G.R. No.

L-23145

November 29, 1968

TESTATE ESTATE OF IDONAH SLADE PERKINS,

TAYAG, ancillary
vs.
BENGUET CONSOLIDATED, INC., oppositor-appellant.

or certificates of stocks covering the 33,002 shares issued in the name of Idonah Slade
Perkins by Benguet Consolidated, Inc., be declared [or] considered as lost." 3
deceased. RENATO D.
administrator-appellee,

FERNANDO, J.:
Confronted by an obstinate and adamant refusal of the domiciliary administrator, the
County Trust Company of New York, United States of America, of the estate of the
deceased Idonah Slade Perkins, who died in New York City on March 27, 1960, to
surrender to the ancillary administrator in the Philippines the stock certificates owned by
her in a Philippine corporation, Benguet Consolidated, Inc., to satisfy the legitimate claims
of local creditors, the lower court, then presided by the Honorable Arsenio Santos, now
retired, issued on May 18, 1964, an order of this tenor: "After considering the motion of
the ancillary administrator, dated February 11, 1964, as well as the opposition filed by the
Benguet Consolidated, Inc., the Court hereby (1) considers as lost for all purposes in
connection with the administration and liquidation of the Philippine estate of Idonah Slade
Perkins the stock certificates covering the 33,002 shares of stock standing in her name in
the books of the Benguet Consolidated, Inc., (2) orders said certificates cancelled, and (3)
directs said corporation to issue new certificates in lieu thereof, the same to be delivered
by said corporation to either the incumbent ancillary administrator or to the Probate
Division of this Court."1
From such an order, an appeal was taken to this Court not by the domiciliary
administrator, the County Trust Company of New York, but by the Philippine corporation,
the Benguet Consolidated, Inc. The appeal cannot possibly prosper. The challenged order
represents a response and expresses a policy, to paraphrase Frankfurter, arising out of a
specific problem, addressed to the attainment of specific ends by the use of specific
remedies, with full and ample support from legal doctrines of weight and significance.
The facts will explain why. As set forth in the brief of appellant Benguet Consolidated, Inc.,
Idonah Slade Perkins, who died on March 27, 1960 in New York City, left among others,
two stock certificates covering 33,002 shares of appellant, the certificates being in the
possession of the County Trust Company of New York, which as noted, is the domiciliary
administrator of the estate of the deceased. 2 Then came this portion of the appellant's
brief: "On August 12, 1960, Prospero Sanidad instituted ancillary administration
proceedings in the Court of First Instance of Manila; Lazaro A. Marquez was appointed
ancillary administrator, and on January 22, 1963, he was substituted by the appellee
Renato D. Tayag. A dispute arose between the domiciary administrator in New York and
the ancillary administrator in the Philippines as to which of them was entitled to the
possession of the stock certificates in question. On January 27, 1964, the Court of First
Instance of Manila ordered the domiciliary administrator, County Trust Company, to
"produce and deposit" them with the ancillary administrator or with the Clerk of Court.
The domiciliary administrator did not comply with the order, and on February 11, 1964,
the ancillary administrator petitioned the court to "issue an order declaring the certificate

It is to be noted further that appellant Benguet Consolidated, Inc. admits that "it is
immaterial" as far as it is concerned as to "who is entitled to the possession of the stock
certificates in question; appellant opposed the petition of the ancillary administrator
because the said stock certificates are in existence, they are today in the possession of
the domiciliary administrator, the County Trust Company, in New York, U.S.A...." 4
It is its view, therefore, that under the circumstances, the stock certificates cannot be
declared or considered as lost. Moreover, it would allege that there was a failure to
observe certain requirements of its by-laws before new stock certificates could be issued.
Hence, its appeal.
As was made clear at the outset of this opinion, the appeal lacks merit. The challenged
order constitutes an emphatic affirmation of judicial authority sought to be emasculated
by the wilful conduct of the domiciliary administrator in refusing to accord obedience to a
court decree. How, then, can this order be stigmatized as illegal?
As is true of many problems confronting the judiciary, such a response was called for by
the realities of the situation. What cannot be ignored is that conduct bordering on wilful
defiance, if it had not actually reached it, cannot without undue loss of judicial prestige,
be condoned or tolerated. For the law is not so lacking in flexibility and resourcefulness as
to preclude such a solution, the more so as deeper reflection would make clear its being
buttressed by indisputable principles and supported by the strongest policy
considerations.
It can truly be said then that the result arrived at upheld and vindicated the honor of the
judiciary no less than that of the country. Through this challenged order, there is thus
dispelled the atmosphere of contingent frustration brought about by the persistence of
the domiciliary administrator to hold on to the stock certificates after it had, as admitted,
voluntarily submitted itself to the jurisdiction of the lower court by entering its
appearance through counsel on June 27, 1963, and filing a petition for relief from a
previous order of March 15, 1963.
Thus did the lower court, in the order now on appeal, impart vitality and effectiveness to
what was decreed. For without it, what it had been decided would be set at naught and
nullified. Unless such a blatant disregard by the domiciliary administrator, with residence
abroad, of what was previously ordained by a court order could be thus remedied, it would
have entailed, insofar as this matter was concerned, not a partial but a well-nigh complete
paralysis of judicial authority.
1. Appellant Benguet Consolidated, Inc. did not dispute the power of the appellee ancillary
administrator to gain control and possession of all assets of the decedent within the
jurisdiction of the Philippines. Nor could it. Such a power is inherent in his duty to settle
her estate and satisfy the claims of local creditors.5 As Justice Tuason speaking for this

Court made clear, it is a "general rule universally recognized" that administration,

whether principal or ancillary, certainly "extends to the assets of a decedent found within
the state or country where it was granted," the corollary being "that an administrator
appointed in one state or country has no power over property in another state or
country."6
It is to be noted that the scope of the power of the ancillary administrator was, in an
earlier case, set forth by Justice Malcolm. Thus: "It is often necessary to have more than
one administration of an estate. When a person dies intestate owning property in the
country of his domicile as well as in a foreign country, administration is had in both
countries. That which is granted in the jurisdiction of decedent's last domicile is termed
the principal administration, while any other administration is termed the ancillary
administration. The reason for the latter is because a grant of administration does not ex
proprio vigore have any effect beyond the limits of the country in which it is granted.
Hence, an administrator appointed in a foreign state has no authority in the [Philippines].
The ancillary administration is proper, whenever a person dies, leaving in a country other
than that of his last domicile, property to be administered in the nature of assets of the
deceased liable for his individual debts or to be distributed among his heirs." 7
It would follow then that the authority of the probate court to require that ancillary
administrator's right to "the stock certificates covering the 33,002 shares ... standing in
her name in the books of [appellant] Benguet Consolidated, Inc...." be respected is equally
beyond question. For appellant is a Philippine corporation owing full allegiance and
subject to the unrestricted jurisdiction of local courts. Its shares of stock cannot therefore
be considered in any wise as immune from lawful court orders.
Our holding in Wells Fargo Bank and Union v. Collector of Internal Revenue 8 finds
application. "In the instant case, the actual situs of the shares of stock is in the
Philippines, the corporation being domiciled [here]." To the force of the above undeniable
proposition, not even appellant is insensible. It does not dispute it. Nor could it
successfully do so even if it were so minded.
2. In the face of such incontrovertible doctrines that argue in a rather conclusive fashion
for the legality of the challenged order, how does appellant, Benguet Consolidated, Inc.
propose to carry the extremely heavy burden of persuasion of precisely demonstrating the
contrary? It would assign as the basic error allegedly committed by the lower court its
"considering as lost the stock certificates covering 33,002 shares of Benguet belonging to
the deceased Idonah Slade Perkins, ..." 9 More specifically, appellant would stress that the
"lower court could not "consider as lost" the stock certificates in question when, as a
matter of fact, his Honor the trial Judge knew, and does know, and it is admitted by the
appellee, that the said stock certificates are in existence and are today in the possession
of the domiciliary administrator in New York."10
There may be an element of fiction in the above view of the lower court. That certainly
does not suffice to call for the reversal of the appealed order. Since there is a refusal,
persistently adhered to by the domiciliary administrator in New York, to deliver the shares
of stocks of appellant corporation owned by the decedent to the ancillary administrator in

the Philippines, there was nothing unreasonable or arbitrary in considering them as lost
and requiring the appellant to issue new certificates in lieu thereof. Thereby, the task
incumbent under the law on the ancillary administrator could be discharged and his
responsibility fulfilled.
Any other view would result in the compliance to a valid judicial order being made to
depend on the uncontrolled discretion of the party or entity, in this case domiciled abroad,
which thus far has shown the utmost persistence in refusing to yield obedience. Certainly,
appellant would not be heard to contend in all seriousness that a judicial decree could be
treated as a mere scrap of paper, the court issuing it being powerless to remedy its
flagrant disregard.
It may be admitted of course that such alleged loss as found by the lower court did not
correspond exactly with the facts. To be more blunt, the quality of truth may be lacking in
such a conclusion arrived at. It is to be remembered however, again to borrow from
Frankfurter, "that fictions which the law may rely upon in the pursuit of legitimate ends
have played an important part in its development." 11
Speaking of the common law in its earlier period, Cardozo could state fictions "were
devices to advance the ends of justice, [even if] clumsy and at times offensive." 12 Some of
them have persisted even to the present, that eminent jurist, noting "the quasi contract,
the adopted child, the constructive trust, all of flourishing vitality, to attest the empire of
"as if" today."13 He likewise noted "a class of fictions of another order, the fiction which is a
working tool of thought, but which at times hides itself from view till reflection and
analysis have brought it to the light." 14
What cannot be disputed, therefore, is the at times indispensable role that fictions as such
played in the law. There should be then on the part of the appellant a further refinement
in the catholicity of its condemnation of such judicial technique. If ever an occasion did
call for the employment of a legal fiction to put an end to the anomalous situation of a
valid judicial order being disregarded with apparent impunity, this is it. What is thus most
obvious is that this particular alleged error does not carry persuasion.
3. Appellant Benguet Consolidated, Inc. would seek to bolster the above contention by its
invoking one of the provisions of its by-laws which would set forth the procedure to be
followed in case of a lost, stolen or destroyed stock certificate; it would stress that in the
event of a contest or the pendency of an action regarding ownership of such certificate or
certificates of stock allegedly lost, stolen or destroyed, the issuance of a new certificate or
certificates would await the "final decision by [a] court regarding the ownership
[thereof]."15
Such reliance is misplaced. In the first place, there is no such occasion to apply such bylaw. It is admitted that the foreign domiciliary administrator did not appeal from the order
now in question. Moreover, there is likewise the express admission of appellant that as far
as it is concerned, "it is immaterial ... who is entitled to the possession of the stock
certificates ..." Even if such were not the case, it would be a legal absurdity to impart to

such a provision conclusiveness and finality. Assuming that a contrariety exists between
the above by-law and the command of a court decree, the latter is to be followed.
It is understandable, as Cardozo pointed out, that the Constitution overrides a statute, to
which, however, the judiciary must yield deference, when appropriately invoked and
deemed applicable. It would be most highly unorthodox, however, if a corporate by-law
would be accorded such a high estate in the jural order that a court must not only take
note of it but yield to its alleged controlling force.
The fear of appellant of a contingent liability with which it could be saddled unless the
appealed order be set aside for its inconsistency with one of its by-laws does not impress
us. Its obedience to a lawful court order certainly constitutes a valid defense, assuming
that such apprehension of a possible court action against it could possibly materialize.
Thus far, nothing in the circumstances as they have developed gives substance to such a
fear. Gossamer possibilities of a future prejudice to appellant do not suffice to nullify the
lawful exercise of judicial authority.
4. What is more the view adopted by appellant Benguet Consolidated, Inc. is fraught with
implications at war with the basic postulates of corporate theory.
We start with the undeniable premise that, "a corporation is an artificial being created by
operation of law...."16 It owes its life to the state, its birth being purely dependent on its
will. As Berle so aptly stated: "Classically, a corporation was conceived as an artificial
person, owing its existence through creation by a sovereign power." 17As a matter of fact,
the statutory language employed owes much to Chief Justice Marshall, who in the
Dartmouth College decision defined a corporation precisely as "an artificial being,
invisible, intangible, and existing only in contemplation of law." 18
The well-known authority Fletcher could summarize the matter thus: "A corporation is not
in fact and in reality a person, but the law treats it as though it were a person by process
of fiction, or by regarding it as an artificial person distinct and separate from its individual
stockholders.... It owes its existence to law. It is an artificial person created by law for
certain specific purposes, the extent of whose existence, powers and liberties is fixed by
its charter."19 Dean Pound's terse summary, a juristic person, resulting from an association
of human beings granted legal personality by the state, puts the matter neatly. 20
There is thus a rejection of Gierke's genossenchaft theory, the basic theme of which to
quote from Friedmann, "is the reality of the group as a social and legal entity,
independent of state recognition and concession."21 A corporation as known to Philippine
jurisprudence is a creature without any existence until it has received the imprimatur of
the state according to law. It is logically inconceivable therefore that it will have rights and
privileges of a higher priority than that of its creator. More than that, it cannot legitimately
refuse to yield obedience to acts of its state organs, certainly not excluding the judiciary,
whenever called upon to do so.

As a matter of fact, a corporation once it comes into being, following American law still of
persuasive authority in our jurisdiction, comes more often within the ken of the judiciary
than the other two coordinate branches. It institutes the appropriate court action to
enforce its right. Correlatively, it is not immune from judicial control in those instances,
where a duty under the law as ascertained in an appropriate legal proceeding is cast upon
it.
To assert that it can choose which court order to follow and which to disregard is to confer
upon it not autonomy which may be conceded but license which cannot be tolerated. It is
to argue that it may, when so minded, overrule the state, the source of its very existence;
it is to contend that what any of its governmental organs may lawfully require could be
ignored at will. So extravagant a claim cannot possibly merit approval.
5. One last point. In Viloria v. Administrator of Veterans Affairs, 22 it was shown that in a
guardianship proceedings then pending in a lower court, the United States Veterans
Administration filed a motion for the refund of a certain sum of money paid to the minor
under guardianship, alleging that the lower court had previously granted its petition to
consider the deceased father as not entitled to guerilla benefits according to a
determination arrived at by its main office in the United States. The motion was denied. In
seeking a reconsideration of such order, the Administrator relied on an American federal
statute making his decisions "final and conclusive on all questions of law or fact"
precluding any other American official to examine the matter anew, "except a judge or
judges of the United States court." 23 Reconsideration was denied, and the Administrator
appealed.
In an opinion by Justice J.B.L. Reyes, we sustained the lower court. Thus: "We are of the
opinion that the appeal should be rejected. The provisions of the U.S. Code, invoked by
the appellant, make the decisions of the U.S. Veterans' Administrator final and conclusive
when made on claims property submitted to him for resolution; but they are not
applicable to the present case, where the Administrator is not acting as a judge but as a
litigant. There is a great difference between actions against the Administrator (which must
be filed strictly in accordance with the conditions that are imposed by the Veterans' Act,
including the exclusive review by United States courts), and those actions where the
Veterans' Administrator seeks a remedy from our courts and submits to their jurisdiction
by filing actions therein. Our attention has not been called to any law or treaty that would
make the findings of the Veterans' Administrator, in actions where he is a party,
conclusive on our courts. That, in effect, would deprive our tribunals of judicial discretion
and render them mere subordinate instrumentalities of the Veterans' Administrator."
It is bad enough as the Viloria decision made patent for our judiciary to accept as final and
conclusive, determinations made by foreign governmental agencies. It is infinitely worse if
through the absence of any coercive power by our courts over juridical persons within our
jurisdiction, the force and effectivity of their orders could be made to depend on the whim
or caprice of alien entities. It is difficult to imagine of a situation more offensive to the
dignity of the bench or the honor of the country.

Yet that would be the effect, even if unintended, of the proposition to which appellant
Benguet Consolidated seems to be firmly committed as shown by its failure to accept the
validity of the order complained of; it seeks its reversal. Certainly we must at all pains see
to it that it does not succeed. The deplorable consequences attendant on appellant
prevailing attest to the necessity of negative response from us. That is what appellant will
get.
That is all then that this case presents. It is obvious why the appeal cannot succeed. It is
always easy to conjure extreme and even oppressive possibilities. That is not decisive. It
does not settle the issue. What carries weight and conviction is the result arrived at, the
just solution obtained, grounded in the soundest of legal doctrines and distinguished by its
correspondence with what a sense of realism requires. For through the appealed order,
the imperative requirement of justice according to law is satisfied and national dignity and
honor maintained.
WHEREFORE, the appealed order of the Honorable Arsenio Santos, the Judge of the Court
of First Instance, dated May 18, 1964, is affirmed. With costs against oppositor-appelant
Benguet Consolidated, Inc.

G.R. No. L-17295

July 30, 1962

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

vs.
SECRETARY OF COMMERCE AND INDUSTRY, defendant-appellee.
Felicisimo E. Escaran for plaintiffs-appellants.
Office of the Solicitor General for defendant-appellee.
DIZON, J.:
Action for declaratory relief filed in the Court of First Instance of Iloilo by Ang Pue &
Company, Ang Pue and Tan Siong against the Secretary of Commerce and Industry to
secure judgment "declaring that plaintiffs could extend for five years the term of the
partnership pursuant to the provisions of plaintiffs' Amendment to the Article of Copartnership."
The answer filed by the defendant alleged, in substance, that the extension for another
five years of the term of the plaintiffs' partnership would be in violation of the provisions
of Republic Act No. 1180.
It appears that on May 1, 1953, Ang Pue and Tan Siong, both Chinese citizens, organized
the partnership Ang Pue & Company for a term of five years from May 1, 1953, extendible
by their mutual consent. The purpose of the partnership was "to maintain the business of
general merchandising, buying and selling at wholesale and retail, particularly of lumber,

hardware and other construction materials for commerce, either native or foreign." The
corresponding articles of partnership (Exhibit B) were registered in the Office of the
Securities & Exchange Commission on June 16, 1953.
On June 19, 1954 Republic Act No. 1180 was enacted to regulate the retail business. It
provided, among other things, that, after its enactment, a partnership not wholly formed
by Filipinos could continue to engage in the retail business until the expiration of its term.
On April 15, 1958 prior to the expiration of the five-year term of the partnership Ang
Pue & Company, but after the enactment of the Republic Act 1180, the partners already
mentioned amended the original articles of part ownership (Exhibit B) so as to extend the
term of life of the partnership to another five years. When the amended articles were
presented for registration in the Office of the Securities & Exchange Commission on April
16, 1958, registration was refused upon the ground that the extension was in violation of
the aforesaid Act.
From the decision of the lower court dismissing the action, with costs, the plaintiffs
interposed this appeal.
The question before us is too clear to require an extended discussion. To organize a
corporation or a partnership that could claim a juridical personality of its own and transact
business as such, is not a matter of absolute right but a privilege which may be enjoyed
only under such terms as the State may deem necessary to impose. That the State,
through Congress, and in the manner provided by law, had the right to enact Republic Act
No. 1180 and to provide therein that only Filipinos and concerns wholly owned by Filipinos
may engage in the retail business can not be seriously disputed. That this provision was
clearly intended to apply to partnership already existing at the time of the enactment of
the law is clearly showing by its provision giving them the right to continue engaging in
their retail business until the expiration of their term or life.
To argue that because the original articles of partnership provided that the partners could
extend the term of the partnership, the provisions of Republic Act 1180 cannot be
adversely affect appellants herein, is to erroneously assume that the aforesaid provision
constitute a property right of which the partners can not be deprived without due process
or without their consent. The agreement contain therein must be deemed subject to the
law existing at the time when the partners came to agree regarding the extension. In the
present case, as already stated, when the partners amended the articles of partnership,
the provisions of Republic Act 1180 were already in force, and there can be not the
slightest doubt that the right claimed by appellants to extend the original term of their
partnership to another five years would be in violation of the clear intent and purpose of
the law aforesaid.
WHEREFORE, the judgment appealed from is affirmed, with costs.

[G.R. Nos. 84132-33 : December 10, 1990.]

NATIONAL DEVELOPMENT COMPANY AND NEW AGRIX, INC., Petitioners, vs.
PHILIPPINE VETERANS BANK, THE EX-OFFICIO SHERIFF and GODOFREDO
QUILING, in his capacity as Deputy Sheriff of Calamba, Laguna, Respondents.
CRUZ, J.:
This case involves the constitutionality of a presidential decree which, like all other
issuances of President Marcos during his regime, was at that time regarded as sacrosanct.
It is only now, in a freer atmosphere, that his acts are being tested by the touchstone of
the fundamental law that even then was supposed to limit presidential action.: rd

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

The Court does not agree that the principle of estoppel is applicable.
It is not denied that the private respondent did file a claim with the AGRIX Claims
Committee pursuant to this decree. It must be noted, however, that this was done in
1980, when President Marcos was the absolute ruler of this country and his decrees were
the absolute law. Any judicial challenge to them would have been futile, not to say
foolhardy. The private respondent, no less than the rest of the nation, was aware of that
reality and knew it had no choice under the circumstances but to conform.: nad
It is true that there were a few venturesome souls who dared to question the dictator's
decisions before the courts of justice then. The record will show, however, that not a
single act or issuance of President Marcos was ever declared unconstitutional, not even by
the highest court, as long as he was in power. To rule now that the private respondent is
estopped for having abided with the decree instead of boldly assailing it is to close our
eyes to a cynical fact of life during that repressive time.
This case must be distinguished from Mendoza, where the petitioners, after filing their
claims with the AGRIX Claims Committee, received in settlement thereof shares of stock
valued at P40,000.00 without protest or reservation. The herein private respondent has
not been paid a single centavo on its claim, which was kept pending for more than seven
years for alleged lack of supporting papers. Significantly, the validity of that claim was not
questioned by the petitioner when it sought to restrain the extrajudicial foreclosure of the
mortgage by the private respondent. The petitioner limited itself to the argument that the
private respondent was estopped from questioning the decree because of its earlier
compliance with its provisions.
Independently of these observations, there is the consideration that an affront to the
Constitution cannot be allowed to continue existing simply because of procedural
inhibitions that exalt form over substance.
The Court is especially disturbed by Section 4(1) of the decree, quoted above,
extinguishing all mortgages and other liens attaching to the assets of AGRIX. It also notes,
with equal concern, the restriction in Subsection (ii) thereof that all "unsecured obligations
shall not bear interest" and in Subsection (iii) that "all accrued interests, penalties or
charges as of date hereof pertaining to the obligations, whether secured or unsecured,
shall not be recognized."
These provisions must be read with the Bill of Rights, where it is clearly provided in
Section 1 that "no person shall be deprived of life, liberty or property without due course
of law nor shall any person be denied the equal protection of the law" and in Section 10
that "no law impairing the obligation of contracts shall be passed."
In defending the decree, the petitioners argue that property rights, like all rights, are
subject to regulation under the police power for the promotion of the common welfare.
The contention is that this inherent power of the state may be exercised at any time for
this purpose so long as the taking of the property right, even if based on contract, is done
with due process of law.
This argument is an over-simplification of the problem before us. The police power is not a
panacea for all constitutional maladies. Neither does its mere invocation conjure an
instant and automatic justification for every act of the government depriving a person of
his life, liberty or property.
A legislative act based on the police power requires the concurrence of a lawful subject
and a lawful method. In more familiar words, a) the interests of the public generally, as

distinguished from those of a particular class, should justify the interference of the state;
and b) the means employed are reasonably necessary for the accomplishment of the
purpose and not unduly oppressive upon individuals. 2

legitimate claims to accrued interests rejected, were no less deserving of protection,

which they did not get. The decree operated, to use the words of a celebrated case, 3
"with an evil eye and an uneven hand."

