Republic of the Philippines
 The facts will explain why.
As set forth in the brief of
SUPREME COURT
 appellant Benguet Consolidated, Inc., Idonah Slade
Manila
EN BANC
G.R. No. L-23145 November 29, 1968
TESTATE ESTATE OF IDONAH SLADE PERKINS,
deceased. RENATO D. TAYAG, ancillary
administrator-appellee, 
 instituted ancillary administration proceedings in the
vs.
 Court of First Instance of Manila; Lazaro A. Marquez
BENGUET CONSOLIDATED, INC., oppositor-
appellant.
Cirilo F. Asperillo, Jr., for ancillary administrator-
appellee.
 ancillary administrator in the Philippines as to which
Ross, Salcedo, Del Rosario, Bito and Misa for
oppositor-appellant.
FERNANDO, J.:
Confronted by an obstinate and adamant refusal of
the domiciliary administrator, the County Trust
Company of New York, United States of America, of
the estate of the deceased Idonah Slade Perkins,
who died in New York City on March 27, 1960, to
surrender to the ancillary administrator in the
Philippines the stock certificates owned by her in a
Philippine corporation, Benguet Consolidated, Inc.,
to satisfy the legitimate claims of local creditors, the
lower court, then presided by the Honorable Arsenio
Santos, now retired, issued on May 18, 1964, an
order of this tenor: "After considering the motion of
the ancillary administrator, dated February 11, 1964,
as well as the opposition filed by the Benguet
Consolidated, Inc., the Court hereby (1) considers
as lost for all purposes in connection with the
administration and liquidation of the Philippine
estate of Idonah Slade Perkins the stock certificates
covering the 33,002 shares of stock standing in her
name in the books of the Benguet Consolidated,
Inc., (2) orders said certificates cancelled, and (3)
directs said corporation to issue new certificates in
lieu thereof, the same to be delivered by said
corporation to either the incumbent ancillary
administrator or to the Probate Division of this
Court."1
From such an order, an appeal was taken to this
Court not by the domiciliary administrator, the
County Trust Company of New York, but by the
Philippine corporation, the Benguet Consolidated,
Inc. The appeal cannot possibly prosper. The
challenged order represents a response and
expresses a policy, to paraphrase Frankfurter,
arising out of a specific problem, addressed to the
attainment of specific ends by the use of specific
remedies, with full and ample support from legal
doctrines of weight and significance.
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
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
of them was entitled to the possession of the stock
certificates in question. On January 27, 1964, the
Court of First Instance of Manila ordered the
domiciliary administrator, County Trust Company, to
"produce and deposit" them with the ancillary
administrator or with the Clerk of Court. The
domiciliary administrator did not comply with the
order, and on February 11, 1964, the ancillary
administrator petitioned the court to "issue an order
declaring the certificate or certificates of stocks
covering the 33,002 shares issued in the name of
Idonah Slade Perkins by Benguet Consolidated,
Inc., be declared [or] considered as lost."3
It is to be noted further that appellant Benguet
Consolidated, Inc. admits that "it is immaterial" as
far as it is concerned as to "who is entitled to the
possession of the stock certificates in question;
appellant opposed the petition of the ancillary
administrator because the said stock certificates are
in existence, they are today in the possession of the
domiciliary administrator, the County Trust
Company, in New York, U.S.A...."4
It is its view, therefore, that under the circumstances,
the stock certificates cannot be declared or
considered as lost. Moreover, it would allege that
there was a failure to observe certain requirements
of its by-laws before new stock certificates could be
issued. Hence, its appeal.
As was made clear at the outset of this opinion, the
appeal lacks merit. The challenged order constitutes
an emphatic affirmation of judicial authority sought
to be emasculated by the wilful conduct of the
domiciliary administrator in refusing to accord
obedience to a court decree. How, then, can this
order be stigmatized as illegal?
As is true of many problems confronting the
judiciary, such a response was called for by the
realities of the situation. What cannot be ignored is
that conduct bordering on wilful defiance, if it had
not actually reached it, cannot without undue loss of
judicial prestige, be condoned or tolerated. For the
law is not so lacking in flexibility and resourcefulness
as to preclude such a solution, the more so as
deeper reflection would make clear its being
buttressed by indisputable principles and supported
by the strongest policy considerations.
It can truly be said then that the result arrived at
upheld and vindicated the honor of the judiciary no
less than that of the country. Through this
challenged order, there is thus dispelled the
atmosphere of contingent frustration brought about
by the persistence of the domiciliary administrator to
hold on to the stock certificates after it had, as
admitted, voluntarily submitted itself to the
jurisdiction of the lower court by entering its
appearance through counsel on June 27, 1963, and
filing a petition for relief from a previous order of
March 15, 1963.
Thus did the lower court, in the order now on
appeal, impart vitality and effectiveness to what was
decreed. For without it, what it had been decided
would be set at naught and nullified. Unless such a
blatant disregard by the domiciliary administrator,
with residence abroad, of what was previously
ordained by a court order could be thus remedied, it
would have entailed, insofar as this matter was
concerned, not a partial but a well-nigh complete
paralysis of judicial authority.
1. Appellant Benguet Consolidated, Inc. did not
dispute the power of the appellee ancillary
administrator to gain control and possession of all
assets of the decedent within the jurisdiction of the
Philippines. Nor could it. Such a power is inherent in
his duty to settle her estate and satisfy the claims of
local creditors.5 As Justice Tuason speaking for this
Court made clear, it is a "general rule universally
recognized" that administration, whether principal or
ancillary, certainly "extends to the assets of a
decedent found within the state or country where it
was granted," the corollary being "that an
administrator appointed in one state or country has
no power over property in another state or country."6
It is to be noted that the scope of the power of the
ancillary administrator was, in an earlier case, set
forth by Justice Malcolm. Thus: "It is often necessary
to have more than one administration of an estate.
When a person dies intestate owning property in the
country of his domicile as well as in a foreign
country, administration is had in both countries. That
which is granted in the jurisdiction of decedent's last
domicile is termed the principal administration, while
any other administration is termed the ancillary
administration. The reason for the latter is because
a grant of administration does not ex proprio
vigore have any effect beyond the limits of the
country in which it is granted. Hence, an
administrator appointed in a foreign state has no
authority in the [Philippines]. The ancillary
administration is proper, whenever a person dies,
leaving in a country other than that of his last
domicile, property to be administered in the nature
of assets of the deceased liable for his individual
debts or to be distributed among his heirs."7
It would follow then that the authority of the probate
court to require that ancillary administrator's right to
"the stock certificates covering the 33,002 shares ...
standing in her name in the books of [appellant]
Benguet Consolidated, Inc...." be respected is
equally beyond question. For appellant is a
Philippine corporation owing full allegiance and
subject to the unrestricted jurisdiction of local courts.
Its shares of stock cannot therefore be considered in
any wise as immune from lawful court orders.
Our holding in Wells Fargo Bank and Union v.
Collector of Internal Revenue8 finds application. "In
the instant case, the actual situs of the shares of
stock is in the Philippines, the corporation being
domiciled [here]." To the force of the above
undeniable proposition, not even appellant is
insensible. It does not dispute it. Nor could it
successfully do so even if it were so minded.
2. In the face of such incontrovertible doctrines that
argue in a rather conclusive fashion for the legality
of the challenged order, how does appellant,
Benguet Consolidated, Inc. propose to carry the
extremely heavy burden of persuasion of precisely
demonstrating the contrary? It would assign as the
basic error allegedly committed by the lower court its
"considering as lost the stock certificates covering
33,002 shares of Benguet belonging to the
deceased Idonah Slade Perkins, ..." 9 More
specifically, appellant would stress that the "lower
court could not "consider as lost" the stock
certificates in question when, as a matter of fact, his
Honor the trial Judge knew, and does know, and it is
admitted by the appellee, that the said stock
certificates are in existence and are today in the
possession of the domiciliary administrator in New
York."10
There may be an element of fiction in the above
view of the lower court. That certainly does not
suffice to call for the reversal of the appealed order.
Since there is a refusal, persistently adhered to by
the domiciliary administrator in New York, to deliver
the shares of stocks of appellant corporation owned
by the decedent to the ancillary administrator in the
Philippines, there was nothing unreasonable or
arbitrary in considering them as lost and requiring
the appellant to issue new certificates in lieu thereof.
Thereby, the task incumbent under the law on the
ancillary administrator could be discharged and his
responsibility fulfilled.
Any other view would result in the compliance to a
valid judicial order being made to depend on the
uncontrolled discretion of the party or entity, in this
case domiciled abroad, which thus far has shown
the utmost persistence in refusing to yield
obedience. Certainly, appellant would not be heard
to contend in all seriousness that a judicial decree
could be treated as a mere scrap of paper, the court
issuing it being powerless to remedy its flagrant
disregard.
It may be admitted of course that such alleged loss
as found by the lower court did not correspond
exactly with the facts. To be more blunt, the quality
of truth may be lacking in such a conclusion arrived
at. It is to be remembered however, again to borrow
from Frankfurter, "that fictions which the law may
rely upon in the pursuit of legitimate ends have
played an important part in its development."11
Speaking of the common law in its earlier period,
Cardozo could state fictions "were devices to
advance the ends of justice, [even if] clumsy and at
times offensive."12 Some of them have persisted
even to the present, that eminent jurist, noting "the
quasi contract, the adopted child, the constructive
trust, all of flourishing vitality, to attest the empire of
"as if" today."13 He likewise noted "a class of fictions
of another order, the fiction which is a working tool of
thought, but which at times hides itself from view till
reflection and analysis have brought it to the light."14
What cannot be disputed, therefore, is the at times
indispensable role that fictions as such played in the
law. There should be then on the part of the
appellant a further refinement in the catholicity of its
condemnation of such judicial technique. If ever an
occasion did call for the employment of a legal
fiction to put an end to the anomalous situation of a
valid judicial order being disregarded with apparent
impunity, this is it. What is thus most obvious is that
this particular alleged error does not carry
persuasion.
3. Appellant Benguet Consolidated, Inc. would seek
to bolster the above contention by its invoking one of
the provisions of its by-laws which would set forth
the procedure to be followed in case of a lost, stolen
or destroyed stock certificate; it would stress that in
the event of a contest or the pendency of an action
regarding ownership of such certificate or
certificates of stock allegedly lost, stolen or
destroyed, the issuance of a new certificate or
certificates would await the "final decision by [a]
court regarding the ownership [thereof]."15
Such reliance is misplaced. In the first place, there is
no such occasion to apply such by-law. It is admitted
that the foreign domiciliary administrator did not
appeal from the order now in question. Moreover,
there is likewise the express admission of appellant
that as far as it is concerned, "it is immaterial ... who
is entitled to the possession of the stock
certificates ..." Even if such were not the case, it
would be a legal absurdity to impart to such a
provision conclusiveness and finality. Assuming that
a contrariety exists between the above by-law and
the command of a court decree, the latter is to be
followed.
It is understandable, as Cardozo pointed out, that
the Constitution overrides a statute, to which,
however, the judiciary must yield deference, when
appropriately invoked and deemed applicable. It
would be most highly unorthodox, however, if a
corporate by-law would be accorded such a high
estate in the jural order that a court must not only
take note of it but yield to its alleged controlling
force.
The fear of appellant of a contingent liability with
which it could be saddled unless the appealed order
be set aside for its inconsistency with one of its by-
laws does not impress us. Its obedience to a lawful
court order certainly constitutes a valid defense,
assuming that such apprehension of a possible
court action against it could possibly materialize.
Thus far, nothing in the circumstances as they have
developed gives substance to such a fear.
Gossamer possibilities of a future prejudice to
appellant do not suffice to nullify the lawful exercise
of judicial authority.
4. What is more the view adopted by appellant
Benguet Consolidated, Inc. is fraught with
implications at war with the basic postulates of
corporate theory.
We start with the undeniable premise that, "a
corporation is an artificial being created by operation
of law...."16 It owes its life to the state, its birth being
purely dependent on its will. As Berle so aptly
stated: "Classically, a corporation was conceived as
an artificial person, owing its existence through
creation by a sovereign power."17 As 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."19Dean 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.

! and Tan Siong against the Secretary of Commerce
EN BANC
[G.R. No. L-17295. July 30, 1962.]
ANG PUE & COMPANY, ET AL., Plaintiffs-
Appellants, v. SECRETARY OF COMMERCE AND
INDUSTRY, Defendant-Appellee.
Felicisimo E. Escaran, for Plaintiffs-Appellants.
Solicitor General, for Defendant-Appellee.
SYLLABUS
 years from May 1, 1953, extendible by their mutual


1 . PA R T N E R S H I P ; T O O R G A N I Z E N O T
ABSOLUTE RIGHT. — To organize a corporation or
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.
2. ID.; ONLY FILIPINOS TO ENGAGE IN RETAIL
BUSINESS; REP. ACT 1180 APPLICABLE TO
EXISTING PARTNERSHIP. — The state through
Congress had the right to enact Republic Act No.
1180 providing that only Filipinos may engage in the
retail business and such provision was intended to
apply to partnership owned by foreigners already
existing at the time of its enactment giving them the
right to continue engaging in their retail business
until the expiration of their term of life.
3. ID.; AMENDMENT OF ARTICLES OF
PARTNERSHIP TO EXTEND TERM AFTER
ENACTMENT OF THE LAW. — The agreement in
the articles of partnership to extend the term of its
life is not a property right and it must be deemed
subject to the law existing at the time when the
partners came to agree regarding the extension. In
the case at bar, 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 said Act.
D E C I S I O N

DIZON, J.:
Action for declaratory relief filed in the Court of First
Instance of Iloilo by Ang Pue & Company, Ang Pue
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 Articles of Co-partnership."cralaw
virtua1aw library
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
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:chanrob1es virtual 1aw library
On April 15, 1958 — prior to the expiration of the
five-year term of the partnership Ang Pue &
Company, but after the enactment of Republic Act
1180 — the partners already mentioned amended
the original articles of partnership 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
partnerships already existing at the time of the
enactment of the law is clearly shown by its
provision giving them the right to continue engaging
in their retail business until the expiration of their
term of 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 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
contained therein must be deemed subject to the
law existing at the time when the partners come to
agree regarding the extension. In the present case,
as already stated, when the partners amended the
articles of partnership, the provisions of Republic Act
1180 were already in force, and there can be not the
slightest doubt that the right claimed by appellants to
extend the original term of their partnership to
another five years would be in violation of the clear
intent and purpose of the law aforesaid.

WHEREFORE, the judgment appealed from is

affirmed, with costs.
 EN BANC
[G.R. Nos. 84132-33 : December 10, 1990.]
192 SCRA 257
NATIONAL DEVELOPMENT COMPANY AND NEW
AGRIX, INC., Petitioners, vs. PHILIPPINE
VETERANS BANK, THE EX-OFFICIO SHERIFF
and GODOFREDO QUILING, in his capacity as
Deputy Sheriff of Calamba, Laguna,
Respondents.
DECISION
CRUZ, J.:
This case involves the constitutionality of a
presidential decree which, like all other issuances of
President Marcos during his regime, was at that time
regarded as sacrosanct. It is only now, in a freer
atmosphere, that his acts are being tested by the
touchstone of the fundamental law that even then
was supposed to limit presidential action.: rd
The particular enactment in question is Pres. Decree
No. 1717, which ordered the rehabilitation of the
Agrix Group of Companies to be administered
mainly by the National Development Company. The
law outlined the procedure for filing claims against
the Agrix companies and created a Claims
Committee to process these claims. Especially
relevant to this case, and noted at the outset, is Sec.
4(1) thereof providing that "all mortgages and other
liens presently attaching to any of the assets of the
dissolved corporations are hereby extinguished."
Earlier, the Agrix Marketing, Inc. (AGRIX) had
executed in favor of private respondent Philippine
Veterans Bank a real estate mortgage dated July 7,
1978, over three (3) parcels of land situated in Los
Baños, 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
Applying these criteria to the case at bar, the Court
finds first of all that the interests of the public are not
sufficiently involved to warrant the interference of
the government with the private contracts of AGRIX.
The decree speaks vaguely of the "public,
particularly the small investors," who would be
prejudiced if the corporation were not to be assisted.
However, the record does not state how many there
are of such investors, and who they are, and why
they are being preferred to the private respondent
and other creditors of AGRIX with vested property
rights.:-cralaw
The public interest supposedly involved is not
identified or explained. It has not been shown that
by the creation of the New Agrix, Inc. and the
extinction of the property rights of the creditors of
AGRIX, the interests of the public as a whole, as
distinguished from those of a particular class, would
be promoted or protected. The indispensable link to
the welfare of the greater number has not been
established. On the contrary, it would appear that
the decree was issued only to favor a special group
of investors who, for reasons not given, have been
preferred to the legitimate creditors of AGRIX.
 Assuming there is a valid public interest involved,
the Court still finds that the means employed to
rehabilitate AGRIX fall far short of the requirement
that they shall not be unduly oppressive. The
oppressiveness is patent on the face of the decree.
The right to property in all mortgages, liens,
interests, penalties and charges owing to the
creditors of AGRIX is arbitrarily destroyed. No
consideration is paid for the extinction of the
mortgage rights. The accrued interests and other
charges are simply rejected by the decree. The right
to property is dissolved by legislative fiat without
regard to the private interest violated and, worse, in
favor of another private interest.
A mortgage lien is a property right derived from
contract and so comes under the protection of the
Bill of Rights. So do interests on loans, as well as
penalties and charges, which are also vested rights
once they accrue. Private property cannot simply be
taken by law from one person and given to another
without compensation and any known public
purpose. This is plain arbitrariness and is not
permitted under the Constitution.
And not only is there arbitrary taking, there is
discrimination as well. In extinguishing the mortgage
and other liens, the decree lumps the secured
creditors with the unsecured creditors and places
them on the same level in the prosecution of their
respective claims. In this respect, all of them are
considered unsecured creditors. The only
concession given to the secured creditors is that
their loans are allowed to earn interest from the date
of the decree, but that still does not justify the
cancellation of the interests earned before that date.
Such interests, whether due to the secured or the
unsecured creditors, are all extinguished by the
decree. Even assuming such cancellation to be
valid, we still cannot see why all kinds of creditors,
regardless of security, are treated alike.
Under the equal protection clause, all persons or
things similarly situated must be treated alike, both
in the privileges conferred and the obligations
imposed. Conversely, all persons or things
differently situated should be treated differently. In
the case at bar, persons differently situated are
similarly treated, in disregard of the principle that
there should be equality only among equals.- nad
One may also well wonder why AGRIX was singled
out for government help, among other corporations
where the stockholders or investors were also
swindled. It is not clear why other companies
entitled to similar concern were not similarly treated.
And surely, the stockholders of the private
respondent, whose mortgage lien had been
cancelled and legitimate claims to accrued interests
rejected, were no less deserving of protection, which
they did not get. The decree operated, to use the
words of a celebrated case, 3 "with an evil eye and
an uneven hand."
On top of all this, New Agrix, Inc. was created by
special decree notwithstanding the provision of
Article XIV, Section 4 of the 1973 Constitution, then
in force, that:
SEC. 4. The Batasang Pambansa shall not, except
by general law, provide for the formation,
organization, or regulation of private corporations,
unless such corporations are owned or controlled by
the Government or any subdivision or
instrumentality thereof. 4
The new corporation is neither owned nor controlled
by the government. The National Development
Corporation was merely required to extend a loan of
not more than P10,000,000.00 to New Agrix, Inc.
Pending payment thereof, NDC would undertake the
management of the corporation, but with the
obligation of making periodic reports to the Agrix
board of directors. After payment of the loan, the
said board can then appoint its own management.
The stocks of the new corporation are to be issued
to the old investors and stockholders of AGRIX upon
proof of their claims against the abolished
corporation. They shall then be the owners of the
new corporation. New Agrix, Inc. is entirely private
and so should have been organized under the
Corporation Law in accordance with the above-cited
constitutional provision.
The Court also feels that the decree impairs the
obligation of the contract between AGRIX and the
private respondent without justification. While it is
true that the police power is superior to the
impairment clause, the principle will apply only
where the contract is so related to the public welfare
that it will be considered congenitally susceptible to
change by the legislature in the interest of the
greater number. 5 Most present-day contracts are of
that nature. But as already observed, the contracts
of loan and mortgage executed by AGRIX are purely
private transactions and have not been shown to be
affected with public interest. There was therefore no
warrant to amend their provisions and deprive the
private respondent of its vested property rights.
It is worth noting that only recently in the case of the
Development Bank of the Philippines v. NLRC, 6 we
sustained the preference in payment of a mortgage
creditor as against the argument that the claims of
laborers should take precedence over all other
claims, including those of the government. In
arriving at this ruling, the Court recognized the
mortgage lien as a property right protected by the
due process and contract clauses notwithstanding
the argument that the amendment in Section 110 of
the Labor Code was a proper exercise of the police
power.: nad

The Court reaffirms and applies that ruling in the

case at bar.

Our finding, in sum, is that Pres. Decree No. 1717 is

an invalid exercise of the police power, not being in
conformity with the traditional requirements of a
lawful subject and a lawful method. The extinction of
the mortgage and other liens and of the interest and
other charges pertaining to the legitimate creditors
of AGRIX constitutes taking without due process of
law, and this is compounded by the reduction of the
secured creditors to the category of unsecured
creditors in violation of the equal protection clause.
Moreover, the new corporation, being neither owned
nor controlled by the Government, should have been
created only by general and not special law. And
insofar as the decree also interferes with purely
private agreements without any demonstrated
connection with the public interest, there is likewise
an impairment of the obligation of the contract.

With the above pronouncements, we feel there is no

more need to rule on the authority of President
Marcos to promulgate Pres. Decree No. 1717 under
Amendment No. 6 of the 1973 Constitution. Even if
he had such authority, the decree must fall just the
same because of its violation of the Bill of Rights.

WHEREFORE, the petition is DISMISSED. Pres.

Decree No. 1717 is declared
UNCONSTITUTIONAL. The temporary restraining
order dated August 30, 1988, is LIFTED. Costs
against the petitioners.- nad

SO ORDERED.
 Republic of the Philippines
 (60) days from March 16, 1962 or on or before May
SUPREME COURT
 14, 1962;
Manila
EN BANC
G.R. No. L-19891 July 31, 1964
J.R.S. BUSINESS CORPORATION, J.R. DA SILVA
and A.J. BELTRAN, petitioners, 
 move for the execution of the decision to be
vs.
 rendered in the above-entitled case by this
IMPERIAL INSURANCE, INC., MACARIO M.
OFILADA, Sheriff of Manila and 
 AGREEMENT.
HON. AGUSTIN MONTESA, Judge of the Court of
First Instance of Manila, respondents.
Felipe N. Aurea for petitioners.
 compromise agreement, the dispositive portion of
Tañada, Teehankee and Carreon for respondent
Imperial Insurance, Inc.
PAREDES, J.:
Petitioner J. R. Da Silva, is the President of the
J.R.S. Business Corporation, an establishment duly
franchised by the Congress of the Philippines, to
conduct a messenger and delivery express service.
On July 12, 1961, the respondent Imperial
Insurance, Inc., presented with the CFI of Manila a
complaint (Civ. Case No. 47520), for sum of money
against the petitioner corporation. After the
defendants therein have submitted their Answer, the
parties entered into a Compromise Agreement,
assisted by their respective counsels, the pertinent
portions of which recite:
1) WHEREAS, the DEFENDANTS admit and
confess their joint and solidary indebtedness to the
PLAINTIFF in the full sum of PESOS SIXTY ONE
THOUSAND ONE HUNDRED SEVENTY-TWO &
32/100 (P61,172.32), Philippine Currency, itemized
as follows:
a) Principal
P50,000.00
b) Interest at 12% per annum
5,706.14
c) Liquidated damages at 7% per annum
3,330.58
d) Costs of suit
135.60
e) Attorney's fees
2,000.00
2) WHEREAS, the DEFENDANTS bind themselves,
jointly and severally, and hereby promise to pay their
aforementioned obligation to the PLAINTIFF at its
business address at 301-305 Banquero St., (Ground
Floor), Regina Building, Escolta, Manila, within sixty
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
Honorable Court based on this COMPROMISE
On March 17, 1962, the lower court rendered
judgment embodying the contents of the said
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. 1äwphï1.ñët
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).
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.

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
 Republic of the Philippines
 prays that the complaint be dismissed with costs
SUPREME COURT
 and plaintiff required to reconvey the land to
Manila
EN BANC
G.R. No. L-4935 May 28, 1954
J. M. TUASON & CO., INC., represented by it
Managing PARTNER, GREGORIA ARANETA,
INC., plaintiff-appellee, 

vs.
 Appealing directly to this court because of the value
QUIRINO BOLAÑOS, defendant-appellant.
Araneta and Araneta for appellee.

