1. Section 25 of PD No. 198 was repealed by Section 3 of PD No. 1479; Section 26 of PD
No. 198 was amended ro read as Sec. 25 by Sec. 4 of PD No. 1479. The amendatory decree
took effect on June 11, 1978.
xxx xxx xxx
3. The BWD is a corporation created pursuant to a special law PD No. 198, as amended.
As such its officers and employees are part of the Civil Service (Sec. 1, Art. XII-B, [1973]
Constitution; PD No. 868).
19
Ascertained from a consideration of the whole statute, PD 198 is a special law applicable only to the
different water districts created pursuant thereto. In all its essential terms, it is obvious that it pertains to a
special purpose which is intended to meet a particular set of conditions and cirmcumstances. The fact that
said decree generally applies to all water districts throughout the country does not change the fact that PD
198 is a special law. Accordingly, this Court's resolution in Metro Iloilo case declaring PD 198 as a general
legislation is hereby abandoned.
By "government-owned or controlled corporation with original charter," We mean government owned or
controlled corporation created by a special law and not under the Corporation Code of the Philippines.
Thus, in the case ofLumanta v. NLRC (G.R. No. 82819, February 8, 1989, 170 SCRA 79, 82), We held:
The Court, in National Service Corporation (NASECO) v. National Labor Relations
Commission, G.R. No 69870, promulgated on 29 November 1988, quoting extensively from
the deliberations of 1986 Constitutional Commission in respect of the intent and meaning of
the new phrase "with original character," in effect held that government-owned and
controlled corporations with original charter refer to corporations chartered by special law
as distinguished from corporations organized under our general incorporation statute
the Corporations Code. In NASECO, the company involved had been organized under the
general incorporation statute and was a sbusidiary of the National Investment Development
Corporation (NIDC) which in turn was a subsidiary of the Philippine National Bank, a bank
chartered by a special statute. Thus, government-owned or controlled corporations like
NASECO are effectively, excluded from the scope of the Civil Service. (emphasis supplied)
From the foregoing pronouncement, it is clear that what has been excluded from the coverage of the CSC
are those corporations created pursuant to the Corporation Code. Significantly, petitioners are not created
under the said code, but on the contrary, they were created pursuant to a special law and are governed
primarily by its provision.
No consideration may thus be given to petitioners' contention that the operative act which created the water
districts are the resolutions of the respective local sanggunians and that consequently, PD 198, as amended,
cannot be considered as their charter.
It is to be noted that PD 198, as amended is the source of authorization and power to form and maintain a
district. Section 6 of said decree provides:
Sec. 6. Formation of District. This Act is the source of authorization and power to form
and maintain a district. Once formed, a district is subject to the provisions of this Act and
not under the jurisdiction of any political subdivision, . . . .
Moreover, it must be observed that PD 198, contains all the essential terms necessary to constitute a charter
creating a juridical person. For example, Section 6(a) provides for the name that will be used by a water
district, thus:
Sec. 6. . . . To form a district, the legislative body of any city, municipality or province shall
enact a resolution containing the following:
a) The name of the local water district, which shall include the name of the city,
municipality, or province, or region thereof, served by said system, followed by the words
"Water District."
It also prescribes for the numbers and qualifications of the members of the Board of Directors:
Sec. 8. Number and Qualification. The Board of Directors of a district shall be composed
of five citizens of the Philippines who are of voting age and residents within the district.
One member shall be a representative of civic-oriented service clubs, one member of
representative of professional associations, one member a representative of business,
commercial or financial organizations, one member a representative of educational
20
21
and the compensation and personal liability of the members of the Board of Directors:
Sec. 13. Compensation. Each director shall receive a per diem, to be determined by the
board, for each meeting of the board actually attended by him, but no director shag receive
per diems in any given month in excess of the equivalent of the total per diems of four
meetings in any given month. No director shall receive other compensation for services to
the district.
Any per diem in excess of P50.00 shall be subject to approval of the Administration (as
amended by PD 768).
Sec. 14. Personal Liability. No director may be held to be personally liable for any action
of the district.
Noteworthy, the above quoted provisions of PD 198, as amended, are similar to those which are actually
contained in other corporate charters. The conclusion is inescapable that the said decree is in truth and in
fact the charter of the different water districts for it clearly defines the latter's primary purpose and its basic
organizational set-up. In other words, PD 198, as amended, is the very law which gives a water district
juridical personality. While it is true that a resolution of a local sanggunian is still necessary for the final
creation of a district, this Court is of the opinion that said resolution cannot be considered as its charter, the
same being intended only to implement the provisions of said decree. In passing a resolution forming a
water district, the local sanggunian is entrusted with no authority or discretion to grant a charter for the
creation of a private corporation. It is merely given the authority for the formation of a water district, on a
local option basis, to be exercised under and in pursuance of PD 198.
More than the aforequoted provisions, what is of important interest in the case at bar is Section 3, par. (b)
of the same decree which reads:
Sec. 3(b). Appointing authority. The person empowered to appoint the members of the
Board of Directors of a local water district, depending upon the geographic coverage and
population make-up of the particular district. In the event that more than seventy-five
percent of the total active water service connections of a local water districts are within the
boundary of any city or municipality, the appointing authority shall be the mayor of that city
or municipality, as the case may be; otherwise, the appointing authority shall be the
governor of the province within which the district is located:Provided, That if the existing
waterworks system in the city or municipality established as a water district under this
Decree is operated and managed by the province, initial appointment shall be extended by
the governor of the province. Subsequent appointments shall be as specified herein.
If portions of more than one province are included within the boundary of the district, and
the appointing authority is to be the governors then the power to appoint shall rotate
between the governors involved with the initial appointments made by the governor in
whose province the greatest number of service connections exists (as amended by PD 768).
The above-quoted section definitely sets to naught petitioners' contention that they are private corporations.
It is clear therefrom that the power to appoint the members who will comprise the Board of Directors
belongs to the local executives of the local subdivision units where such districts are located. In contrast,
the members of the Board of Directors or trustees of a private corporation are elected from among the
members and stockholders thereof. It would not be amiss to emphasize at this point that a private
corporation is created for the private purpose, benefit, aim and end of its members or stockholders.
Necessarily, said members or stockholders should be given a free hand to choose those who will compose
the governing body of their corporation. But this is not the case here and this clearly indicates that
petitioners are definitely not private corporations.
The foregoing disquisition notwithstanding, We are, however, not unaware of the serious repercussion this
may bring to the thousands of water districts' employees throughout the country who stand to be affected
because they do not have the necessary civil service eligibilities. As these employees are equally protected
22
by the constitutional guarantee to security of tenure, We find it necessary to rule for the protection of such
right which cannot be impaired by a subsequent ruling of this Court. Thus, those employees who have
already acquired their permanent employment status at the time of the promulgation of this decision cannot
be removed by the mere reason that they lack the necessary civil service eligibilities.
ACCORDINGLY, the petition is hereby DISMISSED. Petitioners are declared "government-owned or
controlled corporations with original charter" which fall under the jurisdiction of the public respondents
CSC and COA.
SO ORDERED.
23
Save in cases of hereditary succession, no private agricultural land shall be transferred or assigned
except to individuals, corporations or associations qualified to acquire or hold lands of the public
domain in the Philippines,
the Constitution makes no exception in favor of religious associations. Neither is there any such saving
found in sections 1 and 2 of Article XIII, restricting the acquisition of public agricultural lands and other
natural resources to "corporations or associations at least sixty per centum of the capital of which is owned
by such citizens" (of the Philippines).
24
The fact that the appellant religious organization has no capital stock does not suffice to escape the
Constitutional inhibition, since it is admitted that its members are of foreign nationality. The purpose of the
sixty per centum requirement is obviously to ensure that corporations or associations allowed to acquire
agricultural land or to exploit natural resources shall be controlled by Filipinos; and the spirit of the
Constitution demands that in the absence of capital stock, the controlling membership should be composed
of Filipino citizens.
To permit religious associations controlled by non-Filipinos to acquire agricultural lands would be to drive
the opening wedge to revive alien religious land holdings in this country. We can not ignore the historical
fact that complaints against land holdings of that kind were among the factors that sparked the revolution of
1896.
As to the complaint that the disqualification under article XIII is violative of the freedom of religion
guaranteed by Article III of the Constitution, we are by no means convinced (nor has it been shown) that
land tenure is indispensable to the free exercise and enjoyment of religious profession or worship; or that
one may not worship the Deity according to the dictates of his own conscience unless upon land held in fee
simple.
The resolution appealed from is affirmed, with costs against appellant.
25
26
they wanted to have their respective shares holdings resolved at a latter date. They stated that they could
get together that they feel that they had no time to settle their respective share holdings. We discussed the
matter and finally it was decided that the best way to handle the things was not to put the shares in the
name of anyone of the interested parties and to have someone act as trustee for their respective shares
holdings. So we looked around for a trustee. And he said "There are a lot of people whom I trust." He said,
"Is there someone around whom we could get right away?" I said, "There is Arsenio. He was my boy
during the liberation and he cared for me when i was sick and i said i consider him my friend." I said. They
all knew Arsenio. He is a very kind man and that was what was done. That is how it came about.
Defendant is accused under article 172 paragraph 1, in connection with article 171, paragraph 4, of the
Revised Penal Code, which read:
ART. 171. Falsification by public officer, employee, or notary or ecclesiastic minister. The
penalty ofprision mayor and a fine not to exceed 5,000 pesos shall be imposed upon any public
officer, employee, or notary who, taking advantage of his official position, shall falsify a document
by committing any of the following acts:
xxx
xxx
xxx
xxx
xxx
1. Any private individual who shall commit any of the falsifications enumerated in the next
preceding article in any public or official document or letter of exchange or any other kind of
commercial document.
Commenting on the above provision, Justice Albert, in his well-known work on the Revised Penal Code
( new edition, pp. 407-408), observes, on the authority of U.S. vs. Reyes, (1 Phil., 341), that the perversion
of truth in the narration of facts must be made with the wrongful intent of injuring a third person; and on
the authority of U.S. vs. Lopez (15 Phil., 515), the same author further maintains that even if such wrongful
intent is proven, still the untruthful statement will not constitute the crime of falsification if there is no legal
obligation on the part of the narrator to disclose the truth. Wrongful intent to injure a third person and
obligation on the part of the narrator to disclose the truth are thus essential to a conviction for a crime of
falsification under the above article of the Revised Penal Code.
Now, as we see it, the falsification imputed in the accused in the present case consists in not disclosing in
the articles of incorporation that Baylon was a mere trustee ( or dummy as the prosecution chooses to call
him) of his American co-incorporators, thus giving the impression that Baylon was the owner of the shares
subscribed to by him which, as above stated, amount to 60.005 per cent of the sub-scribed capital stock.
This, in the opinion of the trial court, is a malicious perversion of the truth made with the wrongful intent
circumventing section 8, Article XIV of the Constitution, which provides that " no franchise, certificate, or
any other form of authorization for the operation of a public utility shall be granted except to citizens of the
Philippines or to corporation or other entities organized under the law of the Philippines, sixty per
centum of the capital of which is owned by citizens of the Philippines . . . ." Plausible though it may appear
at first glance, this opinion loses validity once it is noted that it is predicated on the erroneous assumption
that the constitutional provision just quoted was meant to prohibit the mere formation of a public utility
corporation without 60 per cent of its capital being owned by the Filipinos, a mistaken belief which has
induced the lower court to that the accused was under obligation to disclose the whole truth about the
nationality of the subscribed capital stock of the corporation by revealing that Baylon was a mere trustee or
dummy of his American co-incorporators, and that in not making such disclosure defendant's intention was
to circumvent the Constitution to the detriment of the public interests. Contrary to the lower court's
assumption, the Constitution does not prohibit the mere formation of a public utility corporation without
27
the required formation of Filipino capital. What it does prohibit is the granting of a franchise or other form
of authorization for the operation of a public utility to a corporation already in existence but without the
requisite proportion of Filipino capital. This is obvious from the context, for the constitutional provision in
question qualifies the terms " franchise", "certificate", or "any other form of authorization" with the phrase
"for the operation of a public utility," thereby making it clear that the franchise meant is not the "primary
franchise" that invest a body of men with corporate existence but the "secondary franchise" or the privilege
to operate as a public utility after the corporation has already come into being.