Applying these criteria to the case at bar, the Court finds first of all that the interests of
the public are not sufficiently involved to warrant the interference of the government with
the private contracts of AGRIX. The decree speaks vaguely of the "public, particularly the
small investors," who would be prejudiced if the corporation were not to be assisted.
However, the record does not state how many there are of such investors, and who they
are, and why they are being preferred to the private respondent and other creditors of
AGRIX with vested property rights.:-cralaw

On top of all this, New Agrix, Inc. was created by special decree notwithstanding the
provision of Article XIV, Section 4 of the 1973 Constitution, then in force, that:

The public interest supposedly involved is not identified or explained. It has not been
shown that by the creation of the New Agrix, Inc. and the extinction of the property rights
of the creditors of AGRIX, the interests of the public as a whole, as distinguished from
those of a particular class, would be promoted or protected. The indispensable link to the
welfare of the greater number has not been established. On the contrary, it would appear
that the decree was issued only to favor a special group of investors who, for reasons not
given, have been preferred to the legitimate creditors of AGRIX.
Assuming there is a valid public interest involved, the Court still finds that the means
employed to rehabilitate AGRIX fall far short of the requirement that they shall not be
unduly oppressive. The oppressiveness is patent on the face of the decree. The right to
property in all mortgages, liens, interests, penalties and charges owing to the creditors of
AGRIX is arbitrarily destroyed. No consideration is paid for the extinction of the mortgage
rights. The accrued interests and other charges are simply rejected by the decree. The
right to property is dissolved by legislative fiat without regard to the private interest
violated and, worse, in favor of another private interest.
A mortgage lien is a property right derived from contract and so comes under the
protection of the Bill of Rights. So do interests on loans, as well as penalties and charges,
which are also vested rights once they accrue. Private property cannot simply be taken by
law from one person and given to another without compensation and any known public
purpose. This is plain arbitrariness and is not permitted under the Constitution.
And not only is there arbitrary taking, there is discrimination as well. In extinguishing the
mortgage and other liens, the decree lumps the secured creditors with the unsecured
creditors and places them on the same level in the prosecution of their respective claims.
In this respect, all of them are considered unsecured creditors. The only concession given
to the secured creditors is that their loans are allowed to earn interest from the date of
the decree, but that still does not justify the cancellation of the interests earned before
that date. Such interests, whether due to the secured or the unsecured creditors, are all
extinguished by the decree. Even assuming such cancellation to be valid, we still cannot
see why all kinds of creditors, regardless of security, are treated alike.
Under the equal protection clause, all persons or things similarly situated must be treated
alike, both in the privileges conferred and the obligations imposed. Conversely, all persons
or things differently situated should be treated differently. In the case at bar, persons
differently situated are similarly treated, in disregard of the principle that there should be
equality only among equals.- nad
One may also well wonder why AGRIX was singled out for government help, among other
corporations where the stockholders or investors were also swindled. It is not clear why
other companies entitled to similar concern were not similarly treated. And surely, the
stockholders of the private respondent, whose mortgage lien had been cancelled and

SEC. 4. The Batasang Pambansa shall not, except by general law, provide for the
formation, organization, or regulation of private corporations, unless such corporations are
owned or controlled by the Government or any subdivision or instrumentality thereof. 4
The new corporation is neither owned nor controlled by the government. The National
Development Corporation was merely required to extend a loan of not more than
P10,000,000.00 to New Agrix, Inc. Pending payment thereof, NDC would undertake the
management of the corporation, but with the obligation of making periodic reports to the
Agrix board of directors. After payment of the loan, the said board can then appoint its
own management. The stocks of the new corporation are to be issued to the old investors
and stockholders of AGRIX upon proof of their claims against the abolished corporation.
They shall then be the owners of the new corporation. New Agrix, Inc. is entirely private
and so should have been organized under the Corporation Law in accordance with the
above-cited constitutional provision.
The Court also feels that the decree impairs the obligation of the contract between AGRIX
and the private respondent without justification. While it is true that the police power is
superior to the impairment clause, the principle will apply only where the contract is so
related to the public welfare that it will be considered congenitally susceptible to change
by the legislature in the interest of the greater number. 5 Most present-day contracts are
of that nature. But as already observed, the contracts of loan and mortgage executed by
AGRIX are purely private transactions and have not been shown to be affected with public
interest. There was therefore no warrant to amend their provisions and deprive the private
respondent of its vested property rights.
It is worth noting that only recently in the case of the Development Bank of the Philippines
v. NLRC, 6 we sustained the preference in payment of a mortgage creditor as against the
argument that the claims of laborers should take precedence over all other claims,
including those of the government. In arriving at this ruling, the Court recognized the
mortgage lien as a property right protected by the due process and contract clauses
notwithstanding the argument that the amendment in Section 110 of the Labor Code was
a proper exercise of the police power.: nad
The Court reaffirms and applies that ruling in the case at bar.
Our finding, in sum, is that Pres. Decree No. 1717 is an invalid exercise of the police
power, not being in conformity with the traditional requirements of a lawful subject and a
lawful method. The extinction of the mortgage and other liens and of the interest and
other charges pertaining to the legitimate creditors of AGRIX constitutes taking without
due process of law, and this is compounded by the reduction of the secured creditors to
the category of unsecured creditors in violation of the equal protection clause. Moreover,
the new corporation, being neither owned nor controlled by the Government, should have
been created only by general and not special law. And insofar as the decree also
interferes with purely private agreements without any demonstrated connection with the
public interest, there is likewise an impairment of the obligation of the contract.
With the above pronouncements, we feel there is no more need to rule on the authority of
President Marcos to promulgate Pres. Decree No. 1717 under Amendment No. 6 of the

1973 Constitution. Even if he had such authority, the decree must fall just the same
because of its violation of the Bill of Rights.
WHEREFORE, the petition is DISMISSED. Pres. Decree No. 1717 is declared
UNCONSTITUTIONAL. The temporary restraining order dated August 30, 1988, is LIFTED.
Costs against the petitioners.- nad
SO ORDERED.

G.R. No. L-19891

July 31, 1964

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

vs.
IMPERIAL INSURANCE, INC., MACARIO M. OFILADA, Sheriff of Manila and
HON. AGUSTIN MONTESA, Judge of the Court of First Instance of
Manila, respondents.
Felipe N. Aurea for petitioners.
Taada, Teehankee and Carreon for respondent Imperial Insurance, Inc.
PAREDES, J.:
Petitioner J. R. Da Silva, is the President of the J.R.S. Business Corporation, an
establishment duly franchised by the Congress of the Philippines, to conduct a messenger
and delivery express service. On July 12, 1961, the respondent Imperial Insurance, Inc.,
presented with the CFI of Manila a complaint (Civ. Case No. 47520), for sum of money
against the petitioner corporation. After the defendants therein have submitted their
Answer, the parties entered into a Compromise Agreement, assisted by their respective
counsels, the pertinent portions of which recite:
1) WHEREAS, the DEFENDANTS admit and confess their joint and solidary
indebtedness to the PLAINTIFF in the full sum of PESOS SIXTY ONE THOUSAND
ONE HUNDRED SEVENTY-TWO & 32/100 (P61,172.32), Philippine Currency,
itemized as follows:
a) Principal
b) Interest at 12% per annum
c) Liquidated damages at 7% per annum
d) Costs of suit
e) Attorney's fees
2) WHEREAS, the DEFENDANTS bind themselves, jointly and severally, and
hereby promise to pay their aforementioned obligation to the PLAINTIFF at its

business address at 301-305 Banquero St., (Ground Floor), Regina Building,

Escolta, Manila, within sixty (60) days from March 16, 1962 or on or before May
14, 1962;
3) WHEREAS, in the event the DEFENDANTS FAIL to pay in full the total amount of
PESOS SIXTY ONE THOUSAND ONE HUNDRED SEVENTY TWO & 32/100
(P61,172.32), Philippine Currency, for any reason whatsoever, on May 14, 1962,
the PLAINTIFF shall be entitled, as a matter of right, to move for the execution of
the decision to be rendered in the above-entitled case by this Honorable Court
based on this COMPROMISE AGREEMENT.
On March 17, 1962, the lower court rendered judgment embodying the contents of the
said compromise agreement, the dispositive portion of which reads
WHEREFORE, the Court hereby approves the above-quoted compromise
agreement and renders judgment in accordance therewith, enjoining the parties
to comply faithfully and strictly with the terms and conditions thereof, without
special pronouncement as to costs.
Wherefore, the parties respectfully pray that the foregoing stipulation of facts be
admitted and approved by this Honorable Court, without prejudice to the parties
adducing other evidence to prove their case not covered by this stipulation of
facts. 1wph1.t
On May 15, 1962, one day after the date fixed in the compromise agreement, within which
the judgment debt would be paid, but was not, respondent Imperial Insurance Inc., filed a
"Motion for the Insurance of a Writ of Execution". On May 23, 1962, a Writ of Execution
was issued by respondent Sheriff of Manila and on May 26, 1962, Notices of Sale were
sent out for the auction of the personal properties of the petitioner J.R.S. Business
Corporation. On June 2, 1962, a Notice of Sale of the "whole capital stocks of the
defendants JRS Business Corporation, the business name, right of operation, the whole
assets, furnitures and equipments, the total liabilities, and Net Worth, books of accounts,
etc., etc." of the petitioner corporation was, handed down. On June 9, the petitioner, thru
counsel, presented an "Urgent Petition for Postponement of Auction Sale and for Release
of Levy on the Business Name and Right to Operate of Defendant JRS Business
Corporation", stating that petitioners were busy negotiating for a loan with which to pay
the judgment debt; that the judgment was for money only and, therefore, plaintiff
(respondent Insurance Company) was not authorized to take over and appropriate for its
own use, the business name of the defendants; that the right to operate under the
franchise, was not transferable and could not be considered a personal or immovable,
property, subject to levy and sale. On June 10, 1962, a Supplemental Motion for Release of
Execution, was filed by counsel of petitioner JRS Business Corporation, claiming that the
capital stocks thereof, could not be levied upon and sold under execution. Under date of
June 20, 1962, petitioner's counsel presented a pleading captioned "Very Urgent Motion
for Postponement of Public Auction Sale and for Ruling on Motion for Release of Levy on
the Business Name, Right to Operate and Capital Stocks of JRS Business Corporation". The
auction sale was set for June 21, 1962. In said motion, petitioners alleged that the loan
they had applied for, was to be secured within the next ten (10) days, and they would be
able to discharge the judgment debt. Respondents opposed the said motion and on June
21, 1962, the lower court denied the motion for postponement of the auction sale.

In the sale which was conducted in the premises of the JRS Business Corporation at 1341
Perez St., Paco, Manila, all the properties of said corporation contained in the Notices of
Sale dated May 26, 1962, and June 2, 1962 (the latter notice being for the whole capital
stocks of the defendant, JRS Business Corporation, the business name, right of operation,
the whole assets, furnitures and equipments, the total liabilities and Net Worth, books of
accounts, etc., etc.), were bought by respondent Imperial Insurance, Inc., for P10,000.00,
which was the highest bid offered. Immediately after the sale, respondent Insurance
Company took possession of the proper ties and started running the affairs and operating
the business of the JRS Business Corporation. Hence, the present appeal.
It would seem that the matters which need determination are (1) whether the respondent
Judge acted without or in excess of his jurisdiction or with grave abuse of discretion in
promulgating the Order of June 21, 1962, denying the motion for postponement of the
scheduled sale at public auction, of the properties of petitioner; and (2) whether the
business name or trade name, franchise (right to operate) and capital stocks of the
petitioner are properties or property rights which could be the subject of levy, execution
and sale.
The respondent Court's act of postponing the scheduled sale was within the discretion of
respondent Judge, the exercise of which, one way or the other, did not constitute grave
abuse of discretion and/or excess of jurisdiction. There was a decision rendered and the
corresponding writ of execution was issued. Respondent Judge had jurisdiction over the
matter and erroneous conclusions of law or fact, if any, committed in the exercise of such
jurisdiction are merely errors of judgment, not correctible by certiorari (Villa Rey Transit v.
Bello, et al., L-18957, April 23, 1963, and cases cited therein.)
The corporation law, on forced sale of franchises, provides
Any franchise granted to a corporation to collect tolls or to occupy, enjoy, or use
public property or any portion of the public domain or any right of way over
public property or the public domain, and any rights and privileges acquired
under such franchise may be levied upon and sold under execution, together
with the property necessary for the enjoyment, the exercise of the powers, and
the receipt of the proceeds of such franchise or right of way, in the same manner
and with like effect as any other property to satisfy any judgment against the
corporation: Provided, That the sale of the franchise or right of way and the
property necessary for the enjoyment, the exercise of the powers, and the
receipt of the proceeds of said franchise or right of way is especially decreed and
ordered in the judgment: And provided, further, That the sale shall not become
effective until confirmed by the court after due notice. (Sec. 56, Corporation
Law.)
In the case of Gulf Refining Co. v. Cleveland Trust Co., 108 So., 158, it was held
The first question then for decision is the meaning of the word "franchise" in the
statute.
"A franchise is a special privilege conferred by governmental authority,
and which does not belong to citizens of the country generally as a
matter of common right. ... Its meaning depends more or less upon the
connection in which the word is employed and the property and
corporation to which it is applied. It may have different significations.

"For practical purposes, franchises, so far as relating to corporations, are

divisible into (1) corporate or general franchises; and (2) special or
secondary franchises. The former is the franchise to exist as a
corporation, while the latter are certain rights and privileges conferred
upon existing corporations, such as the right to use the streets of a
municipality to lay pipes or tracks, erect poles or string wires." 2
Fletcher's Cyclopedia Corp. See. 1148; 14 C.J. p. 160; Adams v. Yazon &
M. V. R. Co., 24 So. 200, 317, 28 So. 956, 77 Miss. 253, 60 L.R.A. 33 et
seq.
The primary franchise of a corporation that is, the right to exist as such, is
vested "in the individuals who compose the corporation and not in the
corporation itself" (14 C.J. pp. 160, 161; Adams v. Railroad, supra; 2 Fletcher's
Cyclopedia Corp. Secs. 1153, 1158; 3 Thompson on Corporations 2d Ed.] Secs.
2863, 2864),and cannot be conveyed in the absence of a legislative authority so
to do (14A CJ. 543, 577; 1 Fletcher's Cyc. Corp. Sec. 1224; Memphis & L.R.R. Co.
v. Berry 5 S. Ct. 299, 112 U.S. 609, 28 L.E.d. 837; Vicksburg Waterworks Co. v.
Vicksburg, 26 S. Ct. 660, 202 U.S. 453, 50 L.E.d. 1102, 6 Ann. Cas. 253; Arthur v.
Commercial & Railroad Bank, 9 Smedes & M. 394, 48 Am. Dec. 719), but the
specify or secondary franchises of a corporation are vested in the corporation
and may ordinarily be conveyed or mortgaged under a general power granted to
a corporation to dispose of its property (Adams v. Railroad, supra; 14A C.J. 542,
557; 3 Thompson on Corp. [2nd Ed.] Sec. 2909), except such special or
secondary franchises as are charged with a public use (2 Fletcher's Cyc. Corp.
see. 1225; 14A C.J. 544; 3 Thompson on Corp. [2d Ed.] sec. 2908; Arthur v.
Commercial & R.R. Bank, supra; McAllister v. Plant, 54 Miss. 106).
The right to operate a messenger and express delivery service, by virtue of a legislative
enactment, is admittedly a secondary franchise (R.A. No. 3260, entitled "An Act granting
the JRS Business Corporation a franchise to conduct a messenger and express service)"
and, as such, under our corporation law, is subject to levy and sale on execution together
and including all the property necessary for the enjoyment thereof. The law, however,
indicates the procedure under which the same (secondary franchise and the properties
necessary for its enjoyment) may be sold under execution. Said franchise can be sold
under execution, when such sale is especially decreed and ordered in the judgment and it
becomes effective only when the sale is confirmed by the Court after due notice (Sec. 56,
Corp. Law). The compromise agreement and the judgment based thereon, do not contain
any special decree or order making the franchise answerable for the judgment debt. The
same thing may be stated with respect to petitioner's trade name or business name and
its capital stock. Incidentally, the trade name or business name corresponds to the initials
of the President of the petitioner corporation and there can be no serious dispute
regarding the fact that a trade name or business name and capital stock are necessarily
included in the enjoyment of the franchise. Like that of a franchise, the law mandates,
that property necessary for the enjoyment of said franchise, can only be sold to satisfy a
judgment debt if the decision especially so provides. As We have stated heretofore, no
such directive appears in the decision. Moreover, a trade name or business name cannot
be sold separately from the franchise, and the capital stock of the petitioner corporation
or any other corporation, for the matter, represents the interest and is the property of
stockholders in the corporation, who can only be deprived thereof in the manner provided
by law (Therbee v. Baker, 35 N.E. Eq. [8 Stew.] 501, 505; In re Wells' Estate, 144 N.W. 174,
177, Wis. 294, cited in 6 Words and Phrases, 109).
It, therefore, results that the inclusion of the franchise, the trade name and/or business
name and the capital stock of the petitioner corporation, in the sale of the properties of

the JRS Business Corporation, has no justification. The sale of the properties of petitioner
corporation is set aside, in so far as it authorizes the levy and sale of its franchise, trade
name and capital stocks. Without pronouncement as to costs.
Bengzon, C.J., Padilla, Bautista Angelo, Concepcion, Reyes, J.B.L., Regala and Makalintal,
JJ., concur.

of a lot registered in plaintiff's name under Transfer Certificate of Title No. 37686 of the
land record of Rizal Province and as containing an area of 13 hectares more or less. But
the complaint was amended by reducing the area of 6 hectares, more or less, after the
defendant had indicated the plaintiff's surveyors the portion of land claimed and occupied
by him. The second amendment became necessary and was allowed following the
testimony of plaintiff's surveyors that a portion of the area was embraced in another
certificate of title, which was plaintiff's Transfer Certificate of Title No. 37677. And still
later, in the course of trial, after defendant's surveyor and witness, Quirino Feria, had
testified that the area occupied and claimed by defendant was about 13 hectares, as
shown in his Exhibit 1, plaintiff again, with the leave of court, amended its complaint to
make its allegations conform to the evidence.
Defendant, in his answer, sets up prescription and title in himself thru "open, continuous,
exclusive and public and notorious possession (of land in dispute) under claim of
ownership, adverse to the entire world by defendant and his predecessor in interest" from
"time in-memorial". The answer further alleges that registration of the land in dispute was
obtained by plaintiff or its predecessors in interest thru "fraud or error and without
knowledge (of) or interest either personal or thru publication to defendant and/or
predecessors in interest." The answer therefore prays that the complaint be dismissed
with costs and plaintiff required to reconvey the land to defendant or pay its value.
After trial, the lower court rendered judgment for plaintiff, declaring defendant to be
without any right to the land in question and ordering him to restore possession thereof to
plaintiff and to pay the latter a monthly rent of P132.62 from January, 1940, until he
vacates the land, and also to pay the costs.
Appealing directly to this court because of the value of the property involved, defendant
makes the following assignment or errors:
I. The trial court erred in not dismissing the case on the ground that the case was
not brought by the real property in interest.

G.R. No. L-4935

May 28, 1954

J. M. TUASON & CO., INC., represented by it Managing PARTNER, GREGORIA

ARANETA, INC., plaintiff-appellee,
vs.
QUIRINO BOLAOS, defendant-appellant.
REYES, J.:
This is an action originally brought in the Court of First Instance of Rizal, Quezon City
Branch, to recover possesion of registered land situated in barrio Tatalon, Quezon City.
Plaintiff's complaint was amended three times with respect to the extent and description
of the land sought to be recovered. The original complaint described the land as a portion

II. The trial court erred in admitting the third amended complaint.
III. The trial court erred in denying defendant's motion to strike.
IV. The trial court erred in including in its decision land not involved in the
litigation.
V. The trial court erred in holding that the land in dispute is covered by transfer
certificates of Title Nos. 37686 and 37677.
Vl. The trial court erred in not finding that the defendant is the true and lawful
owner of the land.

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

Under this section, American courts have, under the New Federal Rules of Civil
Procedure, ruled that where the facts shown entitled plaintiff to relief other than
that asked for, no amendment to the complaint is necessary, especially where
defendant has himself raised the point on which recovery is based, and that the
appellate court treat the pleadings as amended to conform to the evidence,
although the pleadings were not actually amended. (I Moran, Rules of Court,
1952 ed., 389-390.)
Our conclusion therefore is that specification of error II, III, and IV are without merit..
Let us now pass on the errors V and VI. Admitting, though his attorney, at the early stage
of the trial, that the land in dispute "is that described or represented in Exhibit A and in
Exhibit B enclosed in red pencil with the name Quirino Bolaos," defendant later changed
his lawyer and also his theory and tried to prove that the land in dispute was not covered
by plaintiff's certificate of title. The evidence, however, is against defendant, for it clearly
establishes that plaintiff is the registered owner of lot No. 4-B-3-C, situate in barrio
Tatalon, Quezon City, with an area of 5,297,429.3 square meters, more or less, covered by
transfer certificate of title No. 37686 of the land records of Rizal province, and of lot No. 4B-4, situated in the same barrio, having an area of 74,789 square meters, more or less,
covered by transfer certificate of title No. 37677 of the land records of the same province,
both lots having been originally registered on July 8, 1914 under original certificate of title
No. 735. The identity of the lots was established by the testimony of Antonio Manahan
and Magno Faustino, witnesses for plaintiff, and the identity of the portion thereof claimed
by defendant was established by the testimony of his own witness, Quirico Feria. The
combined testimony of these three witnesses clearly shows that the portion claimed by
defendant is made up of a part of lot 4-B-3-C and major on portion of lot 4-B-4, and is well
within the area covered by the two transfer certificates of title already mentioned. This
fact also appears admitted in defendant's answer to the third amended complaint.
As the land in dispute is covered by plaintiff's Torrens certificate of title and was registered
in 1914, the decree of registration can no longer be impugned on the ground of fraud,
error or lack of notice to defendant, as more than one year has already elapsed from the
issuance and entry of the decree. Neither court the decree be collaterally attacked by any
person claiming title to, or interest in, the land prior to the registration proceedings.
(Sorogon vs. Makalintal,1 45 Off. Gaz., 3819.) Nor could title to that land in derogation of
that of plaintiff, the registered owner, be acquired by prescription or adverse possession.
(Section 46, Act No. 496.) Adverse, notorious and continuous possession under claim of
ownership for the period fixed by law is ineffective against a Torrens title. (Valiente vs.
Judge of CFI of Tarlac,2 etc., 45 Off. Gaz., Supp. 9, p. 43.) And it is likewise settled that the
right to secure possession under a decree of registration does not prescribed. (Francisco
vs. Cruz, 43 Off. Gaz., 5105, 5109-5110.) A recent decision of this Court on this point is
that rendered in the case of Jose Alcantara et al., vs. Mariano et al., 92 Phil., 796. This
disposes of the alleged errors V and VI.
As to error VII, it is claimed that `there was no evidence to sustain the finding that
defendant should be sentenced to pay plaintiff P132.62 monthly from January, 1940, until
he vacates the premises.' But it appears from the record that that reasonable

compensation for the use and occupation of the premises, as stipulated at the hearing
was P10 a month for each hectare and that the area occupied by defendant was 13.2619
hectares. The total rent to be paid for the area occupied should therefore be P132.62 a
month. It is appears from the testimony of J. A. Araneta and witness Emigdio Tanjuatco
that as early as 1939 an action of ejectment had already been filed against defendant.
And it cannot be supposed that defendant has been paying rents, for he has been
asserting all along that the premises in question 'have always been since time
immemorial in open, continuous, exclusive and public and notorious possession and under
claim of ownership adverse to the entire world by defendant and his predecessors in
interest.' This assignment of error is thus clearly without merit.
Error No. VIII is but a consequence of the other errors alleged and needs for further
consideration.
During the pendency of this case in this Court appellant, thru other counsel, has filed a
motion to dismiss alleging that there is pending before the Court of First Instance of Rizal
another action between the same parties and for the same cause and seeking to sustain
that allegation with a copy of the complaint filed in said action. But an examination of that
complaint reveals that appellant's allegation is not correct, for the pretended identity of
parties and cause of action in the two suits does not appear. That other case is one for
recovery of ownership, while the present one is for recovery of possession. And while
appellant claims that he is also involved in that order action because it is a class suit, the
complaint does not show that such is really the case. On the contrary, it appears that the
action seeks relief for each individual plaintiff and not relief for and on behalf of others.
The motion for dismissal is clearly without merit.

G.R. No. 75875 December 15, 1989

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

Belo, Abiera & Associates for petitioners in 75875.

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

GUTIERREZ, JR., J.:

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

5. Management
(a) The management of the Corporation shall be vested in a Board of
Directors, which shall consist of nine individuals. As long as AmericanStandard shall own at least 30% of the outstanding stock of the
Corporation, three of the nine directors shall be designated by
American-Standard, and the other six shall be designated by the other
stockholders of the Corporation. (pp. 51 & 53, Rollo of 75875)
At the request of ASI, the agreement contained provisions designed to protect it as a
minority group, including the grant of veto powers over a number of corporate acts and
the right to designate certain officers, such as a member of the Executive Committee
whose vote was required for important corporate transactions.
Later, the 30% capital stock of ASI was increased to 40%. The corporation was also
registered with the Board of Investments for availment of incentives with the condition
that at least 60% of the capital stock of the corporation shall be owned by Philippine
nationals.
The joint enterprise thus entered into by the Filipino investors and the American
corporation prospered. Unfortunately, with the business successes, there came a
deterioration of the initially harmonious relations between the two groups. According to
the Filipino group, a basic disagreement was due to their desire to expand the export
operations of the company to which ASI objected as it apparently had other subsidiaries of
joint joint venture groups in the countries where Philippine exports were contemplated. On
March 8, 1983, the annual stockholders' meeting was held. The meeting was presided by
Baldwin Young. The minutes were taken by the Secretary, Avelino Cruz. After disposing of
the preliminary items in the agenda, the stockholders then proceeded to the election of
the members of the board of directors. The ASI group nominated three persons namely;
Wolfgang Aurbach, John Griffin and David P. Whittingham. The Philippine investors
nominated six, namely; Ernesto Lagdameo, Sr., Raul A. Boncan, Ernesto R. Lagdameo, Jr.,
George F. Lee, and Baldwin Young. Mr. Eduardo R, Ceniza then nominated Mr. Luciano E.
Salazar, who in turn nominated Mr. Charles Chamsay. The chairman, Baldwin Young ruled
the last two nominations out of order on the basis of section 5 (a) of the Agreement, the
consistent practice of the parties during the past annual stockholders' meetings to
nominate only nine persons as nominees for the nine-member board of directors, and the
legal advice of Saniwares' legal counsel. The following events then, transpired:

3. Articles of Incorporation
(a) The Articles of Incorporation of the Corporation shall be substantially
in the form annexed hereto as Exhibit A and, insofar as permitted under
Philippine law, shall specifically provide for
(1) Cumulative voting for directors:
xxx xxx xxx

... There were protests against the action of the Chairman and heated
arguments ensued. An appeal was made by the ASI representative to
the body of stockholders present that a vote be taken on the ruling of
the Chairman. The Chairman, Baldwin Young, declared the appeal out of
order and no vote on the ruling was taken. The Chairman then
instructed the Corporate Secretary to cast all the votes present and
represented by proxy equally for the 6 nominees of the Philippine
Investors and the 3 nominees of ASI, thus effectively excluding the 2
additional persons nominated, namely, Luciano E. Salazar and Charles