Jose A. Buendia for appellant.
REYES, J.:
This is an action originally brought in the Court of
First Instance of Rizal, Quezon City Branch, to
recover possesion of registered land situated in
barrio Tatalon, Quezon City.
Plaintiff's complaint was amended three times with
respect to the extent and description of the land
sought to be recovered. The original complaint
described the land as a portion of a lot registered in
plaintiff's name under Transfer Certificate of Title No.
37686 of the land record of Rizal Province and as
containing an area of 13 hectares more or less. But
the complaint was amended by reducing the area of
6 hectares, more or less, after the defendant had
indicated the plaintiff's surveyors the portion of land
claimed and occupied by him. The second
amendment became necessary and was allowed
following the testimony of plaintiff's surveyors that a
portion of the area was embraced in another
certificate of title, which was plaintiff's Transfer
Certificate of Title No. 37677. And still later, in the
course of trial, after defendant's surveyor and
witness, Quirino Feria, had testified that the area
occupied and claimed by defendant was about 13
hectares, as shown in his Exhibit 1, plaintiff again,
with the leave of court, amended its complaint to
make its allegations conform to the evidence.
Defendant, in his answer, sets up prescription and
title in himself thru "open, continuous, exclusive and
public and notorious possession (of land in dispute)
under claim of ownership, adverse to the entire
world by defendant and his predecessor in interest"
from "time 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
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.
of the property involved, defendant makes the
following assignment or errors:
I. The trial court erred in not dismissing the case on
the ground that the case was not brought by the real
property in interest.
II. The trial court erred in admitting the third
amended complaint.
III. The trial court erred in denying defendant's
motion to strike.
IV. The trial court erred in including in its decision
land not involved in the litigation.
V. The trial court erred in holding that the land in
dispute is covered by transfer certificates of Title
Nos. 37686 and 37677.
Vl. The trial court erred in not finding that the
defendant is the true and lawful owner of the land.
VII. The trial court erred in finding that the defendant
is liable to pay the plaintiff the amount of P132.62
monthly from January, 1940, until he vacates the
premises.
VIII. The trial court erred in not ordering the plaintiff
to reconvey the land in litigation to the defendant.
As to the first assigned error, there is nothing to the
contention that the present action is not brought by
the real party in interest, that is, by J. M. Tuason and
Co., Inc. What the Rules of Court require is that an
action be brought in the name of, but not
necessarily by, the real party in interest. (Section 2,
Rule 2.) In fact the practice is for an attorney-at-law
to bring the action, that is to file the complaint, in the
name of the plaintiff. That practice appears to have
been followed in this case, since the complaint is
signed by the law firm of Araneta and Araneta,
"counsel for plaintiff" and commences with the
statement "comes now plaintiff, through its
undersigned counsel." It is true that the complaint
also states that the plaintiff is "represented herein by
its Managing Partner Gregorio Araneta, Inc.",
another corporation, but there is nothing against one
corporation being represented by another person,
natural or juridical, in a suit in court. The contention
that Gregorio Araneta, Inc. can not act as managing
partner for plaintiff on the theory that it is illegal for
two corporations to enter into a partnership is
without merit, for the true rule is that "though a
corporation has no power to enter into a partnership,
it may nevertheless enter into a joint venture with
another where the nature of that venture is in line
with the business authorized by its
charter." (Wyoming-Indiana Oil Gas Co. vs. Weston,
80 A. L. R., 1043, citing 2 Fletcher Cyc. of Corp.,
1082.) There is nothing in the record to indicate that
the venture in which plaintiff is represented by
Gregorio Araneta, Inc. as "its managing partner" is
not in line with the corporate business of either of
them.
Errors II, III, and IV, referring to the admission of the
third amended complaint, may be answered by mere
reference to section 4 of Rule 17, Rules of Court,
which sanctions such amendment. It reads:
Sec. 4. Amendment to conform to evidence. —
When issues not raised by the pleadings are tried by
express or implied consent of the parties, they shall
be treated in all respects, as if they had been raised
in the pleadings. Such amendment of the pleadings
as may be necessary to cause them to conform to
the evidence and to raise these issues may be
made upon motion of any party at my time, even of
the trial of these issues. If evidence is objected to at
the trial on the ground that it is not within the issues
made by the pleadings, the court may allow the
pleadings to be amended and shall be so freely
when the presentation of the merits of the action will
be subserved thereby and the objecting party fails to
satisfy the court that the admission of such evidence
would prejudice him in maintaining his action or
defense upon the merits. The court may grant a
continuance to enable the objecting party to meet
such evidence.
Under this provision amendment is not even
necessary for the purpose of rendering judgment on
issues proved though not alleged. Thus,
commenting on the provision, Chief Justice Moran
says in this Rules of Court:
Under this section, American courts have, under the
New Federal Rules of Civil Procedure, ruled that
where the facts shown entitled plaintiff to relief other
than that asked for, no amendment to the complaint
is necessary, especially where defendant 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 Bolaños,"
defendant later changed his lawyer and also his
theory and tried to prove that the land in dispute was
not covered by plaintiff's certificate of title. The
evidence, however, is against defendant, for it
clearly establishes that plaintiff is the registered
owner of lot No. 4-B-3-C, situate in barrio Tatalon,
Quezon City, with an area of 5,297,429.3 square
meters, more or less, covered by transfer certificate
of title No. 37686 of the land records of Rizal
province, and of lot No. 4-B-4, situated in the same
barrio, having an area of 74,789 square meters,
more or less, covered by transfer certificate of title
No. 37677 of the land records of the same province,
both lots having been originally registered on July 8,
1914 under original certificate of title No. 735. The
identity of the lots was established by the testimony
of Antonio Manahan and Magno Faustino, witnesses
for plaintiff, and the identity of the portion thereof
claimed by defendant was established by the
testimony of his own witness, Quirico Feria. The
combined testimony of these three witnesses clearly
shows that the portion claimed by defendant is
made up of a part of lot 4-B-3-C and major on
portion of lot 4-B-4, and is well within the area
covered by the two transfer certificates of title
already mentioned. This fact also appears admitted
in defendant's answer to the third amended
complaint.
As the land in dispute is covered by plaintiff's
Torrens certificate of title and was registered in
1914, the decree of registration can no longer be
impugned on the ground of fraud, error or lack of
notice to defendant, as more than one year has
already elapsed from the issuance and entry of the
decree. Neither court the decree be collaterally
attacked by any person claiming title to, or interest
in, the land prior to the registration proceedings.
(Soroñgon vs. Makalintal,1 45 Off. Gaz., 3819.) Nor
could title to that land in derogation of that of
plaintiff, the registered owner, be acquired by
prescription or adverse possession. (Section 46, Act
No. 496.) Adverse, notorious and continuous
possession under claim of ownership for the period
fixed by law is ineffective against a Torrens title.
(Valiente vs. Judge of CFI of Tarlac,2 etc., 45 Off.
Gaz., Supp. 9, p. 43.) And it is likewise settled that
the right to secure possession under a decree of
registration does not prescribed. (Francisco vs.
Cruz, 43 Off. Gaz., 5105, 5109-5110.) A recent
decision of this Court on this point is that rendered in
the case of Jose Alcantara et al., vs. Mariano et al.,
92 Phil., 796. This disposes of the alleged errors V
and VI.

As to error VII, it is claimed that `there was no

evidence to sustain the finding that defendant
should be sentenced to pay plaintiff P132.62
monthly from January, 1940, until he vacates the
premises.' But it appears from the record that that
reasonable compensation for the use and
occupation of the premises, as stipulated at the
hearing was P10 a month for each hectare and that
the area occupied by defendant was 13.2619
hectares. The total rent to be paid for the area
occupied should therefore be P132.62 a month. It is
appears from the testimony of J. A. Araneta and
witness Emigdio Tanjuatco that as early as 1939 an
action of ejectment had already been filed against
defendant. And it cannot be supposed that
defendant has been paying rents, for he has been
asserting all along that the premises in question
'have always been since time immemorial in open,
continuous, exclusive and public and notorious
possession and under claim of ownership adverse to
the entire world by defendant and his predecessors
in interest.' This assignment of error is thus clearly
without merit.

Error No. VIII is but a consequence of the other

errors alleged and needs for further consideration.

During the pendency of this case in this Court

appellant, thru other counsel, has filed a motion to
dismiss alleging that there is pending before the
Court of First Instance of Rizal another action
between the same parties and for the same cause
and seeking to sustain that allegation with a copy of
the complaint filed in said action. But an examination
of that complaint reveals that appellant's allegation
is not correct, for the pretended identity of parties
and cause of action in the two suits does not appear.
That other case is one for recovery of ownership,
while the present one is for recovery of possession.
And while appellant claims that he is also involved in
that order action because it is a class suit, the
complaint does not show that such is really the
case. On the contrary, it appears that the action
seeks relief for each individual plaintiff and not relief
for and on behalf of others. The motion for dismissal
is clearly without merit.

Wherefore, the judgment appealed from is affirmed,

with costs against the plaintiff.
 Republic of the Philippines
 subsequent elections for directors of Sanitary Wares
SUPREME COURT
 Manufacturing Corporation (Saniwares), American
Manila
THIRD DIVISION
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
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."

LUCIANO E. SALAZAR, petitioner, 
 The Agreement has the following provisions relevant
vs.
 to the issues in these cases on the nomination and
SANITARY WARES MANUFACTURING election of the directors of the corporation:
CORPORATION, ERNESTO V. LAGDAMEO,
ERNESTO R. LAGDAMEO, JR., ENRIQUE R.
3. Articles of Incorporation
LAGDAMEO, GEORGE F. LEE, RAUL A.
BONCAN, BALDWIN YOUNG, AVELINO V. CRUZ
and the COURT OF APPEALS, respondents. (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
Belo, Abiera & Associates for petitioners in 75875.
law, shall specifically provide for
Sycip, Salazar, Hernandez & Gatmaitan for Luciano
(1) Cumulative voting for directors:
E. Salazar.
xxx xxx xxx


5. Management
GUTIERREZ, JR., J.:
(a) The management of the Corporation shall be
vested in a Board of Directors, which shall consist of
These consolidated petitions seek the review of the
nine individuals. As long as American-Standard shall
amended decision of the Court of Appeals in CA-
own at least 30% of the outstanding stock of the
G.R. SP Nos. 05604 and 05617 which set aside the
Corporation, three of the nine directors shall be
earlier decision dated June 5, 1986, of the then
designated by American-Standard, and the other six
Intermediate Appellate Court and directed that in all
shall be designated by the other stockholders of the
Corporation. (pp. 51 & 53, Rollo of 75875)
At the request of ASI, the agreement contained
provisions designed to protect it as a minority group,
including the grant of veto powers over a number of
corporate acts and the right to designate certain
officers, such as a member of the Executive
Committee whose vote was required for important
corporate transactions.
Later, the 30% capital stock of ASI was increased to
40%. The corporation was also registered with the
Board of Investments for availment of incentives
with the condition that at least 60% of the capital
stock of the corporation shall be owned by Philippine
nationals.
The joint enterprise thus entered into by the Filipino
investors and the American corporation prospered.
Unfortunately, with the business successes, there
came a deterioration of the initially harmonious
relations between the two groups. According to the
Filipino group, a basic disagreement was due to
their desire to expand the export operations of the
company to which ASI objected as it apparently had
other subsidiaries of joint joint venture groups in the
countries where Philippine exports were
contemplated. On March 8, 1983, the annual
stockholders' meeting was held. The meeting was
presided by Baldwin Young. The minutes were taken
by the Secretary, Avelino Cruz. After disposing of the
preliminary items in the agenda, the stockholders
then proceeded to the election of the members of
the board of directors. The ASI group nominated
three persons namely; Wolfgang Aurbach, John
Griffin and David P. Whittingham. The Philippine
investors nominated six, namely; Ernesto
Lagdameo, Sr., Raul A. Boncan, Ernesto R.
Lagdameo, Jr., George F. Lee, and Baldwin Young.
Mr. Eduardo R, Ceniza then nominated Mr. Luciano
E. Salazar, who in turn nominated Mr. Charles
Chamsay. The chairman, Baldwin Young ruled the
last two nominations out of order on the basis of
section 5 (a) of the Agreement, the consistent
practice of the parties during the past annual
stockholders' meetings to nominate only nine
persons as nominees for the nine-member board of
directors, and the legal advice of Saniwares' legal
counsel. The following events then, transpired:
... There were protests against the action of the
Chairman and heated arguments ensued. An appeal
was made by the ASI representative to the body of
stockholders present that a vote be taken on the
ruling of the Chairman. The Chairman, Baldwin
Young, declared the appeal out of order and no vote
on the ruling was taken. The Chairman then
instructed the Corporate Secretary to cast all the
votes present and represented by proxy equally for
the 6 nominees of the Philippine Investors and the 3
nominees of ASI, thus effectively excluding the 2
additional persons nominated, namely, Luciano E.
S a l a z a r a n d C h a r l e s C h a m s a y. T h e A S I
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
T H E A L L E G E D E L E C T I O N O F P R I VAT E
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:
1 1 . 1 .
ThatAmendedDecisionwouldsanctiontheCA'sdisrega
rd 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
C AT E G O R I C A L LY R U L E T H AT P R I VAT E
PETITIONERS HEREIN WERE THE DULY
ELECTED DIRECTORS DURING THE 8 MARCH
1983 ANNUAL STOCKHOLDERS MEETING OF
SANTWARES. (P. 24, Rollo-75951)
The issues raised in the petitions are interrelated,
hence, they are discussed jointly.
The main issue hinges on who were the duly elected
directors of Saniwares for the year 1983 during its
annual stockholders' meeting held on March 8,
1983. To answer this question the following factors
should be determined: (1) the nature of the business
established by the parties whether it was a joint
venture or a corporation and (2) whether or not the
ASI Group may vote their additional 10% equity
during elections of Saniwares' board of directors.
The rule is that whether the parties to a particular
contract have thereby established among
themselves a joint venture or some other relation
depends upon their actual intention which is
determined in accordance with the rules governing
the interpretation and construction of contracts.
(Terminal Shares, Inc. v. Chicago, B. and Q.R. Co.
(DC MO) 65 F Supp 678; Universal Sales Corp. v.
California Press Mfg. Co. 20 Cal. 2nd 751, 128 P
2nd 668)
The ASI Group and petitioner Salazar (G.R. Nos.
75975-76) contend that the actual intention of the
parties should be viewed strictly on the "Agreement"
dated August 15,1962 wherein it is clearly stated
that the parties' intention was to form a corporation
and not a joint venture.
They specifically mention number 16
under Miscellaneous Provisions which states:
xxx xxx xxx
c) nothing herein contained shall be construed to
constitute any of the parties hereto partners or joint
venturers in respect of any transaction hereunder.
(At P. 66, Rollo-GR No. 75875)
They object to the admission of other evidence
which tends to show that the parties' agreement was
to establish a joint venture presented by the
Lagdameo and Young Group on the ground that it
contravenes the parol evidence rule under section 7,
Rule 130 of the Revised Rules of Court. According
to them, the Lagdameo and Young Group never
pleaded in their pleading that the "Agreement" failed
to express the true intent of the parties.
The parol evidence Rule under Rule 130 provides:
Evidence of written agreements-When the terms of
an agreement have been reduced to writing, it is to
be considered as containing all such terms, and
therefore, there can be, between the parties and
their successors in interest, no evidence of the
terms of the agreement other than the contents of
the writing, except in the following cases:
(a) Where a mistake or imperfection of the writing, or
its failure to express the true intent and agreement
of the parties or the validity of the agreement is put
in issue by the pleadings.
(b) When there is an intrinsic ambiguity in the
writing.
Contrary to ASI Group's stand, the Lagdameo and
Young Group pleaded in their Reply and Answer to
Counterclaim in SEC Case No. 2417 that the
Agreement failed to express the true intent of the
parties, to wit:
xxx xxx xxx
4. While certain provisions of the Agreement would
make it appear that the parties thereto disclaim
being partners or joint venturers such disclaimer is
directed at third parties and is not inconsistent with,
and does not preclude, the existence of two distinct
groups of stockholders in Saniwares one of which
(the Philippine Investors) shall constitute the
majority, and the other ASI shall constitute the
minority stockholder. In any event, the evident
intention of the Philippine Investors and ASI in
entering into the Agreement is to enter into ajoint
venture enterprise, and if some words in the
Agreement appear to be contrary to the evident
intention of the parties, the latter shall prevail over
the former (Art. 1370, New Civil Code). The various
stipulations of a contract shall be interpreted
together attributing to the doubtful ones that sense
which may result from all of them taken jointly (Art.
1374, New Civil Code). Moreover, in order to judge
the intention of the contracting parties, their
contemporaneous and subsequent acts shall be
principally considered. (Art. 1371, New Civil Code).
(Part I, Original Records, SEC Case No. 2417)
It has been ruled:
In an action at law, where there is evidence tending
to prove that the parties joined their efforts in
furtherance of an enterprise for their joint profit, the
question whether they intended by their agreement
to create a joint adventure, or to assume some other
relation is a question of fact for the jury. (Binder v.
Kessler v 200 App. Div. 40,192 N Y S 653; Pyroa v.
Brownfield (Tex. Civ. A.) 238 SW 725; Hoge v.
George, 27 Wyo, 423, 200 P 96 33 C.J. p. 871)
In the instant cases, our examination of important
provisions of the Agreement as well as the
testimonial evidence presented by the Lagdameo
and Young Group shows that the parties agreed to
establish a joint venture and not a corporation. The
history of the organization of Saniwares and the
unusual arrangements which govern its policy
making body are all consistent with a joint venture
and not with an ordinary corporation. As stated by
the SEC:
According to the unrebutted testimony of Mr.
Baldwin Young, he negotiated the Agreement with
ASI in behalf of the Philippine nationals. He testified
that ASI agreed to accept the role of minority vis-a-
vis the Philippine National group of investors, on the
condition that the Agreement should contain
provisions to protect ASI as the minority.
An examination of the Agreement shows that certain
provisions were included to protect the interests of
ASI as the minority. For example, the vote of 7 out of
9 directors is required in certain enumerated
corporate acts [Sec. 3 (b) (ii) (a) of the Agreement].
ASI is contractually entitled to designate a member
of the Executive Committee and the vote of this
member is required for certain transactions [Sec. 3
(b) (i)].
The Agreement also requires a 75% super-majority
vote for the amendment of the articles and by-laws
of Saniwares [Sec. 3 (a) (iv) and (b) (iii)]. ASI is also
given the right to designate the president and plant
manager [Sec. 5 (6)]. The Agreement further
provides that the sales policy of Saniwares shall be
that which is normally followed by ASI [Sec. 13 (a)]
and that Saniwares should not export "Standard"
products otherwise than through ASI's Export
Marketing Services [Sec. 13 (6)]. Under the
Agreement, ASI agreed to provide technology and
know-how to Saniwares and the latter paid royalties
for the same. (At p. 2).
xxx xxx xxx
It is pertinent to note that the provisions of the
Agreement requiring a 7 out of 9 votes of the board
of directors for certain actions, in effect gave ASI
(which designates 3 directors under the Agreement)
an effective veto power. Furthermore, the grant to
ASI of the right to designate certain officers of the
corporation; the super-majority voting requirements
for amendments of the articles and by-laws; and
most significantly to the issues of tms case, the
provision that ASI shall designate 3 out of the 9
directors and the other stockholders shall designate
the other 6, clearly indicate that there are two
distinct groups in Saniwares, namely ASI, which
owns 40% of the capital stock and the Philippine
National stockholders who own the balance of 60%,
and that 2) ASI is given certain protections as the
minority stockholder.
Premises considered, we believe that under the
Agreement there are two groups of stockholders
who established a corporation with provisions for a
special contractual relationship between the parties,
i.e., ASI and the other stockholders. (pp. 4-5)
Section 5 (a) of the agreement uses the word
"designated" and not "nominated" or "elected" in the
selection of the nine directors on a six to three ratio.
Each group is assured of a fixed number of directors
in the board.
Moreover, ASI in its communications referred to the
enterprise as joint venture. Baldwin Young also
testified that Section 16(c) of the Agreement that
"Nothing herein contained shall be construed to
constitute any of the parties hereto partners or joint
venturers in respect of any transaction hereunder"
was merely to obviate the possibility of the
enterprise being treated as partnership for tax
purposes and liabilities to third parties.
Quite often, Filipino entrepreneurs in their desire to
develop the industrial and manufacturing capacities
of a local firm are constrained to seek the
technology and marketing assistance of huge
multinational corporations of the developed world.
Arrangements are formalized where a foreign group
becomes a minority owner of a firm in exchange for
its manufacturing expertise, use of its brand names,
and other such assistance. However, there is always
a danger from such arrangements. The foreign
group may, from the start, intend to establish its own
sole or monopolistic operations and merely uses the
joint venture arrangement to gain a foothold or test
the Philippine waters, so to speak. Or the
covetousness may come later. As the Philippine firm
enlarges its operations and becomes profitable, the
foreign group undermines the local majority
ownership and actively tries to completely or
predominantly take over the entire company. This
undermining of joint ventures is not consistent with
fair dealing to say the least. To the extent that such
subversive actions can be lawfully prevented, the
courts should extend protection especially in
industries where constitutional and legal
requirements reserve controlling ownership to
Filipino citizens.
The Lagdameo Group stated in their appellees' brief
in the Court of Appeal
In fact, the Philippine Corporation Code itself
recognizes the right of stockholders to enter into
agreements regarding the exercise of their voting
rights.
Sec. 100. Agreements by stockholders.-
xxx xxx xxx
2. An agreement between two or more stockholders,
if in writing and signed by the parties thereto, may
provide that in exercising any voting rights, the
shares held by them shall be voted as therein
provided, or as they may agree, or as determined in
accordance with a procedure agreed upon by them.
Appellants contend that the above provision is
included in the Corporation Code's chapter on close
corporations and Saniwares cannot be a close
corporation because it has 95 stockholders. Firstly,
although Saniwares had 95 stockholders at the time
of the disputed stockholders meeting, these 95
stockholders are not separate from each other but
are divisible into groups representing a single
Identifiable interest. For example, ASI, its nominees
and lawyers count for 13 of the 95 stockholders. The
Yo u n g Yu t i v o f a m i l y c o u n t f o r a n o t h e r 1 3
stockholders, the Chamsay family for 8
stockholders, the Santos family for 9 stockholders,
the Dy family for 7 stockholders, etc. If the members
of one family and/or business or interest group are
considered as one (which, it is respectfully
submitted, they should be for purposes of
determining how closely held Saniwares is there
were as of 8 March 1983, practically only 17
stockholders of Saniwares. (Please refer to
discussion in pp. 5 to 6 of appellees' Rejoinder
Memorandum dated 11 December 1984 and Annex
"A" thereof).
Secondly, even assuming that Saniwares is
technically not a close corporation because it has
more than 20 stockholders, the undeniable fact is
that it is a close-held corporation. Surely, appellants
cannot honestly claim that Saniwares is a public
issue or a widely held corporation.
In the United States, many courts have taken a
realistic approach to joint venture corporations and
have not rigidly applied principles of corporation law
designed primarily for public issue corporations.
These courts have indicated that express
arrangements between corporate joint ventures
should be construed with less emphasis on the
ordinary rules of law usually applied to corporate
entities and with more consideration given to the
nature of the agreement between the joint venturers
(Please see Wabash Ry v. American Refrigerator
Transit Co., 7 F 2d 335; Chicago, M & St. P. Ry v.
Des Moines Union Ry; 254 Ass'n. 247 US. 490';
Seaboard Airline Ry v. Atlantic Coast Line Ry; 240
N.C. 495,.82 S.E. 2d 771; Deboy v. Harris, 207 Md.,
212,113 A 2d 903; Hathway v. Porter Royalty Pool,
Inc., 296 Mich. 90, 90, 295 N.W. 571; Beardsley v.
Beardsley, 138 U.S. 262; "The Legal Status of Joint
Venture Corporations", 11 Vand Law Rev. p.
680,1958). These American cases dealt with legal
questions as to the extent to which the requirements
arising from the corporate form of joint venture
corporations should control, and the courts ruled
that substantial justice lay with those litigants who
relied on the joint venture agreement rather than the
litigants who relied on the orthodox principles of
corporation law.
As correctly held by the SEC Hearing Officer:
It is said that participants in a joint venture, in
organizing the joint venture deviate from the
traditional pattern of corporation management. A
noted authority has pointed out that just as in close
corporations, shareholders' agreements in joint
venture corporations often contain provisions which
do one or more of the following: (1) require greater
than majority vote for shareholder and director
action; (2) give certain shareholders or groups of
shareholders power to select a specified number of
directors; (3) give to the shareholders control over
the selection and retention of employees; and (4) set
up a procedure for the settlement of disputes by
arbitration (See I O' Neal, Close Corporations, 1971
ed., Section 1.06a, pp. 15-16) (Decision of SEC
Hearing Officer, P. 16)
Thirdly paragraph 2 of Sec. 100 of the Corporation
Code does not necessarily imply that agreements
regarding the exercise of voting rights are allowed
only in close corporations. As Campos and Lopez-
Campos explain:
Paragraph 2 refers to pooling and voting
agreements in particular. Does this provision
necessarily imply that these agreements can be
valid only in close corporations as defined by the
Code? Suppose that a corporation has twenty five
stockholders, and therefore cannot qualify as a
close corporation under section 96, can some of
them enter into an agreement to vote as a unit in the
election of directors? It is submitted that there is no
reason for denying stockholders of corporations
other than close ones the right to enter into not
voting or pooling agreements to protect their
interests, as long as they do not intend to commit
any wrong, or fraud on the other stockholders not
parties to the agreement. Of course, voting or
pooling agreements are perhaps more useful and
more often resorted to in close corporations. But
they may also be found necessary even in widely
held corporations. Moreover, since the Code limits
the legal meaning of close corporations to those
which comply with the requisites laid down by
section 96, it is entirely possible that a corporation
which is in fact a close corporation will not come
within the definition. In such case, its stockholders
should not be precluded from entering into contracts
like voting agreements if these are otherwise valid.
(Campos & Lopez-Campos, op cit, p. 405)
In short, even assuming that sec. 5(a) of the
Agreement relating to the designation or nomination
of directors restricts the right of the Agreement's
signatories to vote for directors, such contractual
provision, as correctly held by the SEC, is valid and
binding upon the signatories thereto, which include
appellants. (Rollo No. 75951, pp. 90-94)
In regard to the question as to whether or not the
ASI group may vote their additional equity during
elections of Saniwares' board of directors, the Court
of Appeals correctly stated:
As in other joint venture companies, the extent of
ASI's participation in the management of the
corporation is spelled out in the Agreement. Section
5(a) hereof says that three of the nine directors shall
be designated by ASI and the remaining six by the
other stockholders, i.e., the Filipino stockholders.
This allocation of board seats is obviously in
consonance with the minority position of ASI.
Having entered into a well-defined contractual
relationship, it is imperative that the parties should
honor and adhere to their respective rights and
obligations thereunder. Appellants seem to contend
that any allocation of board seats, even in joint
venture corporations, are null and void to the extent
that such may interfere with the stockholder's rights
to cumulative voting as provided in Section 24 of the
Corporation Code. This Court should not be
prepared to hold that any agreement which curtails
in any way cumulative voting should be struck down,
even if such agreement has been freely entered into
by experienced businessmen and do not prejudice
those who are not parties thereto. It may well be that
it would be more cogent to hold, as the Securities
and Exchange Commission has held in the decision
appealed from, that cumulative voting rights may be
voluntarily waived by stockholders who enter into
special relationships with each other to pursue and
implement specific purposes, as in joint venture
relationships between foreign and local
stockholders, so long as such agreements do not
adversely affect third parties.
In any event, it is believed that we are not here
called upon to make a general rule on this question.
Rather, all that needs to be done is to give life and
effect to the particular contractual rights and
obligations which the parties have assumed for
themselves.
On the one hand, the clearly established minority
position of ASI and the contractual allocation of
board seats Cannot be disregarded. On the other
hand, the rights of the stockholders to cumulative
voting should also be protected.
In our decision sought to be reconsidered, we opted
to uphold the second over the first. Upon further
reflection, we feel that the proper and just solution to
give due consideration to both factors suggests itself
quite clearly. This Court should recognize and
uphold the division of the stockholders into two
groups, and at the same time uphold the right of the
stockholders within each group to cumulative voting
in the process of determining who the group's
nominees would be. In practical terms, as suggested
by appellant Luciano E. Salazar himself, this means
that if the Filipino stockholders cannot agree who
their six nominees will be, a vote would have to be
taken among the Filipino stockholders only. During
this voting, each Filipino stockholder can cumulate
his votes. ASI, however, should not be allowed to
interfere in the voting within the Filipino group.
Otherwise, ASI would be able to designate more
than the three directors it is allowed to designate
under the Agreement, and may even be able to get
a majority of the board seats, a result which is
clearly contrary to the contractual intent of the
parties.
Such a ruling will give effect to both the allocation of
the board seats and the stockholder's right to
cumulative voting. Moreover, this ruling will also give
due consideration to the issue raised by the
appellees on possible violation or circumvention of
the Anti-Dummy Law (Com. Act No. 108, as
amended) and the nationalization requirements of
the Constitution and the laws if ASI is allowed to
nominate more than three directors. (Rollo-75875,
pp. 38-39)
The ASI Group and petitioner Salazar, now reiterate
their theory that the ASI Group has the right to vote
their additional equity pursuant to Section 24 of the
Corporation Code which gives the stockholders of a
corporation the right to cumulate their votes in
electing directors. Petitioner Salazar adds that this
right if granted to the ASI Group would not
necessarily mean a violation of the Anti-Dummy Act
(Commonwealth Act 108, as amended). He cites
section 2-a thereof which provides:
And provided finally that the election of aliens as
members of the board of directors or governing body
of corporations or associations engaging in partially
nationalized activities shall be allowed in proportion
to their allowable participation or share in the capital
of such entities. (amendments introduced by
Presidential Decree 715, section 1, promulgated
May 28, 1975)
The ASI Group's argument is correct within the
context of Section 24 of the Corporation Code. The
point of query, however, is whether or not that
provision is applicable to a joint venture with clearly
defined agreements:
The legal concept of ajoint venture is of common law
origin. It has no precise legal definition but it has
been generally understood to mean an organization
formed for some temporary purpose. (Gates v.
Megargel, 266 Fed. 811 [1920]) It is in fact hardly
distinguishable from the partnership, since their
elements are similar community of interest in the
business, sharing of profits and losses, and a mutual
right of control. Blackner v. Mc Dermott, 176 F. 2d.
498, [1949]; Carboneau v. Peterson, 95 P. 2d., 1043
[1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P.
2d. 12 289 P. 2d. 242 [1955]). The main distinction
cited by most opinions in common law jurisdictions
is that the partnership contemplates a general
business with some degree of continuity, while the
joint venture is formed for the execution of a single
transaction, and is thus of a temporary nature. (Tufts
v. Mann 116 Cal. App. 170, 2 P. 2d. 500 [1931];
Harmon v. Martin, 395 111. 595, 71 NE 2d. 74
[1947]; Gates v. Megargel 266 Fed. 811 [1920]).
This observation is not entirely accurate in this
jurisdiction, since under the Civil Code, a
partnership may be particular or universal, and a
particular partnership may have for its object a
specific undertaking. (Art. 1783, Civil Code). It would
seem therefore that under Philippine law, a joint
venture is a form of partnership and should thus be
governed by the law of partnerships. The Supreme
Court has however recognized a distinction between
these two business forms, and has held that
although a corporation cannot enter into a
partnership contract, it may however engage in a
joint venture with others. (At p. 12, Tuazon v.
Bolanos, 95 Phil. 906 [1954]) (Campos and Lopez-
Campos Comments, Notes and Selected Cases,
Corporation Code 1981)
Moreover, the usual rules as regards the
construction and operations of contracts generally
apply to a contract of joint venture. (O' Hara v.
Harman 14 App. Dev. (167) 43 NYS 556).
Bearing these principles in mind, the correct view
would be that the resolution of the question of
whether or not the ASI Group may vote their
additional equity lies in the agreement of the
parties.
Necessarily, the appellate court was correct in
upholding the agreement of the parties as regards
the allocation of director seats under Section 5 (a) of
the "Agreement," and the right of each group of
stockholders to cumulative voting in the process of
determining who the group's nominees would be
under Section 3 (a) (1) of the "Agreement." As
pointed out by SEC, Section 5 (a) of the Agreement
relates to the manner of nominating the members of
the board of directors while Section 3 (a) (1) relates
to the manner of voting for these nominees.
This is the proper interpretation of the Agreement of
the parties as regards the election of members of
the board of directors.
To allow the ASI Group to vote their additional equity
to help elect even a Filipino director who would be
beholden to them would obliterate their minority
status as agreed upon by the parties. As aptly stated
by the appellate court:
... ASI, however, should not be allowed to interfere in
the voting within the Filipino group. Otherwise, ASI
would be able to designate more than the three
directors it is allowed to designate under the
Agreement, and may even be able to get a majority
of the board seats, a result which is clearly contrary
to the contractual intent of the parties.
Such a ruling will give effect to both the allocation of
the board seats and the stockholder's right to
cumulative voting. Moreover, this ruling will also give
due consideration to the issue raised by the
appellees on possible violation or circumvention of
the Anti-Dummy Law (Com. Act No. 108, as
amended) and the nationalization requirements of
the Constitution and the laws if ASI is allowed to
nominate more than three directors. (At p. 39, Rollo,
75875)
Equally important as the consideration of the
contractual intent of the parties is the consideration
as regards the possible domination by the foreign
investors of the enterprise in violation of the
nationalization requirements enshrined in the
Constitution and circumvention of the Anti-Dummy
Act. In this regard, petitioner Salazar's position is
that the Anti-Dummy Act allows the ASI group to
elect board directors in proportion to their share in
the capital of the entity. It is to be noted, however,
that the same law also limits the election of aliens as
members of the board of directors in proportion to
their allowance participation of said entity. In the
instant case, the foreign Group ASI was limited to
designate three directors. This is the allowable
participation of the ASI Group. Hence, in future
dealings, this limitation of six to three board seats
should always be maintained as long as the joint
venture agreement exists considering that in limiting
3 board seats in the 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 decision is AFFIRMED. Costs against the petitioners
(petitioners in G.R. No. 75951) object to a in G.R. Nos. 75975-76 and G.R. No. 75875.
cumulative voting during the election of the board of
directors of the enterprise as ruled by the appellate SO ORDERED.
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
 Republic of the Philippines
 The Act of Congress of April 29, 1908, repealing the
SUPREME COURT
 Shipping Act of April 30, 1906 but reenacting a
Manila
EN BANC
G.R. No. 15574 September 17, 1919
SMITH, BELL & COMPANY (LTD.), petitioner, 
 the Philippine Islands is hereby authorized to adopt,
vs.
 from time to time, and enforce regulations governing
JOAQUIN NATIVIDAD, Collector of Customs of
the port of Cebu, respondent.
Ross and Lawrence for petitioner. 