If the Constitution does not prohibit the mere formation of a public utility corporation with the alien
capital, then how can the accused be charged with having wrongfully intended to circumvent that
fundamental law by not revealing in the articles of incorporation that Baylon was a mere trustee of his
American co-incorporation and that for that reason the subscribed capital stock of the corporation was
wholly American? For the mere formation of the corporation such revelation was not essential, and the
Corporation Law does not require it. Defendant was, therefore, under no obligation to make it. In the
absence of such obligation and of the allege wrongful intent, defendant cannot be legally convicted of the
crime with which he is charged.
It is urged, however, that the formation of the corporation with 60 per cent of its subscribed capital stock
appearing in the name of Baylon was an indispensable preparatory step to the subversion of the
constitutional prohibition and the laws implementing the policy expressed therein. This view is not correct.
For a corporation to be entitled to operate a public utility it is not necessary that it be organized with 60 per
cent of its capital owned by Filipinos from the start. A corporation formed with capital that is entirely alien
may subsequently change the nationality of its capital through transfer of shares to Filipino citizens.
conversely, a corporation originally formed with Filipino capital may subsequently change the national
status of said capital through transfer of shares to foreigners. What need is there then for a corporation that
intends to operate a public utility to have, at the time of its formation, 60 per cent of its capital owned by
Filipinos alone? That condition may anytime be attained thru the necessary transfer of stocks. The moment
for determining whether a corporation is entitled to operate as a public utility is when it applies for a
franchise, certificate, or any other form of authorization for that purpose. And that can be done after the
corporation has already come into being and not while it is still being formed. And at that moment, the
corporation must show that it has complied not only with the requirement of the Constitution as to the
nationality of its capital, but also with the requirements of the Civil Aviation Law if it is a common carrier
by air, the Revised Administrative Code if it is a common carrier by water, and the Public Service Law if it
is a common carrier by land or other kind of public service.
Equally untenable is the suggestion that defendant should at least be held guilty of an "impossible crime"
under article 59 of the Revised Penal Code. It not being possible to suppose that defendant had intended to
commit a crime for the simple reason that the alleged constitutional prohibition which he is charged for
having tried to circumvent does not exist, conviction under that article is out of the question.
The foregoing consideration can not but lead to the conclusion that the defendant can not be held guilty of
the crime charged. The majority of the court, however, are also of the opinion that, even supposing that the
act imputed to the defendant constituted falsification at the time it was perpetrated, still with the approval
of the Party Amendment to the Constitution in March, 1947, which placed Americans on the same footing
as Filipino citizens with respect to the right to operate public utilities in the Philippines, thus doing away
with the prohibition in section 8, Article XIV of the Constitution in so far as American citizens are
concerned, the said act has ceased to be an offense within the meaning of the law, so that defendant can no
longer be held criminally liable therefor.
In view of the foregoing, the judgment appealed from is reversed and the defendant William H. Quasha
acquitted, with costs de oficio.
28
29
World War II revived the problem again. It was known that German and other enemy interests were
cloaked by domestic corporation structure. It was not only by legal ownership of shares that a
material influence could be exercised on the management of the corporation but also by long term
loans and other factual situations. For that reason, legislation on enemy property enacted in various
countries during World War II adopted by statutory provisions to the control test and determined, to
various degrees, the incidents of control. Court decisions were rendered on the basis of such newly
enacted statutory provisions in determining enemy character of domestic corporation.
The United States did not, in the amendments of the Trading with the Enemy Act during the last
war, include as did other legislations the applications of the control test and again, as in World War
I, courts refused to apply this concept whereby the enemy character of an American or neutralregistered corporation is determined by the enemy nationality of the controlling stockholders.
Measures of blocking foreign funds, the so called freezing regulations, and other administrative
practice in the treatment of foreign-owned property in the United States allowed to large degree the
determination of enemy interest in domestic corporations and thus the application of the control
test. Court decisions sanctioned such administrative practice enacted under the First War Powers
Act of 1941, and more recently, on December 8, 1947, the Supreme Court of the United States
definitely approved of the control theory. In Clark vs. Uebersee Finanz Korporation, A. G., dealing
with a Swiss corporation allegedly controlled by German interest, the Court: "The property of all
foreign interest was placed within the reach of the vesting power (of the Alien Property Custodian)
not to appropriate friendly or neutral assets but to reach enemy interest which masqueraded under
those innocent fronts. . . . The power of seizure and vesting was extended to all property of any
foreign country or national so that no innocent appearing device could become a Trojan horse."
It becomes unnecessary, therefore, to dwell at length on the authorities cited in support of the appealed
decision. However, we may add that, in Haw
Pia
vs. China Banking Corporation,* 45 Off Gaz., (Supp. 9) 299, we already held that China Banking
Corporation came within the meaning of the word "enemy" as used in the Trading with the Enemy Acts of
civilized countries not only because it was incorporated under the laws of an enemy country but because it
was controlled by enemies.
The Philippine Insurance Law (Act No. 2427, as amended,) in section 8, provides that "anyone except a
public enemy may be insured." It stands to reason that an insurance policy ceases to be allowable as soon
as an insured becomes a public enemy.
Effect of war, generally. All intercourse between citizens of belligerent powers which is
inconsistent with a state of war is prohibited by the law of nations. Such prohibition includes all
negotiations, commerce, or trading with the enemy; all acts which will increase, or tend to increase,
its income or resources; all acts of voluntary submission to it; or receiving its protection; also all
acts concerning the transmission of money or goods; and all contracts relating thereto are thereby
nullified. It further prohibits insurance upon trade with or by the enemy, upon the life or lives of
aliens engaged in service with the enemy; this for the reason that the subjects of one country cannot
be permitted to lend their assistance to protect by insurance the commerce or property of
belligerent, alien subjects, or to do anything detrimental too their country's interest. The purpose of
war is to cripple the power and exhaust the resources of the enemy, and it is inconsistent that one
country should destroy its enemy's property and repay in insurance the value of what has been so
destroyed, or that it should in such manner increase the resources of the enemy, or render it aid, and
the commencement of war determines, for like reasons, all trading intercourse with the enemy,
which prior thereto may have been lawful. All individuals therefore, who compose the belligerent
powers, exist, as to each other, in a state of utter exclusion, and are public enemies. (6 Couch, Cyc.
of Ins. Law, pp. 5352-5353.)
In the case of an ordinary fire policy, which grants insurance only from year, or for some other
specified term it is plain that when the parties become alien enemies, the contractual tie is broken
30
and the contractual rights of the parties, so far as not vested. lost. (Vance, the Law on Insurance,
Sec. 44, p. 112.)
The respondent having become an enemy corporation on December 10, 1941, the insurance policy issued
in its favor on October 1, 1941, by the petitioner (a Philippine corporation) had ceased to be valid and
enforcible, and since the insured goods were burned after December 10, 1941, and during the war, the
respondent was not entitled to any indemnity under said policy from the petitioner. However, elementary
rules of justice (in the absence of specific provision in the Insurance Law) require that the premium
paid by the respondent for the period covered by its policy from December 11, 1941, should be
returned by the petitioner.
The Court of Appeals, in deciding the case, stated that the main issue hinges on the question of whether the
policy in question became null and void upon the declaration of war between the United States and
Germany on December 10, 1941, and its judgment in favor of the respondent corporation was predicated
on its conclusion that the policy did not cease to be in force. The Court of Appeals necessarily assumed
that, even if the payment by the petitioner to the respondent was involuntary, its action is not tenable in
view of the ruling on the validity of the policy. As a matter of fact, the Court of Appeals held that "any
intimidation resorted to by the appellee was not unjust but the exercise of its lawful right to claim for and
received the payment of the insurance policy," and that the ruling of the Bureau of Financing to the effect
that "the appellee was entitled to payment from the appellant was, well founded." Factually, there can be no
doubt that the Director of the Bureau of Financing, in ordering the petitioner to pay the claim of the
respondent, merely obeyed the instruction of the Japanese Military Administration, as may be seen from the
following: "In view of the findings and conclusion of this office contained in its decision on Administrative
Case dated February 9, 1943 copy of which was sent to your office and the concurrence therein of the
Financial Department of the Japanese Military Administration, and following the instruction of said
authority, you are hereby ordered to pay the claim of Messrs. Christern, Huenefeld & Co., Inc. The
payment of said claim, however, should be made by means of crossed check." (Emphasis supplied.)
It results that the petitioner is entitled to recover what paid to the respondent under the circumstances on
this case. However, the petitioner will be entitled to recover only the equivalent, in actual Philippines
currency of P92,650 paid on April 19, 1943, in accordance with the rate fixed in the Ballantyne scale.
Wherefore, the appealed decision is hereby reversed and the respondent corporation is ordered to pay to the
petitioner the sum of P77,208.33, Philippine currency, less the amount of the premium, in Philippine
currency, that should be returned by the petitioner for the unexpired term of the policy in question,
beginning December 11, 1941. Without costs. So ordered.
31
32
SEC. 5. Save in cases of hereditary succession, no private agricultural land shall be transferred or
assigned except to individuals, corporations, or associations qualified to acquire or hold lands of
the public domain in the Philippines.
Section 1 of the same Article also provides the following:
SECTION 1. All agricultural, timber, and mineral lands of the public domain, water, minerals, coal,
petroleum, and other mineral oils, all forces of potential energy, and other natural resources of the
Philippines belong to the State, and their disposition, exploitation, development, or utilization shall be
limited to cititzens of the Philippines, or to corporations or associations at least sixty per centum of the
capital of which is owned by such citizens, SUBJECT TO ANY EXISTING RIGHT, grant, lease, or
concession AT THE TIME OF THE INAUGURATION OF THE GOVERNMENT ESTABLISHED
UNDER CONSTITUTION. Natural resources, with the exception of public agricultural land, shall not be
alienated, and no license, concession, or leases for the exploitation, development, or utilization of any of
the natural resources shall be granted for a period exceeding twenty-five years, renewable for another
twenty-five years, except as to water rights for irrigation, water supply, fisheries, or industrial uses other
than the development of water power, in which cases other than the development and limit of the grant.
In virtue of the foregoing mandates of the Constitution, who are considered "qualified" to acquire and hold
agricultural lands in the Philippines? What is the effect of these constitutional prohibition of the right of a
religious corporation recognized by our Corporation Law and registered as a corporation sole, to possess,
acquire and register real estates in its name when the Head, Manager, Administrator or actual incumbent is
an alien?
Petitioner consistently maintained that a corporation sole, irrespective of the citizenship of its incumbent, is
not prohibited or disqualified to acquire and hold real properties. The Corporation Law and the
Canon
Law are explicit in their provisions that a corporation sole or "ordinary" is not the owner of the of the
properties that he may acquire but merely the administrator thereof. The
Canon
Law also specified that church temporalities are owned by the Catholic Church as a "moral person" or by
the diocess as minor "moral persons" with the ordinary or bishop as administrator.