Chamsay. The ASI representative, Mr. Jaqua protested the decision of the
Chairman and announced that all votes accruing to ASI shares, a total of
1,329,695 (p. 27, Rollo, AC-G.R. SP No. 05617) were being cumulatively
voted for the three ASI nominees and Charles Chamsay, and instructed
the Secretary to so vote. Luciano E. Salazar and other proxy holders
announced that all the votes owned by and or represented by them
467,197 shares (p. 27, Rollo, AC-G.R. SP No. 05617) were being voted
cumulatively in favor of Luciano E. Salazar. The Chairman, Baldwin
Young, nevertheless instructed the Secretary to cast all votes equally in
favor of the three ASI nominees, namely, Wolfgang Aurbach, John Griffin
and David Whittingham and the six originally nominated by Rogelio
Vinluan, namely, Ernesto Lagdameo, Sr., Raul Boncan, Ernesto
Lagdameo, Jr., Enrique Lagdameo, George F. Lee, and Baldwin Young.
The Secretary then certified for the election of the following Wolfgang
Aurbach, John Griffin, David Whittingham Ernesto Lagdameo, Sr.,
Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, Raul A.
Boncan, Baldwin Young. The representative of ASI then moved to recess
the meeting which was duly seconded. There was also a motion to
adjourn (p. 28, Rollo, AC-G.R. SP No. 05617). This motion to adjourn was
accepted by the Chairman, Baldwin Young, who announced that the
motion was carried and declared the meeting adjourned. Protests
against the adjournment were registered and having been ignored, Mr.
Jaqua the ASI representative, stated that the meeting was not adjourned
but only recessed and that the meeting would be reconvened in the
next room. The Chairman then threatened to have the stockholders who
did not agree to the decision of the Chairman on the casting of votes
bodily thrown out. The ASI Group, Luciano E. Salazar and other
stockholders, allegedly representing 53 or 54% of the shares of
Saniwares, decided to continue the meeting at the elevator lobby of the
American Standard Building. The continued meeting was presided by
Luciano E. Salazar, while Andres Gatmaitan acted as Secretary. On the
basis of the cumulative votes cast earlier in the meeting, the ASI Group
nominated its four nominees; Wolfgang Aurbach, John Griffin, David
Whittingham and Charles Chamsay. Luciano E. Salazar voted for himself,
thus the said five directors were certified as elected directors by the
Acting Secretary, Andres Gatmaitan, with the explanation that there was
a tie among the other six (6) nominees for the four (4) remaining
positions of directors and that the body decided not to break the tie.
(pp. 37-39, Rollo of 75975-76)
These incidents triggered off the filing of separate petitions by the parties with the
Securities and Exchange Commission (SEC). The first petition filed was for preliminary
injunction by Saniwares, Emesto V. Lagdameo, Baldwin Young, Raul A. Bonean Ernesto R.
Lagdameo, Jr., Enrique Lagdameo and George F. Lee against Luciano Salazar and Charles
Chamsay. The case was denominated as SEC Case No. 2417. The second petition was for
quo warranto and application for receivership by Wolfgang Aurbach, John Griffin, David
Whittingham, Luciano E. Salazar and Charles Chamsay against the group of Young and
Lagdameo (petitioners in SEC Case No. 2417) and Avelino F. Cruz. The case was docketed

as SEC Case No. 2718. Both sets of parties except for Avelino Cruz claimed to be the
legitimate directors of the corporation.
The two petitions were consolidated and tried jointly by a hearing officer who rendered a
decision upholding the election of the Lagdameo Group and dismissing the quo warranto
petition of Salazar and Chamsay. The ASI Group and Salazar appealed the decision to the
SEC en banc which affirmed the hearing officer's decision.
The SEC decision led to the filing of two separate appeals with the Intermediate Appellate
Court by Wolfgang Aurbach, John Griffin, David Whittingham and Charles Chamsay
(docketed as AC-G.R. SP No. 05604) and by Luciano E. Salazar (docketed as AC-G.R. SP
No. 05617). The petitions were consolidated and the appellate court in its decision
ordered the remand of the case to the Securities and Exchange Commission with the
directive that a new stockholders' meeting of Saniwares be ordered convoked as soon as
possible, under the supervision of the Commission.
Upon a motion for reconsideration filed by the appellees Lagdameo Group) the appellate
court (Court of Appeals) rendered the questioned amended decision. Petitioners Wolfgang
Aurbach, John Griffin, David P. Whittingham and Charles Chamsay in G.R. No. 75875
assign the following errors:
I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED ELECTION
OF PRIVATE RESPONDENTS AS MEMBERS OF THE BOARD OF DIRECTORS
OF SANIWARES WHEN IN FACT THERE WAS NO ELECTION AT ALL.
II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS FROM
EXERCISING THEIR FULL VOTING RIGHTS REPRESENTED BY THE NUMBER
OF SHARES IN SANIWARES, THUS DEPRIVING PETITIONERS AND THE
CORPORATION THEY REPRESENT OF THEIR PROPERTY RIGHTS WITHOUT
DUE PROCESS OF LAW.
III. THE COURT OF APPEALS IMPOSES CONDITIONS AND READS
PROVISIONS INTO THE AGREEMENT OF THE PARTIES WHICH WERE NOT
THERE, WHICH ACTION IT CANNOT LEGALLY DO. (p. 17, Rollo-75875)
Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended decision on the
following grounds:
11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of binding
contractual agreements entered into by stockholders and the
replacement of the conditions of such agreements with terms never
contemplated by the stockholders but merely dictated by the CA .
11.2. The Amended decision would likewise sanction the deprivation of
the property rights of stockholders without due process of law in order

that a favored group of stockholders may be illegally benefitted and

guaranteed a continuing monopoly of the control of a corporation. (pp.
14-15, Rollo-75975-76)
On the other hand, the petitioners in G.R. No. 75951 contend that:
I
THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE
RECOGNIZING THAT THE STOCKHOLDERS OF SANIWARES ARE DIVIDED
INTO TWO BLOCKS, FAILS TO FULLY ENFORCE THE BASIC INTENT OF THE
AGREEMENT AND THE LAW.
II
THE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT
PRIVATE PETITIONERS HEREIN WERE THE DULY ELECTED DIRECTORS
DURING THE 8 MARCH 1983 ANNUAL STOCKHOLDERS MEETING OF
SANTWARES. (P. 24, Rollo-75951)
The issues raised in the petitions are interrelated, hence, they are discussed jointly.
The main issue hinges on who were the duly elected directors of Saniwares for the year
1983 during its annual stockholders' meeting held on March 8, 1983. To answer this
question the following factors should be determined: (1) the nature of the business
established by the parties whether it was a joint venture or a corporation and (2) whether
or not the ASI Group may vote their additional 10% equity during elections of Saniwares'
board of directors.

c) nothing herein contained shall be construed to constitute any of the

parties hereto partners or joint venturers in respect of any transaction
hereunder. (At P. 66, Rollo-GR No. 75875)
They object to the admission of other evidence which tends to show that the parties'
agreement was to establish a joint venture presented by the Lagdameo and Young Group
on the ground that it contravenes the parol evidence rule under section 7, Rule 130 of the
Revised Rules of Court. According to them, the Lagdameo and Young Group never pleaded
in their pleading that the "Agreement" failed to express the true intent of the parties.
The parol evidence Rule under Rule 130 provides:
Evidence of written agreements-When the terms of an agreement have
been reduced to writing, it is to be considered as containing all such
terms, and therefore, there can be, between the parties and their
successors in interest, no evidence of the terms of the agreement other
than the contents of the writing, except in the following cases:
(a) Where a mistake or imperfection of the writing, or its failure to
express the true intent and agreement of the parties or the validity of
the agreement is put in issue by the pleadings.
(b) When there is an intrinsic ambiguity in the writing.
Contrary to ASI Group's stand, the Lagdameo and Young Group pleaded in their Reply and
Answer to Counterclaim in SEC Case No. 2417 that the Agreement failed to express the
true intent of the parties, to wit:
xxx xxx xxx

The rule is that whether the parties to a particular contract have thereby established
among themselves a joint venture or some other relation depends upon their actual
intention which is determined in accordance with the rules governing the interpretation
and construction of contracts. (Terminal Shares, Inc. v. Chicago, B. and Q.R. Co. (DC MO)
65 F Supp 678; Universal Sales Corp. v. California Press Mfg. Co. 20 Cal. 2nd 751, 128 P
2nd 668)
The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual
intention of the parties should be viewed strictly on the "Agreement" dated August
15,1962 wherein it is clearly stated that the parties' intention was to form a corporation
and not a joint venture.
They specifically mention number 16 under Miscellaneous Provisions which states:
xxx xxx xxx

4. While certain provisions of the Agreement would make it appear that

the parties thereto disclaim being partners or joint venturers such
disclaimer is directed at third parties and is not inconsistent with, and
does not preclude, the existence of two distinct groups of stockholders
in Saniwares one of which (the Philippine Investors) shall constitute the
majority, and the other ASI shall constitute the minority stockholder. In
any event, the evident intention of the Philippine Investors and ASI in
entering into the Agreement is to enter into ajoint venture enterprise,
and if some words in the Agreement appear to be contrary to the
evident intention of the parties, the latter shall prevail over the former
(Art. 1370, New Civil Code). The various stipulations of a contract shall
be interpreted together attributing to the doubtful ones that sense
which may result from all of them taken jointly (Art. 1374, New Civil
Code). Moreover, in order to judge the intention of the contracting
parties, their contemporaneous and subsequent acts shall be principally
considered. (Art. 1371, New Civil Code). (Part I, Original Records, SEC
Case No. 2417)
It has been ruled:
In an action at law, where there is evidence tending to prove that the
parties joined their efforts in furtherance of an enterprise for their joint
profit, the question whether they intended by their agreement to create
a joint adventure, or to assume some other relation is a question of fact
for the jury. (Binder v. Kessler v 200 App. Div. 40,192 N Y S 653; Pyroa v.
Brownfield (Tex. Civ. A.) 238 SW 725; Hoge v. George, 27 Wyo, 423, 200
P 96 33 C.J. p. 871)
In the instant cases, our examination of important provisions of the Agreement as well as
the testimonial evidence presented by the Lagdameo and Young Group shows that the
parties agreed to establish a joint venture and not a corporation. The history of the
organization of Saniwares and the unusual arrangements which govern its policy making
body are all consistent with a joint venture and not with an ordinary corporation. As stated
by the SEC:
According to the unrebutted testimony of Mr. Baldwin Young, he
negotiated the Agreement with ASI in behalf of the Philippine nationals.
He testified that ASI agreed to accept the role of minority vis-a-vis the
Philippine National group of investors, on the condition that the
Agreement should contain provisions to protect ASI as the minority.
An examination of the Agreement shows that certain provisions were
included to protect the interests of ASI as the minority. For example, the
vote of 7 out of 9 directors is required in certain enumerated corporate
acts [Sec. 3 (b) (ii) (a) of the Agreement]. ASI is contractually entitled to
designate a member of the Executive Committee and the vote of this
member is required for certain transactions [Sec. 3 (b) (i)].

The Agreement also requires a 75% super-majority vote for the

amendment of the articles and by-laws of Saniwares [Sec. 3 (a) (iv) and
(b) (iii)]. ASI is also given the right to designate the president and plant
manager [Sec. 5 (6)]. The Agreement further provides that the sales
policy of Saniwares shall be that which is normally followed by ASI [Sec.
13 (a)] and that Saniwares should not export "Standard" products
otherwise than through ASI's Export Marketing Services [Sec. 13 (6)].
Under the Agreement, ASI agreed to provide technology and know-how
to Saniwares and the latter paid royalties for the same. (At p. 2).
xxx xxx xxx
It is pertinent to note that the provisions of the Agreement requiring a 7
out of 9 votes of the board of directors for certain actions, in effect gave
ASI (which designates 3 directors under the Agreement) an effective
veto power. Furthermore, the grant to ASI of the right to designate
certain officers of the corporation; the super-majority voting
requirements for amendments of the articles and by-laws; and most
significantly to the issues of tms case, the provision that ASI shall
designate 3 out of the 9 directors and the other stockholders shall
designate the other 6, clearly indicate that there are two distinct groups
in Saniwares, namely ASI, which owns 40% of the capital stock and the
Philippine National stockholders who own the balance of 60%, and that
2) ASI is given certain protections as the minority stockholder.
Premises considered, we believe that under the Agreement there are
two groups of stockholders who established a corporation with
provisions for a special contractual relationship between the parties, i.e.,
ASI and the other stockholders. (pp. 4-5)
Section 5 (a) of the agreement uses the word "designated" and not "nominated" or
"elected" in the selection of the nine directors on a six to three ratio. Each group is
assured of a fixed number of directors in the board.
Moreover, ASI in its communications referred to the enterprise as joint venture. Baldwin
Young also testified that Section 16(c) of the Agreement that "Nothing herein contained
shall be construed to constitute any of the parties hereto partners or joint venturers in
respect of any transaction hereunder" was merely to obviate the possibility of the
enterprise being treated as partnership for tax purposes and liabilities to third parties.
Quite often, Filipino entrepreneurs in their desire to develop the industrial and
manufacturing capacities of a local firm are constrained to seek the technology and
marketing assistance of huge multinational corporations of the developed world.
Arrangements are formalized where a foreign group becomes a minority owner of a firm in
exchange for its manufacturing expertise, use of its brand names, and other such
assistance. However, there is always a danger from such arrangements. The foreign group

may, from the start, intend to establish its own sole or monopolistic operations and
merely uses the joint venture arrangement to gain a foothold or test the Philippine waters,
so to speak. Or the covetousness may come later. As the Philippine firm enlarges its
operations and becomes profitable, the foreign group undermines the local majority
ownership and actively tries to completely or predominantly take over the entire company.
This undermining of joint ventures is not consistent with fair dealing to say the least. To
the extent that such subversive actions can be lawfully prevented, the courts should
extend protection especially in industries where constitutional and legal requirements
reserve controlling ownership to Filipino citizens.
The Lagdameo Group stated in their appellees' brief in the Court of Appeal
In fact, the Philippine Corporation Code itself recognizes the right of stockholders
to enter into agreements regarding the exercise of their voting rights.
Sec. 100. Agreements by stockholders.xxx xxx xxx
2. An agreement between two or more stockholders, if in writing and signed by
the parties thereto, may provide that in exercising any voting rights, the shares
held by them shall be voted as therein provided, or as they may agree, or as
determined in accordance with a procedure agreed upon by them.
Appellants contend that the above provision is included in the Corporation Code's
chapter on close corporations and Saniwares cannot be a close corporation
because it has 95 stockholders. Firstly, although Saniwares had 95 stockholders
at the time of the disputed stockholders meeting, these 95 stockholders are not
separate from each other but are divisible into groups representing a single
Identifiable interest. For example, ASI, its nominees and lawyers count for 13 of
the 95 stockholders. The YoungYutivo family count for another 13 stockholders,
the Chamsay family for 8 stockholders, the Santos family for 9 stockholders, the
Dy family for 7 stockholders, etc. If the members of one family and/or business or
interest group are considered as one (which, it is respectfully submitted, they
should be for purposes of determining how closely held Saniwares is there were
as of 8 March 1983, practically only 17 stockholders of Saniwares. (Please refer
to discussion in pp. 5 to 6 of appellees' Rejoinder Memorandum dated 11
December 1984 and Annex "A" thereof).
Secondly, even assuming that Saniwares is technically not a close corporation
because it has more than 20 stockholders, the undeniable fact is that it is
a close-held corporation. Surely, appellants cannot honestly claim that Saniwares
is a public issue or a widely held corporation.
In the United States, many courts have taken a realistic approach to joint venture
corporations and have not rigidly applied principles of corporation law designed

primarily for public issue corporations. These courts have indicated that express
arrangements between corporate joint ventures should be construed with less
emphasis on the ordinary rules of law usually applied to corporate entities and
with more consideration given to the nature of the agreement between the joint
venturers (Please see Wabash Ry v. American Refrigerator Transit Co., 7 F 2d 335;
Chicago, M & St. P. Ry v. Des Moines Union Ry; 254 Ass'n. 247 US. 490'; Seaboard
Airline Ry v. Atlantic Coast Line Ry; 240 N.C. 495,.82 S.E. 2d 771; Deboy v. Harris,
207 Md., 212,113 A 2d 903; Hathway v. Porter Royalty Pool, Inc., 296 Mich. 90,
90, 295 N.W. 571; Beardsley v. Beardsley, 138 U.S. 262; "The Legal Status of Joint
Venture Corporations", 11 Vand Law Rev. p. 680,1958). These American cases
dealt with legal questions as to the extent to which the requirements arising from
the corporate form of joint venture corporations should control, and the courts
ruled that substantial justice lay with those litigants who relied on the joint
venture agreement rather than the litigants who relied on the orthodox principles
of corporation law.
As correctly held by the SEC Hearing Officer:
It is said that participants in a joint venture, in organizing the joint venture
deviate from the traditional pattern of corporation management. A noted
authority has pointed out that just as in close corporations, shareholders'
agreements in joint venture corporations often contain provisions which do one
or more of the following: (1) require greater than majority vote for shareholder
and director action; (2) give certain shareholders or groups of shareholders
power to select a specified number of directors; (3) give to the shareholders
control over the selection and retention of employees; and (4) set up a procedure
for the settlement of disputes by arbitration (See I O' Neal, Close Corporations,
1971 ed., Section 1.06a, pp. 15-16) (Decision of SEC Hearing Officer, P. 16)
Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not necessarily
imply that agreements regarding the exercise of voting rights are allowed only in
close corporations. As Campos and Lopez-Campos explain:
Paragraph 2 refers to pooling and voting agreements in particular. Does this
provision necessarily imply that these agreements can be valid only in close
corporations as defined by the Code? Suppose that a corporation has twenty five
stockholders, and therefore cannot qualify as a close corporation under section
96, can some of them enter into an agreement to vote as a unit in the election of
directors? It is submitted that there is no reason for denying stockholders of
corporations other than close ones the right to enter into not voting or pooling
agreements to protect their interests, as long as they do not intend to commit
any wrong, or fraud on the other stockholders not parties to the agreement. Of
course, voting or pooling agreements are perhaps more useful and more often
resorted to in close corporations. But they may also be found necessary even in
widely held corporations. Moreover, since the Code limits the legal meaning of
close corporations to those which comply with the requisites laid down by section
96, it is entirely possible that a corporation which is in fact a close corporation

will not come within the definition. In such case, its stockholders should not be
precluded from entering into contracts like voting agreements if these are
otherwise valid. (Campos & Lopez-Campos, op cit, p. 405)
In short, even assuming that sec. 5(a) of the Agreement relating to the
designation or nomination of directors restricts the right of the
Agreement's signatories to vote for directors, such contractual
provision, as correctly held by the SEC, is valid and binding upon the
signatories thereto, which include appellants. (Rollo No. 75951, pp. 9094)
In regard to the question as to whether or not the ASI group may vote their additional
equity during elections of Saniwares' board of directors, the Court of Appeals correctly
stated:
As in other joint venture companies, the extent of ASI's participation in the
management of the corporation is spelled out in the Agreement. Section 5(a)
hereof says that three of the nine directors shall be designated by ASI and the
remaining six by the other stockholders, i.e., the Filipino stockholders. This
allocation of board seats is obviously in consonance with the minority position of
ASI.
Having entered into a well-defined contractual relationship, it is imperative that
the parties should honor and adhere to their respective rights and obligations
thereunder. Appellants seem to contend that any allocation of board seats, even
in joint venture corporations, are null and void to the extent that such may
interfere with the stockholder's rights to cumulative voting as provided in Section
24 of the Corporation Code. This Court should not be prepared to hold that any
agreement which curtails in any way cumulative voting should be struck down,
even if such agreement has been freely entered into by experienced
businessmen and do not prejudice those who are not parties thereto. It may well
be that it would be more cogent to hold, as the Securities and Exchange
Commission has held in the decision appealed from, that cumulative voting
rights may be voluntarily waived by stockholders who enter into special
relationships with each other to pursue and implement specific purposes, as in
joint venture relationships between foreign and local stockholders, so long as
such agreements do not adversely affect third parties.
In any event, it is believed that we are not here called upon to make a
general rule on this question. Rather, all that needs to be done is to give
life and effect to the particular contractual rights and obligations which
the parties have assumed for themselves.
On the one hand, the clearly established minority position of ASI and the
contractual allocation of board seats Cannot be disregarded. On the other hand,
the rights of the stockholders to cumulative voting should also be protected.

In our decision sought to be reconsidered, we opted to uphold the second over

the first. Upon further reflection, we feel that the proper and just solution to give
due consideration to both factors suggests itself quite clearly. This Court should
recognize and uphold the division of the stockholders into two groups, and at the
same time uphold the right of the stockholders within each group to cumulative
voting in the process of determining who the group's nominees would be. In
practical terms, as suggested by appellant Luciano E. Salazar himself, this means
that if the Filipino stockholders cannot agree who their six nominees will be, a
vote would have to be taken among the Filipino stockholders only. During this
voting, each Filipino stockholder can cumulate his votes. ASI, however, should
not be allowed to interfere in the voting within the Filipino group. Otherwise, ASI
would be able to designate more than the three directors it is allowed to
designate under the Agreement, and may even be able to get a majority of the
board seats, a result which is clearly contrary to the contractual intent of the
parties.
Such a ruling will give effect to both the allocation of the board seats and the
stockholder's right to cumulative voting. Moreover, this ruling will also give due
consideration to the issue raised by the appellees on possible violation or
circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and the
nationalization requirements of the Constitution and the laws if ASI is allowed to
nominate more than three directors. (Rollo-75875, pp. 38-39)
The ASI Group and petitioner Salazar, now reiterate their theory that the ASI Group has
the right to vote their additional equity pursuant to Section 24 of the Corporation Code
which gives the stockholders of a corporation the right to cumulate their votes in electing
directors. Petitioner Salazar adds that this right if granted to the ASI Group would not
necessarily mean a violation of the Anti-Dummy Act (Commonwealth Act 108, as
amended). He cites section 2-a thereof which provides:
And provided finally that the election of aliens as members of the board of
directors or governing body of corporations or associations engaging in partially
nationalized activities shall be allowed in proportion to their allowable
participation or share in the capital of such entities. (amendments introduced by
Presidential Decree 715, section 1, promulgated May 28, 1975)
The ASI Group's argument is correct within the context of Section 24 of the Corporation
Code. The point of query, however, is whether or not that provision is applicable to a joint
venture with clearly defined agreements:
The legal concept of ajoint venture is of common law origin. It has no precise
legal definition but it has been generally understood to mean an organization
formed for some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It
is in fact hardly distinguishable from the partnership, since their elements are
similar community of interest in the business, sharing of profits and losses, and a
mutual right of control. Blackner v. Mc Dermott, 176 F. 2d. 498, [1949];
Carboneau v. Peterson, 95 P. 2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d.

183, 288 P. 2d. 12 289 P. 2d. 242 [1955]). The main distinction cited by most
opinions in common law jurisdictions is that the partnership contemplates a
general business with some degree of continuity, while the joint venture is
formed for the execution of a single transaction, and is thus of a temporary
nature. (Tufts v. Mann 116 Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v. Martin,
395 111. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]). This
observation is not entirely accurate in this jurisdiction, since under the Civil Code,
a partnership may be particular or universal, and a particular partnership may
have for its object a specific undertaking. (Art. 1783, Civil Code). It would seem
therefore that under Philippine law, a joint venture is a form of partnership and
should thus be governed by the law of partnerships. The Supreme Court has
however recognized a distinction between these two business forms, and has
held that although a corporation cannot enter into a partnership contract, it may
however engage in a joint venture with others. (At p. 12, Tuazon v. Bolanos, 95
Phil. 906 [1954]) (Campos and Lopez-Campos Comments, Notes and Selected
Cases, Corporation Code 1981)
Moreover, the usual rules as regards the construction and operations of contracts
generally apply to a contract of joint venture. (O' Hara v. Harman 14 App. Dev. (167) 43
NYS 556).
Bearing these principles in mind, the correct view would be that the resolution of the
question of whether or not the ASI Group may vote their additional equity lies in the
agreement of the parties.
Necessarily, the appellate court was correct in upholding the agreement of the parties as
regards the allocation of director seats under Section 5 (a) of the "Agreement," and the
right of each group of stockholders to cumulative voting in the process of determining
who the group's nominees would be under Section 3 (a) (1) of the "Agreement." As
pointed out by SEC, Section 5 (a) of the Agreement relates to the manner of nominating
the members of the board of directors while Section 3 (a) (1) relates to the manner of
voting for these nominees.
This is the proper interpretation of the Agreement of the parties as regards the election of
members of the board of directors.
To allow the ASI Group to vote their additional equity to help elect even a Filipino director
who would be beholden to them would obliterate their minority status as agreed upon by
the parties. As aptly stated by the appellate court:
... ASI, however, should not be allowed to interfere in the voting within the
Filipino group. Otherwise, ASI would be able to designate more than the three
directors it is allowed to designate under the Agreement, and may even be able
to get a majority of the board seats, a result which is clearly contrary to the
contractual intent of the parties.

Such a ruling will give effect to both the allocation of the board seats and the
stockholder's right to cumulative voting. Moreover, this ruling will also give due
consideration to the issue raised by the appellees on possible violation or
circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and the
nationalization requirements of the Constitution and the laws if ASI is allowed to
nominate more than three directors. (At p. 39, Rollo, 75875)
Equally important as the consideration of the contractual intent of the parties is the
consideration as regards the possible domination by the foreign investors of the
enterprise in violation of the nationalization requirements enshrined in the Constitution
and circumvention of the Anti-Dummy Act. In this regard, petitioner Salazar's position is
that the Anti-Dummy Act allows the ASI group to elect board directors in proportion to
their share in the capital of the entity. It is to be noted, however, that the same law also
limits the election of aliens as members of the board of directors in proportion to their
allowance participation of said entity. In the instant case, the foreign Group ASI was
limited to designate three directors. This is the allowable participation of the ASI Group.
Hence, in future dealings, this limitation of six to three board seats should always be
maintained as long as the joint venture agreement exists considering that in limiting 3
board seats in the 9-man board of directors there are provisions already agreed upon and
embodied in the parties' Agreement to protect the interests arising from the minority
status of the foreign investors.
With these findings, we the decisions of the SEC Hearing Officer and SEC which were
impliedly affirmed by the appellate court declaring Messrs. Wolfgang Aurbach, John Griffin,
David P Whittingham, Emesto V. Lagdameo, Baldwin young, Raul A. Boncan, Emesto V.
Lagdameo, Jr., Enrique Lagdameo, and George F. Lee as the duly elected directors of
Saniwares at the March 8,1983 annual stockholders' meeting.
On the other hand, the Lagdameo and Young Group (petitioners in G.R. No. 75951) object
to a cumulative voting during the election of the board of directors of the enterprise as
ruled by the appellate court and submits that the six (6) directors allotted the Filipino
stockholders should be selected by consensus pursuant to section 5 (a) of the Agreement
which uses the word "designate" meaning "nominate, delegate or appoint."
They also stress the possibility that the ASI Group might take control of the enterprise if
the Filipino stockholders are allowed to select their nominees separately and not as a
common slot determined by the majority of their group.
Section 5 (a) of the Agreement which uses the word designates in the allocation of board
directors should not be interpreted in isolation. This should be construed in relation to
section 3 (a) (1) of the Agreement. As we stated earlier, section 3(a) (1) relates to
the manner of voting for these nominees which is cumulative voting while section 5(a)
relates to the manner of nominating the members of the board of directors. The
petitioners in G.R. No. 75951 agreed to this procedure, hence, they cannot now impugn its
legality.