Attorney-General Paredes for respondent.
MALCOLM, J.:
A writ of mandamus is prayed for by Smith, Bell &
Co. (Ltd.), against Joaquin Natividad, Collector of
Customs of the port of Cebu, Philippine Islands, to
compel him to issue a certificate of Philippine
registry to the petitioner for its motor vessel Bato.
The Attorney-General, acting as counsel for
respondent, demurs to the petition on the general
ground that it does not state facts sufficient to
constitute a cause of action. While the facts are thus
admitted, and while, moreover, the pertinent
provisions of law are clear and understandable, and
interpretative American jurisprudence is found in
abundance, yet the issue submitted is not lightly to
be resolved. The question, flatly presented, is,
whether Act. No. 2761 of the Philippine Legislature
is valid — or, more directly stated, whether the
Government of the Philippine Islands, through its
Legislature, can deny the registry of vessels in its
coastwise trade to corporations having alien
stockholders.
FACTS.
Smith, Bell & Co., (Ltd.), is a corporation organized
and existing under the laws of the Philippine Islands.
A majority of its stockholders are British subjects. It
is the owner of a motor vessel known as
the Bato built for it in the Philippine Islands in 1916,
of more than fifteen tons gross The Bato was
brought to Cebu in the present year for the purpose
of transporting plaintiff's merchandise between ports
in the Islands. Application was made at Cebu, the
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.
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 transportation of merchandise and passengers
between ports or places in the Philippine
Archipelago. (35 Stat. at L., 70; Section 3912, U. S.
Comp Stat. [1916]; 7 Pub. Laws, 364.)
The Act of Congress of August 29, 1916, commonly
known as the Jones Law, still in force, provides in
section 3, (first paragraph, first sentence), 6, 7, 8,
10, and 31, as follows.
SEC. 3. That no law shall be enacted in said Islands
which shall deprive any person of life, liberty, or
property without due process of law, or deny to any
person therein the equal protection of the laws. . . .
SEC. 6. That the laws now in force in the Philippines
shall continue in force and effect, except as altered,
amended, or modified herein, until altered,
amended, or repealed by the legislative authority
herein provided or by Act of Congress of the United
States.
SEC. 7. That the legislative authority herein
provided shall have power, when not inconsistent
with this Act, by due enactment to amend, alter
modify, or repeal any law, civil or criminal, continued
in force by this Act as it may from time to time see
fit
This power shall specifically extend with the
limitation herein provided as to the tariff to all laws
relating to revenue provided as to the tariff to all
laws relating to revenue and taxation in effect in the
Philippines.
SEC. 8. That general legislative power, except as
otherwise herein provided, is hereby granted to the
Philippine Legislature, authorized by this Act.
SEC. 10. That while this Act provides that the
Philippine government shall have the authority to
enact a tariff law the trade relations between the
islands and the United States shall continue to be
governed exclusively by laws of the Congress of the
United States: Provided, That tariff acts or acts
amendatory to the tariff of the Philippine Islands
shall not become law until they shall receive the
approval of the President of the United States, nor
shall any act of the Philippine Legislature affecting
immigration or the currency or coinage laws of the
Philippines become a law until it has been approved
by the President of the United States: Provided
further, That the President shall approve or
disapprove any act mentioned in the foregoing
proviso within six months from and after its
enactment and submission for his approval, and if
not disapproved within such time it shall become a
law the same as if it had been specifically approved.
SEC. 31. That all laws or parts of laws applicable to
the Philippines not in conflict with any of the
provisions of this Act are hereby continued in force
and effect." (39 Stat at L., 546.)
On February 23, 1918, the Philippine Legislature
enacted Act No. 2761. The first section of this law
amended section 1172 of the Administrative Code to
read as follows:
SEC. 1172. Certificate of Philippine register. —
Upon registration of a vessel of domestic ownership,
and of more than fifteen tons gross, a certificate of
Philippine register shall be issued for it. If the vessel
is of domestic ownership and of fifteen tons gross or
less, the taking of the certificate of Philippine
register shall be optional with the owner.
"Domestic ownership," as used in this section,
means ownership vested in some one or more of the
following classes of persons: (a) Citizens or native
inhabitants of the Philippine Islands; (b) citizens of
the United States residing in the Philippine Islands;
(c) any corporation or company composed wholly of
citizens of the Philippine Islands or of the United
States or of both, created under the laws of the
United States, or of any State thereof, or of thereof,
or the managing agent or master of the vessel
resides in the Philippine Islands
Any vessel of more than fifteen gross tons which on
February eighth, nineteen hundred and eighteen,
had a certificate of Philippine register under existing
law, shall likewise be deemed a vessel of domestic
ownership so long as there shall not be any change
in the ownership thereof nor any transfer of stock of
the companies or corporations owning such vessel
to person not included under the last preceding
paragraph.
Sections 2 and 3 of Act No. 2761 amended sections
1176 and 1202 of the Administrative Code to read as
follows:
SEC. 1176. Investigation into character of vessel. —
No application for a certificate of Philippine register
shall be approved until the collector of customs is
satisfied from an inspection of the vessel that it is
engaged or destined to be engaged in legitimate
trade and that it is of domestic ownership as such
ownership is defined in section eleven hundred and
seventy-two of this Code.
The collector of customs may at any time inspect a
vessel or examine its owner, master, crew, or
passengers in order to ascertain whether the vessel
is engaged in legitimate trade and is entitled to have
or retain the certificate of Philippine register.
SEC. 1202. Limiting number of foreign officers and
engineers on board vessels. — No Philippine vessel
operating in the coastwise trade or on the high seas
shall be permitted to have on board more than one
master or one mate and one engineer who are not
citizens of the United States or of the Philippine
Islands, even if they hold licenses under section one
thousand one hundred and ninety-nine hereof. No
other person who is not a citizen of the United
States or of the Philippine Islands shall be an officer
or a member of the crew of such vessel. Any such
vessel which fails to comply with the terms of this
section shall be required to pay an additional
tonnage tax of fifty centavos per net ton per month
during the continuance of said failure.
ISSUES.
Predicated on these facts and provisions of law, the
issues as above stated recur, namely, whether Act
No 2761 of the Philippine Legislature is valid in
whole or in part — whether the Government of the
Philippine Islands, through its Legislature, can deny
the registry of vessel in its coastwise trade to
corporations having alien stockholders .
OPINION.
1. Considered from a positive standpoint, there can
exist no measure of doubt as to the power of the
Philippine Legislature to enact Act No. 2761. The Act
of Congress of April 29, 1908, with its specific
delegation of authority to the Government of the
Philippine Islands to regulate the transportation of
merchandise and passengers between ports or
places therein, the liberal construction given to the
provisions of the Philippine Bill, the Act of Congress
of July 1, 1902, by the courts, and the grant by the
Act of Congress of August 29, 1916, of general
legislative power to the Philippine Legislature, are
certainly superabundant authority for such a law.
While the Act of the local legislature may in a way be
inconsistent with the Act of Congress regulating the
coasting trade of the Continental United States, yet
the general rule that only such laws of the United
States have force in the Philippines as are expressly
extended thereto, and the abnegation of power by
Congress in favor of the Philippine Islands would
leave no starting point for convincing argument. As a
matter of fact, counsel for petitioner does not assail
legislative action from this direction (See U. S. vs.
Bull [1910], 15 Phil., 7; Sinnot vs. Davenport [1859]
22 How., 227.)
2. It is from the negative, prohibitory standpoint that
counsel argues against the constitutionality of Act
No. 2761. The first paragraph of the Philippine Bill of
Rights of the Philippine Bill, repeated again in the
first paragraph of the Philippine Bill of Rights as set
forth in the Jones Law, provides "That no law shall
be enacted in said Islands which shall deprive any
person of life, liberty, or property without due
process of law, or deny to any person therein the
equal protection of the laws." Counsel says that Act
No. 2761 denies to Smith, Bell & Co., Ltd., the equal
protection of the laws because it, in effect, prohibits
the corporation from owning vessels, and because
classification of corporations based on the
citizenship of one or more of their stockholders is
capricious, and that Act No. 2761 deprives the
corporation of its properly without due process of
law because by the passage of the law company
was automatically deprived of every beneficial
attribute of ownership in the Bato and left with the
naked title to a boat it could not use .
The guaranties extended by the Congress of the
United States to the Philippine Islands have been
used in the same sense as like provisions found in
the United States Constitution. While the "due
process of law and equal protection of the laws"
clause of the Philippine Bill of Rights is couched in
slightly different words than the corresponding
clause of the Fourteenth Amendment to the United
States Constitution, the first should be interpreted
and given the same force and effect as the latter.
(Kepner vs. U.S. [1904], 195 U. S., 100; Sierra vs.
Mortiga [1907], 204 U. S.,.470; U. S. vs. Bull [1910],
15 Phil., 7.) The meaning of the Fourteenth
Amendment has been announced in classic
decisions of the United States Supreme Court. Even
at the expense of restating what is so well known,
these basic principles must again be set down in
order to serve as the basis of this decision.
The guaranties of the Fourteenth Amendment and
so of the first paragraph of the Philippine Bill of
Rights, are universal in their application to all person
within the territorial jurisdiction, without regard to any
differences of race, color, or nationality. The word
"person" includes aliens. (Yick Wo vs. Hopkins
[1886], 118 U. S., 356; Truax vs. Raich [1915], 239
U. S., 33.) Private corporations, likewise, are
"persons" within the scope of the guaranties in so far
as their property is concerned. (Santa Clara
County vs. Southern Pac. R. R. Co. [1886], 118.U.
S., 394; Pembina Mining Co. vs. Pennsylvania
[1888],.125 U. S., 181 Covington & L. Turnpike
Road Co. vs. Sandford [1896], 164 U. S., 578.)
Classification with the end in view of providing
diversity of treatment may be made among
corporations, but must be based upon some
reasonable ground and not be a mere arbitrary
selection (Gulf, Colorado & Santa Fe Railway
Co. vs. Ellis [1897],.165 U. S., 150.) Examples of
laws held unconstitutional because of unlawful
discrimination against aliens could be cited.
Generally, these decisions relate to statutes which
had attempted arbitrarily to forbid aliens to engage
in ordinary kinds of business to earn their living.
(State vs. Montgomery [1900], 94 Maine, 192,
peddling — but see. Commonwealth vs. Hana
[1907], 195 Mass., 262; Templar vs. Board of
Examiners of Barbers [1902], 131 Mich., 254,
barbers; Yick Wo vs. Hopkins [1886], 118 U. S.,.356,
discrimination against Chinese; Truax vs. Raich
[1915], 239 U. S., 33; In re Parrott [1880], 1 Fed ,
481; Fraser vs. McConway & Torley Co. [1897], 82
Fed , 257; Juniata Limestone Co. vs. Fagley [1898],
187 Penn., 193, all relating to the employment of
aliens by private corporations.)
A literal application of general principles to the facts
before us would, of course, cause the inevitable
deduction that Act No. 2761 is unconstitutional by
reason of its denial to a corporation, some of whole
members are foreigners, of the equal protection of
the laws. Like all beneficient propositions, deeper
research discloses provisos. Examples of a denial of
rights to aliens notwithstanding the provisions of the
Fourteenth Amendment could be cited.
(Tragesser vs.Gray [1890], 73 Md., 250, licenses to
sell spirituous liquors denied to persons not citizens
of the United States; Commonwealth vs. Hana
[1907], 195 Mass , 262, excluding aliens from the
right to peddle; Patsone vs.Commonwealth of
Pennsylvania [1914], 232 U. S. , 138, prohibiting the
killing of any wild bird or animal by any
unnaturalized foreign-born resident; Ex parte Gilleti
[1915], 70 Fla., 442, discriminating in favor of
citizens with reference to the taking for private use
of the common property in fish and oysters found in
the public waters of the State; Heim vs. McCall
[1915], 239 U. S.,.175, and Crane vs. New York
[1915], 239 U. S., 195, limiting employment on
public works by, or for, the State or a municipality to
citizens of the United States.)
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 life-blood of the nation is lost. If
on the other hand these arteries are protected, then
the security of the country and the promotion of the
general welfare is sustained. Time and again, with
such conditions confronting it, has the executive
branch of the Government of the Philippine Islands,
always later with the sanction of the judicial branch,
taken a firm stand with reference to the presence of
undesirable foreigners. The Government has thus
assumed to act for the 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 Guariña [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.
 Republic of the Philippines
 intended to be used as the means of committing the
SUPREME COURT
 offense," which is described in the applications
Manila
EN BANC
G.R. No. L-19550 June 19, 1967
HARRY S. STONEHILL, ROBERT P. BROOKS,
JOHN J. BROOKS and KARL BECK, petitioners, 
 they do not describe with particularity the
vs.
 documents, books and things to be seized; (2) cash
HON. JOSE W. DIOKNO, in his capacity as
SECRETARY OF JUSTICE; JOSE LUKBAN, in his
capacity as Acting Director, National Bureau of
Investigation; SPECIAL PROSECUTORS PEDRO
D. CENZON, EFREN I. PLANA and MANUEL
VILLAREAL, JR. and ASST. FISCAL MANASES
G. REYES; JUDGE AMADO ROAN, Municipal
Court of Manila; JUDGE ROMAN CANSINO,
Municipal Court of Manila; JUDGE
HERMOGENES CALUAG, Court of First Instance
of Rizal-Quezon City Branch, and JUDGE
DAMIAN JIMENEZ, Municipal Court of Quezon
City, respondents.
Paredes, Poblador, Cruz and Nazareno and Meer,
Meer and Meer and Juan T. David for petitioners.

Office of the Solicitor General Arturo A. Alafriz,
Assistant Solicitor General Pacifico P. de Castro,
Assistant Solicitor General Frine C. Zaballero,
Solicitor Camilo D. Quiason and Solicitor C. Padua
for respondents.
CONCEPCION, C.J.:
Upon application of the officers of the government
named on the margin1 — hereinafter referred to as
Respondents-Prosecutors — several judges2 —
hereinafter referred to as Respondents-Judges —
issued, on different dates,3 a total of 42 search
warrants against petitioners herein4 and/or the
corporations of which they were officers,5 directed to
the any peace officer, to search the persons 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
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)
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.
I n t h e i r a n s w e r, r e s p o n d e n t s - p r o s e c u t o r s
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 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. 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.
1äwphï1.ñët
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 Constitution 13provides:
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, no specific 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
the searches and seizures therein made are illegal;
that the writ of preliminary injunction heretofore
issued, in connection with the documents, papers
and other effects thus seized in said residences of
herein petitioners is hereby made permanent; that
the writs prayed for are granted, insofar as the
documents, papers and other effects so seized in
the aforementioned residences are concerned; that
the aforementioned motion for Reconsideration and
Amendment should be, as it is hereby, denied; and
that the petition herein is dismissed and the writs
prayed for denied, as regards the documents,
papers and other effects seized in the twenty-nine
(29) places, offices and other premises enumerated
in the same Resolution, without special
pronouncement as to costs.
It is so ordered.