And elaborating on the composition of the Catholic Church in the Philippines, petitioner explained that as a
religious society or organization, it is made up of 2 elements or divisions the clergy or religious
members and the faithful or lay members. The 1948 figures of the Bureau of Census showed that there
were 277,551 Catholics in Davao and aliens residing therein numbered 3,465. Ever granting that all these
foreigners are Catholics, petitioner contends that Filipino citizens form more than 80 per cent of the entire
Catholics population of that area. As to its clergy and religious composition, counsel for petitioner
presented the Catholic Directory of the Philippines for 1954 (Annex A) which revealed that as of that year,
Filipino clergy and women novices comprise already 60.5 per cent of the group. It was, therefore, allowed
that the constitutional requirement was fully met and satisfied.
Respondents, on the other hand, averred that although it might be true that petitioner is not the owner of the
land purchased, yet he has control over the same, with full power to administer, take possession of,
alienate, transfer, encumber, sell or dispose of any or all lands and their improvements registered in the
name of the corporation sole and can collect, receive, demand or sue for all money or values of any kind
that may be kind that may become due or owing to said corporation, and vested with authority to enter into
agreements with any persons, concerns or entities in connection with said real properties, or in other words,
actually exercising all rights of ownership over the properties. It was their stand that the theory that
properties registered in the name of the corporation sole are held in true for the benefit of the Catholic
population of a place, as of Davao in the case at bar should be sustained because a conglomeration of
persons cannot just be pointed out as the cestui que trust or recipient of the benefits from the property
allegedly administered in their behalf. Neither can it be said that the mass of people referred to as such
beneficiary exercise ant right of ownership over the same. This set-up, respondents argued, falls short of a
trust. The respondents instead tried to prove that in reality, the beneficiary of ecclesiastical properties are
33
not members or faithful of the church but someone else, by quoting a portion a portion of the ought of
fidelity subscribed by a bishop upon his elevation to the episcopacy wherein he promises to render to the
Pontificial Father or his successors an account of his pastoral office and of all things appertaining to
the state of this church.
Respondents likewise advanced the opinion that in construing the constitutional provision calling for 60 per
cent of Filipino citizenship, the criterion of the properties or assets thereof.
In solving the problem thus submitted to our consideration, We can say the following: A corporation sole is
a special form of corporation usually associated with the clergy. Conceived and introduced into the
common law by sheer necessity, this legal creation which was referred to as "that unhappy freak of English
law" was designed to facilitate the exercise of the functions of ownership carried on by the clerics for and
on behalf of the church which was regarded as the property owner (See I Couvier's Law Dictionary, p. 682683).
A corporation sole consists of one person only, and his successors (who will always be one at a time), in
some particular station, who are incorporated by law in order to give them some legal capacities and
advantages, particularly that of perpetuity, which in their natural persons they could not have had. In this
sense, the king is a sole corporation; so is a bishop, or dens, distinct from their several chapters (Reid vs.
Barry, 93 Fla. 849, 112 So. 846).
The provisions of our Corporation law on religious corporations are illuminating and sustain the stand of
petitioner. Section 154 thereof provides:
SEC. 154. For the administration of the temporalities of any religious denomination, society or
church and the management of the estates and the properties thereof, it shall be lawful for the
bishop, chief priest, or presiding either of any such religious denomination, society or church to
become a corporation sole, unless inconsistent wit the rules, regulations or discipline of his
religious denomination, society or church or forbidden by competent authority thereof.
See also the pertinent provisions of the succeeding sections of the same Corporation Law copied hereunder:
SEC. 155. In order to become a corporation sole the bishop, chief priest, or presiding elder of any
religious denomination, society or church must file with the Securities and Exchange Commissioner
articles of incorporation setting forth the following facts:
xxx xxx xxx.
(3) That as such bishop, chief priest, or presiding elder he is charged with the administration of the
temporalities and the management of the estates and properties of his religious denomination,
society, or church within its territorial jurisdiction, describing it;
xxx xxx xxx.
(As amended by Commonwealth Act No. 287).
SEC. 157. From and after the filing with the Securities and Exchange Commissioner of the said
articles of incorporation, which verified by affidavit or affirmation as aforesaid and accompanied by
the copy of the commission, certificate of election, or letters of appointment of the bishop, chief
priest, or presiding elder, duly certified as prescribed in the section immediately preceding such the
bishop, chief priest, or presiding elder, as the case may be, shall become a corporation sole and all
temporalities, estates, and properties the religious denomination, society, or church therefore
administered or managed by him as such bishop, chief priest, or presiding elder, shall be held in
trust by him as a corporation sole, for the use, purpose, behalf, and sole benefit of his religious
denomination, society, or church, including hospitals, schools, colleges, orphan, asylums,
parsonages, and cemeteries thereof. For the filing of such articles of incorporation, the Securities
34
and Exchange Commissioner shall collect twenty-five pesos. (As amended by Commonwealth Act.
No. 287); and.
SEC. 163. The right to administer all temporalities and all property held or owned by a religious
order or society, or by the diocese, synod, or district organization of any religious denomination or
church shall, on its incorporation, pass to the corporation and shall be held in trust for the use,
purpose behalf, and benefit of the religious society, or order so incorporated or of the church of
which the diocese, or district organization is an organized and constituent part.
The Cannon Law contains similar provisions regarding the duties of the corporation sole or ordinary as
administrator of the church properties, as follows:
Al Ordinario local pertenence vigilar diligentemente sobre la administracion de todos los bienes
eclesiasticos que se hallan en su territorio y no estuvieren sustraidos de su jurisdiccion, salvs las
prescriciones legitimas que le concedan mas aamplios derechos.
Teniendo en cuenta los derechos y las legitimas costumbres y circunstancias, procuraran los
Ordinarios regular todo lo concerniente a la administracion de los bienes eclesciasticos, dando las
oportunas instucciones particularles dentro del narco del derecho comun. (Title XXVIII, Codigo de
Derecho Canonico, Lib. III, Canon 1519).1
That leaves no room for doubt that the bishops or archbishops, as the case may be, as corporation's sole are
merely administrators of the church properties that come to their possession, in which they hold in trust for
the church. It can also be said that while it is true that church properties could be administered by a natural
persons, problems regarding succession to said properties can not be avoided to rise upon his death.
Through this legal fiction, however, church properties acquired by the incumbent of a corporation sole
pass, by operation of law, upon his death not his personal heirs but to his successor in office. It could be
seen, therefore, that a corporation sole is created not only to administer the temporalities of the church or
religious society where he belongs but also to hold and transmit the same to his successor in said office. If
the ownership or title to the properties do not pass to the administrators, who are the owners of church
properties?.
Bouscaren and Elis, S.J., authorities on cannon law, on their treatise comment:
In matters regarding property belonging to the Universal Church and to the Apostolic See, the
Supreme Pontiff exercises his office of supreme administrator through the Roman Curia; in matters
regarding other church property, through the administrators of the individual moral persons in the
Church according to that norms, laid down in the Code of Cannon Law. This does not mean,
however, that the Roman Pontiff is the owner of all the church property; but merely that he is the
supreme guardian (Bouscaren and Ellis, Cannon Law, A Text and Commentary, p. 764).
and this Court, citing Campes y Pulido, Legislacion y Jurisprudencia Canonica, ruled in the case of
Trinidad vs. Roman Catholic Archbishop of Manila, 63 Phil. 881, that:
The second question to be decided is in whom the ownership of the properties constituting the
endowment of the ecclesiastical or collative chaplaincies is vested.
Canonists entertain different opinions as to the persons in whom the ownership of the ecclesiastical
properties is vested, with respect to which we shall, for our purpose, confine ourselves to stating
with Donoso that, while many doctors cited by Fagnano believe that it resides in the Roman Pontiff
as Head of the Universal Church, it is more probable that ownership, strictly speaking, does not
reside in the latter, and, consequently, ecclesiastical properties are owned by the churches,
institutions and canonically established private corporations to which said properties have been
donated.
Considering that nowhere can We find any provision conferring ownership of church properties on the
Pope although he appears to be the supreme administrator or guardian of his flock, nor on the corporation
35
sole or heads of dioceses as they are admittedly mere administrators of said properties, ownership of these
temporalities logically fall and develop upon the church, diocese or congregation acquiring the same.
Although this question of ownership of ecclesiastical properties has off and on been mentioned in several
decisions of the Court yet in no instance was the subject of citizenship of this religious society been passed
upon.
We are not unaware of the opinion expressed by the late Justice Perfecto in his dissent in the case of
Agustines vs. Court of First Instance of Bulacan, 80 Phil. 565, to the effect that "the Roman Catholic
Archbishop of Manila is only a branch of a universal church by the Pope, with permanent residence in
Rome, Italy". There is no question that the Roman Catholic Church existing in the Philippines is a tributary
and part of the international religious organization, for the word "Roman" clearly expresses its unity with
and recognizes the authority of the Pope in Rome. However, lest We become hasty in drawing conclusions,
We have to analyze and take note of the nature of the government established in the Vatican City, of which
it was said:
GOVERNMENT. In the Roman Catholic Church supreme authority and jurisdiction over clergy
and laity alike as held by the pope who (since the Middle Ages) is elected by the cardinals
assembled in conclave, and holds office until his death or legitimate abdication. . . While the pope is
obviously independent of the laws made, and the officials appointed, by himself or his predecessors,
he usually exercises his administrative authority according to the code of canon law and through the
congregations, tribunals and offices of the Curia Romana. In their respective territories (called
generally dioceses) and over their respective subjects, the patriarchs, metropolitans or archbishops
and bishops exercise a jurisdiction which is called ordinary (as attached by law to an office given to
a person. . . (Collier's Encyclopedia, Vol. 17, p. 93).
While it is true and We have to concede that in the profession of their faith, the Roman Pontiff is the
supreme head; that in the religious matters, in the exercise of their belief, the Catholic congregation of the
faithful throughout the world seeks the guidance and direction of their Spiritual Father in the Vatican, yet it
cannot be said that there is a merger of personalities resultant therein. Neither can it be said that the
political and civil rights of the faithful, inherent or acquired under the laws of their country, are affected by
that relationship with the Pope. The fact that the Roman Catholic Church in almost every country springs
from that society that saw its beginning in Europe and the fact that the clergy of this faith derive their
authorities and receive orders from the Holy See do not give or bestow the citizenship of the Pope upon
these branches. Citizenship is a political right which cannot be acquired by a sort of "radiation". We have to
realize that although there is a fraternity among all the catholic countries and the dioceses therein all over
the globe, the universality that the word "catholic" implies, merely characterize their faith, a uniformity in
the practice and the interpretation of their dogma and in the exercise of their belief, but certainly they are
separate and independent from one another in jurisdiction, governed by different laws under which they are
incorporated, and entirely independent on the others in the management and ownership of their
temporalities. To allow theory that the Roman Catholic Churches all over the world follow the citizenship
of their Supreme Head, the Pontifical Father, would lead to the absurdity of finding the citizens of a
country who embrace the Catholic faith and become members of that religious society, likewise citizens of
the Vatican or of Italy. And this is more so if We consider that the Pope himself may be an Italian or
national of any other country of the world. The same thing be said with regard to the nationality or
citizenship of the corporation sole created under the laws of the Philippines, which is not altered by the
change of citizenship of the incumbent bishops or head of said corporation sole.
We must therefore, declare that although a branch of the Universal Roman Catholic Apostolic Church,
every Roman Catholic Church in different countries, if it exercises its mission and is lawfully incorporated
in accordance with the laws of the country where it is located, is considered an entity or person with all the
rights and privileges granted to such artificial being under the laws of that country, separate and distinct
from the personality of the Roman Pontiff or the Holy See, without prejudice to its religious relations with
the latter which are governed by the Canon Law or their rules and regulations.