The insinuation that the ASI Group may be able to control the enterprise under the
cumulative voting procedure cannot, however, be ignored. The validity of the cumulative
voting procedure is dependent on the directors thus elected being genuine members of
the Filipino group, not voters whose interest is to increase the ASI share in the
management of Saniwares. The joint venture character of the enterprise must always be
taken into account, so long as the company exists under its original agreement.
Cumulative voting may not be used as a device to enable ASI to achieve stealthily or
indirectly what they cannot accomplish openly. There are substantial safeguards in the
Agreement which are intended to preserve the majority status of the Filipino investors as
well as to maintain the minority status of the foreign investors group as earlier discussed.
They should be maintained.
WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are DISMISSED and
the petition in G.R. No. 75951 is partly GRANTED. The amended decision of the Court of
Appeals is MODIFIED in that Messrs. Wolfgang Aurbach John Griffin, David Whittingham
Emesto V. Lagdameo, Baldwin Young, Raul A. Boncan, Ernesto R. Lagdameo, Jr., Enrique
Lagdameo, and George F. Lee are declared as the duly elected directors of Saniwares at
the March 8,1983 annual stockholders' meeting. In all other respects, the questioned
decision is AFFIRMED. Costs against the petitioners in G.R. Nos. 75975-76 and G.R. No.
75875.
SO ORDERED.

General, acting as counsel for respondent, demurs to the petition on the general ground
that it does not state facts sufficient to constitute a cause of action. While the facts are
thus admitted, and while, moreover, the pertinent provisions of law are clear and
understandable, and interpretative American jurisprudence is found in abundance, yet the
issue submitted is not lightly to be resolved. The question, flatly presented, is, whether
Act. No. 2761 of the Philippine Legislature is valid or, more directly stated, whether the
Government of the Philippine Islands, through its Legislature, can deny the registry of
vessels in its coastwise trade to corporations having alien stockholders.
FACTS.
Smith, Bell & Co., (Ltd.), is a corporation organized and existing under the laws of the
Philippine Islands. A majority of its stockholders are British subjects. It is the owner of a
motor vessel known as the Bato built for it in the Philippine Islands in 1916, of more than
fifteen tons gross The Bato was brought to Cebu in the present year for the purpose of
transporting plaintiff's merchandise between ports in the Islands. Application was made at
Cebu, the home port of the vessel, to the Collector of Customs for a certificate of
Philippine registry. The Collector refused to issue the certificate, giving as his reason that
all the stockholders of Smith, Bell & Co., Ltd., were not citizens either of the United States
or of the Philippine Islands. The instant action is the result.
LAW.
The Act of Congress of April 29, 1908, repealing the Shipping Act of April 30, 1906 but
reenacting a portion of section 3 of this Law, and still in force, provides in its section 1:
That until Congress shall have authorized the registry as vessels of the United
States of vessels owned in the Philippine Islands, the Government of the
Philippine Islands is hereby authorized to adopt, from time to time, and enforce
regulations governing the transportation of merchandise and passengers
between ports or places in the Philippine Archipelago. (35 Stat. at L., 70; Section
3912, U. S. Comp Stat. [1916]; 7 Pub. Laws, 364.)

G.R. No. 15574

September 17, 1919

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

vs.
JOAQUIN NATIVIDAD, Collector of Customs of the port of Cebu, respondent.
Ross and Lawrence for petitioner.
Attorney-General Paredes for respondent.
MALCOLM, J.:
A writ of mandamus is prayed for by Smith, Bell & Co. (Ltd.), against Joaquin Natividad,
Collector of Customs of the port of Cebu, Philippine Islands, to compel him to issue a
certificate of Philippine registry to the petitioner for its motor vessel Bato. The Attorney-

The Act of Congress of August 29, 1916, commonly known as the Jones Law, still in force,
provides in section 3, (first paragraph, first sentence), 6, 7, 8, 10, and 31, as follows.
SEC. 3. That no law shall be enacted in said Islands which shall deprive any
person of life, liberty, or property without due process of law, or deny to any
person therein the equal protection of the laws. . . .
SEC. 6. That the laws now in force in the Philippines shall continue in force and
effect, except as altered, amended, or modified herein, until altered, amended,
or repealed by the legislative authority herein provided or by Act of Congress of
the United States.

SEC. 7. That the legislative authority herein provided shall have power, when not
inconsistent with this Act, by due enactment to amend, alter modify, or repeal
any law, civil or criminal, continued in force by this Act as it may from time to
time see fit
This power shall specifically extend with the limitation herein provided as to the
tariff to all laws relating to revenue provided as to the tariff to all laws relating to
revenue and taxation in effect in the Philippines.
SEC. 8. That general legislative power, except as otherwise herein provided, is
hereby granted to the Philippine Legislature, authorized by this Act.
SEC. 10. That while this Act provides that the Philippine government shall have
the authority to enact a tariff law the trade relations between the islands and the
United States shall continue to be governed exclusively by laws of the Congress
of the United States: Provided, That tariff acts or acts amendatory to the tariff of
the Philippine Islands shall not become law until they shall receive the approval
of the President of the United States, nor shall any act of the Philippine
Legislature affecting immigration or the currency or coinage laws of the
Philippines become a law until it has been approved by the President of the
United States: Provided further, That the President shall approve or disapprove
any act mentioned in the foregoing proviso within six months from and after its
enactment and submission for his approval, and if not disapproved within such
time it shall become a law the same as if it had been specifically approved.
SEC. 31. That all laws or parts of laws applicable to the Philippines not in conflict
with any of the provisions of this Act are hereby continued in force and effect."
(39 Stat at L., 546.)
On February 23, 1918, the Philippine Legislature enacted Act No. 2761. The first section of
this law amended section 1172 of the Administrative Code to read as follows:
SEC. 1172. Certificate of Philippine register. Upon registration of a vessel of
domestic ownership, and of more than fifteen tons gross, a certificate of
Philippine register shall be issued for it. If the vessel is of domestic ownership
and of fifteen tons gross or less, the taking of the certificate of Philippine register
shall be optional with the owner.
"Domestic ownership," as used in this section, means ownership vested in some
one or more of the following classes of persons: (a) Citizens or native inhabitants
of the Philippine Islands; (b) citizens of the United States residing in the
Philippine Islands; (c) any corporation or company composed wholly of citizens of
the Philippine Islands or of the United States or of both, created under the laws of
the United States, or of any State thereof, or of thereof, or the managing agent
or master of the vessel resides in the Philippine Islands

Any vessel of more than fifteen gross tons which on February eighth, nineteen
hundred and eighteen, had a certificate of Philippine register under existing law,
shall likewise be deemed a vessel of domestic ownership so long as there shall
not be any change in the ownership thereof nor any transfer of stock of the
companies or corporations owning such vessel to person not included under the
last preceding paragraph.
Sections 2 and 3 of Act No. 2761 amended sections 1176 and 1202 of the Administrative
Code to read as follows:
SEC. 1176. Investigation into character of vessel. No application for a
certificate of Philippine register shall be approved until the collector of customs
is satisfied from an inspection of the vessel that it is engaged or destined to be
engaged in legitimate trade and that it is of domestic ownership as such
ownership is defined in section eleven hundred and seventy-two of this Code.
The collector of customs may at any time inspect a vessel or examine its owner,
master, crew, or passengers in order to ascertain whether the vessel is engaged
in legitimate trade and is entitled to have or retain the certificate of Philippine
register.
SEC. 1202. Limiting number of foreign officers and engineers on board vessels.
No Philippine vessel operating in the coastwise trade or on the high seas shall be
permitted to have on board more than one master or one mate and one engineer
who are not citizens of the United States or of the Philippine Islands, even if they
hold licenses under section one thousand one hundred and ninety-nine hereof.
No other person who is not a citizen of the United States or of the Philippine
Islands shall be an officer or a member of the crew of such vessel. Any such
vessel which fails to comply with the terms of this section shall be required to
pay an additional tonnage tax of fifty centavos per net ton per month during the
continuance of said failure.
ISSUES.
Predicated on these facts and provisions of law, the issues as above stated recur, namely,
whether Act No 2761 of the Philippine Legislature is valid in whole or in part whether
the Government of the Philippine Islands, through its Legislature, can deny the registry of
vessel in its coastwise trade to corporations having alien stockholders .
OPINION.
1. Considered from a positive standpoint, there can exist no measure of doubt as to the
power of the Philippine Legislature to enact Act No. 2761. The Act of Congress of April 29,
1908, with its specific delegation of authority to the Government of the Philippine Islands
to regulate the transportation of merchandise and passengers between ports or places
therein, the liberal construction given to the provisions of the Philippine Bill, the Act of

Congress of July 1, 1902, by the courts, and the grant by the Act of Congress of August 29,
1916, of general legislative power to the Philippine Legislature, are certainly
superabundant authority for such a law. While the Act of the local legislature may in a way
be inconsistent with the Act of Congress regulating the coasting trade of the Continental
United States, yet the general rule that only such laws of the United States have force in
the Philippines as are expressly extended thereto, and the abnegation of power by
Congress in favor of the Philippine Islands would leave no starting point for convincing
argument. As a matter of fact, counsel for petitioner does not assail legislative action from
this direction (See U. S. vs. Bull [1910], 15 Phil., 7; Sinnot vs. Davenport [1859] 22 How.,
227.)

Examples of laws held unconstitutional because of unlawful discrimination against aliens

could be cited. Generally, these decisions relate to statutes which had attempted
arbitrarily to forbid aliens to engage in ordinary kinds of business to earn their living.
(Statevs. Montgomery [1900], 94 Maine, 192, peddling but see.
Commonwealth vs. Hana [1907], 195 Mass., 262; Templar vs. Board of Examiners of
Barbers [1902], 131 Mich., 254, barbers; Yick Wo vs. Hopkins [1886], 118 U. S.,.356,
discrimination against Chinese; Truax vs. Raich [1915], 239 U. S., 33; In re Parrott [1880],
1 Fed , 481; Fraser vs. McConway & Torley Co. [1897], 82 Fed , 257; Juniata Limestone
Co. vs. Fagley [1898], 187 Penn., 193, all relating to the employment of aliens by private
corporations.)

2. It is from the negative, prohibitory standpoint that counsel argues against the
constitutionality of Act No. 2761. The first paragraph of the Philippine Bill of Rights of the
Philippine Bill, repeated again in the first paragraph of the Philippine Bill of Rights as set
forth in the Jones Law, provides "That no law shall be enacted in said Islands which shall
deprive any person of life, liberty, or property without due process of law, or deny to any
person therein the equal protection of the laws." Counsel says that Act No. 2761 denies to
Smith, Bell & Co., Ltd., the equal protection of the laws because it, in effect, prohibits the
corporation from owning vessels, and because classification of corporations based on the
citizenship of one or more of their stockholders is capricious, and that Act No. 2761
deprives the corporation of its properly without due process of law because by the
passage of the law company was automatically deprived of every beneficial attribute of
ownership in the Bato and left with the naked title to a boat it could not use .

A literal application of general principles to the facts before us would, of course, cause the
inevitable deduction that Act No. 2761 is unconstitutional by reason of its denial to a
corporation, some of whole members are foreigners, of the equal protection of the laws.
Like all beneficient propositions, deeper research discloses provisos. Examples of a denial
of rights to aliens notwithstanding the provisions of the Fourteenth Amendment could be
cited. (Tragesser vs. Gray [1890], 73 Md., 250, licenses to sell spirituous liquors denied to
persons not citizens of the United States; Commonwealth vs. Hana [1907], 195 Mass ,
262, excluding aliens from the right to peddle; Patsone vs. Commonwealth of
Pennsylvania [1914], 232 U. S. , 138, prohibiting the killing of any wild bird or animal by
any unnaturalized foreign-born resident; Ex parte Gilleti [1915], 70 Fla., 442,
discriminating in favor of citizens with reference to the taking for private use of the
common property in fish and oysters found in the public waters of the State;
Heim vs. McCall [1915], 239 U. S.,.175, and Crane vs. New York [1915], 239 U. S., 195,
limiting employment on public works by, or for, the State or a municipality to citizens of
the United States.)

The guaranties extended by the Congress of the United States to the Philippine Islands
have been used in the same sense as like provisions found in the United States
Constitution. While the "due process of law and equal protection of the laws" clause of the
Philippine Bill of Rights is couched in slightly different words than the corresponding
clause of the Fourteenth Amendment to the United States Constitution, the first should be
interpreted and given the same force and effect as the latter. (Kepner vs. U.S. [1904], 195
U. S., 100; Sierra vs. Mortiga [1907], 204 U. S.,.470; U. S. vs. Bull [1910], 15 Phil., 7.) The
meaning of the Fourteenth Amendment has been announced in classic decisions of the
United States Supreme Court. Even at the expense of restating what is so well known,
these basic principles must again be set down in order to serve as the basis of this
decision.
The guaranties of the Fourteenth Amendment and so of the first paragraph of the
Philippine Bill of Rights, are universal in their application to all person within the territorial
jurisdiction, without regard to any differences of race, color, or nationality. The word
"person" includes aliens. (Yick Wo vs. Hopkins [1886], 118 U. S., 356; Truaxvs. Raich
[1915], 239 U. S., 33.) Private corporations, likewise, are "persons" within the scope of the
guaranties in so far as their property is concerned. (Santa Clara County vs. Southern Pac.
R. R. Co. [1886], 118.U. S., 394; Pembina Mining Co. vs. Pennsylvania [1888],.125 U. S.,
181 Covington & L. Turnpike Road Co. vs. Sandford [1896], 164 U. S., 578.) Classification
with the end in view of providing diversity of treatment may be made among
corporations, but must be based upon some reasonable ground and not be a mere
arbitrary selection (Gulf, Colorado & Santa Fe Railway Co. vs. Ellis [1897],.165 U. S., 150.)

One of the exceptions to the general rule, most persistent and far reaching in influence is,
that neither the Fourteenth Amendment to the United States Constitution, broad and
comprehensive as it is, nor any other amendment, "was designed to interfere with the
power of the State, sometimes termed its `police power,' to prescribe regulations to
promote the health, peace, morals, education, and good order of the people, and legislate
so as to increase the industries of the State, develop its resources and add to its wealth
and prosperity. From the very necessities of society, legislation of a special character,
having these objects in view, must often be had in certain districts." (Barbier vs. Connolly
[1884], 113 U.S., 27; New Orleans Gas Co. vs. Lousiana Light Co. [1885], 115 U.S., 650.)
This is the same police power which the United States Supreme Court say "extends to so
dealing with the conditions which exist in the state as to bring out of them the greatest
welfare in of its people." (Bacon vs. Walker [1907], 204 U.S., 311.) For quite similar
reasons, none of the provision of the Philippine Organic Law could could have had the
effect of denying to the Government of the Philippine Islands, acting through its
Legislature, the right to exercise that most essential, insistent, and illimitable of powers,
the sovereign police power, in the promotion of the general welfare and the public
interest. (U. S. vs. Toribio [1910], 15 Phil., 85; Churchill and Tait vs. Rafferty [1915], 32
Phil., 580; Rubi vs. Provincial Board of Mindoro [1919], 39 Phil., 660.) Another notable
exception permits of the regulation or distribution of the public domain or the common
property or resources of the people of the State, so that use may be limited to its citizens.
(Ex parte Gilleti [1915], 70 Fla., 442; McCready vs. Virginia [1876], 94 U. S., 391;

Patsone vs. Commonwealth of Pennsylvania [1914], 232U. S., 138.) Still another exception
permits of the limitation of employment in the construction of public works by, or for, the
State or a municipality to citizens of the United States or of the State. (Atkin vs. Kansas
[1903],191 U. S., 207; Heim vs. McCall [1915], 239 U.S., 175; Crane vs. New York [1915],
239 U. S., 195.) Even as to classification, it is admitted that a State may classify with
reference to the evil to be prevented; the question is a practical one, dependent upon
experience. (Patsone vs. Commonwealth of Pennsylvania [1914], 232 U. S., 138.)
To justify that portion of Act no. 2761 which permits corporations or companies to obtain a
certificate of Philippine registry only on condition that they be composed wholly of citizens
of the Philippine Islands or of the United States or both, as not infringing Philippine
Organic Law, it must be done under some one of the exceptions here mentioned This
must be done, moreover, having particularly in mind what is so often of controlling effect
in this jurisdiction our local experience and our peculiar local conditions.
To recall a few facts in geography, within the confines of Philippine jurisdictional limits are
found more than three thousand islands. Literally, and absolutely, steamship lines are, for
an Insular territory thus situated, the arteries of commerce. If one be severed, the lifeblood of the nation is lost. If on the other hand these arteries are protected, then the
security of the country and the promotion of the general welfare is sustained. Time and
again, with such conditions confronting it, has the executive branch of the Government of
the Philippine Islands, always later with the sanction of the judicial branch, taken a firm
stand with reference to the presence of undesirable foreigners. The Government has thus
assumed to act for the all-sufficient and primitive reason of the benefit and protection of
its own citizens and of the self-preservation and integrity of its dominion. (In re Patterson
[1902], 1 Phil., 93; Forbes vs. Chuoco, Tiaco and Crossfield [1910], 16 Phil., 534;.228 U.S.,
549; In re McCulloch Dick [1918], 38 Phil., 41.) Boats owned by foreigners, particularly by
such solid and reputable firms as the instant claimant, might indeed traverse the waters
of the Philippines for ages without doing any particular harm. Again, some evilminded
foreigner might very easily take advantage of such lavish hospitality to chart Philippine
waters, to obtain valuable information for unfriendly foreign powers, to stir up
insurrection, or to prejudice Filipino or American commerce. Moreover, under the Spanish
portion of Philippine law, the waters within the domestic jurisdiction are deemed part of
the national domain, open to public use. (Book II, Tit. IV, Ch. I, Civil Code; Spanish Law of
Waters of August 3, 1866, arts 1, 2, 3.) Common carriers which in the Philippines as in the
United States and other countries are, as Lord Hale said, "affected with a public interest,"
can only be permitted to use these public waters as a privilege and under such conditions
as to the representatives of the people may seem wise. (See De Villata vs. Stanley [1915],
32 Phil., 541.)
In Patsone vs. Commonwealth of Pennsylvania ([1913], 232 U.S., 138), a case herein
before mentioned, Justice Holmes delivering the opinion of the United States Supreme
Court said:
This statute makes it unlawful for any unnaturalized foreign-born resident to kill
any wild bird or animal except in defense of person or property, and `to that end'
makes it unlawful for such foreign-born person to own or be possessed of a

shotgun or rifle; with a penalty of $25 and a forfeiture of the gun or guns. The
plaintiff in error was found guilty and was sentenced to pay the abovementioned
fine. The judgment was affirmed on successive appeals. (231 Pa., 46; 79 Atl.,
928.) He brings the case to this court on the ground that the statute is contrary
to the 14th Amendment and also is in contravention of the treaty between the
United States and Italy, to which latter country the plaintiff in error belongs .
Under the 14th Amendment the objection is twofold; unjustifiably depriving the
alien of property, and discrimination against such aliens as a class. But the
former really depends upon the latter, since it hardly can be disputed that if the
lawful object, the protection of wild life (Geer vs. Connecticut, 161 U.S., 519; 40
L. ed., 793; 16 Sup. Ct. Rep., 600), warrants the discrimination, the, means
adopted for making it effective also might be adopted. . . .
The discrimination undoubtedly presents a more difficult question. But we start
with reference to the evil to be prevented, and that if the class discriminated
against is or reasonably might be considered to define those from whom the evil
mainly is to be feared, it properly may be picked out. A lack of abstract symmetry
does not matter. The question is a practical one, dependent upon experience. . . .
The question therefore narrows itself to whether this court can say that the
legislature of Pennsylvania was not warranted in assuming as its premise for the
law that resident unnaturalized aliens were the peculiar source of the evil that it
desired to prevent. (Barrett vs. Indiana,. 229 U.S., 26, 29; 57 L. ed., 1050, 1052;
33 Sup. Ct. Rep., 692.)
Obviously the question, so stated, is one of local experience, on which this court
ought to be very slow to declare that the state legislature was wrong in its facts
(Adams vs. Milwaukee, 228 U.S., 572, 583; 57 L. ed., 971,.977; 33 Sup. Ct. Rep.,
610.) If we might trust popular speech in some states it was right; but it is
enough that this court has no such knowledge of local conditions as to be able to
say that it was manifestly wrong. . . .
Judgment affirmed.
We are inclined to the view that while Smith, Bell & Co. Ltd., a corporation having alien
stockholders, is entitled to the protection afforded by the due-process of law and equal
protection of the laws clause of the Philippine Bill of Rights, nevertheless, Act No. 2761 of
the Philippine Legislature, in denying to corporations such as Smith, Bell &. Co. Ltd., the
right to register vessels in the Philippines coastwise trade, does not belong to that vicious
species of class legislation which must always be condemned, but does fall within
authorized exceptions, notably, within the purview of the police power, and so does not
offend against the constitutional provision.
This opinion might well be brought to a close at this point. It occurs to us, however, that
the legislative history of the United States and the Philippine Islands, and, probably, the

legislative history of other countries, if we were to take the time to search it out, might
disclose similar attempts at restriction on the right to enter the coastwise trade, and
might thus furnish valuable aid by which to ascertain and, if possible, effectuate
legislative intention.
3. The power to regulate commerce, expressly delegated to the Congress by the
Constitution, includes the power to nationalize ships built and owned in the
United States by registries and enrollments, and the recording of the muniments
of title of American vessels. The Congress "may encourage or it may entirely
prohibit such commerce, and it may regulate in any way it may see fit between
these two extremes." (U.S.vs. Craig [1886], 28 Fed., 795; Gibbons vs. Ogden
[1824], 9 Wheat., 1; The Passenger Cases [1849], 7 How., 283.)
Acting within the purview of such power, the first Congress of the United States had not
been long convened before it enacted on September 1, 1789, "An Act for Registering and
Clearing Vessels, Regulating the Coasting Trade, and for other purposes." Section 1 of this
law provided that for any ship or vessel to obtain the benefits of American registry, it
must belong wholly to a citizen or citizens of the United States "and no other." (1 Stat. at
L., 55.) That Act was shortly after repealed, but the same idea was carried into the Acts of
Congress of December 31, 1792 and February 18, 1793. (1 Stat. at L., 287, 305.).Section 4
of the Act of 1792 provided that in order to obtain the registry of any vessel, an oath shall
be taken and subscribed by the owner, or by one of the owners thereof, before the officer
authorized to make such registry, declaring, "that there is no subject or citizen of any
foreign prince or state, directly or indirectly, by way of trust, confidence, or otherwise,
interested in such vessel, or in the profits or issues thereof." Section 32 of the Act of 1793
even went so far as to say "that if any licensed ship or vessel shall be transferred to any
person who is not at the time of such transfer a citizen of and resident within the United
States, ... every such vessel with her tackle, apparel, and furniture, and the cargo found
on board her, shall be forefeited." In case of alienation to a foreigner, Chief Justice
Marshall said that all the privileges of an American bottom were ipso
facto forfeited. (U.S. vs. Willings and Francis [1807], 4 Cranch, 48.) Even as late as 1873,
the Attorney-General of the United States was of the opinion that under the provisions of
the Act of December 31, 1792, no vessel in which a foreigner is directly or indirectly
interested can lawfully be registered as a vessel of the United. States. (14 Op. Atty.-Gen.
[U.S.], 340.)
These laws continued in force without contest, although possibly the Act of March 3, 1825,
may have affected them, until amended by the Act of May 28, 1896 (29 Stat. at L., 188)
which extended the privileges of registry from vessels wholly owned by a citizen or
citizens of the United States to corporations created under the laws of any of the states
thereof. The law, as amended, made possible the deduction that a vessel belonging to a
domestic corporation was entitled to registry or enrollment even though some stock of the
company be owned by aliens. The right of ownership of stock in a corporation was
thereafter distinct from the right to hold the property by the corporation
(Humphreys vs. McKissock [1890], 140 U.S., 304; Queen vs. Arnaud [1846], 9 Q. B., 806;
29 Op. Atty.-Gen. [U.S.],188.)

On American occupation of the Philippines, the new government found a substantive law
in operation in the Islands with a civil law history which it wisely continued in force Article
fifteen of the Spanish Code of Commerce permitted any foreigner to engage in Philippine
trade if he had legal capacity to do so under the laws of his nation. When the Philippine
Commission came to enact the Customs Administrative Act (No. 355) in 1902, it returned
to the old American policy of limiting the protection and flag of the United States to
vessels owned by citizens of the United States or by native inhabitants of the Philippine
Islands (Sec. 117.) Two years later, the same body reverted to the existing Congressional
law by permitting certification to be issued to a citizen of the United States or to a
corporation or company created under the laws of the United States or of any state
thereof or of the Philippine Islands (Act No. 1235, sec. 3.) The two administration codes
repeated the same provisions with the necessary amplification of inclusion of citizens or
native inhabitants of the Philippine Islands (Adm. Code of 1916, sec. 1345; Adm. Code of
1917, sec. 1172). And now Act No. 2761 has returned to the restrictive idea of the original
Customs Administrative Act which in turn was merely a reflection of the statutory
language of the first American Congress.
Provisions such as those in Act No. 2761, which deny to foreigners the right to a certificate
of Philippine registry, are thus found not to be as radical as a first reading would make
them appear.
Without any subterfuge, the apparent purpose of the Philippine Legislature is seen to be
to enact an anti-alien shipping act. The ultimate purpose of the Legislature is to
encourage Philippine ship-building. This, without doubt, has, likewise, been the intention
of the United States Congress in passing navigation or tariff laws on different occasions.
The object of such a law, the United States Supreme Court once said, was to encourage
American trade, navigation, and ship-building by giving American ship-owners exclusive
privileges. (Old Dominion Steamship Co. vs. Virginia [1905], 198 U.S., 299; Kent's
Commentaries, Vol. 3, p. 139.)
In the concurring opinion of Justice Johnson in Gibbons vs. Ogden ([1824], 9 Wheat., 1) is
found the following:
Licensing acts, in fact, in legislation, are universally restraining acts; as, for
example, acts licensing gaming houses, retailers of spirituous liquors, etc. The
act, in this instance, is distinctly of that character, and forms part of an extensive
system, the object of which is to encourage American shipping, and place them
on an equal footing with the shipping of other nations. Almost every commercial
nation reserves to its own subjects a monopoly of its coasting trade; and a
countervailing privilege in favor of American shipping is contemplated, in the
whole legislation of the United States on this subject. It is not to give the vessel
an American character, that the license is granted; that effect has been correctly
attributed to the act of her enrollment. But it is to confer on her American
privileges, as contradistinguished from foreign; and to preserve the. Government
from fraud by foreigners, in surreptitiously intruding themselves into the
American commercial marine, as well as frauds upon the revenue in the trade
coastwise, that this whole system is projected.