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, not in their petition or amended petition
herein, but in the Motion for Reconsideration and
Amendment of the Resolution of June 29, 1962. In
other words, said theory would appear to be
readjustment of that followed in said petitions, to suit
the approach intimated in the Resolution sought to
be reconsidered and amended. Then, too, some of
the affidavits or copies of alleged affidavits attached
to said motion for reconsideration, or submitted in
support thereof, contain either inconsistent
allegations, or allegations inconsistent with the
theory now advanced by petitioners herein.

Upon the other hand, we are not satisfied that the

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

We hold, therefore, that the doctrine adopted in the

Moncado case must be, as it is hereby, abandoned;
that the warrants for the search of three (3)
residences of herein petitioners, as specified in the
Resolution of June 29, 1962, are null and void; that

! respondents, to make and file the application for
EN BANC
[G.R. No. L-32409. February 27, 1971.]
BACHE & CO. (PHIL.), INC. and FREDERICK E.
SEGGERMAN, Petitioners, v. HON. JUDGE
VIVENCIO M. RUIZ, MISAEL P. VERA, in his
capacity as Commissioner of Internal Revenue,
ARTURO LOGRONIO, RODOLFO DE LEON,
GAVINO VELASQUEZ, MIMIR DELLOSA,
NICANOR ALCORDO, JOHN DOE, JOHN DOE,
JOHN DOE, and JOHN DOE, Respondents.
San Juan, Africa, Gonzales & San Agustin,
for Petitioners.
Solicitor General Felix Q. Antonio, Assistant
Solicitor General Crispin V . Bautista, Solicitor
Pedro A. Ramirez and Special Attorney Jaime M.
Maza for Respondents.
DECISION
VILLAMOR, J.:
This is an original action of certiorari, prohibition and
mandamus, with prayer for a writ of preliminary
mandatory and prohibitory injunction. In their petition
Bache & Co. (Phil.), Inc., a corporation duly
organized and existing under the laws of the
Philippines, and its President, Frederick E.
Seggerman, pray this Court to declare null and void
Search Warrant No. 2-M-70 issued by respondent
Judge on February 25, 1970; to order respondents
to desist from enforcing the same and/or keeping
the documents, papers and effects seized by virtue
thereof, as well as from enforcing the tax
assessments on petitioner corporation alleged by
petitioners to have been made on the basis of the
said documents, papers and effects, and to order
the return of the latter to petitioners. We gave due
course to the petition but did not issue the writ of
preliminary injunction prayed for therein.
The pertinent facts of this case, as gathered from
record, are as follows:chanrob1es virtual 1aw library
On February 24, 1970, respondent Misael P. Vera,
Commissioner of Internal Revenue, wrote a letter
addressed to respondent Judge Vivencio M. Ruiz
requesting the issuance of a search warrant against
petitioners for violation of Section 46(a) of the
National Internal Revenue Code, in relation to all
other pertinent provisions thereof, particularly
Sections 53, 72, 73, 208 and 209, and authorizing
Revenue Examiner Rodolfo de Leon, one of herein
search warrant which was attached to the letter.
In the afternoon of the following day, February 25,
1970, respondent De Leon and his witness,
respondent Arturo Logronio, went to the Court of
First Instance of Rizal. They brought with them the
following papers: respondent Vera’s 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 Leon’s
application for search warrant and respondent
Logronio’s deposition, Search Warrant No. 2-M-70
was then sign by respondent Judge and accordingly
issued.
Three days later, or on February 28, 1970, which
was a Saturday, the BIR agents served the search
warrant petitioners at the offices of petitioner
corporation on Ayala Avenue, Makati, Rizal.
Petitioners’ lawyers protested the search on the
ground that no formal complaint or transcript of
testimony was attached to the warrant. The agents
nevertheless proceeded with their search which
yielded six boxes of documents.
On March 3, 1970, petitioners filed a petition with
the Court of First Instance of Rizal praying that the
search warrant be quashed, dissolved or recalled,
that preliminary prohibitory and mandatory writs of
injunction be issued, that the search warrant be
declared null and void, and that the respondents be
ordered to pay petitioners, jointly and severally,
damages and attorney’s 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 compañero 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
Señoria que causaria cierta demora el
procedimiento apuntado en su enmienda en tal
forma que podria frustrar los fines de la justicia o si
Su Señoria 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 Señoria 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 Señoria 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 x 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
complainant’s 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 Judge’s
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 stenographer’s 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.
S e a r c h Wa r r a n t N o . 2 - M - 7 0 w a s i s s u e d
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, speaking thru Mr. Chief
Justice Roberto Concepcion,
said:jgc:chanrobles.com.ph
"The grave violation of the Constitution made in the
application for the contested search warrants was
compounded by the description therein made of the
effects to be searched for and seized, to
wit:chanrob1es virtual 1aw library
‘Books of accounts, financial records, vouchers,
journals, correspondence, receipts, ledgers,
portfolios, credit journals, typewriters, and other
documents and/or paper showing all business
transactions including disbursement receipts,
balance sheets and related profit and loss
statements.’
"Thus, the warrants authorized the search for and
seizure of records pertaining to all business
transactions of petitioners herein, regardless of
whether the transactions were legal or illegal. The
warrants sanctioned the seizure of all records of the
petitioners and the aforementioned corporations,
whatever their nature, thus openly contravening the
explicit command of our Bill of Rights — that the
things to be seized be particularly described — as
well as tending to defeat its major objective: the
elimination of general warrants."cralaw virtua1aw
library
While the term "all business transactions" does not
appear in Search Warrant No. 2-M-70, the said
warrant nevertheless tends to defeat the major
objective of the Bill of Rights, i.e., the elimination of
general warrants, for the language used therein is
so all-embracing as to include all conceivable
records of petitioner corporation, which, if seized,
could possibly render its business inoperative.
In Uy Kheytin, Et. Al. v. Villareal, etc., Et Al., 42 Phil.
886, 896, this Court had occasion to explain the
purpose of the requirement that the warrant should
particularly describe the place to be searched and
the things to be seized, to wit:jgc:chanrobles.com.ph
". . . Both the Jones Law (sec. 3) and General
Orders No. 58 (sec. 97) specifically require that a
search warrant should particularly describe the
place to be searched and the things to be seized.
The evident purpose and intent of this requirement
is to limit the things to be seized to those, and only
those, particularly described in the search warrant
— to leave the officers of the law with no discretion
regarding what articles they shall seize, to the end
that ‘unreasonable searches and seizures’ may not
be made, — that abuses may not be committed.
That this is the correct interpretation of this
constitutional provision is borne out by American
authorities."cralaw virtua1aw library
The purpose as thus explained could, surely and
effectively, be defeated under the search warrant
issued in this case.
A search warrant may be said to particularly
describe the things to be seized when the
description therein is as specific as the
circumstances will ordinarily allow (People v. Rubio;
57 Phil. 384); or when the description expresses a
conclusion of fact — not of law — by which the
warrant officer may be guided in making the search
and seizure (idem., dissent of Abad Santos, J.,); or
when the things described are limited to those which
bear direct relation to the offense for which the
warrant is being issued (Sec. 2, Rule 126, Revised
Rules of Court). The herein search warrant does not
conform to any of the foregoing tests. If the articles
desired to be seized have any direct relation to an
offense committed, the applicant must necessarily
have some evidence, other than those articles, to
prove the said offense; and the articles subject of
search and seizure should come in handy merely to
strengthen such evidence. In this event, the
description contained in the herein disputed warrant
should have mentioned, at least, the dates,
amounts, persons, and other pertinent data
regarding the receipts of payments, certificates of
stocks and securities, contracts, promissory notes,
deeds of sale, messages and communications,
checks, bank deposits and withdrawals, records of
foreign remittances, among others, enumerated in
the warrant.
Respondents contend that certiorari does not lie
because petitioners failed to file a motion for
reconsideration of respondent Judge’s 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 petitioner. On that score, petitioner corporation here
holding that a corporation is not entitled to immunity, stands on a different footing from the corporations in
under the 4th Amendment, against unreasonable Stonehill.
searches and seizures. A corporation is, after all, but
an association of individuals under an assumed The tax assessments referred to earlier in this
name and with a distinct legal entity. In organizing opinion were, if not entirely — as claimed by
itself as a collective body it waives no constitutional petitioners — at least partly — as in effect admitted
immunities appropriate to such body. Its property by respondents — based on the documents seized
cannot be taken without compensation. It can only by virtue of Search Warrant No. 2-M-70.
be proceeded against by due process of law, and is Furthermore, the fact that the assessments were
protected, under the 14th Amendment, against made some one and one-half months after the
unlawful discrimination . . ." (Hale v. Henkel, 201 search and seizure on February 25, 1970, is a
U.S. 43, 50 L. ed. 652.) strong indication that the documents thus seized
served as basis for the assessments. Those
"In Linn v. United States, 163 C.C.A. 470, 251 Fed. assessments should therefore not be enforced.
476, 480, it was thought that a different rule applied
to a corporation, the ground that it was not privileged PREMISES CONSIDERED, the petition is granted.
from producing its books and papers. But the rights Accordingly, Search Warrant No. 2-M-70 issued by
of a corporation against unlawful search and seizure respondent Judge is declared null and void;
are to be protected even if the same result might respondents are permanently enjoined from
have been achieved in a lawful way." (Silverthorne enforcing the said search warrant; the documents,
Lumber Company, Et. Al. v. United States of papers and effects seized thereunder are ordered to
America, 251 U.S. 385, 64 L. ed. 319.) be returned to petitioners; and respondent officials
the Bureau of Internal Revenue and their
In Stonehill, Et. Al. v. Diokno, Et Al., supra, this Court representatives are permanently enjoined from
impliedly recognized the right of a corporation to enforcing the assessments mentioned in Annex "G"
object against unreasonable searches and seizures, of the present petition, as well as other assessments
thus:jgc:chanrobles.com.ph based on the documents, papers and effects seized
under the search warrant herein nullified, and from
"As regards the first group, we hold that petitioners using the same against petitioners in any criminal or
herein have no cause of action to assail the legality other proceeding. No pronouncement as to costs.
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
 Republic of the Philippines
 1. Bataan Shipyard and Engineering Co., Inc.
SUPREME COURT
 (Engineering Island Shipyard and Mariveles
Manila
EN BANC
G.R. No. 75885 May 27, 1987
BATAAN SHIPYARD & ENGINEERING CO., INC.
(BASECO), petitioner, 

vs.
 5. Romson Realty, Inc.
PRESIDENTIAL COMMISSION ON GOOD
GOVERNMENT, CHAIRMAN JOVITO SALONGA,
COMMISSIONER MARY CONCEPCION
BAUTISTA, COMMISSIONER RAMON DIAZ,
COMMISSIONER RAUL R. DAZA,
COMMISSIONER QUINTIN S. DOROMAL, CAPT.
JORGE B. SIACUNCO, et al., respondents.
Apostol, Bernas, Gumaru, Ona and Associates for
petitioner.
Vicente G. Sison for intervenor A.T. Abesamis.
NARVASA, J.:
Challenged in this special civil action of certiorari
and prohibition by a private corporation known as
the Bataan Shipyard and Engineering Co., Inc. are:
(1) Executive Orders Numbered 1 and 2,
promulgated by President Corazon C. Aquino on
Fe b ru ary 2 8, 1986 and March 12, 1 9 8 6 ,
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.
Shipyard)
2. Baseco Quarry
3. Philippine Jai-Alai Corporation
4. Fidelity Management Co., 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.
3. To report to the Commission on Good
Government periodically.
Further, you are authorized to request for Military/
Security Support from the Military/Police authorities,
and such other acts essential to the achievement of
this sequestration order. 1
b. Order for Production of Documents
On the strength of the above sequestration order,
Mr. Jose M. Balde, acting for the PCGG, addressed
a letter dated April 18, 1986 to the President and
other officers of petitioner firm, reiterating an earlier
request for the production of certain documents, to
wit:
1. Stock Transfer Book
2. Legal documents, such as:
2.1. Articles of Incorporation
2.2. By-Laws
2.3. Minutes of the Annual Stockholders Meeting
from 1973 to 1986
2.4. Minutes of the Regular and Special Meetings of
the Board of Directors from 1973 to 1986
2.5. Minutes of the Executive Committee Meetings
from 1973 to 1986
2.6. Existing contracts with suppliers/contractors/
others.
3. Yearly list of stockholders with their corresponding
share/stockholdings from 1973 to 1986 duly certified
by the Corporate Secretary.
4. Audited Financial Statements such as Balance
Sheet, Profit & Loss and others from 1973 to
December 31, 1985.
5. Monthly Financial Statements for the current year
up to March 31, 1986.
6. Consolidated Cash Position Reports from January
to April 15, 1986.
7. Inventory listings of assets up dated up to March
31, 1986.
8. Updated schedule of Accounts Receivable and
Accounts Payable.
9. Complete list of depository banks for all funds
with the authorized signatories for withdrawals
thereof.
10. Schedule of company investments and
placements. 2
The letter closed with the warning that if the
documents were not submitted within five days, the
officers would be cited for "contempt in pursuance
with Presidential Executive Order Nos. 1 and 2."
c. Orders Re Engineer Island
(1) Termination of Contract for Security Services
A third order assailed by petitioner corporation,
hereafter referred to simply as BASECO, is that
issued on April 21, 1986 by a Capt. Flordelino B.
Zabala, a member of the task force assigned to
carry out the basic sequestration order. He sent a
letter to BASECO's Vice-President for
Finance, 3 terminating the contract for security
services within the Engineer Island compound
between BASECO and "Anchor and FAIRWAYS"
and "other civilian security agencies," CAPCOM
military personnel having already been assigned to
the area,
(2) Change of Mode of Payment of Entry Charges
On July 15, 1986, the same Capt. Zabala issued a
Memorandum addressed to "Truck Owners and
Contractors," particularly a "Mr. Buddy Ondivilla
National Marine Corporation," advising of the
amendment in part of their contracts with BASECO
in the sense that the stipulated charges for use of
the BASECO road network were made payable
"upon entry and not anymore subject to monthly
billing as was originally agreed upon." 4
d. Aborted Contract for Improvement of Wharf at
Engineer Island
On July 9, 1986, a PCGG fiscal agent, S.
Berenguer, entered into a contract in behalf of
BASECO with Deltamarine Integrated Port Services,
Inc., in virtue of which the latter undertook to
introduce improvements costing approximately
P210,000.00 on the BASECO wharf at Engineer
Island, allegedly then in poor condition, avowedly to
"optimize its utilization and in return maximize the
revenue which would flow into the government
coffers," in consideration of Deltamarine's being
granted "priority in using the improved portion of the
wharf ahead of anybody" and exemption "from the
payment of any charges for the use of wharf
including the area where it may install its bagging
equipments" "until the improvement remains in a
condition suitable for port operations." 5 It seems
however that this contract was never consummated.
Capt. Jorge B. Siacunco, "Head- (PCGG) BASECO
Management Team," advised Deltamarine by letter
dated July 30, 1986 that "the new management is
not in a position to honor the said contract" and thus
"whatever improvements * * (may be introduced)
shall be deemed unauthorized * * and shall be at * *
(Deltamarine's) own risk." 6
e. Order for Operation of Sesiman Rock Quarry,
Mariveles, Bataan
By Order dated June 20, 1986, Commissioner Mary
Bautista first directed a PCGG agent, Mayor Melba
O. Buenaventura, "to plan and implement progress
towards maximizing the continuous operation of the
BASECO Sesiman Rock Quarry * * by conventional
methods;" but afterwards, Commissioner Bautista, in
representation of the PCGG, authorized another
party, A.T. Abesamis, to operate the quarry, located
at Mariveles, Bataan, an agreement to this effect
having been executed by them on September 17,
1986. 7
f. Order to Dispose of Scrap, etc.
By another Order of Commissioner Bautista, this
time dated June 26, 1986, Mayor Buenaventura was
also "authorized to clean and beautify the
Company's compound," and in this connection, to
dispose of or sell "metal scraps" and other materials,
equipment and machineries no longer usable,
subject to specified guidelines and safeguards
including audit and verification. 8
g. The TAKEOVER Order
By letter dated July 14, 1986, Commissioner Ramon
A. Diaz decreed the provisional takeover by the
PCGG of BASECO, "the Philippine Dockyard
Corporation and all their affiliated
companies." 9 Diaz invoked the provisions of
Section 3 (c) of Executive Order No. 1, empowering
the Commission —
* * To provisionally takeover in the public interest or
to prevent its disposal or dissipation, business
enterprises and properties taken over by the
government of the Marcos Administration or by
entities or persons close to former President
Marcos, until the transactions leading to such
acquisition by the latter can be disposed of by the
appropriate authorities.
A management team was designated to implement
the order, headed by Capt. Siacunco, and was given
the following powers:
1. Conducts all aspects of operation of the subject
companies;
2. Installs key officers, hires and terminates
personnel as necessary;
3. Enters into contracts related to management and
operation of the companies;
4. Ensures that the assets of the companies are not
dissipated and used effectively and efficiently;
revenues are duly accounted for; and disburses
funds only as may be necessary;
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) declare unconstitutional and void Executive
Orders Numbered 1 and 2;
2) annul the sequestration order dated April- 14,
1986, and all other orders subsequently issued and
acts done on the basis thereof, inclusive of the
takeover order of July 14, 1986 and the termination
of the services of the BASECO executives. 11
a. Re Executive Orders No. 1 and 2, and the
Sequestration and Takeover Orders
While BASECO concedes that "sequestration
without resorting to judicial action, might be made
within the context of Executive Orders Nos. 1 and 2
before March 25, 1986 when the Freedom
Constitution was promulgated, under the principle
that the law promulgated by the ruler under a
revolutionary regime is the law of the land, it ceased
to be acceptable when the same ruler opted to
promulgate the Freedom Constitution on March 25,
1986 wherein under Section I of the same, Article IV
(Bill of Rights) of the 1973 Constitution was adopted
providing, among others, that "No person shall be
deprived of life, liberty and property without due
process of law." (Const., Art. I V, Sec. 1)." 12
It declares that its objection to the constitutionality of
the Executive Orders "as well as the Sequestration
Order * * and Takeover Order * * issued purportedly
under the authority of said Executive Orders, rests
on four fundamental considerations: First, no notice
and hearing was accorded * * (it) before its
properties and business were taken
over; Second, the PCGG is not a court, but a purely
investigative agency and therefore not competent to
act as prosecutor and judge in the same
cause; Third, there is nothing in the issuances which
envisions any proceeding, process or remedy by
which petitioner may expeditiously challenge the
validity of the takeover after the same has been
effected; and Fourthly, being directed against
specified persons, and in disregard of the
constitutional presumption of innocence and general
rules and procedures, they constitute a Bill of
Attainder." 13
b. Re Order to Produce Documents
It argues that the order to produce corporate
records from 1973 to 1986, which it has apparently
already complied with, was issued without court
authority and infringed its constitutional right against
self-incrimination, and unreasonable search and
seizure. 14
c. Re PCGG's Exercise of Right of Ownership and
Management
BASECO further contends that the PCGG had
unduly interfered with its right of dominion and
management of its business affairs by —
1) terminating its contract for security services with
Fairways & Anchor, without the consent and against
the will of the contracting parties; and amending the
mode of payment of entry fees stipulated in its
Lease Contract with National Stevedoring &
Lighterage Corporation, these acts being in violation
of the non-impairment clause of the constitution; 15
2) allowing PCGG Agent Silverio Berenguer to enter
into an "anomalous contract" with Deltamarine
Integrated Port Services, Inc., giving the latter free
use of BASECO premises; 16
3) authorizing PCGG Agent, Mayor Melba
Buenaventura, to manage and operate its rock
quarry at Sesiman, Mariveles; 17
4) authorizing the same mayor to sell or dispose of
its metal scrap, equipment, machinery and other
materials; 18
5) authorizing the takeover of BASECO, Philippine
Dockyard Corporation, and all their affiliated
companies;
6) terminating the services of BASECO executives:
President Hilario M. Ruiz; EVP Manuel S. Mendoza;
GM Moises M. Valdez; Finance Mgr. Gilberto
Pasimanero; Legal Dept. Mgr. Benito R. Cuesta
I; 19
7) planning to elect its own Board of Directors; 20
8) allowing willingly or unwillingly its personnel to
take, steal, carry away from petitioner's premises at
Mariveles * * rolls of cable wires, worth P600,000.00
on May 11, 1986; 21
9) allowing "indiscriminate diggings" at Engineer
Island to retrieve gold bars supposed to have been
buried therein. 22
3. Doubts, Misconceptions regarding Sequestration,
Freeze and Takeover Orders
Many misconceptions and much doubt about the
matter of sequestration, takeover and freeze orders
have been engendered by misapprehension, or
incomplete comprehension if not indeed downright
ignorance of the law governing these remedies. It is
needful that these misconceptions and doubts be
dispelled so that uninformed and useless debates
about them may be avoided, and arguments tainted
b sophistry or intellectual dishonesty be quickly
exposed and discarded. Towards this end, this
opinion will essay an exposition of the law on the
matter. In the process many of the objections raised
by BASECO will be dealt with.
4. The Governing Law
a. Proclamation No. 3
The impugned executive orders are avowedly meant
to carry out the explicit command of the Provisional
Constitution, ordained by Proclamation No.
3, 23 that the President-in the exercise of legislative
power which she was authorized to continue to wield
"(until a legislature is elected and convened under a
new Constitution" — "shall give priority to measures
to achieve the mandate of the people," among
others to (r)ecover ill-gotten properties amassed by
the leaders and supporters of the previous regime
and protect the interest of the people through orders
of sequestration or freezing of assets or
accounts." 24
b. Executive Order No. 1
Executive Order No. 1 stresses the "urgent need to
recover all ill-gotten wealth," and postulates that
"vast resources of the government have been
amassed by former President Ferdinand E. Marcos,
his immediate family, relatives, and close associates
both here and abroad." 25 Upon these premises, the
Presidential Commission on Good Government was
created, 26 "charged with the task of assisting the
President in regard to (certain specified) matters,"
among which was precisely-
* * The recovery of all in-gotten wealth accumulated
by former President Ferdinand E. Marcos, his
immediate family, relatives, subordinates and close
associates, whether located in the Philippines or
abroad, including the takeover or sequestration of all
business enterprises and entities owned or
controlled by them, during his administration, directly
or through nominees, by taking undue advantage of
their public office and/or using their powers,
authority, influence, connections or relationship. 27
In relation to the takeover or sequestration that it
was authorized to undertake in the fulfillment of its
mission, the PCGG was granted "power and
authority" to do the following particular acts, to wit:
1. To sequester or place or cause to be placed
under its control or possession any building or office
wherein any 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. 29It
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 President-
1) froze "all assets and properties in the Philippines
in which former President Marcos and/or his wife,
Mrs. Imelda Romualdez Marcos, their close
relatives, subordinates, business associates,
dummies, agents, or nominees have any interest or
participation;
2) prohibited former President Ferdinand Marcos
and/or his wife * *, their close relatives,
subordinates, business associates, duties, agents,
or nominees from transferring, conveying,
encumbering, concealing or dissipating said assets
or properties in the Philippines and abroad, pending
the outcome of appropriate proceedings in the
Philippines to determine whether any such assets or
properties were acquired by them through or as a
result of improper or illegal use of or the conversion
of funds belonging to the Government of the
Philippines or any of its branches, instrumentalities,
enterprises, banks or financial institutions, or by
taking undue advantage of their official position,
authority, relationship, connection or influence to
unjustly enrich themselves at the expense and to the
grave damage and prejudice of the Filipino people
and the Republic of the Philippines;
3) prohibited "any person from transferring,
conveying, encumbering or otherwise depleting or
concealing such assets and properties or from
assisting or taking part in their transfer,
encumbrance, concealment or dissipation under
pain of such penalties as are prescribed by law;"
and
4) required "all persons in the Philippines holding
such assets or properties, whether located in the
Philippines or abroad, in their names as nominees,
agents or trustees, to make full disclosure of the
same to the Commission on Good Government
within thirty (30) days from publication of * (the)
Executive Order, * *. 32
d. Executive Order No. 14
A third executive order is relevant: Executive Order
No. 14, 33 by which the PCGG is empowered, "with
the assistance of the Office of the Solicitor General
and other government agencies, * * to file and
prosecute all cases investigated by it * * as may be
warranted by its findings." 34 All such cases,
whether civil or criminal, are to be filed "with
the Sandiganbayan which 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.
M a r c o s , h i s i m m e d i a t e f a m i l y, r e l a t i v e s ,
subordinates and close associates, * * located in the
Philippines or abroad, * * (and) business enterprises
and entities (came to be) owned or controlled by
them, during * * (the Marcos) administration, directly
or through nominees, by taking undue advantage of
their public office and/or using their powers,
authority, influence, Connections or relationship; 38
b) otherwise stated, that "there are assets and
properties purportedly pertaining to former President
Ferdinand E. Marcos, and/or his wife Mrs. Imelda
Romualdez Marcos, their close relatives,
subordinates, business associates, dummies,
agents or nominees which had been or were
acquired by them directly or indirectly, through or as
a result of the improper or illegal use of funds or
properties owned by the Government of the
Philippines or any of its branches, instrumentalities,
enterprises, banks or financial institutions, or by
taking undue advantage of their office, authority,
influence, connections or relationship, resulting in
their unjust enrichment and causing grave damage
and prejudice to the Filipino people and the Republic
of the Philippines"; 39
c) that "said assets and properties are in the form of
bank accounts. deposits, trust. accounts, shares of
stocks, buildings, shopping centers, condominiums,
mansions, residences, estates, and other kinds of
real and personal properties in the Philippines and in
various countries of the world;" 40 and
2) that certain "business enterprises and properties
(were) taken over by the government of the Marcos
Administration or by entities or persons close to
former President Marcos. 41
6. Government's Right and Duty to Recover All Ill-
gotten Wealth
There can be no debate about the validity and
eminent propriety of the Government's plan "to
recover all ill-gotten wealth."
Neither can there be any debate about the
proposition that assuming the above described
factual premises of the Executive Orders and
Proclamation No. 3 to be true, to be demonstrable
by competent evidence, the recovery from Marcos,
his family and his dominions of the assets and
properties involved, is not only a right but a duty on
the part of Government.
But however plain and valid that right and duty may
be, still a balance must be sought with the equally
compelling necessity that a proper respect be
accorded and adequate protection assured, the
fundamental rights of private property and free
enterprise which are deemed pillars of a free society
such as ours, and to which all members of that
society may without exception lay claim.
* * Democracy, as a way of life enshrined in the
Constitution, embraces as its necessary
components freedom of conscience, freedom of
expression, and freedom in the pursuit of
happiness. Along with these freedoms are included
economic freedom and freedom of enterprise within
reasonable bounds and under proper control. * *
Evincing much concern for the protection of
property, the Constitution distinctly recognizes the
preferred position which real estate has occupied in
law for ages. Property is bound up with every aspect
of social life in a democracy as democracy is
conceived in the Constitution.The Constitution
realizes the indispensable role which property,
owned in reasonable quantities and used
legitimately, plays in the stimulation to economic
effort and the formation and growth of a solid social
middle class that is said to be the bulwark of
democracy and the backbone of every progressive
and happy country. 42
a. Need of Evidentiary Substantiation in Proper Suit
Consequently, the factual premises of the Executive
Orders cannot simply be assumed. They will have to
be duly established by adequate proof in each case,
in a proper judicial proceeding, so that the recovery
of the ill-gotten wealth may be validly and properly
adjudged and consummated; although there are
some who maintain that the fact-that an immense
fortune, and "vast resources of the government have
been amassed by former President Ferdinand E.
Marcos, his immediate family, relatives, and close
associates both here and abroad," and they have
resorted to all sorts of clever schemes and
manipulations to disguise and hide their illicit
acquisitions-is within the realm of judicial notice,
being of so extensive notoriety as to dispense with
proof thereof, Be this as it may, the requirement of
evidentiary substantiation has been expressly
acknowledged, and the procedure to be followed
explicitly laid down, in Executive Order No. 14.
b. Need of Provisional Measures to Collect and
Conserve Assets Pending Suits
Nor may it be gainsaid that pending the institution of
the suits for the recovery of such "ill-gotten wealth"
as the evidence at hand may reveal, there is an
obvious and imperative need for preliminary,
provisional measures to prevent the concealment,
disappearance, destruction, dissipation, or loss of
the assets and properties subject of the suits, or to
restrain or foil acts that may render moot and
academic, or effectively hamper, delay, or negate
efforts to recover the same.
7. Provisional Remedies Prescribed by Law
To answer this need, the law has prescribed three
(3) provisional remedies. These are: (1)
sequestration; (2) freeze orders; and (3) provisional
takeover.
Sequestration and freezing are remedies applicable
generally to unearthed instances of "ill-gotten
wealth." The remedy of "provisional takeover" is
peculiar to cases where "business enterprises and
properties (were) taken over by the government of
the Marcos Administration or by entities or persons
close to former President Marcos." 43
a. Sequestration
By the clear terms of the law, the power of the
PCGG to sequester property claimed to be "ill-
gotten" means to place or cause to be placed under
its possession or control said property, or any
building or office wherein any such property and any
records pertaining thereto may be found, including
"business enterprises and entities,"-for the purpose
of preventing the destruction, concealment or
dissipation of, and otherwise conserving and
preserving, the same-until it can be determined,
through appropriate judicial proceedings, whether
the property was in truth will- gotten," i.e., acquired
through or as a result of improper or illegal use of or
the conversion of funds belonging to the
Government or any of its branches,
instrumentalities, enterprises, banks or financial
institutions, or by taking undue advantage of official
position, authority relationship, connection or
influence, resulting in unjust enrichment of the
ostensible owner and grave damage and prejudice
to the State. 44 And this, too, is the sense in which
the term is commonly understood in other
jurisdictions. 45
b. "Freeze Order"
A "freeze order" prohibits the person having
possession or control of property alleged to
constitute "ill-gotten wealth" "from transferring,
conveying, encumbering or otherwise depleting or
concealing such property, or from assisting or taking
part in its transfer, encumbrance, concealment, or
dissipation." 46 In other words, it commands the
possessor to hold the property and conserve it
subject to the orders and disposition of the authority
decreeing such freezing. In this sense, it is akin to a
garnishment by which the possessor or ostensible
owner of property is enjoined not to deliver, transfer,
or otherwise dispose of any effects or credits in his
possession or control, and thus becomes in a sense
an involuntary depositary thereof. 47
c. Provisional Takeover
In providing for the remedy of "provisional takeover,"
the law acknowledges the apparent distinction
between "ill gotten" "business enterprises and
entities" (going concerns, businesses in actual
operation), generally, as to which the remedy of
sequestration applies, it being necessarily inferred
that the remedy entails no interference, or the least
possible interference with the actual management
and operations thereof; and "business enterprises
which were taken over by the government
government of the Marcos Administration or by
entities or persons close to him," in particular, as to
which a "provisional takeover" is authorized, "in the
public interest or to prevent disposal or dissipation of
the enterprises." 48 Such a "provisional takeover"
imports something more than sequestration or
freezing, more than the placing of the business
under physical possession and control, albeit
without or with the least possible interference with
the management and carrying on of the business
itself. In a "provisional takeover," what is taken into
custody is not only the physical assets of the
business enterprise or entity, but the business
operation as well. It is in fine the assumption of
control not only over things, but over operations or
on- going activities. But, to repeat, such a
"provisional takeover" is allowed only as regards
"business enterprises * * taken over by the
government of the Marcos Administration or by
entities or persons close to former President
Marcos."
d. No Divestment of Title Over Property Seized
It may perhaps be well at this point to stress once
again the provisional, contingent character of the
remedies just described. Indeed the law plainly
qualifies the remedy of take-over by the adjective,
"provisional." These remedies may be resorted to
only for a particular exigency: to prevent in the
public interest the disappearance or dissipation of
property or business, and conserve it pending
adjudgment in appropriate proceedings of the
primary issue of whether or not the acquisition of
title or other right thereto by the apparent owner was
attended by some vitiating anomaly. None of the
remedies is meant to deprive the owner or
possessor of his title or any right to the property
sequestered, frozen or taken over and vest it in the
sequestering agency, the Government or other
person. This can be done only for the causes and by
the processes laid down by law.
That this is the sense in which the power to
sequester, freeze or provisionally take over is to be
understood and exercised, the language of the
executive orders in question leaves no doubt.
Executive Order No. 1 declares that the
sequestration of property the acquisition of which is
suspect shall last "until the transactions leading to
such acquisition * * can be disposed of by the
appropriate authorities." 49 Executive Order No. 2
declares that the assets or properties therein
mentioned shall remain frozen "pending the
outcome of appropriate proceedings in the
Philippines to determine whether any such assets or
properties were acquired" by illegal
means. Executive Order No. 14 makes clear that
judicial proceedings are essential for the resolution
of the basic issue of whether or not particular assets
are "ill-gotten," and resultant recovery thereof by the
Government is warranted.
e. State of Seizure Not To Be Indefinitely
Maintained; The Constitutional Command
There is thus no cause for the apprehension voiced
by BASECO 50 that sequestration, freezing or
provisional takeover is designed to be an end in
itself, that it is the device through which persons
may be deprived of their property branded as "ill-
gotten," that it is intended to bring about a
permanent, rather than a passing, transitional state
of affairs. That this is not so is quite explicitly
declared by the governing rules.
Be this as it may, the 1987 Constitution should allay
any lingering fears about the duration of these
provisional remedies. Section 26 of its Transitory
Provisions, 51 lays down the relevant rule in plain
terms, apart from extending ratification or
confirmation (although not really necessary) to the
institution by presidential fiat of the remedy of
sequestration and freeze orders:
SEC. 26. The authority to issue sequestration or
freeze orders under Proclamation No. 3 dated
March 25, 1986 in relation to the recovery of ill-
gotten wealth shag remain operative for not more
than eighteen months after the ratification of this
Constitution. However, in the national interest, as
certified by the President, the Congress may
extend said period.
A sequestration or freeze order shall be issued only
upon showing of a prima facie case. The order and
the list of the sequestered or frozen properties shall
forthwith be registered with the proper court. For
orders issued before the ratification of this
Constitution, the corresponding judicial action or
proceeding shall be filed within six months from its
ratification. For those issued after such ratification,
the judicial action or proceeding shall be
commenced within six months from the issuance
thereof.
The sequestration or freeze order is deemed
automatically lifted if no judicial action or proceeding
is commenced as herein provided. 52
f. Kinship to Attachment Receivership
As thus described, sequestration, freezing and
provisional takeover are akin to the provisional
remedy of preliminary attachment, or
receivership. 53 By attachment, a sheriff seizes
property of a defendant in a civil suit so that it may
stand as security for the satisfaction of any judgment
that may be obtained, and not disposed of, or
dissipated, or lost intentionally or otherwise, pending
the action. 54 By receivership, property, real or
personal, which is subject of litigation, is placed in
the possession and control of a receiver appointed
by the Court, who shall conserve it pending final
determination of the title or right of possession over
it. 55 All these remedies — sequestration, freezing,
provisional, takeover, attachment and receivership
— are provisional, temporary, designed for-particular
exigencies, attended by no character of permanency
or finality, and always subject to the control of the
issuing court or agency.
g. Remedies, Non-Judicial
Parenthetically, that writs of sequestration or freeze
or takeover orders are not issued by a court is of no
moment. The Solicitor General draws attention to
the writ of distraint and levy which since 1936 the
Commissioner of Internal Revenue has been by law
authorized to issue against property of a delinquent
taxpayer. 56 BASECO itself declares that it has not
manifested "a rigid insistence on sequestration as a
purely judicial remedy * * (as it feels) that the law
should not be ossified to a point that makes it
insensitive to change." What it insists on, what it
pronounces to be its "unyielding position, is that any
change in procedure, or the institution of a new one,
should conform to due process and the other
prescriptions of the Bill of Rights of the
Constitution." 57 It is, to be sure, a proposition on
which there can be no disagreement.
h. Orders May Issue Ex Parte
Like the remedy of preliminary attachment and
receivership, as well as delivery of personal property
in replevin suits, 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
Constitution 67 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 evidence establishing 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 stockholders listed in BASECO's Stock and Transfer
issue of whether or not property should be forfeited Book. 75Their names and the number of shares
and transferred to the State because "ill-gotten" respectively held by them are as follows:
within the meaning of the Constitution and the
executive orders. This function is reserved to the
designated court, in this case, the
1. Jose A. Rojas
Sandiganbayan. 71 There can therefore be no
serious regard accorded to the accusation, leveled
1,248 shares
by BASECO, 72that the PCGG plays the perfidious
role of prosecutor and judge at the same time. 2. Severino G. de la Cruz
11. Facts Preclude Grant of Relief to Petitioner 1,248 shares
Upon these premises and reasoned conclusions, 3. Emilio T. Yap
and upon the facts disclosed by the record,
hereafter to be discussed, the petition cannot 2,508 shares
succeed. The writs of certiorari and prohibition
prayed for will not be issued. 4. Jose Fernandez