We certainly are conscious of the fact that whatever conclusion We may draw on this matter will have a far
reaching influence, nor can We overlook the pages of history that arouse indignation and criticisms against
church landholdings. This nurtured feeling that snowbailed into a strong nationalistic sentiment manifested
36
itself when the provisions on natural to be embodied in the Philippine Constitution were framed, but all that
has been said on this regard referred more particularly to landholdings of religious corporations known as
"Friar Estates" which have already bee acquired by our government, and not to properties held by
corporations sole which, We repeat, are properties held in trust for the benefit of the faithful residing within
its territorial jurisdiction. Though that same feeling probably precipitated and influenced to a large extent
the doctrine laid down in the celebrated Krivenco decision, We have to take this matter in the light of legal
provisions and jurisprudence actually obtaining, irrespective of sentiments.
The question now left for our determination is whether the Universal Roman Catholic Apostolic Church in
the Philippines, or better still, the corporation sole named the Roman Catholic Apostolic Administrator of
Davao, Inc., is qualified to acquire private agricultural lands in the Philippines pursuant to the provisions of
Article XIII of the Constitution.
We see from sections 1 and 5 of said Article quoted before, that only persons or corporations qualified to
acquire hold lands of the public domain in the Philippines may acquire or be assigned and hold private
agricultural lands. Consequently, the decisive factor in the present controversy hinges on the proposition or
whether or not the petitioner in this case can acquire agricultural lands of the public domain.
From the data secured from the Securities and Exchange Commission, We find that the Roman Catholic
Bishop of Zamboanga was incorporated (as a corporation sole) in September, 1912, principally to
administer its temporalities and manage its properties. Probably due to the ravages of the last war, its
articles of incorporation were reconstructed in the Securities and Exchange Commission on April 8, 1948.
At first, this corporation sole administered all the temporalities of the church existing or located in the
island of Mindanao. Later on, however, new dioceses were formed and new corporations sole were created
to correspond with the territorial jurisdiction of the new dioceses, one of them being petitioner herein, the
Roman Catholic Apostolic Administrator of Davao, Inc., which was registered with the Securities and
Exchange Commission on September 12, 1950, and succeeded in the administrative for all the
"temporalities" of the Roman Catholic Church existing in Davao.
According to our Corporation Law, Public Act No. 1549, approved April 1, 1906, a corporation sole.
is organized and composed of a single individual, the head of any religious society or church, for
the ADMINISTRATION of the temporalities of such society or church. By "temporalities" is meant
estate and properties not used exclusively for religious worship. The successor in office of such
religious head or chief priest incorporated as a corporation sole shall become the corporation sole
on ascension to office, and shall be permitted to transact business as such on filing with the
Securities and Exchange Commission a copy of his commission, certificate of election or letter of
appointment duly certified by any notary public or clerk of court of record (Guevara's The
Philippine Corporation Law, p. 223).
The Corporation Law also contains the following provisions:
SECTION 159. Any corporation sole may purchase and hold real estate and personal; property for
its church, charitable, benevolent, or educational purposes, and may receive bequests or gifts of
such purposes. Such corporation may mortgage or sell real property held by it upon obtaining an
order for that purpose from the Court of First Instance of the province in which the property is
situated; but before making the order proof must be made to the satisfaction of the Court that notice
of the application for leave to mortgage or sell has been given by publication or otherwise in such
manner and for such time as said Court or the Judge thereof may have directed, and that it is to the
interest of the corporation that leave to mortgage or sell must be made by petition, duly verified by
the bishop, chief priest, or presiding elder acting as corporation sole, and may be opposed by any
member of the religious denomination, society or church represented by the corporation sole:
Provided, however, That in cases where the rules, regulations, and discipline of the religious
denomination, society or church concerned represented by such corporation sole regulate the
methods of acquiring, holding, selling and mortgaging real estate and personal property, such rules,
regulations, and discipline shall control and the intervention of the Courts shall not be necessary.
37
It can, therefore, be noticed that the power of a corporation sole to purchase real property, like the power
exercised in the case at bar, it is not restricted although the power to sell or mortgage sometimes is,
depending upon the rules, regulations, and discipline of the church concerned represented by said
corporation sole. If corporations sole can purchase and sell real estate for its church, charitable, benevolent,
or educational purposes, can they register said real properties? As provided by law, lands held in trust for
specific purposes me be subject of registration (section 69, Act 496), and the capacity of a corporation sole,
like petitioner herein, to register lands belonging to it is acknowledged, and title thereto may be issued in
its name (Bishop of Nueva Segovia vs. Insular Government, 26 Phil. 300-1913). Indeed it is absurd that
while the corporations sole that might be in need of acquiring lands for the erection of temples where the
faithful can pray, or schools and cemeteries which they are expressly authorized by law to acquire in
connection with the propagation of the Roman Catholic Apostolic faith or in furtherance of their freedom
of religion they could not register said properties in their name. As professor Javier J. Nepomuceno very
well says "Man in his search for the immortal and imponderable, has, even before the dawn of recorded
history, erected temples to the Unknown God, and there is no doubt that he will continue to do so for all
time to come, as long as he continues 'imploring the aid of Divine Providence'" (Nepomuceno's
Corporation Sole, VI Ateneo Law Journal, No. 1, p. 41, September, 1956). Under the circumstances of this
case, We might safely state that even before the establishment of the Philippine Commonwealth and of the
Republic of the Philippines every corporation sole then organized and registered had by express provision
of law the necessary power and qualification to purchase in its name private lands located in the territory in
which it exercised its functions or ministry and for which it was created, independently of the nationality of
its incumbent unique and single member and head, the bishop of the dioceses. It can be also maintained
without fear of being gainsaid that the Roman Catholic Apostolic Church in the Philippines has no
nationality and that the framers of the Constitution, as will be hereunder explained, did not have in mind
the religious corporations sole when they provided that 60 per centum of the capital thereof be owned by
Filipino citizens.
There could be no controversy as to the fact that a duly registered corporation sole is an artificial being
having the right of succession and the power, attributes, and properties expressly authorized by law or
incident to its existence (section 1, Corporation Law). In outlining the general powers of a corporation.
Public Act. No. 1459 provides among others:
SEC. 13. Every corporation has the power:
(5) To purchase, hold, convey, sell, lease, lot, mortgage, encumber, and otherwise deal with such
real and personal property as the purpose for which the corporation was formed may permit, and the
transaction of the lawful business of the corporation may reasonably and necessarily require, unless
otherwise prescribed in this Act: . . .
In implementation of the same and specially made applicable to a form of corporation recognized by the
same law, Section 159 aforequoted expressly allowed the corporation sole to purchase and hold real as well
as personal properties necessary for the promotion of the objects for which said corporation sole is created.
Respondent Land Registration Commissioner, however, maintained that since the Philippine Constitution is
a later enactment than public Act No. 1459, the provisions of Section 159 in amplification of Section 13
thereof, as regard real properties, should be considered repealed by the former.
There is a reason to believe that when the specific provision of the Constitution invoked by respondent
Commissioner was under consideration, the framers of the same did not have in mind or overlooked this
particular form of corporation. It is undeniable that the naturalization and conservation of our national
resources was one of the dominating objectives of the Convention and in drafting the present Article XII of
the Constitution, the delegates were goaded by the desire (1) to insure their conservation for Filipino
posterity; (2) to serve as an instrument of national defense, helping prevent the extension into the country
of foreign control through peaceful economic penetration; and (3) to prevent making the Philippines a
source of international conflicts with the consequent danger to its internal security and independence (See
The Framing of the Philippine Constitution by Professor Jose M. Aruego, a Delegate to the Constitutional
Convention, Vol. II. P. 592-604). In the same book Delegate Aruego, explaining the reason behind the first
consideration, wrote:
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At the time of the framing of Philippine Constitution, Filipino capital had been to be rather shy.
Filipinos hesitated s a general rule to invest a considerable sum of their capital for the development,
exploitation and utilization of the natural resources of the country. They had not as yet been so used
to corporate as the peoples of the west. This general apathy, the delegates knew, would mean the
retardation of the development of the natural resources, unless foreign capital would be encouraged
to come and help in that development. They knew that the naturalization of the natural resources
would certainly not encourage theINVESTMENT OF FOREIGN CAPITAL into them. But there
was a general feeling in the Convention that it was better to have such a development retarded or
even postpone together until such time when the Filipinos would be ready and willing to undertake
it rather than permit the natural resources to be placed under the ownership or control of foreigners
in order that they might be immediately be developed, with the Filipinos of the future serving not as
owners but utmost as tenants or workers under foreign masters. By all means, the delegates
believed, the natural resources should be conserved for Filipino posterity.
It could be distilled from the foregoing that the farmers of the Constitution intended said provisions as
barrier for foreigners or corporations financed by such foreigners to acquire, exploit and develop our
natural resources, saving these undeveloped wealth for our people to clear and enrich when they are already
prepared and capable of doing so. But that is not the case of corporations sole in the Philippines, for, We
repeat, they are mere administrators of the "temporalities" or properties titled in their name and for the
benefit of the members of their respective religion composed of an overwhelming majority of Filipinos. No
mention nor allusion whatsoever is made in the Constitution as to the prohibition against or the liability of
the Roman Catholic Church in the Philippines to acquire and hold agricultural lands. Although there were
some discussions on landholdings, they were mostly confined in the inclusion of the provision allowing the
Government to break big landed estates to put an end to absentee landlordism.
But let us suppose, for the sake of argument, that the above referred to inhibitory clause of Section 1 of
Article XIII of the constitution does have bearing on the petitioner's case; even so the clause requiring that
at least 60 per centum of the capital of the corporation be owned by Filipinos is subordinated to the
petitioner's aforesaid right already existing at the time of the inauguration of the Commonwealth and the
Republic of the Philippines. In the language of Mr. Justice Jose P. Laurel (a delegate to the Constitutional
Convention), in his concurring opinion of the case of Gold Creek mining Corporation, petitioner vs.
Eulogio Rodriguez, Secretary of Agriculture and Commerce, and Quirico Abadilla, Director of the Bureau
of Mines, respondent, 66 Phil. 259:
The saving clause in the section involved of the Constitution was originally embodied in the report
submitted by the Committee on Naturalization and Preservation of Land and Other Natural
Resources to the Constitutional Convention on September 17, 1954. It was later inserted in the first
draft of the Constitution as section 13 of Article XIII thereof, and finally incorporated as we find it
now. Slight have been the changes undergone by the proviso from the time when it comes out of the
committee until it was finally adopted. When first submitted and as inserted to the first draft of the
Constitution it reads: 'subject to any right, grant, lease, or concession existing in respect thereto on
the date of the adoption of the Constitution'. As finally adopted, the proviso reads: 'subject to any
existing right, grant, lease, or concession at the time of the inauguration of the Government
established under this Constitution'. This recognition is not mere graciousness but springs form the
just character of the government established. The framers of the Constitution were not obscured by
the rhetoric of democracy or swayed to hostility by an intense spirit of nationalism. They well knew
that conservation of our natural resources did not mean destruction or annihilation of acquired
property rights. Withal, they erected a government neither episodic nor stationary but well-nigh
conservative in the protection of property rights. This notwithstanding nationalistic and socialistic
traits discoverable upon even a sudden dip into a variety of the provisions embodied in the
instrument.