The United States Congress in assuming its grave responsibility of legislating wisely for a
new country did so imbued with a spirit of Americanism. Domestic navigation and trade, it
decreed, could only be carried on by citizens of the United States. If the representatives of
the American people acted in this patriotic manner to advance the national policy, and if
their action was accepted without protest in the courts, who can say that they did not
enact such beneficial laws under the all-pervading police power, with the prime motive of
safeguarding the country and of promoting its prosperity? Quite similarly, the Philippine
Legislature made up entirely of Filipinos, representing the mandate of the Filipino people
and the guardian of their rights, acting under practically autonomous powers, and imbued
with a strong sense of Philippinism, has desired for these Islands safety from foreign
interlopers, the use of the common property exclusively by its citizens and the citizens of
the United States, and protection for the common good of the people. Who can say,
therefore, especially can a court, that with all the facts and circumstances affecting the
Filipino people before it, the Philippine Legislature has erred in the enactment of Act No.
2761?
Surely, the members of the judiciary are not expected to live apart from active life, in
monastic seclusion amidst dusty tomes and ancient records, but, as keen spectators of
passing events and alive to the dictates of the general the national welfare, can
incline the scales of their decisions in favor of that solution which will most effectively
promote the public policy. All the presumption is in favor of the constitutionally of the law
and without good and strong reasons, courts should not attempt to nullify the action of
the Legislature. "In construing a statute enacted by the Philippine Commission
(Legislature), we deem it our duty not to give it a construction which would be repugnant
to an Act of Congress, if the language of the statute is fairly susceptible of another
construction not in conflict with the higher law." (In re Guaria [1913], 24. Phil., 36;
U.S. vs. Ten Yu [1912], 24 Phil., 1.) That is the true construction which will best carry
legislative intention into effect.
With full consciousness of the importance of the question, we nevertheless are clearly of
the opinion that the limitation of domestic ownership for purposes of obtaining a
certificate of Philippine registry in the coastwise trade to citizens of the Philippine Islands,
and to citizens of the United States, does not violate the provisions of paragraph 1 of
section 3 of the Act of Congress of August 29, 1916 No treaty right relied upon Act No.
2761 of the Philippine Legislature is held valid and constitutional .
The petition for a writ of mandamus is denied, with costs against the petitioner. So
ordered.

G.R. No. L-19550

June 19, 1967

HARRY S. STONEHILL, ROBERT P. BROOKS, JOHN J. BROOKS and KARL

BECK, petitioners,
vs.
HON. JOSE W. DIOKNO, in his capacity as SECRETARY OF JUSTICE; JOSE LUKBAN,
in his capacity as Acting Director, National Bureau of Investigation; SPECIAL
PROSECUTORS PEDRO D. CENZON, EFREN I. PLANA and MANUEL VILLAREAL, JR.
and ASST. FISCAL MANASES G. REYES; JUDGE AMADO ROAN, Municipal Court of
Manila; JUDGE ROMAN CANSINO, Municipal Court of Manila; JUDGE
HERMOGENES CALUAG, Court of First Instance of Rizal-Quezon City Branch, and
JUDGE DAMIAN JIMENEZ, Municipal Court of Quezon City, respondents.
Paredes, Poblador, Cruz and Nazareno and Meer, Meer and Meer and Juan T. David for
petitioners.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Pacifico P. de
Castro, Assistant Solicitor General Frine C. Zaballero, Solicitor Camilo D. Quiason and
Solicitor C. Padua for respondents.
CONCEPCION, C.J.:
Upon application of the officers of the government named on the margin 1 hereinafter
referred to as Respondents-Prosecutors several judges 2 hereinafter referred to as
Respondents-Judges issued, on different dates, 3 a total of 42 search warrants against
petitioners herein4 and/or the corporations of which they were officers,5 directed to the
any peace officer, to search the persons above-named and/or the premises of their
offices, warehouses and/or residences, and to seize and take possession of the following
personal property to wit:
Books of accounts, financial records, vouchers, correspondence, receipts,
ledgers, journals, portfolios, credit journals, typewriters, and other documents
and/or papers showing all business transactions including disbursements
receipts, balance sheets and profit and loss statements and Bobbins (cigarette
wrappers).
as "the subject of the offense; stolen or embezzled and proceeds or fruits of the offense,"
or "used or intended to be used as the means of committing the offense," which is
described in the applications adverted to above as "violation of Central Bank Laws, Tariff
and Customs Laws, Internal Revenue (Code) and the Revised Penal Code."
Alleging that the aforementioned search warrants are null and void, as contravening the
Constitution and the Rules of Court because, inter alia: (1) they do not describe with
particularity the documents, books and things to be seized; (2) cash money, not
mentioned in the warrants, were actually seized; (3) the warrants were issued to fish
evidence against the aforementioned petitioners in deportation cases filed against them;
(4) the searches and seizures were made in an illegal manner; and (5) the documents,
papers and cash money seized were not delivered to the courts that issued the warrants,
to be disposed of in accordance with law on March 20, 1962, said petitioners filed with

the Supreme Court this original action for certiorari, prohibition, mandamus and
injunction, and prayed that, pending final disposition of the present case, a writ of
preliminary injunction be issued restraining Respondents-Prosecutors, their agents and /or
representatives from using the effects seized as aforementioned or any copies thereof, in
the deportation cases already adverted to, and that, in due course, thereafter, decision be
rendered quashing the contested search warrants and declaring the same null and void,
and commanding the respondents, their agents or representatives to return to petitioners
herein, in accordance with Section 3, Rule 67, of the Rules of Court, the documents,
papers, things and cash moneys seized or confiscated under the search warrants in
question.
In their answer, respondents-prosecutors alleged, 6 (1) that the contested search warrants
are valid and have been issued in accordance with law; (2) that the defects of said
warrants, if any, were cured by petitioners' consent; and (3) that, in any event, the effects
seized are admissible in evidence against herein petitioners, regardless of the alleged
illegality of the aforementioned searches and seizures.
On March 22, 1962, this Court issued the writ of preliminary injunction prayed for in the
petition. However, by resolution dated June 29, 1962, the writ was partially lifted or
dissolved, insofar as the papers, documents and things seized from the offices of the
corporations above mentioned are concerned; but, the injunction was maintained as
regards the papers, documents and things found and seized in the residences of
petitioners herein.7
Thus, the documents, papers, and things seized under the alleged authority of the
warrants in question may be split into two (2) major groups, namely: (a) those found and
seized in the offices of the aforementioned corporations, and (b) those found and seized in
the residences of petitioners herein.
As regards the first group, we hold that petitioners herein have no cause of action to
assail the legality of the contested warrants and of the seizures made in pursuance
thereof, for the simple reason that said corporations have their respective personalities,
separate and distinct from the personality of herein petitioners, regardless of the amount
of shares of stock or of the interest of each of them in said corporations, and whatever the
offices they hold therein may be.8 Indeed, it is well settled that the legality of a seizure
can be contested only by the party whose rights have been impaired thereby, 9 and that
the objection to an unlawful search and seizure is purely personal and cannot be availed
of by third parties. 10 Consequently, petitioners herein may not validly object to the use in
evidence against them of the documents, papers and things seized from the offices and
premises of the corporations adverted to above, since the right to object to the admission
of said papers in evidence belongsexclusively to the corporations, to whom the seized
effects belong, and may not be invoked by the corporate officers in proceedings against
them in their individual capacity. 11 Indeed, it has been held:
. . . that the Government's action in gaining possession of papers belonging to
the corporation did not relate to nor did it affect the personal defendants. If these
papers were unlawfully seized and thereby the constitutional rights of or any one

were invaded, they were the rights of the corporation and not the rights of
the other defendants. Next, it is clear that a question of the lawfulness of a
seizure can be raised only by one whose rights have been invaded. Certainly,
such a seizure, if unlawful, could not affect the constitutional rights of
defendants whose property had not been seized or the privacy of whose homes
had not been disturbed; nor could they claim for themselves the benefits of the
Fourth Amendment, when its violation, if any, was with reference to the rights
of another. Remus vs. United States (C.C.A.)291 F. 501, 511. It follows, therefore,
that the question of the admissibility of the evidence based on an alleged
unlawful search and seizure does not extend to the personal defendants but
embraces only the corporation whose property was taken. . . . (A Guckenheimer
& Bros. Co. vs. United States, [1925] 3 F. 2d. 786, 789, Emphasis supplied.)
With respect to the documents, papers and things seized in the residences of petitioners
herein, the aforementioned resolution of June 29, 1962, lifted the writ of preliminary
injunction previously issued by this Court,12 thereby, in effect, restraining herein
Respondents-Prosecutors from using them in evidence against petitioners herein.
In connection with said documents, papers and things, two (2) important questions need
be settled, namely: (1) whether the search warrants in question, and the searches and
seizures made under the authority thereof, are valid or not, and (2) if the answer to the
preceding question is in the negative, whether said documents, papers and things may be
used in evidence against petitioners herein.1wph1.t
Petitioners maintain that the aforementioned search warrants are in the nature of general
warrants and that accordingly, the seizures effected upon the authority there of are null
and void. In this connection, the Constitution13 provides:
The right of the people to be secure in their persons, houses, papers, and effects
against unreasonable searches and seizures shall not be violated, and no
warrants shall issue but upon probable cause, to be determined by the judge
after examination under oath or affirmation of the complainant and the witnesses
he may produce, and particularly describing the place to be searched, and the
persons or things to be seized.
Two points must be stressed in connection with this constitutional mandate, namely: (1)
that no warrant shall issue but upon probable cause, to be determined by the judge in the
manner set forth in said provision; and (2) that the warrant shall particularly describe the
things to be seized.
None of these requirements has been complied with in the contested warrants. Indeed,
the same were issued upon applications stating that the natural and juridical person
therein named had committed a "violation of Central Ban Laws, Tariff and Customs Laws,
Internal Revenue (Code) and Revised Penal Code." In other words, nospecific offense had
been alleged in said applications. The averments thereof with respect to the offense
committed were abstract. As a consequence, it was impossible for the judges who issued

the warrants to have found the existence of probable cause, for the same presupposes
the introduction of competent proof that the party against whom it is sought has
performed particular acts, or committed specific omissions, violating a given provision of
our criminal laws. As a matter of fact, the applications involved in this case do not allege
any specific acts performed by herein petitioners. It would be the legal heresy, of the
highest order, to convict anybody of a "violation of Central Bank Laws, Tariff and Customs
Laws, Internal Revenue (Code) and Revised Penal Code," as alleged in the
aforementioned applications without reference to any determinate provision of said
laws or
To uphold the validity of the warrants in question would be to wipe out completely one of
the most fundamental rights guaranteed in our Constitution, for it would place the
sanctity of the domicile and the privacy of communication and correspondence at the
mercy of the whims caprice or passion of peace officers. This is precisely the evil sought
to be remedied by the constitutional provision above quoted to outlaw the so-called
general warrants. It is not difficult to imagine what would happen, in times of keen
political strife, when the party in power feels that the minority is likely to wrest it, even
though by legal means.
Such is the seriousness of the irregularities committed in connection with the disputed
search warrants, that this Court deemed it fit to amend Section 3 of Rule 122 of the
former Rules of Court 14 by providing in its counterpart, under the Revised Rules of
Court 15 that "a search warrant shall not issue but upon probable cause in connection with
one specific offense." Not satisfied with this qualification, the Court added thereto a
paragraph, directing that "no search warrant shall issue for more than one specific
offense."
The grave violation of the Constitution made in the application for the contested search
warrants was compounded by the description therein made of the effects to be searched
for and seized, to wit:
Books of accounts, financial records, vouchers, journals, correspondence,
receipts, ledgers, portfolios, credit journals, typewriters, and other documents
and/or papers showing all business transactions including disbursement receipts,
balance sheets and related profit and loss statements.
Thus, the warrants authorized the search for and seizure of records pertaining to all
business transactions of petitioners herein, regardless of whether the transactions
were legal or illegal. The warrants sanctioned the seizure of all records of the petitioners
and the aforementioned corporations, whatever their nature, thus openly contravening
the explicit command of our Bill of Rights that the things to be seized
be particularly described as well as tending to defeat its major objective: the
elimination of general warrants.
Relying upon Moncado vs. People's Court (80 Phil. 1), Respondents-Prosecutors maintain
that, even if the searches and seizures under consideration were unconstitutional, the

documents, papers and things thus seized are admissible in evidence against petitioners
herein. Upon mature deliberation, however, we are unanimously of the opinion that the
position taken in the Moncado case must be abandoned. Said position was in line with the
American common law rule, that the criminal should not be allowed to go free merely
"because the constable has blundered," 16 upon the theory that the constitutional
prohibition against unreasonable searches and seizures is protected by means other than
the exclusion of evidence unlawfully obtained, 17 such as the common-law action for
damages against the searching officer, against the party who procured the issuance of the
search warrant and against those assisting in the execution of an illegal search, their
criminal punishment, resistance, without liability to an unlawful seizure, and such other
legal remedies as may be provided by other laws.
However, most common law jurisdictions have already given up this approach and
eventually adopted the exclusionary rule, realizing that this is the only practical means of
enforcing the constitutional injunction against unreasonable searches and seizures. In the
language of Judge Learned Hand:
As we understand it, the reason for the exclusion of evidence competent as such,
which has been unlawfully acquired, is that exclusion is the only practical way of
enforcing the constitutional privilege. In earlier times the action of trespass
against the offending official may have been protection enough; but that is true
no longer. Only in case the prosecution which itself controls the seizing officials,
knows that it cannot profit by their wrong will that wrong be repressed.18
In fact, over thirty (30) years before, the Federal Supreme Court had already declared:
If letters and private documents can thus be seized and held and used in
evidence against a citizen accused of an offense, the protection of the 4th
Amendment, declaring his rights to be secure against such searches and
seizures, is of no value, and, so far as those thus placed are concerned, might as
well be stricken from the Constitution. The efforts of the courts and their officials
to bring the guilty to punishment, praiseworthy as they are, are not to be aided
by the sacrifice of those great principles established by years of endeavor and
suffering which have resulted in their embodiment in the fundamental law of the
land.19
This view was, not only reiterated, but, also, broadened in subsequent decisions on the
same Federal Court. 20After reviewing previous decisions thereon, said Court held, in Mapp
vs. Ohio (supra.):
. . . Today we once again examine the Wolf's constitutional documentation of the
right of privacy free from unreasonable state intrusion, and after its dozen years
on our books, are led by it to close the only courtroom door remaining open to
evidence secured by official lawlessness in flagrant abuse of that basic right,
reserved to all persons as a specific guarantee against that very same unlawful

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

Indeed, the non-exclusionary rule is contrary, not only to the letter, but also, to the spirit
of the constitutional injunction against unreasonable searches and seizures. To be sure, if
the applicant for a search warrant has competent evidence to establish probable cause of
the commission of a given crime by the party against whom the warrant is intended, then
there is no reason why the applicant should not comply with the requirements of the
fundamental law. Upon the other hand, if he has no such competent evidence, then it
is not possible for the Judge to find that there is probable cause, and, hence, no
justification for the issuance of the warrant. The only possible explanation (not
justification) for its issuance is the necessity of fishing evidence of the commission of a
crime. But, then, this fishing expedition is indicative of the absence of evidence to
establish a probable cause.
Moreover, the theory that the criminal prosecution of those who secure an illegal search
warrant and/or make unreasonable searches or seizures would suffice to protect the
constitutional guarantee under consideration, overlooks the fact that violations thereof
are, in general, committed By agents of the party in power, for, certainly, those belonging
to the minority could not possibly abuse a power they do not have. Regardless of the
handicap under which the minority usually but, understandably finds itself in
prosecuting agents of the majority, one must not lose sight of the fact that the
psychological and moral effect of the possibility 21 of securing their conviction, is watered
down by the pardoning power of the party for whose benefit the illegality had been
committed.
In their Motion for Reconsideration and Amendment of the Resolution of this Court dated
June 29, 1962, petitioners allege that Rooms Nos. 81 and 91 of Carmen Apartments,
House No. 2008, Dewey Boulevard, House No. 1436, Colorado Street, and Room No. 304
of the Army-Navy Club, should be included among the premises considered in said
Resolution as residences of herein petitioners, Harry S. Stonehill, Robert P. Brook, John J.
Brooks and Karl Beck, respectively, and that, furthermore, the records, papers and other
effects seized in the offices of the corporations above referred to include personal
belongings of said petitioners and other effects under their exclusive possession and
control, for the exclusion of which they have a standing under the latest rulings of the
federal courts of federal courts of the United States. 22
We note, however, that petitioners' theory, regarding their alleged possession of and
control over the aforementioned records, papers and effects, and the alleged "personal"
nature thereof, has Been Advanced, notin their petition or amended petition herein, but in
the Motion for Reconsideration and Amendment of the Resolution of June 29, 1962. In
other words, said theory would appear to be readjustment of that followed in said
petitions, to suit the approach intimated in the Resolution sought to be reconsidered and
amended. Then, too, some of the affidavits or copies of alleged affidavits attached to said
motion for reconsideration, or submitted in support thereof, contain either inconsistent
allegations, or allegations inconsistent with the theory now advanced by petitioners
herein.
Upon the other hand, we are not satisfied that the allegations of said petitions said motion
for reconsideration, and the contents of the aforementioned affidavits and other papers

submitted in support of said motion, have sufficiently established the facts or conditions
contemplated in the cases relied upon by the petitioners; to warrant application of the
views therein expressed, should we agree thereto. At any rate, we do not deem it
necessary to express our opinion thereon, it being best to leave the matter open for
determination in appropriate cases in the future.

alleged by petitioners to have been made on the basis of the said documents, papers and
effects, and to order the return of the latter to petitioners. We gave due course to the
petition but did not issue the writ of preliminary injunction prayed for therein.

We hold, therefore, that the doctrine adopted in the Moncado case must be, as it is
hereby, abandoned; that the warrants for the search of three (3) residences of herein
petitioners, as specified in the Resolution of June 29, 1962, are null and void; that the
searches and seizures therein made are illegal; that the writ of preliminary injunction
heretofore issued, in connection with the documents, papers and other effects thus seized
in said residences of herein petitioners is hereby made permanent; that the writs prayed
for are granted, insofar as the documents, papers and other effects so seized in the
aforementioned residences are concerned; that the aforementioned motion for
Reconsideration and Amendment should be, as it is hereby, denied; and that the petition
herein is dismissed and the writs prayed for denied, as regards the documents, papers
and other effects seized in the twenty-nine (29) places, offices and other premises
enumerated in the same Resolution, without special pronouncement as to costs.

On February 24, 1970, respondent Misael P. Vera, Commissioner of Internal Revenue,

wrote a letter addressed to respondent Judge Vivencio M. Ruiz requesting the issuance of
a search warrant against petitioners for violation of Section 46(a) of the National Internal
Revenue Code, in relation to all other pertinent provisions thereof, particularly Sections
53, 72, 73, 208 and 209, and authorizing Revenue Examiner Rodolfo de Leon, one of
herein respondents, to make and file the application for search warrant which was
attached to the letter.

It is so ordered.

The pertinent facts of this case, as gathered from record, are as follows:chanrob1es virtual
1aw library

In the afternoon of the following day, February 25, 1970, respondent De Leon and his
witness, respondent Arturo Logronio, went to the Court of First Instance of Rizal. They
brought with them the following papers: respondent Veras aforesaid letter-request; an
application for search warrant already filled up but still unsigned by respondent De Leon;
an affidavit of respondent Logronio subscribed before respondent De Leon; a deposition in
printed form of respondent Logronio already accomplished and signed by him but not yet
subscribed; and a search warrant already accomplished but still unsigned by respondent
Judge.
At that time respondent Judge was hearing a certain case; so, by means of a note, he
instructed his Deputy Clerk of Court to take the depositions of respondents De Leon and
Logronio. After the session had adjourned, respondent Judge was informed that the
depositions had already been taken. The stenographer, upon request of respondent Judge,
read to him her stenographic notes; and thereafter, respondent Judge asked respondent
Logronio to take the oath and warned him that if his deposition was found to be false and
without legal basis, he could be charged for perjury. Respondent Judge signed respondent
de Leons application for search warrant and respondent Logronios deposition, Search
Warrant No. 2-M-70 was then sign by respondent Judge and accordingly issued.

[G.R. No. L-32409. February 27, 1971.]

BACHE & CO. (PHIL.), INC. and FREDERICK E. SEGGERMAN, Petitioners, v. HON.
JUDGE VIVENCIO M. RUIZ, MISAEL P. VERA, in his capacity as Commissioner of
Internal Revenue, ARTURO LOGRONIO, RODOLFO DE LEON, GAVINO VELASQUEZ,
MIMIR DELLOSA, NICANOR ALCORDO, JOHN DOE, JOHN DOE, JOHN DOE, and
JOHN DOE, Respondents.
VILLAMOR, J.:
This is an original action of certiorari, prohibition and mandamus, with prayer for a writ of
preliminary mandatory and prohibitory injunction. In their petition Bache & Co. (Phil.), Inc.,
a corporation duly organized and existing under the laws of the Philippines, and its
President, Frederick E. Seggerman, pray this Court to declare null and void Search Warrant
No. 2-M-70 issued by respondent Judge on February 25, 1970; to order respondents to
desist from enforcing the same and/or keeping the documents, papers and effects seized
by virtue thereof, as well as from enforcing the tax assessments on petitioner corporation

Three days later, or on February 28, 1970, which was a Saturday, the BIR agents served
the search warrant petitioners at the offices of petitioner corporation on Ayala Avenue,
Makati, Rizal. Petitioners lawyers protested the search on the ground that no formal
complaint or transcript of testimony was attached to the warrant. The agents nevertheless
proceeded with their search which yielded six boxes of documents.
On March 3, 1970, petitioners filed a petition with the Court of First Instance of Rizal
praying that the search warrant be quashed, dissolved or recalled, that preliminary
prohibitory and mandatory writs of injunction be issued, that the search warrant be
declared null and void, and that the respondents be ordered to pay petitioners, jointly and
severally, damages and attorneys fees. On March 18, 1970, the respondents, thru the
Solicitor General, filed an answer to the petition. After hearing, the court, presided over by
respondent Judge, issued on July 29, 1970, an order dismissing the petition for dissolution
of the search warrant. In the meantime, or on April 16, 1970, the Bureau of Internal
Revenue made tax assessments on petitioner corporation in the total sum of
P2,594,729.97, partly, if not entirely, based on the documents thus seized. Petitioners
came to this Court.
The petition should be granted for the following reasons:chanrob1es virtual 1aw library
1. Respondent Judge failed to personally examine the complainant and his witness.

The pertinent provisions of the Constitution of the Philippines and of the Revised Rules of
Court are:jgc:chanrobles.com.ph
"(3)
The right of the people to be secure in their persons, houses, papers and effects
against unreasonable searches and seizures shall not be violated, and no warrants shall
issue but upon probable cause, to be determined by the judge after examination under
oath or affirmation of the complainant and the witnesses he may produce, and particularly
describing the place to be searched, and the persons or things to be seized." (Art. III, Sec.
1, Constitution.)
"SEC. 3. Requisites for issuing search warrant. A search warrant shall not issue but
upon probable cause in connection with one specific offense to be determined by the
judge or justice of the peace after examination under oath or affirmation of the
complainant and the witnesses he may produce, and particularly describing the place to
be searched and the persons or things to be seized.
"No search warrant shall issue for more than one specific offense.
"SEC. 4. Examination of the applicant. The judge or justice of the peace must, before
issuing the warrant, personally examine on oath or affirmation the complainant and any
witnesses he may produce and take their depositions in writing, and attach them to the
record, in addition to any affidavits presented to him." (Rule 126, Revised Rules of Court.)
The examination of the complainant and the witnesses he may produce, required by Art.
III, Sec. 1, par. 3, of the Constitution, and by Secs. 3 and 4, Rule 126 of the Revised Rules
of Court, should be conducted by the judge himself and not by others. The phrase "which
shall be determined by the judge after examination under oath or affirmation of the
complainant and the witnesses he may produce," appearing in the said constitutional
provision, was introduced by Delegate Francisco as an amendment to the draft submitted
by the Sub-Committee of Seven. The following discussion in the Constitutional Convention
(Laurel, Proceedings of the Philippine Constitutional Convention, Vol. III, pp. 755-757) is
enlightening:jgc:chanrobles.com.ph
"SR. ORENSE. Vamos a dejar compaero los piropos y vamos al grano.
En los casos de una necesidad de actuar inmediatamente para que no se frusten los fines
de la justicia mediante el registro inmediato y la incautacion del cuerpo del delito, no cree
Su Seoria que causaria cierta demora el procedimiento apuntado en su enmienda en tal
forma que podria frustrar los fines de la justicia o si Su Seoria encuentra un remedio para
esto casos con el fin de compaginar los fines de la justicia con los derechos del individuo
en su persona, bienes etcetera, etcetera.
"SR. FRANCISCO. No puedo ver en la practica el caso hipottico que Su Seoria pregunta
por la siguiente razon: el que solicita un mandamiento de registro tiene que hacerlo por
escrito y ese escrito no aparecer en la Mesa del Juez sin que alguien vaya el juez a
presentar ese escrito o peticion de sucuestro. Esa persona que presenta el registro puede
ser el mismo denunciante o alguna persona que solicita dicho mandamiento de registro.
Ahora toda la enmienda en esos casos consiste en que haya peticion de registro y el juez
no se atendra solamente a sea peticion sino que el juez examiner a ese denunciante y si
tiene testigos tambin examiner a los testigos.
"SR. ORENSE. No cree Su Seoria que el tomar le declaracion de ese denunciante por
escrito siempre requeriria algun tiempo?.