The facts show that the corporation known as 1,248 shares

BASECO was owned or controlled by President
5. Jose Francisco
Marcos "during his administration, through
nominees, by taking undue advantage of his public 128 shares
office and/or using his powers, authority, or
influence, " and that it was by and through the same 6. Manuel S. Mendoza
means, that BASECO had taken over the business
and/or assets of the National Shipyard and 96 shares
Engineering Co., Inc., and other government-owned
7. Anthony P. Lee
or controlled entities.
1,248 shares
12. Organization and Stock Distribution of BASECO
8. Hilario M. Ruiz
BASECO describes itself in its petition as "a
shiprepair and shipbuilding company * * 32 shares
incorporated as a domestic private corporation * *
(on Aug. 30, 1972) by a consortium of Filipino 9. Constante L. Fariñas
shipowners and shipping executives. Its main office
is at Engineer Island, Port Area, Manila, where its 8 shares
Engineer Island Shipyard is housed, and its main
10. Fidelity Management, Inc.
shipyard is located at Mariveles Bataan." 73 Its
Articles of Incorporation disclose that its authorized 65,882 shares
capital stock is P60,000,000.00 divided into 60,000
shares, of which 12,000 shares with a value of 11. Trident Management
P12,000,000.00 have been subscribed, and on said
subscription, the aggregate sum of P3,035,000.00 7,412 shares
has been paid by the incorporators. 74The same
12. United Phil. Lines
articles Identify the incorporators, numbering fifteen
(15), as follows: (1) Jose A. Rojas, (2) Anthony P. 1,240 shares
Lee, (3) Eduardo T. Marcelo, (4) Jose P. Fernandez,
(5) Generoso Tanseco, (6) Emilio T. Yap, (7) Antonio 13. Renato M. Tanseco
M. Ezpeleta, (8) Zacarias Amante, (9) Severino de la
Cruz, (10) Jose Francisco, (11) Dioscoro Papa, (12) 8 shares
Octavio Posadas, (13) Manuel S. Mendoza, (14)
14. Fidel Ventura
Magiliw Torres, and (15) Rodolfo Torres.
8 shares
B y 1 9 8 6 , h o w e v e r, o f t h e s e f i f t e e n ( 1 5 )
incorporators, six (6) had ceased to be stockholders, 15. Metro Bay Drydock
namely: (1) Generoso Tanseco, (2) Antonio
Ezpeleta, (3) Zacarias Amante, (4) Octavio 136,370 shares
Posadas, (5) Magiliw Torres, and (6) Rodolfo Torres.
As of this year, 1986, there were twenty (20) 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
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," 79 which, 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.
Tr a n s f e r r e d t o B A S E C O w e r e N A S S C O ' 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)." 80 On September 3, 1975,
it got another loan also from the NDC in the amount
of P30,000,000.00 (id.). And on January 28, 1976, it
got still another loan, this time from the GSIS, in the
sum of P12,400,000.00. 81 The claim has been
made that not a single centavo has been paid on
these loans. 82
18. Reports to President Marcos
In September, 1977, two (2) reports were submitted
to President Marcos regarding BASECO. The first
was contained in a letter dated September 5, 1977
of Hilario M. Ruiz, BASECO president. 83 The
second was embodied in a confidential
memorandum dated September 16, 1977 of Capt.
A.T. Romualdez. 84 They further disclose the fine
hand of Marcos in the affairs of BASECO, and that
of a Romualdez, a relative by affinity.
a. BASECO President's Report
In his letter of September 5, 1977, BASECO
President Ruiz reported to Marcos that there had
been "no orders or demands for ship construction"
for some time and expressed the fear that if that
state of affairs persisted, BASECO would not be
able to pay its debts to the Government, which at
the time stood at the not inconsiderable amount of
P165,854,000.00. 85 He suggested that, to "save
the situation," there be a "spin-off (of their)
shipbuilding activities which shall be handled
exclusively by an entirely new corporation to be
created;" and towards this end, he informed Marcos
that BASECO was —
* * inviting NDC and LUSTEVECO to participate by
converting the NDC shipbuilding loan to BASECO
amounting to P341.165M and assuming and
converting a portion of BASECO's shipbuilding loans
from REPACOM amounting to P52.2M or a total of
P83.365M as NDC's equity contribution in the new
corporation. LUSTEVECO will participate by
absorbing and converting a portion of the
REPACOM loan of Bay Shipyard and Drydock, Inc.,
amounting to P32.538M.86
b. Romualdez' Report
Capt. A.T. Romualdez' report to the President was
submitted eleven (11) days later. It opened with the
following caption:
MEMORANDUM:
FOR : The President
SUBJECT: An Evaluation and Re-assessment of a
Performance of a Mission
FROM: Capt. A.T. Romualdez.
Like Ruiz, Romualdez wrote that BASECO faced
great difficulties in meeting its loan obligations due
chiefly to the fact that "orders to build ships as
expected * * did not materialize."
He advised that five stockholders had "waived and/
or assigned their holdings inblank," these being: (1)
Jose A. Rojas, (2) Severino de la Cruz, (3) Rodolfo
Torres, (4) Magiliw Torres, and (5) Anthony P. Lee.
Pointing out that "Mr. Magiliw Torres * * is already
dead and Mr. Jose A. Rojas had a major heart
attack," he made the following quite revealing, and it
may be added, quite cynical and indurate
recommendation, to wit:
* * (that) their replacements (be effected) so we can
register their names in the stock book prior to the
implementation of your instructions to pass a board
resolution to legalize the transfers under SEC
regulations;
2. By getting their replacements, the families cannot
question us later on; and
3. We will owe no further favors from them. 87
He also transmitted to Marcos, together with the
report, the following documents: 88
1. Stock certificates indorsed and assigned in blank
with assignments and waivers; 89
2. The articles of incorporation, the amended
articles, and the by-laws of BASECO;
3. Deed of Sales, wherein NASSCO sold to
BASECO four (4) parcels of land in "Engineer
Island", Port Area, Manila;
4. Transfer Certificate of Title No. 124822 in the
name of BASECO, covering "Engineer Island";
5. Contract dated October 9, 1973, between
NASSCO and BASECO re-structure and equipment
at Mariveles, Bataan;
6. Contract dated July 16, 1975, between NASSCO
and BASECO re-structure and equipment at
Engineer Island, Port Area Manila;
7. Contract dated October 1, 1974, between EPZA
and BASECO re 300 hectares of land at Mariveles,
Bataan;
8. List of BASECO's fixed assets;
9. Loan Agreement dated September 3, 1975,
BASECO's loan from NDC of P30,000,000.00;
10. BASECO-REPACOM Agreement dated May 27,
1975;
11. GSIS loan to BASECO dated January 28, 1976
of P12,400,000.00 for the housing facilities for
BASECO's 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
to make it justifiable for you, Sir. 91
It is noteworthy that Capt. A.T. Romualdez does not
appear to be a stockholder or officer of BASECO,
yet he has presented a report on BASECO to
President Marcos, and his report demonstrates
intimate familiarity with the firm's affairs and
problems.
19. Marcos' Response to Reports
President Marcos lost no time in acting on his
subordinates' recommendations, particularly as
regards the "spin-off" and the "linkage scheme"
relative to "BASECO's amortization payments."
a. Instructions re "Spin-Off"
Under date of September 28, 1977, he addressed a
Memorandum to Secretary Geronimo Velasco of the
Philippine National Oil Company and Chairman
Constante Fariñas of the National Development
Company, directing them "to participate in the
formation of a new corporation resulting from
the spin-off of the shipbuilding component
of BASECO along the following guidelines:
a. Equity participation of government shall be
through LUSTEVECO and NDC in the amount of
P115,903,000 consisting of the following obligations
of BASECO which are hereby authorized to be
converted to equity of the said new corporation, to
wit:
1. NDC P83,865,000 (P31.165M loan & P52.2M
Reparation)
2. LUSTEVECO P32,538,000 (Reparation)
b. Equity participation of government shall be in the
form of non- voting shares.
For immediate compliance. 92
Mr. Marcos' guidelines were promptly complied with
by his subordinates. Twenty-two (22) days after
receiving their president's memorandum, Messrs.
Hilario M. Ruiz, Constante L. Fariñas 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
And so, through a simple letter of instruction and
memorandum, BASECO's loan obligation to NDC
and REPACOM * * in the total amount of P83.365M
and BSD's REPACOM loan of P32.438M were
wiped out and converted into non-voting preferred
shares. 95
20. Evidence of Marcos'
Ownership of BASECO
It cannot therefore be gainsaid that, in the context of
the proceedings at bar, the actuality of the control by
President Marcos of BASECO has been sufficiently
shown.
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 than ninety-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
Malacañang 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
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
b e n o h a s t y, i n d i s c r i m i n a t e , u n r e a s o n e d
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.
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.
 Republic of the Philippines
 other provision of said Act; that the coal lands
SUPREME COURT
 possessed by the plaintiff, belonging to the
Manila
EN BANC
G.R. No. L-22619 December 2, 1924
NATIONAL COAL COMPANY, plaintiff-appellee, 

vs.