The writer of this decision wishes to state at this juncture that during the deliberation of this case he
submitted to the consideration of the Court the question that may be termed the "vested right saving clause"
contained in Section 1, Article XII of the Constitution, but some of the members of this Court either did not
agree with the theory of the writer, or were not ready to take a definite stand on the particular point I am
now to discuss deferring our ruling on such debatable question for a better occasion, inasmuch as the
39
determination thereof is not absolutely necessary for the solution of the problem involved in this case. In
his desire to face the issues squarely, the writer will endeavor, at least as a disgression, to explain and
develop his theory, not as a lucubration of the Court, but of his own, for he deems it better and convenient
to go over the cycle of reasons that are linked to one another and that step by step lead Us to conclude as
We do in the dispositive part of this decision.
It will be noticed that Section 1 of Article XIII of the Constitution provides, among other things, that "all
agricultural lands of the public domain and their disposition shall be limited to citizens of the Philippines or
to corporations at least 60 per centum of the capital of which is owned by such citizens, SUBJECT TO
ANY EXISTING RIGHT AT THE TIME OF THE INAUGURATION OF THE GOVERNMENT
ESTABLISHED UNDER THIS CONSTITUTION."
As recounted by Mr. Justice Laurel in the aforementioned case of Gold Creek Mining Corporation vs.
Rodriguez et al., 66 Phil. 259, "this recognition (in the clause already quoted), is not mere graciousness but
springs from the just character of the government established. The farmers of the Constitution were not
obscured by the rhetoric of democracy or swayed to hostility by an intense spirit of nationalism. They well
knew that conservation of our natural resources did not mean destruction or annihilation of ACQUIRED
PROPERTY RIGHTS".
But respondents' counsel may argue that the preexisting right of acquisition of public or private lands by a
corporation which does not fulfill this 60 per cent requisite, refers to purchases of the Constitution and not
to later transactions. This argument would imply that even assuming that petitioner had at the time of the
enactment of the Constitution the right to purchase real property or right could not be exercised after the
effectivity of our Constitution, because said power or right of corporations sole, like the herein petitioner,
conferred in virtue of the aforequoted provisions of the Corporation Law, could no longer be exercised in
view of the requisite therein prescribed that at least 60 per centum of the capital of the corporation had to
be Filipino. It has been shown before that: (1) the corporation sole, unlike the ordinary corporations which
are formed by no less than 5 incorporators, is composed of only one persons, usually the head or bishop of
the diocese, a unit which is not subject to expansion for the purpose of determining any percentage
whatsoever; (2) the corporation sole is only the administrator and not the owner of the temporalities
located in the territory comprised by said corporation sole; (3) such temporalities are administered for and
on behalf of the faithful residing in the diocese or territory of the corporation sole; and (4) the latter, as
such, has no nationality and the citizenship of the incumbent Ordinary has nothing to do with the operation,
management or administration of the corporation sole, nor effects the citizenship of the faithful connected
with their respective dioceses or corporation sole.
In view of these peculiarities of the corporation sole, it would seem obvious that when the specific
provision of the Constitution invoked by respondent Commissioner (section 1, Art. XIII), was under
consideration, the framers of the same did not have in mind or overlooked this particular form of
corporation. If this were so, as the facts and circumstances already indicated tend to prove it to be so, then
the inescapable conclusion would be that this requirement of at least 60 per cent of Filipino capital was
never intended to apply to corporations sole, and the existence or not a vested right becomes
unquestionably immaterial.
But let us assumed that the questioned proviso is material. yet We might say that a reading of said Section 1
will show that it does not refer to any actual acquisition of land up to the right, qualification or power to
acquire and hold private real property. The population of the Philippines, Catholic to a high percentage, is
ever increasing. In the practice of religion of their faithful the corporation sole may be in need of more
temples where to pray, more schools where the children of the congregation could be taught in the
principles of their religion, more hospitals where their sick could be treated, more hallow or consecrated
grounds or cemeteries where Catholics could be buried, many more than those actually existing at the time
of the enactment of our Constitution. This being the case, could it be logically maintained that because the
corporation sole which, by express provision of law, has the power to hold and acquire real estate and
personal property of its churches, charitable benevolent, or educational purposes (section 159, Corporation
Law) it has to stop its growth and restrain its necessities just because the corporation sole is a non-stock
corporation composed of only one person who in his unity does not admit of any percentage, especially
40
when that person is not the owner but merely an administrator of the temporalities of the corporation sole?
The writer leaves the answer to whoever may read and consider this portion of the decision.
Anyway, as stated before, this question is not a decisive factor in disposing the case, for even if We were to
disregard such saving clause of the Constitution, which reads: subject to any existing right, grant, etc., at
the same time of the inauguration of the Government established under this Constitution, yet We would
have, under the evidence on record, sufficient grounds to uphold petitioner's contention on this matter.
In this case of the Register of Deeds of Rizal vs. Ung Sui Si Temple, 2 G.R. No. L-6776, promulgated May
21, 1955, wherein this question was considered from a different angle, this Court through Mr. Justice J.B.L.
Reyes, said:
The fact that the appellant religious organization has no capital stock does not suffice to escape the
Constitutional inhibition, since it is admitted that its members are of foreign nationality. The
purpose of the sixty per centum requirement is obviously to ensure that corporation or associations
allowed to acquire agricultural land or to exploit natural resources shall be controlled by Filipinos;
and the spirit of the Constitution demands that in the absence of capital stock, the controlling
membership should be composed of Filipino citizens.
In that case respondent-appellant Ung Siu Si Temple was not a corporation sole but a corporation
aggregate, i.e., an unregistered organization operating through 3 trustees, all of Chinese nationality, and that
is why this Court laid down the doctrine just quoted. With regard to petitioner, which likewise is a nonstock corporation, the case is different, because it is a registered corporation sole, evidently of no
nationality and registered mainly to administer the temporalities and manage the properties belonging to
the faithful of said church residing in Davao. But even if we were to go over the record to inquire into
the composing membership to determine whether the citizenship requirement is satisfied or not, we
would find undeniable proof that the members of the Roman Catholic Apostolic faith within the
territory of Davao are predominantly Filipino citizens. As indicated before, petitioner has presented
evidence to establish that the clergy and lay members of this religion fully covers the percentage of Filipino
citizens required by the Constitution. These facts are not controverted by respondents and our conclusion in
this point is sensibly obvious.
Dissenting OpinionDiscussed. After having developed our theory in the case and arrived at the
findings and conclusions already expressed in this decision. We now deem it proper to analyze and delve
into the basic foundation on which the dissenting opinion stands up. Being aware of the transcendental and
far-reaching effects that Our ruling on the matter might have, this case was thoroughly considered from all
points of view, the Court sparing no effort to solve the delicate problems involved herein.
At the deliberations had to attain this end, two ways were open to a prompt dispatch of the case: (1) the
reversal of the doctrine We laid down in the celebrated Krivenko case by excluding urban lots and
properties from the group of the term "private agricultural lands" use in this section 5, Article XIII of the
Constitution; and (2) by driving Our reasons to a point that might indirectly cause the appointment of
Filipino bishops or Ordinary to head the corporations sole created to administer the temporalities of the
Roman Catholic Church in the Philippines. With regard to the first way, a great majority of the members of
this Court were not yet prepared nor agreeable to follow that course, for reasons that are obvious. As to the
second way, it seems to be misleading because the nationality of the head of a diocese constituted as a
corporation sole has no material bearing on the functions of the latter, which are limited to the
administration of the temporalities of the Roman Catholic Apostolic Church in the Philippines.
Upon going over the grounds on which the dissenting opinion is based, it may be noticed that its author
lingered on the outskirts of the issues, thus throwing the main points in controversy out of focus. Of course
We fully agree, as stated by Professor Aruego, that the framers of our Constitution had at heart to insure the
conservation of the natural resources of Our motherland of Filipino posterity; to serve them as an
instrument of national defense, helping prevent the extension into the country of foreign control through
peaceful economic penetration; and to prevent making the Philippines a source of international conflicts
with the consequent danger to its internal security and independence. But all these precautions adopted by
the Delegates to Our Constitutional Assembly could have not been intended for or directed against cases
41
like the one at bar. The emphasis and wonderings on the statement that once the capacity of a corporation
sole to acquire private agricultural lands is admitted there will be no limit to the areas that it may hold and
that this will pave the way for the "revival or revitalization of religious landholdings that proved so
troublesome in our past", cannot even furnish the "penumbra" of a threat to the future of the Filipino
people. In the first place, the right of Filipino citizens, including those of foreign extraction, and Philippine
corporations, to acquire private lands is not subject to any restriction or limit as to quantity or area, and We
certainly do not see any wrong in that. The right of Filipino citizens and corporations to acquire public
agricultural lands is already limited by law. In the second place, corporations sole cannot be considered as
aliens because they have no nationality at all. Corporations sole are, under the law, mere administrators of
the temporalities of the Roman Catholic Church in the Philippines. In the third place, every corporation, be
it aggregate or sole, is only entitled to purchase, convey, sell, lease, let, mortgage, encumber and otherwise
deal with real properties when it is pursuant to or in consonance with the purposes for which the
corporation was formed, and when the transactions of the lawful business of the corporation reasonably and
necessarily require such dealing section 13-(5) of the Corporation Law, Public Act No. 1459 and
considering these provisions in conjunction with Section 159 of the same law which provides that a
corporation sole may only "purchase and hold real estate and personal properties for its church, charitable,
benevolent or educational purposes", the above mentioned fear of revitalization of religious landholdings in
the Philippines is absolutely dispelled. The fact that the law thus expressly authorizes the corporations sole
to receive bequests or gifts of real properties (which were the main source that the friars had to acquire
their big haciendas during the Spanish regime), is a clear indication that the requisite that bequests or gifts
of real estate be for charitable, benevolent, or educational purposes, was, in the opinion of the legislators,
considered sufficient and adequate protection against the revitalization of religious landholdings.
Finally, and as previously stated, We have reason to believe that when the Delegates to the Constitutional
Convention drafted and approved Article XIII of the Constitution they do not have in mind the corporation
sole. We come to this finding because the Constitutional Assembly, composed as it was by a great number
of eminent lawyers and jurists, was like any other legislative body empowered to enact either the
Constitution of the country or any public statute, presumed to know the conditions existing as to particular
subject matter when it enacted a statute (Board of Commerce of Orange Country vs. Bain, 92 S.E. 176; N.
C. 377).
Immemorial customs are presumed to have been always in the mind of the Legislature in enacting
legislation. (In re Kruger's Estate, 121 A. 109; 277 P. 326).
The Legislative is presumed to have a knowledge of the state of the law on the subjects upon which
it legislates. (Clover Valley Land and Stock Co. vs. Lamb et al., 187, p. 723,726.)
The Court in construing a statute, will assume that the legislature acted with full knowledge of the
prior legislation on the subject and its construction by the courts. (Johns vs. Town of Sheridan, 89
N. E. 899, 44 Ind. App. 620.).
The Legislature is presumed to have been familiar with the subject with which it was dealing . . . .
(Landers vs. Commonwealth, 101 S. E. 778, 781.).
The Legislature is presumed to know principles of statutory construction. (People vs. Lowell, 230
N. W. 202, 250 Mich. 349, followed in P. vs. Woodworth, 230 N.W. 211, 250 Mich. 436.).
It is not to be presumed that a provision was inserted in a constitution or statute without reason, or
that a result was intended inconsistent with the judgment of men of common sense guided by
reason" (Mitchell vs. Lawden, 123 N.E. 566, 288 Ill. 326.) See City of Decatur vs. German, 142 N.