"SR. FRANCISCO. Seria cuestio de un par de horas, pero por otro lado minimizamos en
todo lo posible las vejaciones injustas con la expedicion arbitraria de los mandamientos
de registro. Creo que entre dos males debemos escoger. el menor.
x

"MR. LAUREL. . . . The reason why we are in favor of this amendment is because we are
incorporating in our constitution something of a fundamental character. Now, before a
judge could issue a search warrant, he must be under the obligation to examine
personally under oath the complainant and if he has any witness, the witnesses that he
may produce . . ."cralaw virtua1aw library
The implementing rule in the Revised Rules of Court, Sec. 4, Rule 126, is more emphatic
and candid, for it requires the judge, before issuing a search warrant, to "personally
examine on oath or affirmation the complainant and any witnesses he may
produce . . ."cralaw virtua1aw library
Personal examination by the judge of the complainant and his witnesses is necessary to
enable him to determine the existence or non-existence of a probable cause, pursuant to
Art. III, Sec. 1, par. 3, of the Constitution, and Sec. 3, Rule 126 of the Revised Rules of
Court, both of which prohibit the issuance of warrants except "upon probable cause." The
determination of whether or not a probable cause exists calls for the exercise of judgment
after a judicial appraisal of facts and should not be allowed to be delegated in the absence
of any rule to the contrary.
In the case at bar, no personal examination at all was conducted by respondent Judge of
the complainant (respondent De Leon) and his witness (respondent Logronio). While it is
true that the complainants application for search warrant and the witness printed-form
deposition were subscribed and sworn to before respondent Judge, the latter did not ask
either of the two any question the answer to which could possibly be the basis for
determining whether or not there was probable cause against herein petitioners. Indeed,
the participants seem to have attached so little significance to the matter that notes of
the proceedings before respondent Judge were not even taken. At this juncture it may be
well to recall the salient facts. The transcript of stenographic notes (pp. 61-76, April 1,
1970, Annex J-2 of the Petition) taken at the hearing of this case in the court below shows
that per instruction of respondent Judge, Mr. Eleodoro V. Gonzales, Special Deputy Clerk of
Court, took the depositions of the complainant and his witness, and that stenographic
notes thereof were taken by Mrs. Gaspar. At that time respondent Judge was at the sala
hearing a case. After respondent Judge was through with the hearing, Deputy Clerk
Gonzales, stenographer Gaspar, complainant De Leon and witness Logronio went to
respondent Judges chamber and informed the Judge that they had finished the
depositions. Respondent Judge then requested the stenographer to read to him her
stenographic
notes.
Special
Deputy
Clerk
Gonzales
testified
as
follows:jgc:chanrobles.com.ph
"A
And after finishing reading the stenographic notes, the Honorable Judge
requested or instructed them, requested Mr. Logronio to raise his hand and warned him if
his deposition will be found to be false and without legal basis, he can be charged
criminally for perjury. The Honorable Court told Mr. Logronio whether he affirms the facts
contained in his deposition and the affidavit executed before Mr. Rodolfo de Leon.
"Q

And thereafter?

"A

And thereafter, he signed the deposition of Mr. Logronio.

"Q

Who is this he?

"A

The Honorable Judge.

"Q

The deposition or the affidavit?

"A

The affidavit, Your Honor."cralaw virtua1aw library

Thereafter, respondent Judge signed the search warrant.

The participation of respondent Judge in the proceedings which led to the issuance of
Search Warrant No. 2-M-70 was thus limited to listening to the stenographers readings of
her notes, to a few words of warning against the commission of perjury, and to
administering the oath to the complainant and his witness. This cannot be consider a
personal examination. If there was an examination at all of the complainant and his
witness, it was the one conducted by the Deputy Clerk of Court. But, as stated, the
Constitution and the rules require a personal examination by the judge. It was precisely on
account of the intention of the delegates to the Constitutional Convention to make it a
duty of the issuing judge to personally examine the complainant and his witnesses that
the question of how much time would be consumed by the judge in examining them came
up before the Convention, as can be seen from the record of the proceedings quoted
above. The reading of the stenographic notes to respondent Judge did not constitute
sufficient compliance with the constitutional mandate and the rule; for by that manner
respondent Judge did not have the opportunity to observe the demeanor of the
complainant and his witness, and to propound initial and follow-up questions which the
judicial mind, on account of its training, was in the best position to conceive. These were
important in arriving at a sound inference on the all-important question of whether or not
there was probable cause.
2. The search warrant was issued for more than one specific offense.
Search Warrant No. 2-M-70 was issued for" [v]iolation of Sec. 46(a) of the National Internal
Revenue Code in relation to all other pertinent provisions thereof particularly Secs. 53, 72,
73, 208 and 209." The question is: Was the said search warrant issued "in connection with
one specific offense," as required by Sec. 3, Rule 126?
To arrive at the correct answer it is essential to examine closely the provisions of the Tax
Code referred to above. Thus we find the following:chanrob1es virtual 1aw library
Sec. 46(a) requires the filing of income tax returns by corporations.
Sec. 53 requires the withholding of income taxes at source.
Sec. 72 imposes surcharges for failure to render income tax returns and for rendering
false and fraudulent returns.
Sec. 73 provides the penalty for failure to pay the income tax, to make a return or to
supply the information required under the Tax Code.
Sec. 208 penalizes" [a]ny person who distills, rectifies, repacks, compounds, or
manufactures any article subject to a specific tax, without having paid the privilege tax
therefore, or who aids or abets in the conduct of illicit distilling, rectifying, compounding,
or illicit manufacture of any article subject to specific tax . . .," and provides that in the

case of a corporation, partnership, or association, the official and/or employee who caused
the violation shall be responsible.
Sec. 209 penalizes the failure to make a return of receipts, sales, business, or gross value
of output removed, or to pay the tax due thereon.
The search warrant in question was issued for at least four distinct offenses under the Tax
Code. The first is the violation of Sec. 46(a), Sec. 72 and Sec. 73 (the filing of income tax
returns), which are interrelated. The second is the violation of Sec. 53 (withholding of
income taxes at source). The third is the violation of Sec. 208 (unlawful pursuit of business
or occupation); and the fourth is the violation of Sec. 209 (failure to make a return of
receipts, sales, business or gross value of output actually removed or to pay the tax due
thereon). Even in their classification the six above-mentioned provisions are embraced in
two different titles: Secs. 46(a), 53, 72 and 73 are under Title II (Income Tax); while Secs.
208 and 209 are under Title V (Privilege Tax on Business and Occupation).
Respondents argue that Stonehill, Et. Al. v. Diokno, Et Al., L-19550, June 19, 1967 (20
SCRA 383), is not applicable, because there the search warrants were issued for "violation
of Central Bank Laws, Internal Revenue (Code) and Revised Penal Code;" whereas, here
Search Warrant No 2-M-70 was issued for violation of only one code, i.e., the National
Internal Revenue Code. The distinction more apparent than real, because it was precisely
on account of the Stonehill incident, which occurred sometime before the present Rules of
Court took effect on January 1, 1964, that this Court amended the former rule by inserting
therein the phrase "in connection with one specific offense," and adding the sentence "No
search warrant shall issue for more than one specific offense," in what is now Sec. 3, Rule
126. Thus we said in Stonehill:jgc:chanrobles.com.ph
"Such is the seriousness of the irregularities committed in connection with the disputed
search warrants, that this Court deemed it fit to amend Section 3 of Rule 122 of the
former Rules of Court that a search warrant shall not issue but upon probable cause in
connection with one specific offense. Not satisfied with this qualification, the Court added
thereto a paragraph, directing that no search warrant shall issue for more than one
specific offense."
3. The search warrant does not particularly describe the things to be seized.
The documents, papers and effects sought to be seized are described in Search Warrant
No. 2-M-70 in this manner:jgc:chanrobles.com.ph
"Unregistered and private books of accounts (ledgers, journals, columnars, receipts and
disbursements books, customers ledgers); receipts for payments received; certificates of
stocks and securities; contracts, promissory notes and deeds of sale; telex and coded
messages; business communications, accounting and business records; checks and check
stubs; records of bank deposits and withdrawals; and records of foreign remittances,
covering the years 1966 to 1970."cralaw virtua1aw library
The description does not meet the requirement in Art III, Sec. 1, of the Constitution, and of
Sec. 3, Rule 126 of the Revised Rules of Court, that the warrant should particularly
describe the things to be seized.
In Stonehill, this Court,
said:jgc:chanrobles.com.ph

speaking

thru

Mr.

Chief

Justice

Roberto

Concepcion,

"The grave violation of the Constitution made in the application for the contested search
warrants was compounded by the description therein made of the effects to be searched
for and seized, to wit:chanrob1es virtual 1aw library
Books of accounts, financial records, vouchers, journals, correspondence, receipts,
ledgers, portfolios, credit journals, typewriters, and other documents and/or paper
showing all business transactions including disbursement receipts, balance sheets and
related profit and loss statements.
"Thus, the warrants authorized the search for and seizure of records pertaining to all
business transactions of petitioners herein, regardless of whether the transactions were
legal or illegal. The warrants sanctioned the seizure of all records of the petitioners and
the aforementioned corporations, whatever their nature, thus openly contravening the
explicit command of our Bill of Rights that the things to be seized be particularly
described as well as tending to defeat its major objective: the elimination of general
warrants."cralaw virtua1aw library
While the term "all business transactions" does not appear in Search Warrant No. 2-M-70,
the said warrant nevertheless tends to defeat the major objective of the Bill of Rights, i.e.,
the elimination of general warrants, for the language used therein is so all-embracing as
to include all conceivable records of petitioner corporation, which, if seized, could possibly
render its business inoperative.
In Uy Kheytin, Et. Al. v. Villareal, etc., Et Al., 42 Phil. 886, 896, this Court had occasion to
explain the purpose of the requirement that the warrant should particularly describe the
place to be searched and the things to be seized, to wit:jgc:chanrobles.com.ph
". . . Both the Jones Law (sec. 3) and General Orders No. 58 (sec. 97) specifically require
that a search warrant should particularly describe the place to be searched and the things
to be seized. The evident purpose and intent of this requirement is to limit the things to
be seized to those, and only those, particularly described in the search warrant to leave
the officers of the law with no discretion regarding what articles they shall seize, to the
end that unreasonable searches and seizures may not be made, that abuses may not
be committed. That this is the correct interpretation of this constitutional provision is
borne out by American authorities."cralaw virtua1aw library
The purpose as thus explained could, surely and effectively, be defeated under the search
warrant issued in this case.
A search warrant may be said to particularly describe the things to be seized when the
description therein is as specific as the circumstances will ordinarily allow (People v.
Rubio; 57 Phil. 384); or when the description expresses a conclusion of fact not of law
by which the warrant officer may be guided in making the search and seizure (idem.,
dissent of Abad Santos, J.,); or when the things described are limited to those which bear
direct relation to the offense for which the warrant is being issued (Sec. 2, Rule 126,
Revised Rules of Court). The herein search warrant does not conform to any of the
foregoing tests. If the articles desired to be seized have any direct relation to an offense
committed, the applicant must necessarily have some evidence, other than those articles,
to prove the said offense; and the articles subject of search and seizure should come in
handy merely to strengthen such evidence. In this event, the description contained in the
herein disputed warrant should have mentioned, at least, the dates, amounts, persons,
and other pertinent data regarding the receipts of payments, certificates of stocks and
securities, contracts, promissory notes, deeds of sale, messages and communications,
checks, bank deposits and withdrawals, records of foreign remittances, among others,
enumerated in the warrant.

Respondents contend that certiorari does not lie because petitioners failed to file a motion
for reconsideration of respondent Judges order of July 29, 1970. The contention is without
merit. In the first place, when the questions raised before this Court are the same as those
which were squarely raised in and passed upon by the court below, the filing of a motion
for reconsideration in said court before certiorari can be instituted in this Court is no
longer a prerequisite. (Pajo, etc., Et. Al. v. Ago, Et Al., 108 Phil., 905). In the second place,
the rule requiring the filing of a motion for reconsideration before an application for a writ
of certiorari can be entertained was never intended to be applied without considering the
circumstances. (Matutina v. Buslon, Et Al., 109 Phil., 140.) In the case at bar time is of the
essence in view of the tax assessments sought to be enforced by respondent officers of
the Bureau of Internal Revenue against petitioner corporation, On account of which
immediate and more direct action becomes necessary. (Matute v. Court of Appeals, Et Al.,
26 SCRA 768.) Lastly, the rule does not apply where, as in this case, the deprivation of
petitioners fundamental right to due process taints the proceeding against them in the
court below not only with irregularity but also with nullity. (Matute v. Court of Appeals, Et
Al., supra.)
It is next contended by respondents that a corporation is not entitled to protection against
unreasonable search and seizures. Again, we find no merit in the contention.
"Although, for the reasons above stated, we are of the opinion that an officer of a
corporation which is charged with a violation of a statute of the state of its creation, or of
an act of Congress passed in the exercise of its constitutional powers, cannot refuse to
produce the books and papers of such corporation, we do not wish to be understood as
holding that a corporation is not entitled to immunity, under the 4th Amendment, against
unreasonable searches and seizures. A corporation is, after all, but an association of
individuals under an assumed name and with a distinct legal entity. In organizing itself as
a collective body it waives no constitutional immunities appropriate to such body. Its
property cannot be taken without compensation. It can only be proceeded against by due
process of law, and is protected, under the 14th Amendment, against unlawful
discrimination . . ." (Hale v. Henkel, 201 U.S. 43, 50 L. ed. 652.)
"In Linn v. United States, 163 C.C.A. 470, 251 Fed. 476, 480, it was thought that a different
rule applied to a corporation, the ground that it was not privileged from producing its
books and papers. But the rights of a corporation against unlawful search and seizure are
to be protected even if the same result might have been achieved in a lawful way."
(Silverthorne Lumber Company, Et. Al. v. United States of America, 251 U.S. 385, 64 L. ed.
319.)
In Stonehill, Et. Al. v. Diokno, Et Al., supra, this Court impliedly recognized the right of a
corporation
to
object
against
unreasonable
searches
and
seizures,
thus:jgc:chanrobles.com.ph
"As regards the first group, we hold that petitioners herein have no cause of action to
assail the legality of the contested warrants and of the seizures made in pursuance
thereof, for the simple reason that said corporations have their respective personalities,
separate and distinct from the personality of herein petitioners, regardless of the amount
of shares of stock or the interest of each of them in said corporations, whatever, the
offices they hold therein may be. Indeed, it is well settled that the legality of a seizure can
be contested only by the party whose rights have been impaired thereby, and that the
objection to an unlawful search and seizure is purely personal and cannot be availed of by
third parties. Consequently, petitioners herein may not validly object to the use in
evidence against them of the documents, papers and things seized from the offices and
premises of the corporations adverted to above, since the right to object to the admission

of said papers in evidence belongs exclusively to the corporations, to whom the seized
effects belong, and may not be invoked by the corporate officers in proceedings against
them in their individual capacity . . ."cralaw virtua1aw library
In the Stonehill case only the officers of the various corporations in whose offices
documents, papers and effects were searched and seized were the petitioners. In the case
at bar, the corporation to whom the seized documents belong, and whose rights have
thereby been impaired, is itself a petitioner. On that score, petitioner corporation here
stands on a different footing from the corporations in Stonehill.
The tax assessments referred to earlier in this opinion were, if not entirely as claimed
by petitioners at least partly as in effect admitted by respondents based on the
documents seized by virtue of Search Warrant No. 2-M-70. Furthermore, the fact that the
assessments were made some one and one-half months after the search and seizure on
February 25, 1970, is a strong indication that the documents thus seized served as basis
for the assessments. Those assessments should therefore not be enforced.
PREMISES CONSIDERED, the petition is granted. Accordingly, Search Warrant No. 2-M-70
issued by respondent Judge is declared null and void; respondents are permanently
enjoined from enforcing the said search warrant; the documents, papers and effects
seized thereunder are ordered to be returned to petitioners; and respondent officials the
Bureau of Internal Revenue and their representatives are permanently enjoined from
enforcing the assessments mentioned in Annex "G" of the present petition, as well as
other assessments based on the documents, papers and effects seized under the search
warrant herein nullified, and from using the same against petitioners in any criminal or
other proceeding. No pronouncement as to costs.

G.R. No. 75885 May 27, 1987

BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO), petitioner,
vs.
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, CHAIRMAN JOVITO
SALONGA, COMMISSIONER MARY CONCEPCION BAUTISTA, COMMISSIONER
RAMON DIAZ, COMMISSIONER RAUL R. DAZA, COMMISSIONER QUINTIN S.
DOROMAL, CAPT. JORGE B. SIACUNCO, et al., respondents.
NARVASA, J.:
Challenged in this special civil action of certiorari and prohibition by a private corporation
known as the Bataan Shipyard and Engineering Co., Inc. are: (1) Executive Orders
Numbered 1 and 2, promulgated by President Corazon C. Aquino on February 28, 1986
and March 12, 1986, respectively, and (2) the sequestration, takeover, and other orders
issued, and acts done, in accordance with said executive orders by the Presidential
Commission on Good Government and/or its Commissioners and agents, affecting said
corporation.
1. The Sequestration, Takeover, and Other Orders Complained of

a. The Basic Sequestration Order

The sequestration order which, in the view of the petitioner corporation, initiated all its
misery was issued on April 14, 1986 by Commissioner Mary Concepcion Bautista. It was
addressed to three of the agents of the Commission, hereafter simply referred to as PCGG.
It reads as follows:
RE: SEQUESTRATION ORDER
By virtue of the powers vested in the Presidential Commission on Good
Government, by authority of the President of the Philippines, you are
hereby directed to sequester the following companies.
1. Bataan Shipyard and Engineering Co., Inc.
(Engineering Island Shipyard and Mariveles Shipyard)
2. Baseco Quarry
3. Philippine Jai-Alai Corporation
4. Fidelity Management Co., Inc.
5. Romson Realty, Inc.
6. Trident Management Co.
7. New Trident Management
8. Bay Transport
9. And all affiliate companies of Alfredo "Bejo"
Romualdez
You are hereby ordered:
1. To implement this sequestration order with a minimum disruption of
these companies' business activities.
2. To ensure the continuity of these companies as going concerns, the
care and maintenance of these assets until such time that the Office of
the President through the Commission on Good Government should
decide otherwise.

Further, you are authorized to request for Military/Security Support from

the Military/Police authorities, and such other acts essential to the
achievement of this sequestration order. 1
b. Order for Production of Documents
On the strength of the above sequestration order, Mr. Jose M. Balde, acting for the PCGG,
addressed a letter dated April 18, 1986 to the President and other officers of petitioner
firm, reiterating an earlier request for the production of certain documents, to wit:
1. Stock Transfer Book
2. Legal documents, such as:
2.1. Articles of Incorporation
2.2. By-Laws
2.3. Minutes of the Annual Stockholders Meeting from
1973 to 1986
2.4. Minutes of the Regular and Special Meetings of
the Board of Directors from 1973 to 1986
2.5. Minutes of the Executive Committee Meetings
from 1973 to 1986
2.6. Existing contracts with
suppliers/contractors/others.
3. Yearly list of stockholders with their corresponding
share/stockholdings from 1973 to 1986 duly certified by the Corporate
Secretary.
4. Audited Financial Statements such as Balance Sheet, Profit & Loss
and others from 1973 to December 31, 1985.
5. Monthly Financial Statements for the current year up to March 31,
1986.
6. Consolidated Cash Position Reports from January to April 15, 1986.
7. Inventory listings of assets up dated up to March 31, 1986.

3. To report to the Commission on Good Government periodically.

8. Updated schedule of Accounts Receivable and Accounts Payable.

9. Complete list of depository banks for all funds with the authorized
signatories for withdrawals thereof.
10. Schedule of company investments and placements.

but afterwards, Commissioner Bautista, in representation of the PCGG, authorized another

party, A.T. Abesamis, to operate the quarry, located at Mariveles, Bataan, an agreement
to this effect having been executed by them on September 17, 1986. 7

The letter closed with the warning that if the documents were not submitted within five
days, the officers would be cited for "contempt in pursuance with Presidential Executive
Order Nos. 1 and 2."
c. Orders Re Engineer Island
(1) Termination of Contract for Security Services
A third order assailed by petitioner corporation, hereafter referred to simply as BASECO, is
that issued on April 21, 1986 by a Capt. Flordelino B. Zabala, a member of the task force
assigned to carry out the basic sequestration order. He sent a letter to BASECO's VicePresident for Finance, 3 terminating the contract for security services within the Engineer
Island compound between BASECO and "Anchor and FAIRWAYS" and "other civilian
security agencies," CAPCOM military personnel having already been assigned to the area,
(2) Change of Mode of Payment of Entry Charges
On July 15, 1986, the same Capt. Zabala issued a Memorandum addressed to "Truck
Owners and Contractors," particularly a "Mr. Buddy Ondivilla National Marine Corporation,"
advising of the amendment in part of their contracts with BASECO in the sense that the
stipulated charges for use of the BASECO road network were made payable "upon entry
and not anymore subject to monthly billing as was originally agreed upon." 4
d. Aborted Contract for Improvement of Wharf at Engineer Island
On July 9, 1986, a PCGG fiscal agent, S. Berenguer, entered into a contract in behalf of
BASECO with Deltamarine Integrated Port Services, Inc., in virtue of which the latter
undertook to introduce improvements costing approximately P210,000.00 on the BASECO
wharf at Engineer Island, allegedly then in poor condition, avowedly to "optimize its
utilization and in return maximize the revenue which would flow into the government
coffers," in consideration of Deltamarine's being granted "priority in using the improved
portion of the wharf ahead of anybody" and exemption "from the payment of any charges
for the use of wharf including the area where it may install its bagging equipments" "until
the improvement remains in a condition suitable for port operations." 5 It seems however
that this contract was never consummated. Capt. Jorge B. Siacunco, "Head- (PCGG)
BASECO Management Team," advised Deltamarine by letter dated July 30, 1986 that "the
new management is not in a position to honor the said contract" and thus "whatever
improvements * * (may be introduced) shall be deemed unauthorized * * and shall be at *
* (Deltamarine's) own risk." 6
e. Order for Operation of Sesiman Rock Quarry, Mariveles, Bataan
By Order dated June 20, 1986, Commissioner Mary Bautista first directed a PCGG agent,
Mayor Melba O. Buenaventura, "to plan and implement progress towards maximizing the
continuous operation of the BASECO Sesiman Rock Quarry * * by conventional methods;"

f. Order to Dispose of Scrap, etc.