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


JOHNSON, J.:
This action was brought in the Court of First
Instance of the City of Manila on the 17th day of
July, 1923, for the purpose of recovering the sum of
P12,044.68, alleged to have been paid under protest
by the plaintiff company to the defendant, as specific
tax on 24,089.3 tons of coal. Said company is a
corporation created by Act No. 2705 of the
Philippine Legislature for the purpose of developing
the coal industry in the Philippine Islands and is
actually engaged in coal mining on reserved lands
belonging to the Government. It claimed exemption
from taxes under the provision of sections 14 and 15
of Act No. 2719, and prayed for a judgment ordering
the defendant to refund to the plaintiff said sum of
P12,044.68, with legal interest from the date of the
presentation of the complaint, and costs against the
defendant.
The defendant answered denying generally and
specifically all the material allegations of the
complaint, except the legal existence and
personality of the plaintiff. As a special defense, the
defendant alleged (a) that the sum of P12,044.68
was paid by the plaintiff without protests, and (b)
that said sum was due and owing from the plaintiff to
the Government of the Philippine Islands under the
provisions of section 1496 of the Administrative
Code and prayed that the complaint be dismissed,
with costs against the plaintiff.
Upon the issue thus presented, the case was
brought on for trial. After a consideration of the
evidence adduced by both parties, the Honorable
Pedro Conception, judge, held that the words
"lands owned by any person, etc.," in section 15 of
Act No. 2719 should be understood to mean
"lands held in lease or usufruct," in harmony with the
Government, fell within the provisions of section 15
of Act No. 2719; and that a tax of P0.04 per ton of
1,016 kilos on each ton of coal extracted therefrom,
as provided in said section, was the only tax which
should be collected from the plaintiff; and sentenced
the defendant to refund to the plaintiff the sum of
P11,081.11 which is the difference between the
amount collected under section 1496 of the
Administrative Code and the amount which should
have been collected under the provisions of said
section 15 of Act No. 2719. From that sentence the
defendant appealed, and now makes the following
I. The court below erred in holding that section 15 of
Act No. 2719 does not refer to coal lands owned by
persons and corporations.
II. The court below erred in holding that the plaintiff
was not subject to the tax prescribed in section 1496
of the Administrative Code.
The question confronting us in this appeal is
whether the plaintiff is subject to the taxes under
section 15 of Act No. 2719, or to the specific taxes
under section 1496 of the Administrative Code.
The plaintiff corporation was created on the 10th day
of March, 1917, by Act No. 2705, for the purpose of
developing the coal industry in the Philippine Island,
in harmony with the general plan of the Government
to encourage the development of the natural
resources of the country, and to provided facilities
therefor. By said Act, the company was granted the
general powers of a corporation "and such other
powers as may be necessary to enable it to
prosecute the business of developing coal deposits
in the Philippine Island and of mining, extracting,
transporting and selling the coal contained in said
deposits." (Sec. 2, Act No. 2705.) By the same law
(Act No. 2705) the Government of the Philippine
Islands is made the majority stockholder, evidently in
order to insure proper government supervision and
control, and thus to place the Government in a
position to render all possible encouragement,
assistance and help in the prosecution and
furtherance of the company's business.
On May 14, 1917, two months after the passage of
Act No. 2705, creating the National Coal Company,
the Philippine Legislature passed Act No. 2719 "to
provide for the leasing and development of coal
lands in the Philippine Islands." On October 18,
1917, upon petition of the National Coal Company,
the Governor-General, by Proclamation No. 39,
withdrew "from settlement, entry, sale or other
disposition, all coal-bearing public lands within the
Province of Zamboanga, Department of Mindanao
and Sulu, and the Island of Polillo, Province of
Tayabas." Almost immediately after the issuance of
said proclamation the National Coal Company took
possession of the coal lands within the said
reservation, with an area of about 400 hectares,
without any further formality, contract or lease. Of
the 30,000 shares of stock issued by the company,
the Government of the Philippine Islands is the
owner of 29,809 shares, that is, of 99 1/3 per
centum of the whole capital stock.
If we understand the theory of the plaintiff-appellee,
it is, that it claims to be the owner of the land from
which it has mined the coal in question and is
therefore subject to the provisions of section 15 of
Act No. 2719 and not to the provisions of the section
1496 of the Administrative Code. That contention of
the plaintiff leads us to an examination of the
evidence upon the question of the ownership of the
land from which the coal in question was mined.
Was the plaintiff the owner of the land from which
the coal in question was mined? If the evidence
shows the affirmative, then the judgment should be
affirmed. If the evidence shows that the land does
not belong to the plaintiff, then the judgment should
be reversed, unless the plaintiff's rights fall under
section 3 of said Act.
The only witness presented by the plaintiff upon the
question of the ownership of the land in question
was Mr. Dalmacio Costas, who stated that he was a
member of the board of directors of the plaintiff
corporation; that the plaintiff corporation took
possession of the land in question by virtue of the
proclamation of the Governor-General, known as
Proclamation No. 39 of the year 1917; that no
document had been issued in favor of the plaintiff
corporation; that said corporation had received no
permission from the Secretary of Agriculture and
Natural Resources; that it took possession of said
lands covering an area of about 400 hectares, from
which the coal in question was mined, solely, by
virtue of said proclamation (Exhibit B, No. 39).
Said proclamation (Exhibit B) was issued by Francis
Burton Harrison, then Governor-General, on the
18th day of October, 1917, and provided: "Pursuant
to the provision of section 71 of Act No. 926, I
hereby withdraw from settlement, entry, sale, or
other disposition, all coal-bearing public lands within
the Province of Zamboanga, Department of
Mindanao and Sulu, and the Island of Polillo,
Province of Tayabas." It will be noted that said
proclamation only provided that all coal-bearing
public lands within said province and island should
be withdrawn from settlement, entry, sale, or other
disposition. There is nothing in said proclamation
which authorizes the plaintiff or any other person to
enter upon said reversations and to mine coal, and
no provision of law has been called to our attention,
by virtue of which the plaintiff was entitled to enter
upon any of the lands so reserved by said
proclamation without first obtaining permission
therefor.
The plaintiff is a private corporation. The mere fact
that the Government happens to the majority
stockholder does not make it a public corporation.
Act No. 2705, as amended by Act No. 2822, makes
it subject to all of the provisions of the Corporation
Law, in so far as they are not inconsistent with said
Act (No. 2705). No provisions of Act No. 2705 are
found to be inconsistent with the provisions of the
Corporation Law. As a private corporation, it has no
greater rights, powers or privileges than any other
corporation which might be organized for the same
purpose under the Corporation Law, and certainly it
was not the intention of the Legislature to give it a
preference or right or privilege over other legitimate
private corporations in the mining of coal. While it is
true that said proclamation No. 39 withdrew "from
settlement, entry, sale, or other disposition of coal-
bearing public lands within the Province of
Zamboanga . . . and the Island of Polillo," it made no
provision for the occupation and operation by the
plaintiff, to the exclusion of other persons or
corporations who might, under proper permission,
enter upon the operate coal mines.
On the 14th day of May, 1917, and before the
issuance of said proclamation, the Legislature of the
Philippine Island in "an Act for the leasing and
development of coal lands in the Philippine
Islands" (Act No. 2719), made liberal provision.
Section 1 of said Act provides: "Coal-bearing lands
of the public domain in the Philippine Island shall not
be disposed of in any manner except as provided in
this Act," thereby giving a clear indication that no
"coal-bearing lands of the public domain" had been
disposed of by virtue of said proclamation.
Neither is there any provision in Act No. 2705
creating the National Coal Company, nor in the
amendments thereof found in Act No. 2822, which
authorizes the National Coal Company to enter upon
any of the reserved coal lands without first having
obtained permission from the Secretary of
Agriculture and Natural Resources.lawphi1.net
The following propositions are fully sustained by the
facts and the law:
(1) The National Coal Company is an ordinary
private corporation organized under Act No. 2705,
and has no greater powers nor privileges than the
ordinary private corporation, except those
mentioned, perhaps, in section 10 of Act No. 2719,
and they do not change the situation here.
(2) It mined on public lands between the month of
July, 1920, and the months of March, 1922,
24,089.3 tons of coal.
(3) Upon demand of the Collector of Internal
Revenue it paid a tax of P0.50 a ton, as taxes under
the provisions of article 1946 of the Administrative
Code on the 15th day of December, 1922.
(4) It is admitted that it is neither the owner nor the
lessee of the lands upon which said coal was mined.
(5) The proclamation of Francis Burton Harrison,
Governor-General, of the 18th day of October, 1917,
by authority of section 1 of Act No. 926, withdrawing
from settlement, entry, sale, or other dispositon all
coal-bearing public lands within the Province of
Zamboanga and the Island of Polillo, was not a
reservation for the benefit of the National Coal
Company, but for any person or corporation of the
Philippine Islands or of the United States.
(6) That the National Coal Company entered upon
said land and mined said coal, so far as the record
shows, without any lease or other authority from
either the Secretary of Agriculture and Natural
Resources or any person having the power to grant
a leave or authority.
From all of the foregoing facts we find that the issue
is well defined between the plaintiff and the
defendant. The plaintiff contends that it was liable
only to pay the internal revenue and other fees and
taxes provided for under section 15 of Act No. 2719;
while the defendant contends, under the facts of
record, the plaintiff is obliged to pay the internal
revenue duty provided for in section 1496 of the
Administrative Code. That being the issue, an
examination of the provisions of Act No. 2719
becomes necessary.
An examination of said Act (No. 2719) discloses the
following facts important for consideration here:
First. All "coal-bearing lands of the public domain in
the Philippine Islands shall not be disposed of in any
manner except as provided in this Act." Second.
Provisions for leasing by the Secretary of Agriculture
and Natural Resources of "unreserved,
unappropriated coal-bearing public lands," and the
obligation to the Government which shall be
imposed by said Secretary upon the
lessee.lawphi1.net
Third. The internal revenue duty and tax which must
be paid upon coal-bearing lands owned by any
person, firm, association or corporation.
To repeat, it will be noted, first, that Act No. 2719
provides an internal revenue duty and tax upon
unreserved, unappropriated coal-bearing public
lands which may be leased by the Secretary of
Agriculture and Natural Resources; and, second,
that said Act (No. 2719) provides an internal
revenue duty and tax imposed upon any person,
firm, association or corporation, who may be the
owner of "coal-bearing lands." A reading of said Act
clearly shows that the tax imposed thereby is
imposed upon two classes of persons only —
lessees and owners.
The lower court had some trouble in determining
what was the correct interpretation of section 15 of
said Act, by reason of what he believed to be some
difference in the interpretation of the language used
in Spanish and English. While there is some ground
for confusion in the use of the language in Spanish
and English, we are persuaded, considering all the
provisions of said Act, that said section 15 has
reference only to persons, firms, associations or
corporations which had already, prior to the
existence of said Act, become the owners of coal
lands. Section 15 cannot certainty refer to "holders
or lessees of coal lands' for the reason that
practically all of the other provisions of said Act has
reference to lessees or holders. If section 15 means
that the persons, firms, associations, or corporation
mentioned therein are holders or lessees of coal
lands only, it is difficult to understand why the
internal revenue duty and tax in said section was
made different from the obligations mentioned in
section 3 of said Act, imposed upon lessees or
holders.
From all of the foregoing, it seems to be made plain
that the plaintiff is neither a lessee nor an owner of
coal-bearing lands, and is, therefore, not subject to
any other provisions of Act No. 2719. But, is the
plaintiff subject to the provisions of section 1496 of
the Administrative Code?
Section 1496 of the Administrative Code provides
that "on all coal and coke there shall be collected,
per metric ton, fifty centavos." Said section (1496) is
a part of article, 6 which provides for specific taxes.
Said article provides for a specific internal revenue
tax upon all things manufactured or produced in the
Philippine Islands for domestic sale or consumption,
and upon things imported from the United States or
foreign countries. It having been demonstrated that
the plaintiff has produced coal in the Philippine
Islands and is not a lessee or owner of the land from
which the coal was produced, we are clearly of the
opinion, and so hold, that it is subject to pay the
internal revenue tax under the provisions of section
1496 of the Administrative Code, and is not subject
to the payment of the internal revenue tax under
section 15 of Act No. 2719, nor to any other
provisions of said Act.

Therefore, the judgment appealed from is hereby

revoked, and the defendant is hereby relieved from
all responsibility under the complaint. And, without
any finding as to costs, it is so ordered.
 Republic of the Philippines
 For the purpose of enhancing its powers in
SUPREME COURT
 promoting animal welfare and enforcing laws for the
Manila
EN BANC
G.R. No. 169752 September 25, 2007
PHILIPPINE SOCIETY FOR THE PREVENTION OF
CRUELTY TO ANIMALS, Petitioners, 

vs.
 SEC. 4. The said society is authorized to appoint not
COMMISSION ON AUDIT, DIR. RODULFO J.
ARIESGA (in his official capacity as Director of
the Commission on Audit), MS. MERLE M.
VALENTIN and MS. SUSAN GUARDIAN (in their
official capacities as Team Leader and Team
Member, respectively, of the audit Team of the
Commission on Audit), Respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a special civil action
for Certiorari and Prohibition under Rule 65 of the
Rules of Court, in relation to Section 2 of Rule 64,
filed by the petitioner assailing Office Order No.
2005-0211 dated September 14, 2005 issued by the
respondents which constituted the audit team, as
well as its September 23, 2005 Letter2 informing the
petitioner that respondents’ audit team shall conduct
an audit survey on the petitioner for a detailed audit
of its accounts, operations, and financial
transactions. No temporary restraining order was
issued.
The petitioner was incorporated as a juridical entity
over one hundred years ago by virtue of Act No.
1285, enacted on January 19, 1905, by the
Philippine Commission. The petitioner, at the time it
was created, was composed of animal aficionados
and animal propagandists. The objects of the
petitioner, as stated in Section 2 of its charter, shall
be to enforce laws relating to cruelty inflicted upon
animals or the protection of animals in the Philippine
Islands, and generally, to do and perform all things
which may tend in any way to alleviate the suffering
of animals and promote their welfare.3
At the time of the enactment of Act No. 1285, the
original Corporation Law, Act No. 1459, was not yet
in existence. Act No. 1285 antedated both the
Corporation Law and the constitution of the
Securities and Exchange Commission. Important to
note is that the nature of the petitioner as a
corporate entity is distinguished from the sociedad
anonimas under the Spanish Code of Commerce.
protection of animals, the petitioner was initially
imbued under its charter with the power to
apprehend violators of animal welfare laws. In
addition, the petitioner was to share one-half (1/2) of
the fines imposed and collected through its efforts
for violations of the laws related thereto. As originally
worded, Sections 4 and 5 of Act No. 1285 provide:
to exceed five agents in the City of Manila, and not
to exceed two in each of the provinces of the
Philippine Islands who shall have all the power and
authority of a police officer to make arrests for
violation of the laws enacted for the prevention of
cruelty to animals and the protection of animals, and
to serve any process in connection with the
execution of such laws; and in addition thereto, all
the police force of the Philippine Islands, wherever
organized, shall, as occasion requires, assist said
society, its members or agents, in the enforcement
of all such laws.
SEC. 5. One-half of all the fines imposed and
collected through the efforts of said society, its
members or its agents, for violations of the laws
enacted for the prevention of cruelty to animals and
for their protection, shall belong to said society and
shall be used to promote its objects.
(emphasis supplied)
Subsequently, however, the power to make arrests
as well as the privilege to retain a portion of the fines
collected for violation of animal-related laws were
recalled by virtue of Commonwealth Act (C.A.) No.
148,4 which reads, in its entirety, thus:
Be it enacted by the National Assembly of the
Philippines:
Section 1. Section four of Act Numbered Twelve
hundred and eighty-five as amended by Act
Numbered Thirty five hundred and forty-eight, is
hereby further amended so as to read as follows:
Sec. 4. The said society is authorized to appoint not
to exceed ten agents in the City of Manila, and not
to exceed one in each municipality of the
Philippines who shall have the authority to denounce
to regular peace officers any violation of the laws
enacted for the prevention of cruelty to animals and
the protection of animals and to cooperate with said
peace officers in the prosecution of transgressors of
such laws.
Sec. 2. The full amount of the fines collected for
violation of the laws against cruelty to animals and
for the protection of animals, shall accrue to the
general fund of the Municipality where the offense
was committed.
Sec. 3. This Act shall take effect upon its approval.
Approved, November 8, 1936. (Emphasis supplied)
Immediately thereafter, then President Manuel L.
Quezon issued Executive Order (E.O.) No. 63 dated
November 12, 1936, portions of which provide:
Whereas, during the first regular session of the
National Assembly, Commonwealth Act Numbered
One Hundred Forty Eight was enacted depriving the
agents of the Society for the Prevention of Cruelty to
Animals of their power to arrest persons who have
violated the laws prohibiting cruelty to
animals thereby correcting a serious defect in one of
the laws existing in our statute books.
xxxx
Whereas, the cruel treatment of animals is an
offense against the State, penalized under our
statutes, which the Government is duty bound to
enforce;
Now, therefore, I, Manuel L. Quezon, President of
the Philippines, pursuant to the authority conferred
upon me by the Constitution, hereby decree, order,
and direct the Commissioner of Public Safety, the
Provost Marshal General as head of the
Constabulary Division of the Philippine Army, every
Mayor of a chartered city, and every municipal
president to detail and organize special members of
the police force, local, national, and the
Constabulary to watch, capture, and prosecute
offenders against the laws enacted to prevent
cruelty to animals. (Emphasis supplied)
On December 1, 2003, an audit team from
respondent Commission on Audit (COA) visited the
office of the petitioner to conduct an audit survey
pursuant to COA Office Order No. 2003-051 dated
November 18, 20035addressed to the petitioner. The
petitioner demurred on the ground that it was a
private entity not under the jurisdiction of COA, citing
Section 2(1) of Article IX of the Constitution which
specifies the general jurisdiction of the COA, viz:
Section 1. General Jurisdiction. The Commission on
Audit shall have the power, authority, and duty to
examine, audit, and settle all accounts pertaining to
the revenue and receipts of, and expenditures or
uses of funds and property, owned or held in trust
by, or pertaining to the Government, or any of its
subdivisions, agencies, or instrumentalities,
including government-owned and controlled
corporations with original charters, and on a post-
audit basis: (a) constitutional bodies, commissions
and officers that have been granted fiscal autonomy
under the Constitution; (b) autonomous state
colleges and universities; (c) other government-
owned or controlled corporations and their
subsidiaries; and (d) such non-governmental entities
receiving subsidy or equity, directly or indirectly, from
or through the government, which are required by
law or the granting institution to submit to such audit
as a condition of subsidy or equity. However, where
the internal control system of the audited agencies is
inadequate, the Commission may adopt such
measures, including temporary or special pre-audit,
as are necessary and appropriate to correct the
deficiencies. It shall keep the general accounts of
the Government, and for such period as may be
provided by law, preserve the vouchers and other
supporting papers pertaining thereto. (Emphasis
supplied)
Petitioner explained thus:
a. Although the petitioner was created by special
legislation, this necessarily came about because in
January 1905 there was as yet neither a Corporation
Law or any other general law under which it may be
organized and incorporated, nor a Securities and
Exchange Commission which would have passed
upon its organization and incorporation.
b. That Executive Order No. 63, issued during the
Commonwealth period, effectively deprived the
petitioner of its power to make arrests, and that the
petitioner lost its operational funding, underscore the
fact that it exercises no governmental function. In
fine, the government itself, by its overt acts,
confirmed petitioner’s status as a private juridical
entity.
The COA General Counsel issued a
Memorandum6 dated May 6, 2004, asserting that
the petitioner was subject to its audit authority. In a
letter dated May 17, 2004,7 respondent COA
informed the petitioner of the result of the
evaluation, furnishing it with a copy of said
Memorandum dated May 6, 2004 of the General
Counsel.
Petitioner thereafter filed with the respondent COA a
Request for Re-evaluation dated May 19,
2004,8 insisting that it was a private domestic
corporation.
Acting on the said request, the General Counsel of
respondent COA, in a Memorandum dated July 13,
2004,9affirmed her earlier opinion that the petitioner
was a government entity that was subject to the
audit jurisdiction of respondent COA. In a letter
dated September 14, 2004, the respondent COA
informed the petitioner of the result of the re-
evaluation, maintaining its position that the petitioner
was subject to its audit jurisdiction, and requested
an initial conference with the respondents.
In a Memorandum dated September 16, 2004,
Director Delfin Aguilar reported to COA Assistant
Commissioner Juanito Espino, Corporate
Government Sector, that the audit survey was not
conducted due to the refusal of the petitioner
because the latter maintained that it was a private
corporation.
Petitioner received on September 27, 2005 the
subject COA Office Order 2005-021 dated
September 14, 2005 and the COA Letter dated
September 23, 2005.
Hence, herein Petition on the following grounds:
A.
RESPONDENT COMMISSION ON AUDIT
COMMITTED GRAVE ABUSE OF DISCRETION
A M O U N T I N G TO L A C K O R E X C E S S O F
J U R I S D I C T I O N W H E N I T R U L E D T H AT
PETITIONER IS SUBJECT TO ITS AUDIT
AUTHORITY.
B.
PETITIONER IS ENTITLED TO THE RELIEF
SOUGHT, THERE BEING NO APPEAL, NOR ANY
PLAIN, SPEEDY AND ADEQUATE REMEDY IN
THE ORDINARY COURSE OF LAW AVAILABLE TO
IT.10
The essential question before this Court is whether
the petitioner qualifies as a government agency that
may be subject to audit by respondent COA.
Petitioner argues: first, even though it was created
by special legislation in 1905 as there was no
general law then existing under which it may be
organized or incorporated, it exercises no
governmental functions because these have been
revoked by C.A. No. 148 and E.O. No. 63; second,
nowhere in its charter is it indicated that it is a public
corporation, unlike, for instance, C.A. No. 111 which
created the Boy Scouts of the Philippines, defined
its powers and purposes, and specifically stated that
it was "An Act to Create a Public Corporation" in
which, even as amended by Presidential Decree No.
460, the law still adverted to the Boy Scouts of the
Philippines as a "public corporation," all of which are
not obtaining in the charter of the petitioner; third, if
it were a government body, there would have been
no need for the State to grant it tax exemptions
under Republic Act No. 1178, and the fact that it was
so exempted strengthens its position that it is a
private institution; fourth, the employees of the
petitioner are registered and covered by the Social
Security System at the latter’s initiative and not
through the Government Service Insurance System,
which should have been the case had the
employees been considered government
employees; fifth, the petitioner does not receive any
form of financial assistance from the government,
since C.A. No. 148, amending Section 5 of Act No.
1285, states that the "full amount of the fines,
collected for violation of the laws against cruelty to
animals and for the protection of animals, shall
accrue to the general fund of the Municipality where
the offense was committed"; sixth, C.A. No. 148
effectively deprived the petitioner of its powers to
make arrests and serve processes as these
functions were placed in the hands of the police
force; seventh, no government appointee or
representative sits on the board of trustees of the
petitioner; eighth, a reading of the provisions of its
charter (Act No. 1285) fails to show that any act or
decision of the petitioner is subject to the approval of
or control by any government agency, except to the
extent that it is governed by the law on private
corporations in general; and finally, ninth, the
Committee on Animal Welfare, under the Animal
Welfare Act of 1998, includes members from both
the private and the public sectors.
The respondents contend that since the petitioner is
a "body politic" created by virtue of a special
legislation and endowed with a governmental
purpose, then, indubitably, the COA may audit the
financial activities of the latter. Respondents in effect
divide their contentions into six strains: first, the test
to determine whether an entity is a government
corporation lies in the manner of its creation, and,
since the petitioner was created by virtue of a
special charter, it is thus a government corporation
subject to respondents’ auditing power; second, the
petitioner exercises "sovereign powers," that is, it is
tasked to enforce the laws for the protection and
welfare of animals which "ultimately redound to the
public good and welfare," and, therefore, it is
deemed to be a government "instrumentality" as
defined under the Administrative Code of 1987, the
purpose of which is connected with the
administration of government, as purportedly
affirmed by American jurisprudence; third, by virtue
of Section 23,11Title II, Book III of the same Code,
the Office of the President exercises supervision or
control over the petitioner; fourth, under the same
Code, the requirement under its special charter for
the petitioner to render a report to the Civil
Governor, whose functions have been inherited by
the Office of the President, clearly reflects the nature
of the petitioner as a government
instrumentality; fifth, despite the passage of the
Corporation Code, the law creating the petitioner
had not been abolished, nor had it been re-
incorporated under any general corporation law; and
finally, sixth, Republic Act No. 8485, otherwise
known as the "Animal Welfare Act of 1998,"
designates the petitioner as a member of its
Committee on Animal Welfare which is attached to
the Department of Agriculture.
In view of the phrase "One-half of all the fines
imposed and collected through the efforts of said
society," the Court, in a Resolution dated January
30, 2007, required the Office of the Solicitor General
(OSG) and the parties to comment on: a) petitioner's
authority to impose fines and the validity of the
provisions of Act No. 1285 and Commonwealth Act
No. 148 considering that there are no standard
measures provided for in the aforecited laws as to
the manner of implementation, the specific violations
of the law, the person/s authorized to impose fine
and in what amount; and, b) the effect of the 1935
and 1987 Constitutions on whether petitioner
continues to exist or should organize as a private
corporation under the Corporation
Code, B.P. Blg. 68 as amended.
Petitioner and the OSG filed their respective
Comments. Respondents filed a Manifestation
stating that since they were being represented by
the OSG which filed its Comment, they opted to
dispense with the filing of a separate one and adopt
for the purpose that of the OSG.
The petitioner avers that it does not have the
authority to impose fines for violation of animal
welfare laws; it only enjoyed the privilege of sharing
in the fines imposed and collected from its efforts in
the enforcement of animal welfare laws; such
privilege, however, was subsequently abolished by
C.A. No. 148; that it continues to exist as a private
corporation since it was created by the Philippine
Commission before the effectivity of the Corporation
law, Act No. 1459; and the 1935 and 1987
Constitutions.
The OSG submits that Act No. 1285 and its
amendatory laws did not give petitioner the authority
to impose fines for violation of laws12 relating to the
prevention of cruelty to animals and the protection of
animals; that even prior to the amendment of Act
No. 1285, petitioner was only entitled to share in the
fines imposed; C.A. No. 148 abolished that privilege
to share in the fines collected; that petitioner is a
public corporation and has continued to exist since
Act No. 1285; petitioner was not repealed by the
1935 and 1987 Constitutions which contain
transitory provisions maintaining all laws issued not
inconsistent therewith until amended, modified or
repealed.
The petition is impressed with merit.
The arguments of the parties, interlaced as they are,
can be disposed of in five points.
First, the Court agrees with the petitioner that the
"charter test" cannot be applied.
Essentially, the "charter test" as it stands today
provides:
[T]he test to determine whether a corporation is
government owned or controlled, or private in nature
is simple. Is it created by its own charter for the
exercise of a public function, or by incorporation
under the general corporation law? Those with
special charters are government corporations
subject to its provisions, and its employees are
under the jurisdiction of the Civil Service
Commission, and are compulsory members of the
Government Service Insurance System. xxx
(Emphasis supplied)13
The petitioner is correct in stating that the charter
test is predicated, at best, on the legal regime
established by the 1935 Constitution, Section 7,
Article XIII, which states:
Sec. 7. The National Assembly shall not, except by
general law, provide for the formation, organization,
or regulation of private corporations, unless such
corporations are owned or controlled by the
Government or any subdivision or instrumentality
thereof.14
The foregoing proscription has been carried over to
the 1973 and the 1987 Constitutions. Section 16 of
Article XII of the present Constitution provides:
Sec. 16. The Congress shall not, except by general
law, provide for the formation, organization, or
regulation of private corporations. Government-
owned or controlled corporations may be created or
established by special charters in the interest of the
common good and subject to the test of economic
viability.
Section 16 is essentially a re-enactment of Section 7
of Article XVI of the 1935 Constitution and Section 4
of Article XIV of the 1973 Constitution.
During the formulation of the 1935 Constitution, the
Committee on Franchises recommended the
foregoing proscription to prevent the pressure of
special interests upon the lawmaking body in the
creation of corporations or in the regulation of the
same. To permit the lawmaking body by special law
to provide for the organization, formation, or
regulation of private corporations would be in effect
to offer to it the temptation in many cases to favor
certain groups, to the prejudice of others or to the
prejudice of the interests of the country.15
And since the underpinnings of the charter test had
been introduced by the 1935 Constitution and not
earlier, it follows that the test cannot apply to the
petitioner, which was incorporated by virtue of Act
No. 1285, enacted on January 19, 1905. Settled is
the rule that laws in general have no retroactive
effect, unless the contrary is provided.16 All statutes
are to be construed as having only a prospective
operation, unless the purpose and intention of the
legislature to give them a retrospective effect is
expressly declared or is necessarily implied from the
language used. In case of doubt, the doubt must be
resolved against the retrospective effect.17
There are a few exceptions. Statutes can be given
retroactive effect in the following cases: (1) when the
law itself so expressly provides; (2) in case of
remedial statutes; (3) in case of curative statutes; (4)
in case of laws interpreting others; and (5) in case of
laws creating new rights.18 None of the exceptions is
present in the instant case.
The general principle of prospectivity of the law
likewise applies to Act No. 1459, otherwise known
as the Corporation Law, which had been enacted by
virtue of the plenary powers of the Philippine
Commission on March 1, 1906, a little over a year
after January 19, 1905, the time the petitioner
emerged as a juridical entity. Even the Corporation
Law respects the rights and powers of juridical
entities organized beforehand, viz:
SEC. 75. Any corporation or sociedad
anonima formed, organized, and existing under the
laws of the Philippine Islands and lawfully
transacting business in the Philippine Islands on the
date of the passage of this Act, shall be subject to
the provisions hereof so far as such provisions may
be applicable and shall be entitled at its option either
to continue business as such corporation or to
reform and organize under and by virtue of the
provisions of this Act, transferring all corporate
interests to the new corporation which, if a stock
corporation, is authorized to issue its shares of stock
at par to the stockholders or members of the old
corporation according to their interests. (Emphasis
supplied).
As pointed out by the OSG, both the 1935 and 1987
Constitutions contain transitory provisions
maintaining all laws issued not inconsistent
therewith until amended, modified or repealed.19
In a legal regime where the charter test doctrine
cannot be applied, the mere fact that a corporation
has been created by virtue of a special law does not
necessarily qualify it as a public corporation.
What then is the nature of the petitioner as a
corporate entity? What legal regime governs its
rights, powers, and duties?
As stated, at the time the petitioner was formed, the
applicable law was the Philippine Bill of 1902, and,
emphatically, as also stated above, no proscription
similar to the charter test can be found therein.
The textual foundation of the charter test, which
placed a limitation on the power of the legislature,
first appeared in the 1935 Constitution. However, the
petitioner was incorporated in 1905 by virtue of Act
No. 1258, a law antedating the Corporation Law (Act
No. 1459) by a year, and the 1935 Constitution, by
thirty years. There being neither a general law on
the formation and organization of private
corporations nor a restriction on the legislature to
create private corporations by direct legislation, the
Philippine Commission at that moment in history
was well within its powers in 1905 to constitute the
petitioner as a private juridical entity.1âwphi1
Time and again the Court must caution even the
most brilliant scholars of the law and all
constitutional historians on the danger of imposing
legal concepts of a later date on facts of an earlier
date.20
The amendments introduced by C.A. No. 148 made
it clear that the petitioner was a private corporation
and not an agency of the government. This was
evident in Executive Order No. 63, issued by then
President of the Philippines Manuel L. Quezon,
declaring that the revocation of the powers of the
petitioner to appoint agents with powers of arrest
"corrected a serious defect" in one of the laws
existing in the statute books.
As a curative statute, and based on the doctrines so
far discussed, C.A. No. 148 has to be given
retroactive effect, thereby freeing all doubt as to
which class of corporations the petitioner belongs,
that is, it is a quasi-public corporation, a kind of
private domestic corporation, which the Court will
further elaborate on under the fourth point.
Second, a reading of petitioner’s charter shows that
it is not subject to control or supervision by any
agency of the State, unlike government-owned and -
controlled corporations. No government
representative sits on the board of trustees of the
petitioner. Like all private corporations, the
successors of its members are determined
voluntarily and solely by the petitioner in accordance
with its by-laws, and may exercise those powers
generally accorded to private corporations, such as
the powers to hold property, to sue and be sued, to
use a common seal, and so forth. It may adopt by-
laws for its internal operations: the petitioner shall be
managed or operated by its officers "in accordance
with its by-laws in force." The pertinent provisions of
the charter provide:
Section 1. Anna L. Ide, Kate S. Wright, John L.
Chamberlain, William F. Tucker, Mary S. Fergusson,
Amasa S. Crossfield, Spencer Cosby, Sealy B.
Rossiter, Richard P. Strong, Jose Robles Lahesa,
Josefina R. de Luzuriaga, and such other persons
as may be associated with them in conformity with
this act, and their successors, are hereby
constituted and created a body politic and corporate
at law, under the name and style of "The Philippines
Society for the Prevention of Cruelty to Animals."
As incorporated by this Act, said society shall have
the power to add to its organization such and as
many members as it desires, to provide for and
choose such officers as it may deem advisable, and
in such manner as it may wish, and to remove
members as it shall provide.
It shall have the right to sue and be sued, to use a
common seal, to receive legacies and donations, to
conduct social enterprises for the purpose of
obtaining funds, to levy dues upon its members and
provide for their collection to hold real and personal
estate such as may be necessary for the
accomplishment of the purposes of the society, and
to adopt such by-laws for its government as may not
be inconsistent with law or this charter.
xxxx
Sec. 3. The said society shall be operated under the
direction of its officers, in accordance with its by-
laws in force, and this charter.
xxxx
Sec. 6. The principal office of the society shall be
kept in the city of Manila, and the society shall have
full power to locate and establish branch offices of
the society wherever it may deem advisable in the
Philippine Islands, such branch offices to be under
the supervision and control of the principal office.
Third. The employees of the petitioner are registered
and covered by the Social Security System at the
latter’s initiative, and not through the Government
Service Insurance System, which should be the
case if the employees are considered government
employees. This is another indication of petitioner’s
nature as a private entity. Section 1 of Republic Act
No. 1161, as amended by Republic Act No. 8282,
otherwise known as the Social Security Act of 1997,
defines the employer:
Employer – Any person, natural or juridical,
domestic or foreign, who carries on in the
Philippines any trade, business, industry,
undertaking or activity of any kind and uses the
services of another person who is under his orders
as regards the employment, except the Government
and any of its political subdivisions, branches or
instrumentalities, including corporations owned or
controlled by the Government: Provided, That a self-
employed person shall be both employee and
employer at the same time. (Emphasis supplied)
Fourth. The respondents contend that the petitioner
is a "body politic" because its primary purpose is to
secure the protection and welfare of animals which,
in turn, redounds to the public good.
This argument, is, at best, specious. The fact that a
certain juridical entity is impressed with public
interest does not, by that circumstance alone, make
the entity a public corporation, inasmuch as a
corporation may be private although its charter
contains provisions of a public character,
incorporated solely for the public good. This class of
corporations may be considered quasi-public
corporations, which are private corporations that
render public service, supply public wants,21 or
pursue other eleemosynary objectives. While
purposely organized for the gain or benefit of its
members, they are required by law to discharge
functions for the public benefit. Examples of these
corporations are utility,22 railroad, warehouse,
telegraph, telephone, water supply corporations and
transportation companies.23 It must be stressed that
a quasi-public corporation is a species of private
corporations, but the qualifying factor is the type of
service the former renders to the public: if it
performs a public service, then it becomes a quasi-
public corporation.241âwphi1
Authorities are of the view that the purpose alone of
the corporation cannot be taken as a safe guide, for
the fact is that almost all corporations are nowadays
created to promote the interest, good, or
convenience of the public. A bank, for example, is a
private corporation; yet, it is created for a public
benefit. Private schools and universities are likewise
private corporations; and yet, they are rendering
public service. Private hospitals and wards are
charged with heavy social responsibilities. More so
with all common carriers. On the other hand, there
may exist a public corporation even if it is endowed
with gifts or donations from private individuals.
The true criterion, therefore, to determine whether a
corporation is public or private is found in the totality
of the relation of the corporation to the State. If the
corporation is created by the State as the latter’s
own agency or instrumentality to help it in carrying
out its governmental functions, then that corporation
is considered public; otherwise, it is private. Applying
the above test, provinces, chartered cities,
and barangays can best exemplify public
corporations. They are created by the State as its
own device and agency for the accomplishment of
parts of its own public works.25
It is clear that the amendments introduced by C.A.
No. 148 revoked the powers of the petitioner to
arrest offenders of animal welfare laws and the
power to serve processes in connection therewith.
Fifth. The respondents argue that since the charter
of the petitioner requires the latter to render periodic
reports to the Civil Governor, whose functions have
been inherited by the President, the petitioner is,
therefore, a government instrumentality.
state and the limitations of its charter. Its powers are
limited by law. It can make no contract not
authorized by its charter. Its rights to act as a
corporation are only preserved to it so long as it
obeys the laws of its creation. There is a reserve[d]
right in the legislature to investigate its contracts and
find out whether it has exceeded its powers. It would
be a strange anomaly to hold that a state, having
chartered a corporation to make use of certain
franchises, could not, in the exercise of sovereignty,
inquire how these franchises had been employed,
and whether they had been abused, and demand
the production of the corporate books and papers for
that purpose. The defense amounts to this, that an
officer of the corporation which is charged with a
criminal violation of the statute may plead the
criminality of such corporation as a refusal to
produce its books. To state this proposition is to
answer it. While an individual may lawfully refuse to
answer incriminating questions unless protected by
an immunity statute, it does not follow that a
corporation vested with special privileges and
franchises may refuse to show its hand when
charged with an abuse of such privileges. (Wilson v.
United States, 55 Law Ed., 771, 780.)27
WHEREFORE, the petition is GRANTED. Petitioner
is DECLARED a private domestic corporation
subject to the jurisdiction of the Securities and
Exchange Commission. The respondents
are ENJOINED from investigating, examining and
auditing the petitioner's fiscal and financial affairs.