E. 252, 310 Ill. 591, and may other authorities that can be cited in support hereof.
Consequently, the Constitutional Assembly must have known:
1. That a corporation sole is organized by and composed of a single individual, the head of any
religious society or church operating within the zone, area or jurisdiction covered by said
corporation sole (Article 155, Public Act No. 1459);
42
43
residing in the jurisdiction of the corporation sole has no say either in the manner of acquiring or of selling
real property. It may be also admitted that the faithful of the diocese cannot govern or overrule the acts of
the Ordinary, but all this does not mean that the latter can administer the temporalities of the corporation
sole without check or restraint. We must not forget that when a corporation sole is incorporated under
Philippine laws, the head and only member thereof subjects himself to the jurisdiction of the Philippine
courts of justice and these tribunals can thus entertain grievances arising out of or with respect to the
temporalities of the church which came into the possession of the corporation sole as administrator. It may
be alleged that the courts cannot intervene as to the matters of doctrine or teachings of the Roman Catholic
Church. That is correct, but the courts may step in, at the instance of the faithful for whom the temporalities
are being held in trust, to check undue exercise by the corporation sole of its power as administrator to
insure that they are used for the purpose or purposes for which the corporation sole was created.
American authorities have these to say:
It has been held that the courts have jurisdiction over an action brought by persons claiming to be
members of a church, who allege a wrongful and fraudulent diversion of the church property to
uses foreign to the purposes of the church, since no ecclesiastical question is involved and equity
will protect from wrongful diversion of the property (Hendryx vs. Peoples United Church, 42 Wash.
336, 4 L.R.A. n.s. 1154).
The courts of the State have no general jurisdiction and control over the officers of such
corporations in respect to the performance of their official duties; but as in respect to the property
which they hold for the corporation, they stand in position of TRUSTEES and the courts may
exercise the same supervision as in other cases of trust (Ramsey vs. Hicks, 174 Ind. 428, 91 N.E.
344, 92 N.E. 164, 30 L.R.A. n.s. 665; Hendryx vs. Peoples United Church, supra.).
Courts of the state do not interfere with the administration of church rules or discipline unless civil
rights become involved and which must be protected (Morris St., Baptist Church vs. Dart, 67 S.C.
338, 45 S.E. 753, and others). (All cited in Vol. II, Cooley's Constitutional Limitations, p. 960964.).
If the Constitutional Assembly was aware of all the facts above enumerated and of the provisions of law
relative to existing conditions as to management and operation of corporations sole in the Philippines, and
if, on the other hand, almost all of the Delegates thereto embraced the Roman Catholic faith, can it be
imagined even for an instant that when Article XIII of the Constitution was approved the framers thereof
intended to prevent or curtail from then on the acquisition sole, either by purchase or donation, of real
properties that they might need for the propagation of the faith and for there religious and Christian
activities such as the moral education of the youth, the care, attention and treatment of the sick and the
burial of the dead of the Roman Catholic faithful residing in the jurisdiction of the respective corporations
sole? The mere indulgence in said thought would impress upon Us a feeling of apprehension and absurdity.
And that is precisely the leit motiv that permeates the whole fabric of the dissenting opinion.
It seems from the foregoing that the main problem We are confronted with in this appeal, hinges around the
necessity of a proper and adequate interpretation of sections 1 and 5 of Article XIII of the Constitution. Let
Us then be guided by the principles of statutory construction laid down by the authorities on the matter:
The most important single factor in determining the intention of the people from whom the
constitution emanated is the language in which it is expressed. The words employed are to be taken
in their natural sense, except that legal or technical terms are to be given their technical meaning.
The imperfections of language as a vehicle for conveying meanings result in ambiguities that must
be resolved by result to extraneous aids for discovering the intent of the framers. Among the more
important of these are a consideration of the history of the times when the provision was adopted
and of the purposes aimed at in its adoption. The debates of constitutional convention,
contemporaneous construction, and practical construction by the legislative and executive
departments, especially if long continued, may be resorted to resolve, but not to create, ambiguities.
. . . Consideration of the consequences flowing from alternative constructions of doubtful provisions
constitutes an important interpretative device. . . . The purposes of many of the broadly phrased
44
constitutional limitations were the promotion of policies that do not lend themselves to definite and
specific formulation. The courts have had to define those policies and have often drawn on natural
law and natural rights theories in doing so. The interpretation of constitutions tends to respond to
changing conceptions of political and social values. The extent to which these extraneous aids affect
the judicial construction of constitutions cannot be formulated in precise rules, but their influence
cannot be ignored in describing the essentials of the process (Rottschaeffer on Constitutional Law,
1939 ed., p. 18-19).
There are times that when even the literal expression of legislation may be inconsistent with the
general objectives of policy behind it, and on the basis of equity or spirit of the statute the courts
rationalize a restricted meaning of the latter. A restricted interpretation is usually applied where the
effect of literal interpretation will make for injustice and absurdity or, in the words of one court, the
language must be so unreasonable 'as to shock general common sense'. (Vol. 3, Sutherland on
Statutory Construction, 3rd ed., 150.).
A constitution is not intended to be a limitation on the development of a country nor an obstruction
to its progress and foreign relations (Moscow Fire Ins. Co. of Moscow, Russia vs. Bank of New
York and Trust Co., 294 N. Y. S.648; 56 N.E. 2d. 745, 293 N.Y. 749).
Although the meaning or principles of a constitution remain fixed and unchanged from the time of
its adoption, a constitution must be construed as if intended to stand for a great length of time, and
it is progressive and not static. Accordingly, it should not receive too narrow or literal an
interpretation but rather the meaning given it should be applied in such manner as to meet new or
changed conditions as they arise (U.S. vs. Lassic, 313 U.S. 299, 85 L. Ed., 1368).
Effect should be given to the purpose indicated by a fair interpretation of the language used and that
construction which effectuates, rather than that which destroys a plain intent or purpose of a
constitutional provision, is not only favored but will be adopted (State ex rel. Randolph Country vs.
Walden, 206 S.W. 2d 979).
It is quite generally held that in arriving at the intent and purpose the construction should be broad
or liberal or equitable, as the better method of ascertaining that intent, rather than technical (Great
Southern Life Ins. Co. vs. City of Austin, 243 S.W. 778).
All these authorities uphold our conviction that the framers of the Constitution had not in mind the
corporations sole, nor intended to apply them the provisions of section 1 and 5 of said Article XIII when
they passed and approved the same. And if it were so as We think it is, herein petitioner, the Roman
Catholic Apostolic Administrator of Davao, Inc., could not be deprived of the right to acquire by purchase
or donation real properties for charitable, benevolent and educational purposes, nor of the right to register
the same in its name with the Register of Deeds of Davao, an indispensable requisite prescribed by the
Land Registration Act for lands covered by the Torrens system.
We leave as the last theme for discussion the much debated question above referred to as "the vested right
saving clause" contained in section 1, Article XIII of the Constitution. The dissenting Justice hurls upon the
personal opinion expressed on the matter by the writer of the decision the most pointed darts of his severe
criticism. We think, however, that this strong dissent should have been spared, because as clearly indicated
before, some members of this Court either did not agree with the theory of the writer or were not ready to
take a definite stand on that particular point, so that there being no majority opinion thereon there was no
need of any dissension therefrom. But as the criticism has been made the writer deems it necessary to say a
few words of explanation.
The writer fully agrees with the dissenting Justice that ordinarily "a capacity to acquire (property) in futuro,
is not in itself a vested or existing property right that the Constitution protects from impairment. For a
property right to be vested (or acquired) there must be a transition from the potential or contingent to
the actual, and the proprietary interest must have attached to a thing; it must have become 'fixed and
established'" (Balboa vs. Farrales, 51 Phil. 498). But the case at bar has to be considered as an exception to
the rule because among the rights granted by section 159 of the Corporation Law was the right to receive
45
bequests or gifts of real properties for charitable, benevolent and educational purposes. And this right to
receive such bequests or gifts (which implies donations in futuro), is not a mere potentiality that could be
impaired without any specific provision in the Constitution to that effect, especially when the impairment
would disturbingly affect the propagation of the religious faith of the immense majority of the Filipino
people and the curtailment of the activities of their Church. That is why the writer gave us a basis of his
contention what Professor Aruego said in his book "The Framing of the Philippine Constitution" and the
enlightening opinion of Mr. Justice Jose P. Laurel, another Delegate to the Constitutional Convention, in
his concurring opinion in the case of Goldcreek Mining Co. vs. Eulogio Rodriguez et al., 66 Phil. 259.
Anyway the majority of the Court did not deem necessary to pass upon said "vested right saving clause" for
the final determination of this case.
JUDGMENT
Wherefore, the resolution of the respondent Land Registration Commission of September 21, 1954, holding
that in view of the provisions of sections 1 and 5 of Article XIII of the Philippine Constitution the vendee
(petitioner) is not qualified to acquire lands in the Philippines in the absence of proof that at least 60 per
centum of the capital, properties or assets of the Roman Catholic Apostolic Administrator of Davao, Inc. is
actually owned or controlled by Filipino citizens, and denying the registration of the deed of sale in the
absence of proof of compliance with such requisite, is hereby reversed. Consequently, the respondent
Register of Deeds of the City of Davao is ordered to register the deed of sale executed by Mateo L. Rodis
in favor of the Roman Catholic Apostolic Administrator of Davao, Inc., which is the subject of the present
litigation. No pronouncement is made as to costs. It is so ordered.
46
47
G. Manalo, with office at the corner of Central and Don Mariano Marcos Avenues, Quezon City, From that
decision, the Republic of the Philippines appealed to this Court under Republic Act No. 5440. The appeal
should be sustained.
As correctly contended by the Solicitor General, the Iglesia Ni Cristo, as a corporation sole or a juridical
person, is disqualified to acquire or hold alienable lands of the public domain, like the two lots in question,
because of the constitutional prohibition already mentioned and because the said church is not entitled to
avail itself of the benefits of section 48(b) which applies only to Filipino citizens or natural persons. A
corporation sole (an "unhappy freak of English law") has no nationality (Roman Catholic Apostolic Adm.
of Davao, Inc. vs. Land Registration Commission, 102 Phil. 596. See Register of Deeds vs. Ung Siu Si
Temple, 97 Phil. 58 and sec. 49 of the Public Land Law).
The contention in the comments of the Iglesia Ni Cristo (its lawyer did not file any brief) that the two lots
are private lands, following the rule laid down in Susi vs. Razon and Director of Lands, 48 Phil. 424, is not
correct. What was considered private land in the Susi case was a parcel of land possessed by a Filipino
citizen since time immemorial, as in Cario vs. Insular Government, 212 U.S. 449, 53 L. ed. 594, 41 Phil.
935 and 7 Phil. 132. The lots sought to be registered in this case do not fall within that category. They are
still public lands. A land registration proceeding under section 48(b) "presupposes that the land is public"
(Mindanao vs. Director of Lands, L-19535, July 10, 1967, 20 SCRA 641, 644).
As held in Oh Cho vs. Director of Lands, 75 Phil. 890, "all lands that were not acquired from the
Government, either by purchase or by grant, belong to the public domain. An exception to the rule would
be any land that should have been in the possession of an occupant and of his predecessors-in-interest since
time immemorial, for such possession would justify the presumption that the land had never been part of
the public domain or that it had been a private property even before the Spanish conquest. "
In Uy Un vs. Perez, 71 Phil. 508, it was noted that the right of an occupant of public agricultural land to
obtain a confirmation of his title under section 48(b) of the Public Land Law is a "derecho dominical
incoativo"and that before the issuance of the certificate of title the occupant is not in the juridical sense the
true owner of the land since it still pertains to the State.
The lower court's judgment is reversed and set aside. The application for registration of the Iglesia Ni
Cristo is dismissed with costs against said applicant.
SO ORDERED.
48
2,399.77
500.00
The Club wrote the Collector, requesting for the cancellation of the assessment. The request having been denied,
the Club filed the instant petition for review.