By another Order of Commissioner Bautista, this time dated June 26, 1986, Mayor
Buenaventura was also "authorized to clean and beautify the Company's compound," and
in this connection, to dispose of or sell "metal scraps" and other materials, equipment and
machineries no longer usable, subject to specified guidelines and safeguards including
audit and verification. 8
g. The TAKEOVER Order
By letter dated July 14, 1986, Commissioner Ramon A. Diaz decreed the provisional
takeover by the PCGG of BASECO, "the Philippine Dockyard Corporation and all their
affiliated companies." 9 Diaz invoked the provisions of Section 3 (c) of Executive Order No.
1, empowering the Commission
* * To provisionally takeover in the public interest or to prevent its
disposal or dissipation, business enterprises and properties taken over
by the government of the Marcos Administration or by entities or
persons close to former President Marcos, until the transactions leading
to such acquisition by the latter can be disposed of by the appropriate
authorities.
A management team was designated to implement the order, headed by Capt. Siacunco,
and was given the following powers:
1. Conducts all aspects of operation of the subject companies;
2. Installs key officers, hires and terminates personnel as necessary;
3. Enters into contracts related to management and operation of the
companies;
4. Ensures that the assets of the companies are not dissipated and used
effectively and efficiently; revenues are duly accounted for; and
disburses funds only as may be necessary;
5. Does actions including among others, seeking of military support as
may be necessary, that will ensure compliance to this order;
6. Holds itself fully accountable to the Presidential Commission on Good
Government on all aspects related to this take-over order.
h. Termination of Services of BASECO Officers

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

1) terminating its contract for security services with Fairways & Anchor, without the
consent and against the will of the contracting parties; and amending the mode of
payment of entry fees stipulated in its Lease Contract with National Stevedoring &
Lighterage Corporation, these acts being in violation of the non-impairment clause of the
constitution; 15
2) allowing PCGG Agent Silverio Berenguer to enter into an "anomalous contract" with
Deltamarine Integrated Port Services, Inc., giving the latter free use of BASECO
premises; 16

1) declare unconstitutional and void Executive Orders Numbered 1 and 2;

3) authorizing PCGG Agent, Mayor Melba Buenaventura, to manage and operate its rock
quarry at Sesiman, Mariveles; 17

2) annul the sequestration order dated April- 14, 1986, and all other orders subsequently
issued and acts done on the basis thereof, inclusive of the takeover order of July 14, 1986
and the termination of the services of the BASECO executives. 11

4) authorizing the same mayor to sell or dispose of its metal scrap, equipment, machinery
and other materials; 18

a. Re Executive Orders No. 1 and 2, and the Sequestration and Takeover

Orders
While BASECO concedes that "sequestration without resorting to judicial action, might be
made within the context of Executive Orders Nos. 1 and 2 before March 25, 1986 when
the Freedom Constitution was promulgated, under the principle that the law promulgated
by the ruler under a revolutionary regime is the law of the land, it ceased to be
acceptable when the same ruler opted to promulgate the Freedom Constitution on March
25, 1986 wherein under Section I of the same, Article IV (Bill of Rights) of the 1973
Constitution was adopted providing, among others, that "No person shall be deprived of
life, liberty and property without due process of law." (Const., Art. I V, Sec. 1)." 12
It declares that its objection to the constitutionality of the Executive Orders "as well as the
Sequestration Order * * and Takeover Order * * issued purportedly under the authority of
said Executive Orders, rests on four fundamental considerations: First, no notice and
hearing was accorded * * (it) before its properties and business were taken
over; Second, the PCGG is not a court, but a purely investigative agency and therefore not
competent to act as prosecutor and judge in the same cause; Third, there is nothing in the
issuances which envisions any proceeding, process or remedy by which petitioner may
expeditiously challenge the validity of the takeover after the same has been effected;
and Fourthly, being directed against specified persons, and in disregard of the
constitutional presumption of innocence and general rules and procedures, they
constitute a Bill of Attainder." 13
b. Re Order to Produce Documents
It argues that the order to produce corporate records from 1973 to 1986, which it has
apparently already complied with, was issued without court authority and infringed its
constitutional right against self-incrimination, and unreasonable search and seizure. 14

5) authorizing the takeover of BASECO, Philippine Dockyard Corporation, and all their
affiliated companies;
6) terminating the services of BASECO executives: President Hilario M. Ruiz; EVP Manuel S.
Mendoza; GM Moises M. Valdez; Finance Mgr. Gilberto Pasimanero; Legal Dept. Mgr. Benito
R. Cuesta I; 19
7) planning to elect its own Board of Directors;

20

8) allowing willingly or unwillingly its personnel to take, steal, carry away from petitioner's
premises at Mariveles * * rolls of cable wires, worth P600,000.00 on May 11, 1986; 21
9) allowing "indiscriminate diggings" at Engineer Island to retrieve gold bars supposed to
have been buried therein. 22
3. Doubts, Misconceptions regarding Sequestration, Freeze and Takeover Orders
Many misconceptions and much doubt about the matter of sequestration, takeover and
freeze orders have been engendered by misapprehension, or incomplete comprehension if
not indeed downright ignorance of the law governing these remedies. It is needful that
these misconceptions and doubts be dispelled so that uninformed and useless debates
about them may be avoided, and arguments tainted b sophistry or intellectual dishonesty
be quickly exposed and discarded. Towards this end, this opinion will essay an exposition
of the law on the matter. In the process many of the objections raised by BASECO will be
dealt with.
4. The Governing Law
a. Proclamation No. 3

c. Re PCGG's Exercise of Right of Ownership and Management

BASECO further contends that the PCGG had unduly interfered with its right of dominion
and management of its business affairs by

The impugned executive orders are avowedly meant to carry out the explicit command of
the Provisional Constitution, ordained by Proclamation No. 3, 23 that the President-in the
exercise of legislative power which she was authorized to continue to wield "(until a

legislature is elected and convened under a new Constitution" "shall give priority to
measures to achieve the mandate of the people," among others to (r)ecover ill-gotten
properties amassed by the leaders and supporters of the previous regime and protect the
interest of the people through orders of sequestration or freezing of assets or
accounts." 24
b. Executive Order No. 1
Executive Order No. 1 stresses the "urgent need to recover all ill-gotten wealth," and
postulates that "vast resources of the government have been amassed by former
President Ferdinand E. Marcos, his immediate family, relatives, and close associates both
here and abroad." 25 Upon these premises, the Presidential Commission on Good
Government was created, 26 "charged with the task of assisting the President in regard to
(certain specified) matters," among which was precisely* * The recovery of all in-gotten wealth accumulated by former President
Ferdinand E. Marcos, his immediate family, relatives, subordinates and
close associates, whether located in the Philippines or abroad, including
the takeover or sequestration of all business enterprises and entities
owned or controlled by them, during his administration, directly or
through nominees, by taking undue advantage of their public office
and/or using their powers, authority, influence, connections or
relationship. 27
In relation to the takeover or sequestration that it was authorized to undertake in the
fulfillment of its mission, the PCGG was granted "power and authority" to do the following
particular acts, to wit:
1. To sequester or place or cause to be placed under its control or
possession any building or office wherein any ill-gotten wealth or
properties may be found, and any records pertaining thereto, in order to
prevent their destruction, concealment or disappearance which would
frustrate or hamper the investigation or otherwise prevent the
Commission from accomplishing its task.
2. To provisionally take over in the public interest or to prevent the
disposal or dissipation, business enterprises and properties taken over
by the government of the Marcos Administration or by entities or
persons close to former President Marcos, until the transactions leading
to such acquisition by the latter can be disposed of by the appropriate
authorities.
3. To enjoin or restrain any actual or threatened commission of acts by
any person or entity that may render moot and academic, or frustrate or
otherwise make ineffectual the efforts of the Commission to carry out its
task under this order. 28
So that it might ascertain the facts germane to its objectives, it was granted power to
conduct investigations; require submission of evidence by subpoenae ad
testificandum and duces tecum; administer oaths; punish for contempt. 29 It was given

power also to promulgate such rules and regulations as may be necessary to carry out the
purposes of * * (its creation). 30
c. Executive Order No. 2
Executive Order No. 2 gives additional and more specific data and directions respecting
"the recovery of ill-gotten properties amassed by the leaders and supporters of the
previous regime." It declares that:
1) * * the Government of the Philippines is in possession of evidence
showing that there are assets and properties purportedly pertaining to
former Ferdinand E. Marcos, and/or his wife Mrs. Imelda Romualdez
Marcos, their close relatives, subordinates, business associates,
dummies, agents or nominees which had been or were acquired by
them directly or indirectly, through or as a result of the improper or
illegal use of funds or properties owned by the government of the
Philippines or any of its branches, instrumentalities, enterprises, banks
or financial institutions, or by taking undue advantage of their office,
authority, influence, connections or relationship, resulting in their unjust
enrichment and causing grave damage and prejudice to the Filipino
people and the Republic of the Philippines:" and
2) * * said assets and properties are in the form of bank accounts,
deposits, trust accounts, shares of stocks, buildings, shopping centers,
condominiums, mansions, residences, estates, and other kinds of real
and personal properties in the Philippines and in various countries of the
world." 31
Upon these premises, the President1) froze "all assets and properties in the Philippines in which former
President Marcos and/or his wife, Mrs. Imelda Romualdez Marcos, their
close relatives, subordinates, business associates, dummies, agents, or
nominees have any interest or participation;
2) prohibited former President Ferdinand Marcos and/or his wife * *, their
close relatives, subordinates, business associates, duties, agents, or
nominees from transferring, conveying, encumbering, concealing or
dissipating said assets or properties in the Philippines and abroad,
pending the outcome of appropriate proceedings in the Philippines to
determine whether any such assets or properties were acquired by them
through or as a result of improper or illegal use of or the conversion of
funds belonging to the Government of the Philippines or any of its
branches, instrumentalities, enterprises, banks or financial institutions,
or by taking undue advantage of their official position, authority,
relationship, connection or influence to unjustly enrich themselves at
the expense and to the grave damage and prejudice of the Filipino
people and the Republic of the Philippines;
3) prohibited "any person from transferring, conveying, encumbering or
otherwise depleting or concealing such assets and properties or from

assisting or taking part in their transfer, encumbrance, concealment or

dissipation under pain of such penalties as are prescribed by law;" and

unjust enrichment and causing grave damage and prejudice to the

Filipino people and the Republic of the Philippines"; 39

4) required "all persons in the Philippines holding such assets or

properties, whether located in the Philippines or abroad, in their names
as nominees, agents or trustees, to make full disclosure of the same to
the Commission on Good Government within thirty (30) days from
publication of * (the) Executive Order, * *. 32

c) that "said assets and properties are in the form of bank accounts.
deposits, trust. accounts, shares of stocks, buildings, shopping centers,
condominiums, mansions, residences, estates, and other kinds of real
and personal properties in the Philippines and in various countries of the
world;" 40 and

d. Executive Order No. 14

A third executive order is relevant: Executive Order No. 14, 33 by which the PCGG is
empowered, "with the assistance of the Office of the Solicitor General and other
government agencies, * * to file and prosecute all cases investigated by it * * as may be
warranted by its findings." 34 All such cases, whether civil or criminal, are to be filed "with
the Sandiganbayanwhich shall have exclusive and original jurisdiction
thereof." 35 Executive Order No. 14 also pertinently provides that civil suits for restitution,
reparation of damages, or indemnification for consequential damages, forfeiture
proceedings provided for under Republic Act No. 1379, or any other civil actions under the
Civil Code or other existing laws, in connection with * * (said Executive Orders Numbered
1 and 2) may be filed separately from and proceed independently of any criminal
proceedings and may be proved by a preponderance of evidence;" and that, moreover,
the "technical rules of procedure and evidence shall not be strictly applied to* * (said)civil
cases." 36
5. Contemplated Situations
The situations envisaged and sought to be governed are self-evident, these being:
1) that "(i)ll-gotten properties (were) amassed by the leaders and
supporters of the previous regime";37
a) more particularly, that ill-gotten wealth (was) accumulated by former
President Ferdinand E. Marcos, his immediate family, relatives,
subordinates and close associates, * * located in the Philippines or
abroad, * * (and) business enterprises and entities (came to be) owned
or controlled by them, during * * (the Marcos) administration, directly or
through nominees, by taking undue advantage of their public office
and/or using their powers, authority, influence, Connections or
relationship; 38
b) otherwise stated, that "there are assets and properties purportedly
pertaining to former President Ferdinand E. Marcos, and/or his wife Mrs.
Imelda Romualdez Marcos, their close relatives, subordinates, business
associates, dummies, agents or nominees which had been or were
acquired by them directly or indirectly, through or as a result of the
improper or illegal use of funds or properties owned by the Government
of the Philippines or any of its branches, instrumentalities, enterprises,
banks or financial institutions, or by taking undue advantage of their
office, authority, influence, connections or relationship, resulting in their

2) that certain "business enterprises and properties (were) taken over

by the government of the Marcos Administration or by entities or
persons close to former President Marcos. 41
6. Government's Right and Duty to Recover All Ill-gotten Wealth
There can be no debate about the validity and eminent propriety of the Government's
plan "to recover all ill-gotten wealth."
Neither can there be any debate about the proposition that assuming the above described
factual premises of the Executive Orders and Proclamation No. 3 to be true, to be
demonstrable by competent evidence, the recovery from Marcos, his family and his
dominions of the assets and properties involved, is not only a right but a duty on the part
of Government.
But however plain and valid that right and duty may be, still a balance must be sought
with the equally compelling necessity that a proper respect be accorded and adequate
protection assured, the fundamental rights of private property and free enterprise which
are deemed pillars of a free society such as ours, and to which all members of that society
may without exception lay claim.
* * Democracy, as a way of life enshrined in the Constitution, embraces
as its necessary components freedom of conscience, freedom of
expression, and freedom in the pursuit of happiness. Along with these
freedoms are included economic freedom and freedom of
enterprise within reasonable bounds and under proper control. * *
Evincing much concern for the protection of property, the Constitution
distinctly recognizes the preferred position which real estate has
occupied in law for ages. Property is bound up with every aspect of
social life in a democracy as democracy is conceived in the
Constitution. The Constitution realizes the indispensable role which
property, owned in reasonable quantities and used legitimately, plays in
the stimulation to economic effort and the formation and growth of a
solid social middle class that is said to be the bulwark of democracy and
the backbone of every progressive and happy country. 42
a. Need of Evidentiary Substantiation in Proper Suit
Consequently, the factual premises of the Executive Orders cannot simply be assumed.
They will have to be duly established by adequate proof in each case, in a proper judicial
proceeding, so that the recovery of the ill-gotten wealth may be validly and properly
adjudged and consummated; although there are some who maintain that the fact-that an

immense fortune, and "vast resources of the government have been amassed by former
President Ferdinand E. Marcos, his immediate family, relatives, and close associates both
here and abroad," and they have resorted to all sorts of clever schemes and
manipulations to disguise and hide their illicit acquisitions-is within the realm of judicial
notice, being of so extensive notoriety as to dispense with proof thereof, Be this as it may,
the requirement of evidentiary substantiation has been expressly acknowledged, and the
procedure to be followed explicitly laid down, in Executive Order No. 14.
b. Need of Provisional Measures to Collect and Conserve Assets Pending
Suits
Nor may it be gainsaid that pending the institution of the suits for the recovery of such "illgotten wealth" as the evidence at hand may reveal, there is an obvious and imperative
need for preliminary, provisional measures to prevent the concealment, disappearance,
destruction, dissipation, or loss of the assets and properties subject of the suits, or to
restrain or foil acts that may render moot and academic, or effectively hamper, delay, or
negate efforts to recover the same.
7. Provisional Remedies Prescribed by Law
To answer this need, the law has prescribed three (3) provisional remedies. These are: (1)
sequestration; (2) freeze orders; and (3) provisional takeover.
Sequestration and freezing are remedies applicable generally to unearthed instances of
"ill-gotten wealth." The remedy of "provisional takeover" is peculiar to cases where
"business enterprises and properties (were) taken over by the government of the Marcos
Administration or by entities or persons close to former President Marcos." 43
a. Sequestration
By the clear terms of the law, the power of the PCGG to sequester property claimed to be
"ill-gotten" means to place or cause to be placed under its possession or control said
property, or any building or office wherein any such property and any records pertaining
thereto may be found, including "business enterprises and entities,"-for the purpose of
preventing the destruction, concealment or dissipation of, and otherwise conserving and
preserving, the same-until it can be determined, through appropriate judicial proceedings,
whether the property was in truth will- gotten," i.e., acquired through or as a result of
improper or illegal use of or the conversion of funds belonging to the Government or any
of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking
undue advantage of official position, authority relationship, connection or influence,
resulting in unjust enrichment of the ostensible owner and grave damage and prejudice to
the State. 44 And this, too, is the sense in which the term is commonly understood in other
jurisdictions. 45
b. "Freeze Order"
A "freeze order" prohibits the person having possession or control of property alleged to
constitute "ill-gotten wealth" "from transferring, conveying, encumbering or otherwise
depleting or concealing such property, or from assisting or taking part in its transfer,
encumbrance, concealment, or dissipation." 46 In other words, it commands the possessor
to hold the property and conserve it subject to the orders and disposition of the authority

decreeing such freezing. In this sense, it is akin to a garnishment by which the possessor
or ostensible owner of property is enjoined not to deliver, transfer, or otherwise dispose of
any effects or credits in his possession or control, and thus becomes in a sense an
involuntary depositary thereof. 47
c. Provisional Takeover
In providing for the remedy of "provisional takeover," the law acknowledges the apparent
distinction between "ill gotten" "business enterprises and entities" (going concerns,
businesses in actual operation), generally, as to which the remedy of sequestration
applies, it being necessarily inferred that the remedy entails no interference, or the least
possible interference with the actual management and operations thereof; and "business
enterprises which were taken over by the government government of the Marcos
Administration or by entities or persons close to him," in particular, as to which a
"provisional takeover" is authorized, "in the public interest or to prevent disposal or
dissipation of the enterprises." 48 Such a "provisional takeover" imports something more
than sequestration or freezing, more than the placing of the business under physical
possession and control, albeit without or with the least possible interference with the
management and carrying on of the business itself. In a "provisional takeover," what is
taken into custody is not only the physical assets of the business enterprise or entity, but
the business operation as well. It is in fine the assumption of control not only over things,
but over operations or on- going activities. But, to repeat, such a "provisional takeover" is
allowed only as regards "business enterprises * * taken over by the government of the
Marcos Administration or by entities or persons close to former President Marcos."
d. No Divestment of Title Over Property Seized
It may perhaps be well at this point to stress once again the provisional, contingent
character of the remedies just described. Indeed the law plainly qualifies the remedy of
take-over by the adjective, "provisional." These remedies may be resorted to only for a
particular exigency: to prevent in the public interest the disappearance or dissipation of
property or business, and conserve it pending adjudgment in appropriate proceedings of
the primary issue of whether or not the acquisition of title or other right thereto by the
apparent owner was attended by some vitiating anomaly. None of the remedies is meant
to deprive the owner or possessor of his title or any right to the property sequestered,
frozen or taken over and vest it in the sequestering agency, the Government or other
person. This can be done only for the causes and by the processes laid down by law.
That this is the sense in which the power to sequester, freeze or provisionally take over is
to be understood and exercised, the language of the executive orders in question leaves
no doubt. Executive Order No. 1 declares that the sequestration of property the
acquisition of which is suspect shall last "until the transactions leading to such
acquisition * * can be disposed of by the appropriate authorities." 49 Executive Order No. 2
declares that the assets or properties therein mentioned shall remain frozen "pending the
outcome of appropriate proceedings in the Philippines to determine whether any such
assets or properties were acquired" by illegal means. Executive Order No. 14 makes clear
that judicial proceedings are essential for the resolution of the basic issue of whether or
not particular assets are "ill-gotten," and resultant recovery thereof by the Government is
warranted.
e. State of Seizure Not To Be Indefinitely Maintained; The Constitutional
Command

There is thus no cause for the apprehension voiced by BASECO 50 that sequestration,
freezing or provisional takeover is designed to be an end in itself, that it is the device
through which persons may be deprived of their property branded as "ill-gotten," that it is
intended to bring about a permanent, rather than a passing, transitional state of affairs.
That this is not so is quite explicitly declared by the governing rules.
Be this as it may, the 1987 Constitution should allay any lingering fears about the
duration of these provisional remedies. Section 26 of its Transitory Provisions, 51 lays down
the relevant rule in plain terms, apart from extending ratification or confirmation
(although not really necessary) to the institution by presidential fiat of the remedy of
sequestration and freeze orders:
SEC. 26. The authority to issue sequestration or freeze orders under
Proclamation No. 3 dated March 25, 1986 in relation to the recovery of
ill-gotten wealth shag remain operative for not more than eighteen
months after the ratification of this Constitution. However, in the
national interest, as certified by the President, the Congress may
extend said period.
A sequestration or freeze order shall be issued only upon showing of
a prima facie case. The order and the list of the sequestered or frozen
properties shall forthwith be registered with the proper court. For orders
issued before the ratification of this Constitution, the corresponding
judicial action or proceeding shall be filed within six months from its
ratification. For those issued after such ratification, the judicial action or
proceeding shall be commenced within six months from the issuance
thereof.
The sequestration or freeze order is deemed automatically lifted if no
judicial action or proceeding is commenced as herein provided. 52
f. Kinship to Attachment Receivership
As thus described, sequestration, freezing and provisional takeover are akin to the
provisional remedy of preliminary attachment, or receivership. 53 By attachment, a sheriff
seizes property of a defendant in a civil suit so that it may stand as security for the
satisfaction of any judgment that may be obtained, and not disposed of, or dissipated, or
lost intentionally or otherwise, pending the action. 54 By receivership, property, real or
personal, which is subject of litigation, is placed in the possession and control of a receiver
appointed by the Court, who shall conserve it pending final determination of the title or
right of possession over it. 55 All these remedies sequestration, freezing, provisional,
takeover, attachment and receivership are provisional, temporary, designed forparticular exigencies, attended by no character of permanency or finality, and always
subject to the control of the issuing court or agency.
g. Remedies, Non-Judicial
Parenthetically, that writs of sequestration or freeze or takeover orders are not issued by a
court is of no moment. The Solicitor General draws attention to the writ of distraint and
levy which since 1936 the Commissioner of Internal Revenue has been by law authorized
to issue against property of a delinquent taxpayer. 56 BASECO itself declares that it has

not manifested "a rigid insistence on sequestration as a purely judicial remedy * * (as it
feels) that the law should not be ossified to a point that makes it insensitive to change."
What it insists on, what it pronounces to be its "unyielding position, is that any change in
procedure, or the institution of a new one, should conform to due process and the other
prescriptions of the Bill of Rights of the Constitution." 57 It is, to be sure, a proposition on
which there can be no disagreement.
h. Orders May Issue Ex Parte
Like the remedy of preliminary attachment and receivership, as well as delivery of
personal property in replevinsuits, sequestration and provisional takeover writs may
issue ex parte. 58 And as in preliminary attachment, receivership, and delivery of
personality, no objection of any significance may be raised to the ex parte issuance of an
order of sequestration, freezing or takeover, given its fundamental character of
temporariness or conditionality; and taking account specially of the constitutionally
expressed "mandate of the people to recover ill-gotten properties amassed by the leaders
and supporters of the previous regime and protect the interest of the people;" 59 as well as
the obvious need to avoid alerting suspected possessors of "ill-gotten wealth" and thereby
cause that disappearance or loss of property precisely sought to be prevented, and the
fact, just as self-evident, that "any transfer, disposition, concealment or disappearance of
said assets and properties would frustrate, obstruct or hamper the efforts of the
Government" at the just recovery thereof. 60
8. Requisites for Validity
What is indispensable is that, again as in the case of attachment and receivership, there
exist a prima facie factual foundation, at least, for the sequestration, freeze or takeover
order, and adequate and fair opportunity to contest it and endeavor to cause its negation
or nullification. 61
Both are assured under the executive orders in question and the rules and regulations
promulgated by the PCGG.
a. Prima Facie Evidence as Basis for Orders
Executive Order No. 14 enjoins that there be "due regard to the requirements of fairness
and due process." 62Executive Order No. 2 declares that with respect to claims on
allegedly "ill-gotten" assets and properties, "it is the position of the new democratic
government that President Marcos * * (and other parties affected) be afforded fair
opportunity to contest these claims before appropriate Philippine authorities." 63 Section 7
of the Commission's Rules and Regulations provides that sequestration or freeze (and
takeover) orders issue upon the authority of at least two commissioners, based on
the affirmation or complaint of an interested party, or motu proprio when the Commission
has reasonable grounds to believe that the issuance thereof is warranted. 64 A similar
requirement is now found in Section 26, Art. XVIII of the 1987 Constitution, which requires
that a "sequestration or freeze order shall be issued only upon showing of a prima
facie case."65
b. Opportunity to Contest

And Sections 5 and 6 of the same Rules and Regulations lay down the procedure by which
a party may seek to set aside a writ of sequestration or freeze order, viz:
SECTION 5. Who may contend.-The person against whom a writ of
sequestration or freeze or hold order is directed may request the lifting
thereof in writing, either personally or through counsel within five (5)
days from receipt of the writ or order, or in the case of a hold order,
from date of knowledge thereof.
SECTION 6. Procedure for review of writ or order.-After due hearing or
motu proprio for good cause shown, the Commission may lift the writ or
order unconditionally or subject to such conditions as it may deem
necessary, taking into consideration the evidence and the circumstance
of the case. The resolution of the commission may be appealed by the
party concerned to the Office of the President of the Philippines within
fifteen (15) days from receipt thereof.
Parenthetically, even if the requirement for a prima facie showing of "ill- gotten wealth"
were not expressly imposed by some rule or regulation as a condition to warrant the
sequestration or freezing of property contemplated in the executive orders in question, it
would nevertheless be exigible in this jurisdiction in which the Rule of Law prevails and
official acts which are devoid of rational basis in fact or law, or are whimsical and
capricious, are condemned and struck down. 66
9. Constitutional Sanction of Remedies
If any doubt should still persist in the face of the foregoing considerations as to the
validity and propriety of sequestration, freeze and takeover orders, it should be dispelled
by the fact that these particular remedies and the authority of the PCGG to issue them
have received constitutional approbation and sanction. As already mentioned, the
Provisional or "Freedom" Constitution recognizes the power and duty of the President to
enact "measures to achieve the mandate of the people to * * * (recover ill- gotten
properties amassed by the leaders and supporters of the previous regime and protect the
interest of the people through orders of sequestration or freezing of assets or
accounts." And as also already adverted to, Section 26, Article XVIII of the 1987
Constitution67 treats of, and ratifies the "authority to issue sequestration or freeze orders
under Proclamation No. 3 dated March 25, 1986."
The institution of these provisional remedies is also premised upon the State's inherent
police power, regarded, as t lie power of promoting the public welfare by restraining and
regulating the use of liberty and property," 68 and as "the most essential, insistent and
illimitable of powers * * in the promotion of general welfare and the public interest," 69and
said to be co-extensive with self-protection and * * not inaptly termed (also) the'law of
overruling necessity." " 70
10. PCGG not a "Judge"; General Functions
It should also by now be reasonably evident from what has thus far been said that the
PCGG is not, and was never intended to act as, a judge. Its general function is to conduct
investigations in order to collect evidenceestablishing instances of "ill-gotten
wealth;" issue sequestration, and such orders as may be warranted by the evidence thus

collected and as may be necessary to preserve and conserve the assets of which it takes
custody and control and prevent their disappearance, loss or dissipation; and
eventually file and prosecute in the proper court of competent jurisdiction all cases
investigated by it as may be warranted by its findings. It does not try and decide, or hear
and determine, or adjudicate with any character of finality or compulsion, cases involving
the essential issue of whether or not property should be forfeited and transferred to the
State because "ill-gotten" within the meaning of the Constitution and the executive
orders. This function is reserved to the designated court, in this case, the
Sandiganbayan. 71 There can therefore be no serious regard accorded to the accusation,
leveled by BASECO, 72 that the PCGG plays the perfidious role of prosecutor and judge at
the same time.
11. Facts Preclude Grant of Relief to Petitioner
Upon these premises and reasoned conclusions, and upon the facts disclosed by the
record, hereafter to be discussed, the petition cannot succeed. The writs of certiorari and
prohibition prayed for will not be issued.
The facts show that the corporation known as BASECO was owned or controlled by
President Marcos "during his administration, through nominees, by taking undue
advantage of his public office and/or using his powers, authority, or influence, " and that it
was by and through the same means, that BASECO had taken over the business and/or
assets of the National Shipyard and Engineering Co., Inc., and other government-owned or
controlled entities.
12. Organization and Stock Distribution of BASECO
BASECO describes itself in its petition as "a shiprepair and shipbuilding company * *
incorporated as a domestic private corporation * * (on Aug. 30, 1972) by a consortium of
Filipino shipowners and shipping executives. Its main office is at Engineer Island, Port
Area, Manila, where its Engineer Island Shipyard is housed, and its main shipyard is
located at Mariveles Bataan." 73 Its Articles of Incorporation disclose that its authorized
capital stock is P60,000,000.00 divided into 60,000 shares, of which 12,000 shares with a
value of P12,000,000.00 have been subscribed, and on said subscription, the aggregate
sum of P3,035,000.00 has been paid by the incorporators. 74 The same articles Identify
the incorporators, numbering fifteen (15), as follows: (1) Jose A. Rojas, (2) Anthony P. Lee,
(3) Eduardo T. Marcelo, (4) Jose P. Fernandez, (5) Generoso Tanseco, (6) Emilio T. Yap, (7)
Antonio M. Ezpeleta, (8) Zacarias Amante, (9) Severino de la Cruz, (10) Jose Francisco,
(11) Dioscoro Papa, (12) Octavio Posadas, (13) Manuel S. Mendoza, (14) Magiliw Torres,
and (15) Rodolfo Torres.
By 1986, however, of these fifteen (15) incorporators, six (6) had ceased to be
stockholders, namely: (1) Generoso Tanseco, (2) Antonio Ezpeleta, (3) Zacarias Amante,
(4) Octavio Posadas, (5) Magiliw Torres, and (6) Rodolfo Torres. As of this year, 1986, there
were twenty (20) stockholders listed in BASECO's Stock and Transfer Book. 75 Their names
and the number of shares respectively held by them are as follows:

1. Jose A. Rojas

1,248 shares

2. Severino G. de la
Cruz

1,248 shares

11. Trident
Management

7,412 shares

3. Emilio T. Yap

2,508 shares

12. United Phil. Lines

1,240 shares

4. Jose Fernandez

1,248 shares

13. Renato M.
Tanseco

8 shares

5. Jose Francisco

128 shares
14. Fidel Ventura

8 shares

15. Metro Bay

Drydock

136,370
shares

16. Manuel Jacela

1 share

17. Jonathan G. Lu

1 share

18. Jose J. Tanchanco

1 share

19. Dioscoro Papa

128 shares

20. Edward T.
Marcelo

4 shares

6. Manuel S.
Mendoza

96 shares

7. Anthony P. Lee

1,248 shares

8. Hilario M. Ruiz

32 shares

9. Constante L.
Farias

8 shares

10. Fidelity
Management, Inc.

65,882 shares

TOTAL

218,819
shares.