This contention is inconclusive. By virtue of the SO ORDERED.

fiction that all corporations owe their very existence
and powers to the State, the reportorial requirement
is applicable to all corporations of whatever nature,
whether they are public, quasi-public, or private
corporations—as creatures of the State, there is a
reserved right in the legislature to investigate the
activities of a corporation to determine whether it
acted within its powers. In other words, the
reportorial requirement is the principal means by
which the State may see to it that its creature acted
according to the powers and functions conferred
upon it. These principles were extensively discussed
in Bataan Shipyard & Engineering Co., Inc. v.
Presidential Commission on Good Government.
26 Here, the Court, in holding that the subject

corporation could not invoke the right against self-

incrimination whenever the State demanded the
production of its corporate books and papers,
extensively discussed the purpose of reportorial
requirements, viz:

x x x The corporation is a creature of the state. It is

presumed to be incorporated for the benefit of the
public. It received certain special privileges and
franchises, and holds them subject to the laws of the
 Republic of the Philippines
 form and create their respective water districts
SUPREME COURT
 through a resolution they will pass subject to the
Manila guidelines, rules and regulations therein laid down.
The decree further created and formed the "Local
EN BANC Water Utilities Administration" (LWUA), a national
agency attached to the National Economic and

 Development Authority (NEDA), and granted with
regulatory power necessary to optimize public
service from water utilities operations.
G.R. No. 95237-38 September 13, 1991
The respondents, on the other hand, are the Civil
Service Commission (CSC) and the Commission on
DAVAO CITY WATER DISTRICT, CAGAYAN DE
Audit (COA), both government agencies and
ORO CITY WATER DISTRICT, METRO CEBU
represented in this case by the Solicitor General.
WATER DISTRICT, ZAMBOANGA CITY WATER
DISTRICT, LEYTE METRO WATER DISTRICT,
BUTUAN CITY WATER DISTRICT, CAMARINES On April 17, 1989, this Court ruled in the case
NORTE WATER DISTRICT, LAGUNA WATER of Tanjay Water District v. Gabaton, et al. (G.R. No.
DISTRICT, DUMAGUETE CITY WATER DISTRICT, 63742, 172 SCRA 253):
LA UNION WATER DISTRICT, BAYBAY WATER
DISTRICT, METRO LINGAYEN WATER DISTRICT, Significantly, Article IX (B), Section 2(1) of the 1987
URDANETA WATER DISTRICT, COTABATO CITY Constitution provides that the Civil Service
WATER DISTRICT, MARAWI WATER DISTRICT, embraces all branches, subdivisions,
TAGUM WATER DISTRICT, DIGOS WATER instrumentalities, and agencies of the government,
DISTRICT, BISLIG WATER DISTRICT, and including government-owned and controlled
MECAUAYAN WATER DISTRICT,petitioners, 
 corporations with original charters. Inasmuch as PD
vs.
 No. 198, as amended, is the original charter of the
CIVIL SERVICE COMMISSION, and COMMISSION petitioner, Tanjay Water District, and respondent
ON AUDIT, respondents. Tarlac Water District and all water districts in the
country, they come under the coverage of the Civil
Rodolfo S. De Jesus for petitioners.
 Service Law, rules and regulations. (Sec. 35, Art.
Evalyn H. Itaas-Fetalino, Rogelio C. Limare and VIII and Sec. 37, Art. IX of PD No. 807).
Daisy B. Garcia-Tingzon for CSC.
As an offshoot of the immediately cited ruling, the

 CSC. issued Resolution No. 90-575, the dispositive
portion of which reads:

MEDIALDEA, J.:p NOW THEREFORE, in view of all the foregoing, the

Commission resolved, as it hereby resolves to rule
that Local Water Districts, being quasi-public
Whether or not the Local Water Districts formed and
corporations created by law to perform public
created pursuant to the provisions of Presidential
services and supply public wants, the matter of
Decree No. 198, as amended, are government-
hiring and firing of its officers and employees should
owned or controlled corporations with original
be governed by the Civil Service Law, rules and
charter falling under the Civil Service Law and/or
regulations. Henceforth, all appointments of
covered by the visitorial power of the Commission
personnel of the different local water districts in the
on Audit is the issue which the petitioners entreat
country shall be submitted to the Commission for
this Court, en banc, to shed light on.
appropriate action. (Rollo. p. 22).
Petitioners are among the more than five hundred
However, on May 16, 1990, in G.R. No. 85760,
(500) water districts existing throughout the country
entitled "Metro Iloilo Water District v. National Labor
formed pursuant to the provisions of Presidential
Relations Commission, et al.," the Third Division of
Decree No. 198, as amended by Presidential
this Court ruled in a minute resolution:
Decrees Nos. 768 and 1479, otherwise known as
the "Provincial Water Utilities Act of 1973."
xxx xxx xxx
Presidential Decree No. 198 was issued by the then
President Ferdinand E. Marcos by virtue of his Considering that PD 198 is a general legislation
legislative power under Proclamation No. 1081. It empowering and/or authorizing government
authorized the different local legislative bodies to agencies and entities to create water districts, said
PD 198 cannot be considered as the charter itself
creating the Water District. Public respondent NLRC
did not commit any grave abuse of discretion in
holding that the operative act, that created the Metro
Iloilo Water District was the resolution of the
Sangguniang Panglunsod of Iloilo City. Hence, the
employees of Water Districts are not covered by
Civil Service Laws as the latter do (sic) not have
original charters.
In adherence to the just cited ruling, the CSC
suspended the implementation of Resolution No.
90-575 by issuing Resolution No. 90-770 which
reads:
xxx xxx xxx
NOW, THEREFORE, in view of all the foregoing, the
Commission resolved to rule, as it hereby rules, that
the implementation of CSC. Resolution No. 575
dated June 27, 1990 be deferred in the meantime
pending clarification from the Supreme Court are
regards its conflicting decisions in the cases
of Tanjay Water District v. Gabaton and Metro Iloilo
Water District v. National Labor Relations
Commission. (p. 26, Rollo)
In the meanwhile, there exists a divergence of
opinions between COA on one hand, and the
(LWUA), on the other hand, with respect to the
authority of COA to audit the different water districts.
COA opined that the audit of the water districts is
simply an act of discharging the visitorial power
vested in them by law (letter of COA to LWUA dated
August 13, 1985, pp. 29-30, Rollo).
On the other hand, LWUA maintained that only
those water districts with subsidies from the
government fall within the COA's jurisdiction and
only to the extent of the amount of such subsidies,
pursuant to the provision of the Government
Auditing Code of the Phils.
It is to be observed that just like the question of
whether the employees of the water districts falls
under the coverage of the Civil Service Law, the
conflict between the water districts and the COA is
also dependent on the final determination of whether
or not water districts are government-owned or
controlled corporations with original charter. The
reason behind this is Sec. 2(1), Article IX-D of the
1987 constitution which reads:
Sec. 2(1) The Commission on Audit shall have the
power, authority, and duty to examine, audit, and
settle all accounts pertaining to the revenue and
receipts of, and expenditures or uses of funds and
property, owned or held in trust by, or pertaining to
the Government, or any of its subdivisions, agencies
or instrumentalities, including government-owned or
controlled corporations with original charters, and on
a post audit basis. (emphasis supplied)
Petitioners' main argument is that they are private
corporations without original charter, hence they are
outside the jurisdiction of respondents CSC and
COA. Reliance is made on the Metro Iloilo case
which declared petitioners as quasi-public
corporations created by virtue of PD 198, a general
legislation which cannot be considered as the
charter itself creating the water districts. Holding on
to this ruling, petitioners contend that they are
private corporations which are only regarded as
quasi-public or semi-public because they serve
public interest and convenience and that since PD
198 is a general legislation, the operative act which
created a water district is not the said decree but the
resolution of the sanggunian concerned.
After a fair consideration of the parties' arguments
coupled with a careful study of the applicable laws
as well as the constitutional provisions involved, We
rule against the petitioners and reiterate Our ruling
in Tanjay case declaring water districts government-
owned or controlled corporations with original
charter.
As early as Baguio Water District v. Trajano, et
al., (G.R. No. 65428, February 20, 1984, 127 SCRA
730), We already ruled that a water district is a
corporation created pursuant to a special law — P.D.
No. 198, as amended, and as such its officers and
employees are covered by the Civil Service Law.
In another case (Hagonoy Water District v. NLRC,
G.R. No. 81490, August 31, 1988, 165 SCRA 272),
We ruled once again that local water districts are
quasi-public corporations whose employees belong
to the Civil Service. The Court's pronoucement in
this case, as extensively quoted in
the Tanjay case, supra, partly reads:
"The only question here is whether or not local water
districts are governmkent owned or controlled
corporations whose employees are subject to the
provisions of the Civil Service Law. The Labor
Arbiter asserted jurisdiction over the alleged illegal
dismissal of private respondent Villanueva by relying
on Section 25 of Presidential decree No. 198, known
as the Provincial Water Utilities Act of 1973" which
went onto effect in 25 May 1973, and which provides
as follows:
Exemption from Civil Service. — The district and its
employees, being engaged in a proprietary function,
are hereby exempt from the provisions of the Civil
Service Law. Collective Bargaining shall be available
only to personnel below supervisory
levels: Provided, however, That the total of all
salaries, wages emoluments, benefits or other
compensation paid to all employees in any month
shall not exceed fifty percent (50%) of average net
monthy revenue. Said net revenue representing
income from water sales and sewerage service
charges, less pro-rata share of debt service and
expenses for fuel or energy for pumping during the
preceding fiscal year.
The Labor Arbiter failed to take into accout the
provisions of Presidential Decree No. 1479, which
went into effect on 11 June 1978, P.D. No. 1479,
wiped away Section 25 of PD 198 quoted above,
and Section 26 of PD 198 was renumbered as
Section 25 in the following manner:
Section 26 of the same decree PD 198 is hereby
amended to read as Section 25 as follows:
Section 25. Authorization. — The district may
exercise all the powers which are expressly granted
by this Title or which are necessarily implied from or
incidental to the powers and purposes herein stated.
For the purpose of carrying out the objectives of this
Act, a district is hereby granted the power of
eminent domain, the exercise thereof shall,
however, be subject to review by the Administration.
Thus, Section 25 of PD 198 exempting the
employees of water districts from the application of
the Civil Service Law was removed from the statute
books:
xxx xxx xxx
We grant the petition for the following reasons:
1. Section 25 of PD No. 198 was repealed by
Section 3 of PD No. 1479; Section 26 of PD No. 198
was amended ro read as Sec. 25 by Sec. 4 of PD
No. 1479. The amendatory decree took effect on
June 11, 1978.
xxx xxx xxx
3. The BWD is a corporation created pursuant to a
special law — PD No. 198, as amended. As such its
officers and employees are part of the Civil Service
(Sec. 1, Art. XII-B, [1973] Constitution; PD No. 868).
Ascertained from a consideration of the whole
statute, PD 198 is a special law applicable only to
the different water districts created pursuant thereto.
In all its essential terms, it is obvious that it pertains
to a special purpose which is intended to meet a
particular set of conditions and cirmcumstances.
The fact that said decree generally applies to all
water districts throughout the country does not
change the fact that PD 198 is a special law.
Accordingly, this Court's resolution in Metro Iloilo
case declaring PD 198 as a general legislation is
hereby abandoned.
By "government-owned or controlled corporation
with original charter," We mean government owned
or controlled corporation created by a special law
and not under the Corporation Code of the
Philippines. Thus, in the case of Lumanta v.
NLRC (G.R. No. 82819, February 8, 1989, 170
SCRA 79, 82), We held:
The Court, in National Service Corporation
(NASECO) v. National Labor Relations Commission,
G.R. No 69870, promulgated on 29 November 1988,
quoting extensively from the deliberations of 1986
Constitutional Commission in respect of the intent
and meaning of the new phrase "with original
character," in effect held that government-owned
and controlled corporations with original charter
refer to corporations chartered by special law as
distinguished from corporations organized under our
general incorporation statute — the Corporations
Code. In NASECO, the company involved had been
organized under the general incorporation statute
and was a sbusidiary of the National Investment
Development Corporation (NIDC) which in turn was
a subsidiary of the Philippine National Bank, a bank
chartered by a special statute. Thus, government-
owned or controlled corporations like NASECO are
effectively, excluded from the scope of the Civil
Service. (emphasis supplied)
From the foregoing pronouncement, it is clear that
what has been excluded from the coverage of the
CSC are those corporations created pursuant to the
Corporation Code. Significantly, petitioners are not
created under the said code, but on the contrary,
they were created pursuant to a special law and are
governed primarily by its provision.
No consideration may thus be given to petitioners'
contention that the operative act which created the
water districts are the resolutions of the respective
local sanggunians and that consequently, PD 198,
as amended, cannot be considered as their charter.
It is to be noted that PD 198, as amended is the
source of authorization and power to form and
maintain a district. Section 6 of said decree
provides:
Sec. 6. Formation of District. — This Act is the
source of authorization and power to form and
maintain a district. Once formed, a district is subject
to the provisions of this Act and not under the
jurisdiction of any political subdivision, . . . .
Moreover, it must be observed that PD 198, contains
all the essential terms necessary to constitute a
charter creating a juridical person. For example,
Section 6(a) provides for the name that will be used
by a water district, thus:
Sec. 6. . . . To form a district, the legislative body of
any city, municipality or province shall enact a
resolution containing the following:
a) The name of the local water district, which shall
include the name of the city, municipality, or
province, or region thereof, served by said system,
followed by the words "Water District."
It also prescribes for the numbers and qualifications
of the members of the Board of Directors:
Sec. 8. Number and Qualification. — The Board of
Directors of a district shall be composed of five
citizens of the Philippines who are of voting age and
residents within the district. One member shall be a
representative of civic-oriented service clubs, one
member of representative of professional
associations, one member a representative of
business, commercial or financial organizations, one
member a representative of educational institutions
and one member a representative of women's
organization. No public official shall serve as
director. Provided, however, that if the district has
availed of the financial assistance of the
Administration, the Administration may appoint any
of its personnel to sit in the board of directors with all
the rights and privileges appertaining to a regular
member for such period as the indebtedness
remains unpaid in which case the board shall be
composed of six members; (as amended by PDs
Nos. 768 and 1479).
the manner of their appointment and nominations;
Sec. 9. Appointment. — Board members shall be
appointed by the appointing authority. Said
appointments shall be made from a list of nominees,
if any, submitted pursuant to Section 10. If no
nominations are submitted, the appointing authority
shall appoint any qualified person of the category to
the vacant position;
Sec.10. Nominations. — On or before October 1 of
each even numbered year, the secretary of the
district shall contact each known organization,
association, or institution being represented by the
director whose term will expire on December 31 and
solicit nominations from these organizations to fill
the position for the ensuing term. One nomination
may be submitted in writing by each such
organization to the Secretary of the district on or
before November 1 of such year: This list of
nominees shall be transmitted by the Secretary of
the district to the office of the appointing authority on
or before November 15 of such year and he shall
make his appointment from the list submitted on or
before December 15. In the event the appointing
authority fails to make his appointments on or before
December 15, selection shall be made from said list
of nominees by majority vote of the seated directors
of the district constituting a quorum. Initial
nominations for all five seats of the board shall be
solicited by the legislative body or bodies at the time
of adoption of the resolution forming the district.
Thirty days thereafter, a list of nominees shall be
submitted to the provincial governor in the event the
resolution forming the district is by a provincial
board, or the mayor of the city or municipality in the
event the resolution forming the adoption of the
district is by the city or municipal board of
councilors, who shall select the initial directors
therefrom within 15 days after receipt of such
nominations;
their terms of office:
Sec. 11. Term of Office. — Of the five initial directors
of each newly formed district, two shall be appointed
for a maximum term of two years, two for a
maximum term of four years, and one for a
maximum term of six years. Terms of office of all
directors in a given district shall be such that the
term of at least one director, but not more then two,
shall expire on December 31 of each even-
numbered year. Regular terms of office after the
initial terms shall be for six years commencing on
January 1 of odd-numbered years. Directors may be
removed for cause only, subject to review and
approval of the Administration; (as amended by PD
768).
the manner of filling up vacancies:
Sec. 12. Vacancies. — In the event of a vacancy in
the board of directors occurring more than six
months before expiration of any director's term, the
remaining directors shall within 30 days, serve
notice to or request the secretary of the district for
nominations and within 30 days, thereafter a list of
nominees shall be submitted to the appointing
authority for his appointment of a replacement
director from the list of nominees. In the absence of
such nominations, the appointing authority shall
make such appointment. If within 30 days after
submission to him of a list of nominees the
appointing authority fails to make an appointment,
the vacancy shall be filled from such list by a
majority vote of the remaining members of the Board
of Directors constituting a quorum. Vacancies
occurring within the last six months of an unexpired
term shall also be filled by the Board in the above
manner. The director thus appointed shall serve the
unexpired term only; (as amended by PD 768).
and the compensation and personal liability of the
members of the Board of Directors:
Sec. 13. Compensation. — Each director shall
receive a per diem, to be determined by the board,
for each meeting of the board actually attended by
him, but no director shag receive per diems in any
given month in excess of the equivalent of the total
per diems of four meetings in any given month. No
director shall receive other compensation for
services to the district.
Any per diem in excess of P50.00 shall be subject to
approval of the Administration (as amended by PD
768).
Sec. 14. Personal Liability. — No director may be
held to be personally liable for any action of the
district.
Noteworthy, the above quoted provisions of PD 198,
as amended, are similar to those which are actually
contained in other corporate charters. The
conclusion is inescapable that the said decree is in
truth and in fact the charter of the different water
districts for it clearly defines the latter's primary
purpose and its basic organizational set-up. In other
words, PD 198, as amended, is the very law which
gives a water district juridical personality. While it is
true that a resolution of a local sanggunian is still
necessary for the final creation of a district, this
Court is of the opinion that said resolution cannot be
considered as its charter, the same being intended
only to implement the provisions of said decree. In
passing a resolution forming a water district, the
local sanggunian is entrusted with no authority or
discretion to grant a charter for the creation of a
private corporation. It is merely given the authority
for the formation of a water district, on a local option
basis, to be exercised under and in pursuance of PD
198.
More than the aforequoted provisions, what is of
important interest in the case at bar is Section 3,
par. (b) of the same decree which reads:
Sec. 3(b). Appointing authority. — The person
empowered to appoint the members of the Board of
Directors of a local water district, depending upon
the geographic coverage and population make-up of
the particular district. In the event that more than
seventy-five percent of the total active water service
connections of a local water districts are within the
boundary of any city or municipality, the appointing
authority shall be the mayor of that city or
municipality, as the case may be; otherwise, the
appointing authority shall be the governor of the
province within which the district is
located: Provided, That if the existing waterworks
system in the city or municipality established as a
water district under this Decree is operated and
managed by the province, initial appointment shall
be extended by the governor of the province.
Subsequent appointments shall be as specified
herein.
If portions of more than one province are included
within the boundary of the district, and the
appointing authority is to be the governors then the
power to appoint shall rotate between the governors
involved with the initial appointments made by the
governor in whose province the greatest number of
service connections exists (as amended by PD 768).
The above-quoted section definitely sets to naught
petitioners' contention that they are private
corporations. It is clear therefrom that the power to
appoint the members who will comprise the Board of
Directors belongs to the local executives of the local
subdivision units where such districts are located. In
contrast, the members of the Board of Directors or
trustees of a private corporation are elected from
among the members and stockholders thereof. It
would not be amiss to emphasize at this point that a
private corporation is created for the private
purpose, benefit, aim and end of its members or
stockholders. Necessarily, said members or
stockholders should be given a free hand to choose
those who will compose the governing body of their
corporation. But this is not the case here and this
clearly indicates that petitioners are definitely not
private corporations.
The foregoing disquisition notwithstanding, We are,
however, not unaware of the serious repercussion
this may bring to the thousands of water districts'
employees throughout the country who stand to be
affected because they do not have the necessary
civil service eligibilities. As these employees are
equally protected by the constitutional guarantee to
security of tenure, We find it necessary to rule for
the protection of such right which cannot be
impaired by a subsequent ruling of this Court. Thus,
those employees who have already acquired their
permanent employment status at the time of the
promulgation of this decision cannot be removed by
the mere reason that they lack the necessary civil
service eligibilities.
ACCORDINGLY, the petition is hereby DISMISSED.
Petitioners are declared "government-owned or
controlled corporations with original charter" which
fall under the jurisdiction of the public respondents
CSC and COA.