The dominant issues involved in this case are twofold:
1. Whether the respondent Club is liable for the payment of the sum of 12,068.84, as fixed and percentage taxes
and surcharges prescribed in sections 182, 183 and 191 of the Tax Code, under which the assessment was made,
in connection with the operation of its bar and restaurant, during the periods mentioned above; and
2. Whether it is liable for the payment of the sum of P500.00 as compromise penalty.
Section 182, of the Tax Code states, "Unless otherwise provided, every person engaging in a business on which
the percentage tax is imposed shall pay in full a fixed annual tax of ten pesos for each calendar year or fraction
thereof in which such person shall engage in said business." Section 183 provides in general that "the percentage
taxes on business shall be payable at the end of each calendar quarter in the amount lawfully due on the business
transacted during each quarter; etc." And section 191, same Tax Code, provides "Percentage tax . . . Keepers of
49
restaurants, refreshment parlors and other eating places shall pay a tax three per centum, and keepers of bar and
cafes where wines or liquors are served five per centum of their gross receipts . . .". It has been held that the
liability for fixed and percentage taxes, as provided by these sections, does not ipso factoattach by mere reason of
the operation of a bar and restaurant. For the liability to attach, the operator thereof must be engaged in the
business as a barkeeper and restaurateur. The plain and ordinary meaning of business is restricted to activities or
affairs where profit is the purpose or livelihood is the motive, and the term business when used without
qualification, should be construed in its plain and ordinary meaning, restricted to activities for profitor livelihood
(The Coll. of Int. Rev. v. Manila Lodge No. 761 of the BPOE [Manila Elks Club] & Court of Tax Appeals, G.R.
No. L-11176, June 29, 1959, giving full definitions of the word "business"; Coll. of Int. Rev. v. Sweeney, et al.
[International Club of Iloilo, Inc.], G.R. No. L-12178, Aug. 21, 1959, the facts of which are similar to the ones at
bar; Manila Polo Club v. B. L. Meer, etc., No. L-10854, Jan. 27, 1960).
Having found as a fact that the Club was organized to develop and cultivate sports of all class and denomination,
for the healthful recreation and
entertainment
of its stockholders and members; that upon its dissolution, its remaining assets, after paying debts, shall be
donated to a charitable Philippine Institution in Cebu; that it is operated mainly with funds derived from
membership fees and dues; that the Club's bar and restaurant catered only to its members and their guests; that
there was in fact no cash dividend distribution to its stockholders and that whatever was derived on retail from its
bar and restaurant was used to defray its overall overhead expenses and to improve its golf-course (cost-plusexpenses-basis), it stands to reason that the Club is not engaged in the business of an operator of bar and
restaurant (same authorities, cited above).
It is conceded that the Club derived profit from the operation of its bar and restaurant, but such fact does not
necessarily convert it into a profit-making enterprise. The bar and restaurant are necessary adjuncts of the Club to
foster its purposes and the profits derived therefrom are necessarily incidental to the primary object of developing
and cultivating sports for the healthful recreation and entertainment of the stockholders and members. That a Club
makes some profit, does not make it a profit-making Club. As has been remarked a club should always strive,
whenever possible, to have surplus (Jesus Sacred Heart College v. Collector of Int. Rev., G.R. No. L-6807, May
24, 1954; Collector of Int. Rev. v. Sinco Educational Corp., G.R. No. L-9276, Oct. 23, 1956).1wph1.t
It is claimed that unlike the two cases just cited (supra), which are non-stock, the appellee Club is a stock
corporation. This is unmeritorious. The facts that the capital stock of the respondent Club is divided into shares,
does not detract from the finding of the trial court that it is not engaged in the business of operator of bar and
restaurant. What is determinative of whether or not the Club is engaged in such business is its object or purpose,
as stated in its articles and by-laws. It is a familiar rule that the actual purpose is not controlled by the corporate
form or by the commercial aspect of the business prosecuted, but may be shown by extrinsic evidence, including
the by-laws and the method of operation. From the extrinsic evidence adduced, the Tax Court concluded that the
Club is not engaged in the business as a barkeeper and restaurateur.
Moreover, for a stock corporation to exist, two requisites must be complied with, to wit: (1) a capital stock
divided into shares and (2) an authority to distribute to the holders of such shares, dividends or allotments of the
surplus profits on the basis of the shares held (sec. 3, Act No. 1459). In the case at bar, nowhere in its articles of
incorporation or by-laws could be found an authority for the distribution of its dividends or surplus profits.
Strictly speaking, it cannot, therefore, be considered a stock corporation, within the contemplation of the
corporation law.
A tax is a burden, and, as such, it should not be deemed imposed upon fraternal, civic, non-profit, nonstock
organizations, unless the intent to the contrary is manifest and patent" (Collector v. BPOE Elks Club, et
al., supra), which is not the case in the present appeal.
Having arrived at the conclusion that respondent Club is not engaged in the business as an operator of a bar and
restaurant, and therefore, not liable for fixed and percentage taxes, it follows that it is not liable for any penalty,
much less of a compromise penalty.
WHEREFORE, the decision appealed from is affirmed without costs.
50
51
In Civil Case No. 8278-P, the complaint filed by Manuel R. Dulay Enterprises, Inc. for
cancellation of title of Manuel A. Torres, Jr. (TCT No. 24799 of the Register of Deeds of
Pasay City) and reconveyance, is dismissed for lack or merit, and,
In Civil Case No. 8198-P, defendants Manuel R. Dulay Enterprises, Inc. and Virgilio E.
Dulay are ordered to surrender and deliver possession of the parcel of land, together with all
the improvements thereon, described in Transfer Certificate of Title No. 24799 of the
Register of Deeds of Pasay City, in favor of therein plaintiffs Manuel A. Torres, Jr. as owner
and Edgardo D. Pabalan as real estate administrator of said Manuel A. Torres, Jr.; to account
for and return to said plaintiffs the rentals from dwelling unit No. 8-A of the apartment
building (Dulay Apartment) from June 1980 up to the present, to indemnify plaintiffs,
jointly and severally, expenses of litigation in the amount of P4,000.00 and attorney's fees in
the sum of P6,000.00, for all the three (3) cases. Co-defendant Nepomuceno Redovan is
ordered to pay the current and subsequent rentals on the premises leased by him to plaintiffs.
The counterclaim of defendants Virgilio E. Dulay and Manuel R. Dulay Enterprises, Inc.
and N. Redovan, dismissed for lack of merit. With costs against the three (3) aforenamed
defendants. 3
The facts as found by the trial court are as follows:
Petitioner Manuel R. Dulay Enterprises, Inc, a domestic corporation with the following as members of its
Board of Directors: Manuel R. Dulay with 19,960 shares and designated as president, treasurer and general
manager, Atty. Virgilio E. Dulay with 10 shares and designated as vice-president; Linda E. Dulay with 10
shares; Celia Dulay-Mendoza with 10 shares; and Atty. Plaridel C. Jose with 10 shares and designated as
secretary, owned a property covered by TCT No. 17880 4 and known as Dulay Apartment consisting of
sixteen (16) apartment units on a six hundred eighty-nine (689) square meters lot, more or less, located at
Seventh Street (now Buendia Extension) and F.B. Harrison Street, Pasay City.
Petitioner corporation through its president, Manuel Dulay, obtained various loans for the construction of
its hotel project, Dulay Continental Hotel (now Frederick Hotel). It even had to borrow money from
petitioner Virgilio Dulay to be able to continue the hotel project. As a result of said loan, petitioner Virgilio
Dulay occupied one of the unit apartments of the subject property since property since 1973 while at the
same time managing the Dulay Apartment at his shareholdings in the corporation was subsequently
increased by his father. 5
On
December
23,
1976,
Manuel
Dulay
by
virtue
of
Board
Resolution
No 18 6 of petitioner corporation sold the subject property to private respondents spouses Maria Theresa
and Castrense Veloso in the amount of P300,000.00 as evidenced by the Deed of Absolute
Sale. 7 Thereafter, TCT No. 17880 was cancelled and TCT No. 23225 was issued to private respondent
Maria Theresa Veloso. 8 Subsequently, Manuel Dulay and private respondents spouses Veloso executed a
Memorandum to the Deed of Absolute Sale of December 23, 1976 9 dated December 9, 1977 giving
Manuel Dulay within (2) years or until December 9, 1979 to repurchase the subject property for
P200,000.00 which was, however, not annotated either in TCT No. 17880 or TCT No. 23225.
On December 24, 1976, private respondent Maria Veloso, without the knowledge of Manuel Dulay,
mortgaged the subject property to private respondent Manuel A. Torres for a loan of P250,000.00 which
was duly annotated as Entry No. 68139 in TCT No. 23225. 10
Upon the failure of private respondent Maria Veloso to pay private respondent Torres, the subject property
was sold on April 5, 1978 to private respondent Torres as the highest bidder in an extrajudicial foreclosure
sale as evidenced by the Certificate of Sheriff's Sale 11 issued on April 20, 1978.
On July 20, 1978, private respondent Maria Veloso executed a Deed of Absolute Assignment of the Right
to Redeem 12 in favor of Manuel Dulay assigning her right to repurchase the subject property from private
respondent Torres as a result of the extra sale held on April 25, 1978.
52
As neither private respondent Maria Veloso nor her assignee Manuel Dulay was able to redeem the subject
property within the one year statutory period for redemption, private respondent Torres filed an Affidavit of
Consolidation of Ownership 13 with the Registry of Deeds of Pasay City and TCT No. 24799 14 was
subsequently issued to private respondent Manuel Torres on April 23, 1979.
On October 1, 1979, private respondent Torres filed a petition for the issuance of a writ of possession
against private respondents spouses Veloso and Manuel Dulay in LRC Case No. 1742-P. However, when
petitioner Virgilio Dulay was never authorized by the petitioner corporation to sell or mortgage the subject
property, the trial court ordered private respondent Torres to implead petitioner corporation as an
indispensable party but the latter moved for the dismissal of his petition which was granted in an Order
dated April 8, 1980.
On June 20, 1980, private respondent Torres and Edgardo Pabalan, real estate administrator of Torres, filed
an action against petitioner corporation, Virgilio Dulay and Nepomuceno Redovan, a tenant of Dulay
Apartment Unit No. 8-A for the recovery of possession, sum of money and damages with preliminary
injunction in Civil Case, No. 8198-P with the then Court of First Instance of Rizal.
On July 21, 1980, petitioner corporation filed an action against private respondents spouses Veloso and
Torres for the cancellation of the Certificate of Sheriff's Sale and TCT No. 24799 in Civil Case No. 8278-P
with the then Court of First Instance of Rizal.
On January 29, 1981, private respondents Pabalan and Torres filed an action against spouses Florentino and
Elvira Manalastas, a tenant of Dulay Apartment Unit No. 7-B, with petitioner corporation as intervenor for
ejectment in Civil Case No. 38-81 with the Metropolitan Trial Court of Pasay City which rendered a
decision on April 25, 1985, dispositive portion of which reads, as follows:
Wherefore, judgment is hereby rendered in favor of the plaintiff (herein private respondents)
and against the defendants:
1. Ordering the defendants and all persons claiming possession under them to vacate the
premises.
2. Ordering the defendants to pay the rents in the sum of P500.000 a month from May, 1979
until they shall have vacated the premises with interest at the legal rate;
3. Ordering the defendants to pay attorney's fees in the sum of P2,000.00 and P1,000.00 as
other expenses of litigation and for them to pay the costs of the suit. 15
Thereafter or on May 17, 1985, petitioner corporation and Virgilio Dulay filed an action against the
presiding judge of the Metropolitan Trial Court of Pasay City, private respondents Pabalan and Torres for
the annulment of said decision with the Regional Trial Court of Pasay in Civil Case No. 2880-P.