13 Acquisition of NASSCO by BASECO

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

hand corner of its first page, the handwritten notation of President Marcos reading,
"APPROVED, July 29, 1973," and underneath it, his usual full signature. Transferred to
BASECO were NASSCO's "ownership and all its titles, rights and interests over all
equipment and facilities including structures, buildings, shops, quarters, houses, plants
and expendable or semi-expendable assets, located at the Engineer Island, known as the
Engineer Island Shops, including all the equipment of the Bataan National Shipyards (BNS)
which were excluded from the sale of NBS to BASECO but retained by BASECO and all
other selected equipment and machineries of NASSCO at J. Panganiban Smelting Plant." In
the same deed, NASSCO committed itself to cooperate with BASECO for the acquisition
from the National Government or other appropriate Government entity of Engineer Island.
Consideration for the sale was set at P5,000,000.00; a down payment of P1,000,000.00
appears to have been made, and the balance was stipulated to be paid at 7% interest per
annum in equal semi annual installments over a term of nine (9) years, to commence
after a grace period of two (2) years. Mr. Arturo Pacificador again signed for NASSCO,
together with the general manager, Mr. David R. Ines.
17. Loans Obtained
It further appears that on May 27, 1975 BASECO obtained a loan from the NDC, taken
from "the last available Japanese war damage fund of $19,000,000.00," to pay for
"Japanese made heavy equipment (brand new)." 80On September 3, 1975, it got another
loan also from the NDC in the amount of P30,000,000.00 (id.). And on January 28, 1976, it
got still another loan, this time from the GSIS, in the sum of P12,400,000.00. 81 The claim
has been made that not a single centavo has been paid on these loans. 82
18. Reports to President Marcos
In September, 1977, two (2) reports were submitted to President Marcos regarding
BASECO. The first was contained in a letter dated September 5, 1977 of Hilario M. Ruiz,
BASECO president. 83 The second was embodied in a confidential memorandum dated
September 16, 1977 of Capt. A.T. Romualdez. 84 They further disclose the fine hand of
Marcos in the affairs of BASECO, and that of a Romualdez, a relative by affinity.
a. BASECO President's Report
In his letter of September 5, 1977, BASECO President Ruiz reported to Marcos that there
had been "no orders or demands for ship construction" for some time and expressed the
fear that if that state of affairs persisted, BASECO would not be able to pay its debts to the
Government, which at the time stood at the not inconsiderable amount of
P165,854,000.00. 85 He suggested that, to "save the situation," there be a "spin-off (of
their) shipbuilding activities which shall be handled exclusively by an entirely new
corporation to be created;" and towards this end, he informed Marcos that BASECO was
* * inviting NDC and LUSTEVECO to participate by converting the NDC
shipbuilding loan to BASECO amounting to P341.165M and assuming
and converting a portion of BASECO's shipbuilding loans from REPACOM
amounting to P52.2M or a total of P83.365M as NDC's equity
contribution in the new corporation. LUSTEVECO will participate by
absorbing and converting a portion of the REPACOM loan of Bay
Shipyard and Drydock, Inc., amounting to P32.538M. 86

b. Romualdez' Report

5. Contract dated October 9, 1973, between NASSCO and BASECO restructure and equipment at Mariveles, Bataan;

Capt. A.T. Romualdez' report to the President was submitted eleven (11) days later. It
opened with the following caption:

6. Contract dated July 16, 1975, between NASSCO and BASECO restructure and equipment at Engineer Island, Port Area Manila;

MEMORANDUM:
7. Contract dated October 1, 1974, between EPZA and BASECO re 300
hectares of land at Mariveles, Bataan;

FOR : The President

SUBJECT: An Evaluation and Re-assessment of a Performance of a
Mission
FROM: Capt. A.T. Romualdez.
Like Ruiz, Romualdez wrote that BASECO faced great difficulties in meeting its loan
obligations due chiefly to the fact that "orders to build ships as expected * * did not
materialize."
He advised that five stockholders had "waived and/or assigned their holdings
inblank," these being: (1) Jose A. Rojas, (2) Severino de la Cruz, (3) Rodolfo Torres, (4)
Magiliw Torres, and (5) Anthony P. Lee. Pointing out that "Mr. Magiliw Torres * * is already
dead and Mr. Jose A. Rojas had a major heart attack," he made the following quite
revealing, and it may be added, quite cynical and indurate recommendation, to wit:
* * (that) their replacements (be effected) so we can register their
names in the stock book prior to the implementation of your
instructions to pass a board resolution to legalize the transfers under
SEC regulations;
2. By getting their replacements, the families cannot question us later
on; and
3. We will owe no further favors from them.

87

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

8. List of BASECO's fixed assets;

9. Loan Agreement dated September 3, 1975, BASECO's loan from NDC
of P30,000,000.00;
10. BASECO-REPACOM Agreement dated May 27, 1975;
11. GSIS loan to BASECO dated January 28, 1976 of P12,400,000.00 for
the housing facilities for BASECO's rank-and-file employees. 90
Capt. Romualdez also recommended that BASECO's loans be restructured "until such
period when BASECO will have enough orders for ships in order for the company to meet
loan obligations," and that
An LOI may be issued to government agencies using floating equipment,
that a linkage scheme be applied to a certain percent of BASECO's net
profit as part of BASECO's amortization payments tomake it justifiable
for you, Sir. 91
It is noteworthy that Capt. A.T. Romualdez does not appear to be a stockholder or officer
of BASECO, yet he has presented a report on BASECO to President Marcos, and his report
demonstrates intimate familiarity with the firm's affairs and problems.
19. Marcos' Response to Reports

88

1. Stock certificates indorsed and assigned in blank with assignments

and waivers; 89

President Marcos lost no time in acting on his subordinates' recommendations, particularly

as regards the "spin-off" and the "linkage scheme" relative to "BASECO's amortization
payments."
a. Instructions re "Spin-Off"

2. The articles of incorporation, the amended articles, and the by-laws of

BASECO;
3. Deed of Sales, wherein NASSCO sold to BASECO four (4) parcels of
land in "Engineer Island", Port Area, Manila;
4. Transfer Certificate of Title No. 124822 in the name of BASECO,
covering "Engineer Island";

Under date of September 28, 1977, he addressed a Memorandum to Secretary Geronimo

Velasco of the Philippine National Oil Company and Chairman Constante Farias of the
National Development Company, directing them "to participate in the formation of a new
corporation resulting from the spin-off of the shipbuilding component of BASECO along the
following guidelines:
a. Equity participation of government shall be through LUSTEVECO and
NDC in the amount of P115,903,000 consisting of the

following obligations of BASECO which are hereby authorized to be

converted to equity of the said new corporation, to wit:
1. NDC P83,865,000 (P31.165M loan & P52.2M
Reparation)

And so, through a simple letter of instruction and memorandum,

BASECO's loan obligation to NDC and REPACOM * * in the total amount
of P83.365M and BSD's REPACOM loan of P32.438M were wiped out and
converted into non-voting preferred shares. 95
20. Evidence of Marcos'

2. LUSTEVECO P32,538,000 (Reparation)

b. Equity participation of government shall be in the form of non- voting
shares.
For immediate compliance.

It cannot therefore be gainsaid that, in the context of the proceedings at bar, the actuality
of the control by President Marcos of BASECO has been sufficiently shown.

92

Mr. Marcos' guidelines were promptly complied with by his subordinates. Twenty-two (22)
days after receiving their president's memorandum, Messrs. Hilario M. Ruiz, Constante L.
Farias and Geronimo Z. Velasco, in representation of their respective corporations,
executed a PRE-INCORPORATION AGREEMENT dated October 20, 1977. 93 In it, they
undertook to form a shipbuilding corporation to be known as "PHIL-ASIA SHIPBUILDING
CORPORATION," to bring to realization their president's instructions. It would seem that
the new corporation ultimately formed was actually named "Philippine Dockyard
Corporation (PDC)." 94
b. Letter of Instructions No. 670
Mr. Marcos did not forget Capt. Romualdez' recommendation for a letter of instructions.
On February 14, 1978, he issued Letter of Instructions No. 670 addressed to the
Reparations Commission REPACOM the Philippine National Oil Company (PNOC), the Luzon
Stevedoring Company (LUSTEVECO), and the National Development Company (NDC).
What is commanded therein is summarized by the Solicitor General, with pithy and not
inaccurate observations as to the effects thereof (in italics), as follows:
* * 1) the shipbuilding equipment procured by BASECO through
reparations be transferred to NDC subject to reimbursement by NDC to
BASECO (of) the amount of s allegedly representing the handling and
incidental expenses incurred by BASECO in the installation of said
equipment (so instead of NDC getting paid on its loan to BASECO, it was
made to pay BASECO instead the amount of P18.285M); 2) the
shipbuilding equipment procured from reparations through EPZA, now in
the possession of BASECO and BSDI (Bay Shipyard & Drydocking, Inc.)
be transferred to LUSTEVECO through PNOC; and 3) the shipbuilding
equipment (thus) transferred be invested by LUSTEVECO, acting through
PNOC and NDC, as the government's equity participation in a
shipbuilding corporation to be established in partnership with the
private sector.
xxx xxx xxx

Ownership of BASECO

Other evidence submitted to the Court by the Solicitor General proves that President
Marcos not only exercised control over BASECO, but also that he actually owns well nigh
one hundred percent of its outstanding stock.
It will be recalled that according to petitioner- itself, as of April 23, 1986, there were
218,819 shares of stock outstanding, ostensibly owned by twenty (20)
stockholders. 96 Four of these twenty are juridical persons: (1) Metro Bay
Drydock, recorded as holding 136,370 shares; (2) Fidelity Management, Inc., 65,882
shares; (3) Trident Management,7,412 shares; and (4) United Phil. Lines, 1,240 shares.
The first three corporations, among themselves, own an aggregate of 209,664 shares of
BASECO stock, or 95.82% of the outstanding stock.
Now, the Solicitor General has drawn the Court's attention to the intriguing circumstance
that found in Malacanang shortly after the sudden flight of President Marcos, were
certificates corresponding to more thanninety-five percent (95%) of all the outstanding
shares of stock of BASECO, endorsed in blank, together with deeds of assignment of
practically all the outstanding shares of stock of the three (3) corporations above
mentioned (which hold 95.82% of all BASECO stock), signed by the owners thereof
although not notarized. 97
More specifically, found in Malacanang (and now in the custody of the PCGG) were:
1) the deeds of assignment of all 600 outstanding shares of Fidelity
Management Inc. which supposedly owns as aforesaid 65,882 shares
of BASECO stock;
2) the deeds of assignment of 2,499,995 of the 2,500,000 outstanding
shares of Metro Bay Drydock Corporation which allegedly owns
136,370 shares of BASECO stock;
3) the deeds of assignment of 800 outstanding shares of Trident
Management Co., Inc. which allegedly owns 7,412 shares of BASECO
stock, assigned in blank; 98 and
4) stock certificates corresponding to 207,725 out of the 218,819
outstanding shares of BASECO stock; that is, all but 5 % all endorsed
in blank. 99

While the petitioner's counsel was quick to dispute this asserted fact, assuring this Court
that the BASECO stockholders were still in possession of their respective stock certificates
and had "never endorsed * * them in blank or to anyone else," 100 that denial is exposed
by his own prior and subsequent recorded statements as a mere gesture of defiance
rather than a verifiable factual declaration.
By resolution dated September 25, 1986, this Court granted BASECO's counsel a period of
10 days "to SUBMIT,as undertaken by him, * * the certificates of stock issued to the
stockholders of * * BASECO as of April 23, 1986, as listed in Annex 'P' of the
petition.' 101 Counsel thereafter moved for extension; and in his motion dated October 2,
1986, he declared inter alia that "said certificates of stock are in the possession of third
parties, among whom being the respondents themselves * * and petitioner is still
endeavoring to secure copies thereof from them." 102 On the same day he filed another
motion praying that he be allowed "to secure copies of the Certificates of Stock in the
name of Metro Bay Drydock, Inc., and of all other Certificates, of Stock of petitioner's
stockholders in possession of respondents." 103
In a Manifestation dated October 10, 1986,, 104 the Solicitor General not unreasonably
argued that counsel's aforestated motion to secure copies of the stock certificates
"confirms the fact that stockholders of petitioner corporation are not in possession of * *
(their) certificates of stock," and the reason, according to him, was "that 95% of said
shares * * have been endorsed in blank and found in Malacaang after the former
President and his family fled the country." To this manifestation BASECO's counsel replied
on November 5, 1986, as already mentioned, Stubbornly insisting that the firm's
stockholders had not really assigned their stock. 105
In view of the parties' conflicting declarations, this Court resolved on November 27, 1986
among other things "to require * * the petitioner * * to deposit upon proper receipt with
Clerk of Court Juanito Ranjo the originals of the stock certificates alleged to be in its
possession or accessible to it, mentioned and described in Annex 'P' of its petition, (and
other pleadings) * * within ten (10) days from notice." 106 In a motion filed on December
5, 1986, 107 BASECO's counsel made the statement, quite surprising in the premises,
that "it will negotiate with the owners (of the BASECO stock in question) to allow
petitioner to borrow from them, if available, the certificates referred to" but that "it needs
a more sufficient time therefor" (sic). BASECO's counsel however eventually had to
confess inability to produce the originals of the stock certificates, putting up the feeble
excuse that while he had "requested the stockholders to allow * * (him) to borrow said
certificates, * * some of * * (them) claimed that they had delivered the certificates to third
parties by way of pledge and/or to secure performance of obligations, while others
allegedly have entrusted them to third parties in view of last national emergency." 108 He
has conveniently omitted, nor has he offered to give the details of the transactions
adverted to by him, or to explain why he had not impressed on the supposed stockholders
the primordial importance of convincing this Court of their present custody of the originals
of the stock, or if he had done so, why the stockholders are unwilling to agree to some
sort of arrangement so that the originals of their certificates might at the very least be
exhibited to the Court. Under the circumstances, the Court can only conclude that he
could not get the originals from the stockholders for the simple reason that, as the
Solicitor General maintains, said stockholders in truth no longer have them in their
possession, these having already been assigned in blank to then President Marcos.
21. Facts Justify Issuance of Sequestration and Takeover Orders

In the light of the affirmative showing by the Government that, prima facie at least, the
stockholders and directors of BASECO as of April, 1986 109 were mere "dummies,"
nominees or alter egos of President Marcos; at any rate, that they are no longer owners of
any shares of stock in the corporation, the conclusion cannot be avoided that said
stockholders and directors have no basis and no standing whatever to cause the filing and
prosecution of the instant proceeding; and to grant relief to BASECO, as prayed for in the
petition, would in effect be to restore the assets, properties and business sequestered and
taken over by the PCGG to persons who are "dummies," nominees or alter egos of the
former president.
From the standpoint of the PCGG, the facts herein stated at some length do indeed show
that the private corporation known as BASECO was "owned or controlled by former
President Ferdinand E. Marcos * * during his administration, * * through nominees, by
taking advantage of * * (his) public office and/or using * * (his) powers, authority,
influence * *," and that NASSCO and other property of the government had been taken
over by BASECO; and the situation justified the sequestration as well as the provisional
takeover of the corporation in the public interest, in accordance with the terms of
Executive Orders No. 1 and 2, pending the filing of the requisite actions with the
Sandiganbayan to cause divestment of title thereto from Marcos, and its adjudication in
favor of the Republic pursuant to Executive Order No. 14.
As already earlier stated, this Court agrees that this assessment of the facts is correct;
accordingly, it sustains the acts of sequestration and takeover by the PCGG as being in
accord with the law, and, in view of what has thus far been set out in this opinion,
pronounces to be without merit the theory that said acts, and the executive orders
pursuant to which they were done, are fatally defective in not according to the parties
affected prior notice and hearing, or an adequate remedy to impugn, set aside or
otherwise obtain relief therefrom, or that the PCGG had acted as prosecutor and judge at
the same time.
22. Executive Orders Not a Bill of Attainder
Neither will this Court sustain the theory that the executive orders in question are a bill of
attainder. 110 "A bill of attainder is a legislative act which inflicts punishment without
judicial trial." 111 "Its essence is the substitution of a legislative for a judicial
determination of guilt." 112
In the first place, nothing in the executive orders can be reasonably construed as a
determination or declaration of guilt. On the contrary, the executive orders, inclusive of
Executive Order No. 14, make it perfectly clear that any judgment of guilt in the amassing
or acquisition of "ill-gotten wealth" is to be handed down by a judicial tribunal, in this
case, the Sandiganbayan, upon complaint filed and prosecuted by the PCGG. In the
second place, no punishment is inflicted by the executive orders, as the merest glance at
their provisions will immediately make apparent. In no sense, therefore, may the
executive orders be regarded as a bill of attainder.
23. No Violation of Right against Self-Incrimination and Unreasonable Searches and
Seizures
BASECO also contends that its right against self incrimination and unreasonable searches
and seizures had been transgressed by the Order of April 18, 1986 which required it "to
produce corporate records from 1973 to 1986 under pain of contempt of the Commission

if it fails to do so." The order was issued upon the authority of Section 3 (e) of Executive
Order No. 1, treating of the PCGG's power to "issue subpoenas requiring * * the production
of such books, papers, contracts, records, statements of accounts and other documents as
may be material to the investigation conducted by the Commission, " and paragraph (3),
Executive Order No. 2 dealing with its power to "require all persons in the Philippines
holding * * (alleged "ill-gotten") assets or properties, whether located in the Philippines or
abroad, in their names as nominees, agents or trustees, to make full disclosure of the
same * *." The contention lacks merit.
It is elementary that the right against self-incrimination has no application to juridical
persons.
While an individual may lawfully refuse to answer incriminating
questions unless protected by an immunity statute, it does not follow
that a corporation, vested with special privileges and franchises, may
refuse to show its hand when charged with an abuse ofsuchprivileges *
* 113
Relevant jurisprudence is also cited by the Solicitor General. 114
* * corporations are not entitled to all of the constitutional protections
which private individuals have. * * They are not at all within the
privilege against self-incrimination, although this court more than once
has said that the privilege runs very closely with the 4th Amendment's
Search and Seizure provisions. It is also settled that an officer of the
company cannot refuse to produce its records in its possession upon the
plea that they will either incriminate him or may incriminate
it." (Oklahoma Press Publishing Co. v. Walling, 327 U.S. 186; emphasis,
the Solicitor General's).
* * The corporation is a creature of the state. It is presumed to be
incorporated for the benefit of the public. It received certain special
privileges and franchises, and holds them subject to the laws of the
state and the limitations of its charter. Its powers are limited by law. It
can make no contract not authorized by its charter. Its rights to act as a
corporation are only preserved to it so long as it obeys the laws of its
creation. There is a reserve right in the legislature to investigate its
contracts and find out whether it has exceeded its powers. It would be a
strange anomaly to hold that a state, having chartered a corporation to
make use of certain franchises, could not, in the exercise of sovereignty,
inquire how these franchises had been employed, and whether they had
been abused, and demand the production of the corporate books and
papers for that purpose. The defense amounts to this, that an officer of
the corporation which is charged with a criminal violation of the statute
may plead the criminality of such corporation as a refusal to produce its
books. To state this proposition is to answer it. While an individual may
lawfully refuse to answer incriminating questions unless protected by an
immunity statute, it does not follow that a corporation, vested with
special privileges and franchises may refuse to show its hand when
charged with an abuse of such privileges. (Wilson v. United States, 55
Law Ed., 771, 780 [emphasis, the Solicitor General's])

At any rate, Executive Order No. 14-A, amending Section 4 of Executive Order No. 14
assures protection to individuals required to produce evidence before the PCGG against
any possible violation of his right against self-incrimination. It gives them immunity from
prosecution on the basis of testimony or information he is compelled to present. As
amended, said Section 4 now provides that
xxx xxx xxx
The witness may not refuse to comply with the order on the basis of his
privilege against self-incrimination; but no testimony or other
information compelled under the order (or any information directly or
indirectly derived from such testimony, or other information) may be
used against the witness in any criminal case, except a prosecution for
perjury, giving a false statement, or otherwise failing to comply with the
order.
The constitutional safeguard against unreasonable searches and seizures finds no
application to the case at bar either. There has been no search undertaken by any agent
or representative of the PCGG, and of course no seizure on the occasion thereof.
24. Scope and Extent of Powers of the PCGG
One other question remains to be disposed of, that respecting the scope and extent of the
powers that may be wielded by the PCGG with regard to the properties or businesses
placed under sequestration or provisionally taken over. Obviously, it is not a question to
which an answer can be easily given, much less one which will suffice for every
conceivable situation.
a. PCGG May Not Exercise Acts of Ownership
One thing is certain, and should be stated at the outset: the PCGG cannot exercise acts of
dominion over property sequestered, frozen or provisionally taken over. AS already earlier
stressed with no little insistence, the act of sequestration; freezing or provisional takeover
of property does not import or bring about a divestment of title over said property; does
not make the PCGG the owner thereof. In relation to the property sequestered, frozen or
provisionally taken over, the PCGG is a conservator, not an owner. Therefore, it can not
perform acts of strict ownership; and this is specially true in the situations contemplated
by the sequestration rules where, unlike cases of receivership, for example, no court
exercises effective supervision or can upon due application and hearing, grant authority
for the performance of acts of dominion.
Equally evident is that the resort to the provisional remedies in question should entail the
least possible interference with business operations or activities so that, in the event that
the accusation of the business enterprise being "ill gotten" be not proven, it may be
returned to its rightful owner as far as possible in the same condition as it was at the time
of sequestration.
b. PCGG Has Only Powers of Administration

The PCGG may thus exercise only powers of administration over the property or business
sequestered or provisionally taken over, much like a court-appointed receiver, 115 such
as to bring and defend actions in its own name; receive rents; collect debts due; pay
outstanding debts; and generally do such other acts and things as may be necessary to
fulfill its mission as conservator and administrator. In this context, it may in addition
enjoin or restrain any actual or threatened commission of acts by any person or entity
that may render moot and academic, or frustrate or otherwise make ineffectual its efforts
to carry out its task; punish for direct or indirect contempt in accordance with the Rules of
Court; and seek and secure the assistance of any office, agency or instrumentality of the
government. 116 In the case of sequestered businesses generally (i.e., going concerns,
businesses in current operation), as in the case of sequestered objects, its essential role,
as already discussed, is that of conservator, caretaker, "watchdog" or overseer. It is not
that of manager, or innovator, much less an owner.
c. Powers over Business Enterprises Taken Over by Marcos or Entities or
Persons Close to him; Limitations Thereon
Now, in the special instance of a business enterprise shown by evidence to have been
"taken over by the government of the Marcos Administration or by entities or persons
close to former President Marcos," 117 the PCGG is given power and authority, as already
adverted to, to "provisionally take (it) over in the public interest or to prevent * * (its)
disposal or dissipation;" and since the term is obviously employed in reference to going
concerns, or business enterprises in operation, something more than mere physical
custody is connoted; the PCGG may in this case exercise some measure of control in the
operation, running, or management of the business itself. But even in this special
situation, the intrusion into management should be restricted to the minimum degree
necessary to accomplish the legislative will, which is "to prevent the disposal or
dissipation" of the business enterprise. There should be no hasty, indiscriminate,
unreasoned replacement or substitution of management officials or change of policies,
particularly in respect of viable establishments. In fact, such a replacement or substitution
should be avoided if at all possible, and undertaken only when justified by demonstrably
tenable grounds and in line with the stated objectives of the PCGG. And it goes without
saying that where replacement of management officers may be called for, the greatest
prudence, circumspection, care and attention - should accompany that undertaking to the
end that truly competent, experienced and honest managers may be recruited. There
should be no role to be played in this area by rank amateurs, no matter how wen
meaning. The road to hell, it has been said, is paved with good intentions. The business is
not to be experimented or played around with, not run into the ground, not driven to
bankruptcy, not fleeced, not ruined. Sight should never be lost sight of the ultimate
objective of the whole exercise, which is to turn over the business to the Republic, once
judicially established to be "ill-gotten." Reason dictates that it is only under these
conditions and circumstances that the supervision, administration and control of business
enterprises provisionally taken over may legitimately be exercised.
d. Voting of Sequestered Stock; Conditions Therefor
So, too, it is within the parameters of these conditions and circumstances that the PCGG
may properly exercise the prerogative to vote sequestered stock of corporations, granted
to it by the President of the Philippines through a Memorandum dated June 26, 1986. That
Memorandum authorizes the PCGG, "pending the outcome of proceedings to determine
the ownership of * * (sequestered) shares of stock," "to vote such shares of stock as it
may have sequestered in corporations at all stockholders' meetings called for the election
of directors, declaration of dividends, amendment of the Articles of Incorporation, etc."

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