Thereafter, the three (3) cases were jointly tried and the trial court rendered a decision in favor of private
respondents.
Not satisfied with said decision, petitioners appealed to the Court of Appeals which rendered a decision on
October 23, 1989, the dispositive portion of which reads, as follows:
PREMISES CONSIDERED, the decision being appealed should be as it is hereby
AFFIRMED in full.16
On November 8, 1989, petitioners filed a Motion for Reconsideration which was denied on January 26,
1990.
Hence, this petition.
53
During the pendency of this petition, private respondent Torres died on April 3, 1991 as shown in his death
certificate 17 and named Torres-Pabalan Realty & Development Corporation as his heir in his holographic
will 18 dated October 31, 1986.
Petitioners contend that the respondent court had acted with grave abuse of discretion when it applied the
doctrine of piercing the veil of corporate entity in the instant case considering that the sale of the subject
property between private respondents spouses Veloso and Manuel Dulay has no binding effect on petitioner
corporation as Board Resolution No. 18 which authorized the sale of the subject property was resolved
without the approval of all the members of the board of directors and said Board Resolution was prepared
by a person not designated by the corporation to be its secretary.
We do not agree.
Section 101 of the Corporation Code of the Philippines provides:
Sec. 101. When board meeting is unnecessary or improperly held. Unless the by-laws
provide otherwise, any action by the directors of a close corporation without a meeting shall
nevertheless be deemed valid if:
1. Before or after such action is taken, written consent thereto is signed by all the directors,
or
2. All the stockholders have actual or implied knowledge of the action and make no prompt
objection thereto in writing; or
3. The directors are accustomed to take informal action with the express or implied acquiese
of all the stockholders, or
4. All the directors have express or implied knowledge of the action in question and none of
them makes prompt objection thereto in writing.
If a directors' meeting is held without call or notice, an action taken therein within the
corporate powers is deemed ratified by a director who failed to attend, unless he promptly
files his written objection with the secretary of the corporation after having knowledge
thereof.
In the instant case, petitioner corporation is classified as a close corporation and consequently a board
resolution authorizing the sale or mortgage of the subject property is not necessary to bind the corporation
for the action of its president. At any rate, corporate action taken at a board meeting without proper call or
notice in a close corporation is deemed ratified by the absent director unless the latter promptly files his
written objection with the secretary of the corporation after having knowledge of the meeting which, in his
case, petitioner Virgilio Dulay failed to do.
It is relevant to note that although a corporation is an entity which has a personality distinct and separate
from its individual stockholders or members, 19 the veil of corporate fiction may be pierced when it is used
to defeat public convenience justify wrong, protect fraud or defend crime. 20 The privilege of being treated
as an entity distinct and separate from its stockholder or members is therefore confined to its legitimate
uses and is subject to certain limitations to prevent the commission of fraud or other illegal or unfair act.
When the corporation is used merely as an alter ego or business conduit of a person, the law will regard the
corporation as the act of that person. 21 The Supreme Court had repeatedly disregarded the separate
personality of the corporation where the corporate entity was used to annul a valid contract executed by one
of its members.
Petitioners' claim that the sale of the subject property by its president, Manuel Dulay, to private respondents
spouses Veloso is null and void as the alleged Board Resolution No. 18 was passed without the knowledge
and consent of the other members of the board of directors cannot be sustained. As correctly pointed out by
the respondent Court of Appeals:
54
Appellant Virgilio E. Dulay's protestations of complete innocence to the effect that he never
participated nor was even aware of any meeting or resolution authorizing the mortgage or
sale of the subject premises (see par. 8, affidavit of Virgilio E. Dulay, dated May 31, 1984, p.
14, Exh. "21") is difficult to believe. On the contrary, he is very much privy to the
transactions involved. To begin with, he is a incorporator and one of the board of directors
designated at the time of the organization of Manuel R. Dulay Enterprise, Inc. In ordinary
parlance, the said entity is loosely referred to as a "family corporation". The nomenclature,
if imprecise, however, fairly reflects the cohesiveness of a group and the parochial instincts
of the individual members of such an aggrupation of which Manuel R. Dulay Enterprises,
Inc. is typical: four-fifths of its incorporators being close relatives namely, three (3) children
and their father whose name identifies their corporation (Articles of Incorporation of
Manuel R. Dulay Enterprises, Inc. Exh. "31-A"). 22
Besides, the fact that petitioner Virgilio Dulay on June 24, 1975 executed an affidavit 23 that he was a
signatory witness to the execution of the post-dated Deed of Absolute Sale of the subject property in favor
of private respondent Torres indicates that he was aware of the transaction executed between his father and
private respondents and had, therefore, adequate knowledge about the sale of the subject property to private
respondents.
Consequently, petitioner corporation is liable for the act of Manuel Dulay and the sale of the subject
property to private respondents by Manuel Dulay is valid and binding. As stated by the trial court:
. . . the sale between Manuel R. Dulay Enterprises, Inc. and the spouses Maria Theresa V.
Veloso and Castrense C. Veloso, was a corporate act of the former and not a personal
transaction of Manuel R. Dulay. This is so because Manuel R. Dulay was not only president
and treasurer but also the general manager of the corporation. The corporation was a closed
family corporation and the only non-relative in the board of directors was Atty. Plaridel C.
Jose who appeared on paper as the secretary. There is no denying the fact, however, that
Maria Socorro R. Dulay at times acted as secretary. . . ., the Court can not lose sight of the
fact that the Manuel R. Dulay Enterprises, Inc. is a closed family corporation where the
incorporators and directors belong to one single family. It cannot be concealed that Manuel
R. Dulay as president, treasurer and general manager almost had absolute control over the
business and affairs of the corporation. 24
Moreover, the appellate courts will not disturb the findings of the trial judge unless he has plainly
overlooked certain facts of substance and value that, if considered, might affect the result of the
case, 25 which is not present in the instant case.
Petitioners' contention that private respondent Torres never acquired ownership over the subject property
since the latter was never in actual possession of the subject property nor was the property ever delivered to
him is also without merit.
Paragraph 1, Article 1498 of the New Civil Code provides:
When the sale is made through a public instrument, the execution thereof shall be equivalent
to the delivery of the thing which is the object of the contract, if from the deed the contrary
do not appear or cannot clearly be inferred. (there was a perfected delivery Leonards
notes)
Under the aforementioned article, the mere execution of the deed of sale in a public document is equivalent
to the delivery of the property. Likewise, this Court had held that:
It is settled that the buyer in a foreclosure sale becomes the absolute owner of the property
purchased if it is not redeemed during the period of one year after the registration of the
sale. As such, he is entitled to the possession of the said property and can demand it at any
time following the consolidation of ownership in his name and the issuance to him of a new
transfer certificate of title. The buyer can in fact demand possession of the land even during
55
the redemption period except that he has to post a bond in accordance with Section 7 of Act
No. 3133 as amended. No such bond is required after the redemption period if the property
is not redeemed. Possession of the land then becomes an absolute right of the purchaser as
confirmed owner. 26
Therefore, prior physical delivery or possession is not legally required since the execution of the Deed of
Sale in deemed equivalent to delivery.
Finally, we hold that the respondent appellate court did not err in denying petitioner's motion for
reconsideration despite the fact that private respondents failed to submit their comment to said motion as
required by the respondent appellate court from resolving petitioners' motion for reconsideration without
the comment of the private respondent which was required merely to aid the court in the disposition of the
motion. The courts are as much interested as the parties in the early disposition of cases before them. To
require otherwise would unnecessarily clog the courts' dockets.
WHEREFORE, the petition is DENIED and the decision appealed from is hereby AFFIRMED.
SO ORDERED.
56
have filed the present petition for certiorari with preliminary injunction to revoke and set aside the order.
Acting upon that part of the petition asking for a writ of preliminary injunction, a majority of the court
granted the same upon the filing of a bond by the petitioners in the sum of P50,000.
The main contention of the petitioners in opposing the appointment of a receiver in this case is that said
appointment is merely an auxiliary remedy; that the principal remedy sought by the respondents in the
action in Negros Occidental was the dissolution of the Financing Corporation of the Philippines; that
according to the law a suit for the dissolution of a corporation can be brought and maintained only by the
State through its legal counsel, and that respondents, much less the minority stockholders of said
corporation, have no right or personality to maintain the action for dissolution, and that inasmuch as said
action cannot be maintained legally by the respondents, then the auxiliary remedy for the appointment of a
receiver has no basis.
True it is that the general rule is that the minority stockholders of a corporation cannot sue and demand its
dissolution. However, there are cases that hold that even minority stockholders may ask for dissolution,
this, under the theory that such minority members, if unable to obtain redress and protection of their rights
within the corporation, must not and should not be left without redress and remedy. This was what probably
prompted this Court to state in the case of Hall, et al. vs. Judge Piccio,* G.R. No. L-2598 (47 Off. Gaz. No.
12 Supp., p. 200) that even the existence of a de jure corporation may be terminated in a private suit for its
dissolution by the stockholders without the intervention of the State. It was therein further held that
although there might be some room for argument on the right of minority stockholders to ask for
dissolution,-that question does not affect the court's jurisdiction over the case, and that the remedy by the
party dissatisfied was to appeal from the decision of the trial court. We repeat that although as a rule,
minority stockholders of a corporation may not ask for its dissolution in a private suit, and that such action
should be brought by the Government through its legal officer in a quo warranto case, at their instance and
request, there might be exceptional cases wherein the intervention of the State, for one reason or another,
cannot be obtained, as when the State is not interested because the complaint is strictly a matter between
the stockholders and does not involve, in the opinion of the legal officer of the Government, any of the acts
or omissions warranting quo warranto proceedings, in which minority stockholders are entitled to have
such dissolution. When such action or private suit is brought by them, the trial court had jurisdiction and
may or may not grant the prayer, depending upon the facts and circumstances attending it. The trial court's
decision is of course subject to review by the appellate tribunal. Having such jurisdiction, the appointment
of a receiver pendente lite is left to the sound discretion of the trial court. As was said in the case
of Angeles vs. Santos (64 Phil., 697), the action having been properly brought and the trial court having
entertained the same, it was within the power of said court upon proper showing to appoint a
receiverpendente lite for the corporation; that although the appointment of a receiver upon application of
the minority stockholders is a power to be exercised with great caution, nevertheless, it should be exercised
necessary in order not to entirely ignore and disregard the rights of said minority stockholders, especially
when said minority stockholders are unable to obtain redress and protection of their rights within the
corporation itself.
In that civil case No. 1924 of Negros Occidental court, allegations of mismanagement and misconduct by
its President and Manager were made, specially in connection with the petition for the appointment of a
receiver. in order to have an idea of the seriousness of said allegations, we reproduce a pertinent portion of
the order of respondent Judge Teodoro dated June 23, 1951, subject of these certiorari proceedings:
Considering plaintiffs' complaint and verified motion for appointment of a receiver together, as they
have been treated jointly in the opposition of the defendants, the grounds of the prayer for
receivership may be briefly stated to be: (1) imminent danger of insolvency; (2) fraud and
mismanagement, such as, particularly, (a) wrongful and unauthorized diversion from corporate
purposes and use for personal benefit of defendant Araneta, for the benefit of the corporations under
his control and of which he is majority stockholder and/or for the benefit of his relatives, personal
friends and the political organization to which he is affiliated of approximately over one and a half
million pesos of the funds of the defendant corporation in the form of uncollected allowances and
loans, either without or with uncollected interest, and either unsecured or insufficiently secured, and
sometimes with a securities appearing in favor of defendant Araneta as if the funds advanced or
loaned were his own; (b) unauthorized and profitless pledging of securities owned by defendant
57