SO ORDERED.
 Republic of the Philippines
 in the case of Krivenko vs. the Register of Deeds of
SUPREME COURT
 Manila, the deed of donation in question should not
Manila
EN BANC
G.R. No. L-6776 May 21, 1955
THE REGISTER OF DEEDS OF RIZAL, petitioner-
appellee, 
 purposes, is authorized and permitted by Act No.
vs.
 271 of the old Philippine Commission, providing as
UNG SIU SI TEMPLE, respondent-appellant.
Alejo F. Candido for appellant.
 SECTION 1. It shall be lawful for all religious
Office of the Solicitor General Querube C. Makalintal
and Solicitor Felix V. Makasiar for appellee.
REYES, J.B.L., J.:
The Register of Deeds for the province of Rizal
refused to accept for record a deed of donation
executed in due form on January 22, 1953, by Jesus
Dy, a Filipino citizen, conveying a parcel of
residential land, in Caloocan, Rizal, known as lot No.
2, block 48-D, PSD-4212, G.L.R.O. Record No.
11267, in favor of the unregistered religious
organization "Ung Siu Si Temple", operating through
three trustees all of Chinese nationality. The
donation was duly accepted by Yu Juan, of Chinese
nationality, founder and deaconess of the Temple,
acting in representation and in behalf of the latter
and its trustees.
The refusal of the Registrar was elevated en
Consultato the IVth Branch of the Court of First
Instance of Manila. On March 14, 1953, the Court
upheld the action of the Rizal Register of Deeds,
saying:
The question raised by the Register of Deeds in the
above transcribed consulta is whether a deed of
donation of a parcel of land executed in favor of a
religious organization whose founder, trustees and
administrator are Chinese citizens should be
registered or not.
It appearing from the record of the Consulta that
UNG SIU SI TEMPLE is a religious organization
w h o s e d e a c o n e s s , f o u n d e r, t r u s t e e s a n d
administrator are all Chinese citizens, this Court is of
the opinion and so hold that in view of the provisions
of the sections 1 and 5 of Article XIII of the
Constitution of the Philippines limiting the acquisition
of land in the Philippines to its citizens, or to
corporations or associations at least sixty per
centum of the capital stock of which is owned by
such citizens adopted after the enactment of said
Act No. 271, and the decision of the Supreme Court
be admitted for admitted for registration. (Printed
Rec. App. pp 17-18).
Not satisfied with the ruling of the Court of First
Instance, counsel for the donee Uy Siu Si Temple
has appealed to this Court, claiming: (1) that the
acquisition of the land in question, for religious
follows:
associations, of whatever sort or denomination,
whether incorporated in the Philippine Islands or in
the name of other country, or not incorporated at all,
to hold land in the Philippine Islands upon which to
build churches, parsonages, or educational or
charitable institutions.
SEC. 2. Such religious institutions, if not
incorporated, shall hold the land in the name of
three Trustees for the use of such associations; . . ..
(Printed Rec. App. p. 5.)
and (2) that the refusal of the Register of Deeds
violates the freedom of religion clause of our
Constitution [Art. III, Sec. 1(7)].
We are of the opinion that the Court below has
correctly held that in view of the absolute terms of
section 5, Title XIII, of the Constitution, the
provisions of Act No. 271 of the old Philippine
Commission must be deemed repealed since the
Constitution was enacted, in so far as incompatible
therewith. In providing that, —
Save in cases of hereditary succession, no private
agricultural land shall be transferred or assigned
except to individuals, corporations or associations
qualified to acquire or hold lands of the public
domain in the Philippines,
the Constitution makes no exception in favor of
religious associations. Neither is there any such
saving found in sections 1 and 2 of Article XIII,
restricting the acquisition of public agricultural lands
and other natural resources to "corporations or
associations at least sixty per centum of the capital
of which is owned by such citizens" (of the
Philippines).
The fact that the appellant religious organization has
no capital stock does not suffice to escape the
Constitutional inhibition, since it is admitted that its
members are of foreign nationality. The purpose of
the sixty per centum requirement is obviously to
ensure that corporations or associations allowed to
acquire agricultural land or to exploit natural
resources shall be controlled by Filipinos; and the
spirit of the Constitution demands that in the
absence of capital stock, the controlling membership
should be composed of Filipino citizens.

To permit religious associations controlled by non-

Filipinos to acquire agricultural lands would be to
drive the opening wedge to revive alien religious
land holdings in this country. We can not ignore the
historical fact that complaints against land holdings
of that kind were among the factors that sparked the
revolution of 1896.

As to the complaint that the disqualification under

article XIII is violative of the freedom of religion
guaranteed by Article III of the Constitution, we are
by no means convinced (nor has it been shown) that
land tenure is indispensable to the free exercise and
enjoyment of religious profession or worship; or that
one may not worship the Deity according to the
dictates of his own conscience unless upon land
held in fee simple.

The resolution appealed from is affirmed, with costs

against appellant.
 Republic of the Philippines
 preferred and 100,000 common shares, each
SUPREME COURT
 preferred share being of the par value of p100 and
Manila
EN BANC
G.R. No. L-6055 June 12, 1953
THE PEOPLE OF THE PHILIPPINES, plaintiff-
appellee, 

vs.

WILLIAM H. QUASHA, defendant-appellant.
Jose P. Laurel for appellant and William H. Quasha
in his own behalf.
 P20,000, and 59,000 common shares, of the total
Office of the Solicitor General Juan R. Liwag and
Assistant Solicitor General Francisco Carreon for
appellee.
REYES, J.:
William H. Quasha, a member of the Philippine bar,
was charged in the Court of First Instance of Manila
with the crime of falsification of a public and
commercial document in that, having been entrusted
with the preparation and registration of the article of
incorporation of the Pacific Airways Corporation, a
domestic corporation organized for the purpose of
engaging in business as a common carrier, he
caused it to appear in said article of incorporation
that one Arsenio Baylon, a Filipino citizen, had
subscribed to and was the owner of 60.005 per cent
of the subscribed capital stock of the corporation
when in reality, as the accused well knew, such was
not the case, the truth being that the owner of the
portion of the capital stock subscribed to by Baylon
and the money paid thereon were American citizen
whose name did not appear in the article of
incorporation, and that the purpose for making this
false statement was to circumvent the constitutional
mandate that no corporation shall be authorize to
operate as a public utility in the Philippines unless
60 per cent of its capital stock is owned by Filipinos.
Found guilty after trial and sentenced to a term of
imprisonment and a fine, the accused has appealed
to this Court.
The essential facts are not in dispute. On November
4,1946, the Pacific Airways Corporation registered
its articles of incorporation with the Securities and
Exchanged Commission. The article were prepared
and the registration was effected by the accused,
who was in fact the organizer of the corporation. The
article stated that the primary purpose of the
corporation was to carry on the business of a
common carrier by air, land or water; that its capital
stock was P1,000,000, represented by 9,000
entitled to 1/3 vote and each common share, of the
par value of P1 and entitled to one vote; that the
amount capital stock actually subscribed was
P200,000, and the names of the subscribers were
Arsenio Baylon, Eruin E. Shannahan, Albert W.
Onstott, James O'Bannon, Denzel J. Cavin, and
William H. Quasha, the first being a Filipino and the
other five all Americans; that Baylon's subscription
was for 1,145 preferred shares, of the total value of
P114,500, and for 6,500 common shares, of the total
par value of P6,500, while the aggregate
subscriptions of the American subscribers were for
200 preferred shares, of the total par value of
par value of P59,000; and that Baylon and the
American subscribers had already paid 25 per cent
of their respective subscriptions. Ostensibly the
owner of, or subscriber to, 60.005 per cent of the
subscribed capital stock of the corporation, Baylon
nevertheless did not have the controlling vote
because of the difference in voting power between
the preferred shares and the common shares. Still,
with the capital structure as it was, the article of
incorporation were accepted for registration and a
certificate of incorporation was issued by the
Securities and Exchange Commission.
There is no question that Baylon actually subscribed
to 60.005 per cent of the subscribed capital stock of
the corporation. But it is admitted that the money
paid on his subscription did not belong to him but to
the Americans subscribers to the corporate stock. In
explanation, the accused testified, without
contradiction, that in the process of organization
Baylon was made a trustee for the American
incorporators, and that the reason for making Baylon
such trustee was as follows:
Q. According to this article of incorporation Arsenio
Baylon subscribed to 1,135 preferred shares with a
total value of P1,135. Do you know how that came
to be?
A. Yes.
The people who were desirous of forming the
corporation, whose names are listed on page 7 of
this certified copy came to my house, Messrs.
Shannahan, Onstott, O'Bannon, Caven, Perry and
Anastasakas one evening. There was considerable
difficulty to get them all together at one time
because they were pilots. They had difficulty in
deciding what their respective share holdings would
be. Onstott had invested a certain amount of money
in airplane surplus property and they had obtained a
considerable amount of money on those planes and
as I recall they were desirous of getting a
corporation formed right away. And they wanted to
have their respective shares holdings resolved at a
latter date. They stated that they could get together
that they feel that they had no time to settle their
respective share holdings. We discussed the matter
and finally it was decided that the best way to
handle the things was not to put the shares in the
name of anyone of the interested parties and to
have someone act as trustee for their respective
shares holdings. So we looked around for a trustee.
And he said "There are a lot of people whom I trust."
He said, "Is there someone around whom we could
get right away?" I said, "There is Arsenio. He was
my boy during the liberation and he cared for me
when i was sick and i said i consider him my friend."
I said. They all knew Arsenio. He is a very kind man
and that was what was done. That is how it came
about.
Defendant is accused under article 172 paragraph 1,
in connection with article 171, paragraph 4, of the
Revised Penal Code, which read:
ART. 171. Falsification by public officer, employee,
or notary or ecclesiastic minister. — The penalty
of prision mayor and a fine not to exceed 5,000
pesos shall be imposed upon any public officer,
employee, or notary who, taking advantage of his
official position, shall falsify a document by
committing any of the following acts:
xxx xxx xxx
4. Making untruthful statements in a narration of
facts.
ART. 172. Falsification by private individuals and
use of falsified documents. — The penalty of prision
correccional in its medium and maximum period and
a fine of not more than 5,000 pesos shall be
imposed upon:
xxx xxx xxx
1. Any private individual who shall commit any of the
falsifications enumerated in the next preceding
article in any public or official document or letter of
exchange or any other kind of commercial
document.
Commenting on the above provision, Justice Albert,
in his well-known work on the Revised Penal Code
( new edition, pp. 407-408), observes, on the
authority of U.S. vs. Reyes, (1 Phil., 341), that the
perversion of truth in the narration of facts must be
made with the wrongful intent of injuring a third
person; and on the authority of U.S. vs. Lopez (15
Phil., 515), the same author further maintains that
even if such wrongful intent is proven, still the
untruthful statement will not constitute the crime of
falsification if there is no legal obligation on the part
of the narrator to disclose the truth. Wrongful intent
to injure a third person and obligation on the part of
the narrator to disclose the truth are thus essential
to a conviction for a crime of falsification under the
above article of the Revised Penal Code.
Now, as we see it, the falsification imputed in the
accused in the present case consists in not
disclosing in the articles of incorporation that Baylon
was a mere trustee ( or dummy as the prosecution
chooses to call him) of his American co-
incorporators, thus giving the impression that Baylon
was the owner of the shares subscribed to by him
which, as above stated, amount to 60.005 per cent
of the sub-scribed capital stock. This, in the opinion
of the trial court, is a malicious perversion of the
truth made with the wrongful intent circumventing
section 8, Article XIV of the Constitution, which
provides that " no franchise, certificate, or any other
form of authorization for the operation of a public
utility shall be granted except to citizens of the
Philippines or to corporation or other entities
organized under the law of the Philippines, sixty per
centum of the capital of which is owned by citizens
of the Philippines . . . ." Plausible though it may
appear at first glance, this opinion loses validity
once it is noted that it is predicated on the erroneous
assumption that the constitutional provision just
quoted was meant to prohibit the mere formation of
a public utility corporation without 60 per cent of its
capital being owned by the Filipinos, a mistaken
belief which has induced the lower court to that the
accused was under obligation to disclose the whole
truth about the nationality of the subscribed capital
stock of the corporation by revealing that Baylon
was a mere trustee or dummy of his American co-
incorporators, and that in not making such
disclosure defendant's intention was to circumvent
the Constitution to the detriment of the public
interests. Contrary to the lower court's assumption,
the Constitution does not prohibit the mere
formation of a public utility corporation without the
required formation of Filipino capital. What it does
prohibit is the granting of a franchise or other form of
authorization for the operation of a public utility to
a corporation already in existence but without the
requisite proportion of Filipino capital. This is
obvious from the context, for the constitutional
provision in question qualifies the terms " franchise",
"certificate", or "any other form of authorization" with
the phrase "for the operation of a public utility,"
thereby making it clear that the franchise meant is
not the "primary franchise" that invest a body of men
with corporate existence but the "secondary
franchise" or the privilege to operate as a public
utility after the corporation has already come into intended to commit a crime for the simple reason
being. that the alleged constitutional prohibition which he is
charged for having tried to circumvent does not
If the Constitution does not prohibit the mere exist, conviction under that article is out of the
formation of a public utility corporation with the alien question.
capital, then how can the accused be charged with
having wrongfully intended to circumvent that The foregoing consideration can not but lead to the
fundamental law by not revealing in the articles of conclusion that the defendant can not be held guilty
incorporation that Baylon was a mere trustee of his of the crime charged. The majority of the court,
American co-incorporation and that for that reason however, are also of the opinion that, even
the subscribed capital stock of the corporation was supposing that the act imputed to the defendant
wholly American? For the mere formation of the constituted falsification at the time it was
corporation such revelation was not essential, and perpetrated, still with the approval of the Party
the Corporation Law does not require it. Defendant Amendment to the Constitution in March, 1947,
was, therefore, under no obligation to make it. In the which placed Americans on the same footing as
absence of such obligation and of the allege Filipino citizens with respect to the right to operate
wrongful intent, defendant cannot be legally public utilities in the Philippines, thus doing away
convicted of the crime with which he is charged. with the prohibition in section 8, Article XIV of the
Constitution in so far as American citizens are
It is urged, however, that the formation of the concerned, the said act has ceased to be an offense
corporation with 60 per cent of its subscribed capital within the meaning of the law, so that defendant can
stock appearing in the name of Baylon was an no longer be held criminally liable therefor.
indispensable preparatory step to the subversion of
the constitutional prohibition and the laws In view of the foregoing, the judgment appealed
implementing the policy expressed therein. This from is reversed and the defendant William H.
view is not correct. For a corporation to be entitled to Quasha acquitted, with costs de oficio.
operate a public utility it is not necessary that it be
organized with 60 per cent of its capital owned by
Filipinos from the start. A corporation formed with
capital that is entirely alien may subsequently
change the nationality of its capital through transfer
of shares to Filipino citizens. conversely, a
corporation originally formed with Filipino capital
may subsequently change the national status of said
capital through transfer of shares to foreigners.
What need is there then for a corporation that
intends to operate a public utility to have, at the time
of its formation, 60 per cent of its capital owned by
Filipinos alone? That condition may anytime be
attained thru the necessary transfer of stocks. The
moment for determining whether a corporation is
entitled to operate as a public utility is when it
applies for a franchise, certificate, or any other form
of authorization for that purpose. And that can be
done after the corporation has already come into
being and not while it is still being formed. And at
that moment, the corporation must show that it has
complied not only with the requirement of the
Constitution as to the nationality of its capital, but
also with the requirements of the Civil Aviation Law if
it is a common carrier by air, the Revised
Administrative Code if it is a common carrier by
water, and the Public Service Law if it is a common
carrier by land or other kind of public service.

Equally untenable is the suggestion that defendant

should at least be held guilty of an "impossible
crime" under article 59 of the Revised Penal Code. It
not being possible to suppose that defendant had
 Republic of the Philippines
 pressure. After trial, the Court of First Instance of
SUPREME COURT
 Manila dismissed the action without pronouncement
Manila
EN BANC
G.R. No. L-2294 May 25, 1951
FILIPINAS COMPAÑIA DE SEGUROS, petitioner, 
 The Court of Appeals overruled the contention of the
vs.
 petitioner that the respondent corporation became
CHRISTERN, HUENEFELD and CO.,
INC., respondent.
Ramirez and Ortigas for petitioner.

Ewald Huenefeld for respondent.
PARAS, C.J.:
On October 1, 1941, the respondent corporation,
Christern Huenefeld, & Co., Inc., after payment of
corresponding premium, obtained from the petitioner
,Filipinas Cia. de Seguros, fire policy No. 29333 in
the sum of P1000,000, covering merchandise
contained in a building located at No. 711 Roman
Street, Binondo Manila. On February 27, 1942, or
during the Japanese military occupation, the building
and insured merchandise were burned. In due time
the respondent submitted to the petitioner its claim
under the policy. The salvage goods were sold at
public auction and, after deducting their value, the
total loss suffered by the respondent was fixed at
P92,650. The petitioner refused to pay the claim on
the ground that the policy in favor of the respondent
had ceased to be in force on the date the United
States declared war against Germany, the
respondent Corporation (though organized under
and by virtue of the laws of the Philippines) being
controlled by the German subjects and the petitioner
being a company under American jurisdiction when
said policy was issued on October 1, 1941. The
petitioner, however, in pursuance of the order of the
Director of Bureau of Financing, Philippine
Executive Commission, dated April 9, 1943, paid to
the respondent the sum of P92,650 on April 19,
1943.
The present action was filed on August 6, 1946, in
the Court of First Instance of Manila for the purpose
of recovering from the respondent the sum of
P92,650 above mentioned. The theory of the
petitioner is that the insured merchandise were
burned up after the policy issued in 1941 in favor of
the respondent corporation has ceased to be
effective because of the outbreak of the war
between the United States and Germany on
December 10, 1941, and that the payment made by
the petitioner to the respondent corporation during
the Japanese military occupation was under
as to costs. Upon appeal to the Court of Appeals,
the judgment of the Court of First Instance of Manila
was affirmed, with costs. The case is now before us
on appeal by certiorari from the decision of the Court
of Appeals.
an enemy when the United States declared war
against Germany, relying on English and American
cases which held that a corporation is a citizen of
the country or state by and under the laws of which
it was created or organized. It rejected the theory
that nationality of private corporation is determine by
the character or citizenship of its controlling
stockholders.
There is no question that majority of the
stockholders of the respondent corporation were
German subjects. This being so, we have to rule
that said respondent became an enemy corporation
upon the outbreak of the war between the United
States and Germany. The English and American
cases relied upon by the Court of Appeals have lost
their force in view of the latest decision of the
Supreme Court of the United States in
Clark vs. Uebersee Finanz Korporation, decided on
December 8, 1947, 92 Law. Ed. Advance Opinions,
No. 4, pp. 148-153, in which the controls test has
been adopted. In "Enemy Corporation" by Martin
Domke, a paper presented to the Second
International Conference of the Legal Profession
held at the Hague (Netherlands) in August. 1948 the
following enlightening passages appear:
Since World War I, the determination of enemy
nationality of corporations has been discussion in
many countries, belligerent and neutral. A
corporation was subject to enemy legislation when it
was controlled by enemies, namely managed under
the influence of individuals or corporations,
themselves considered as enemies. It was the
English courts which first the Daimler case applied
this new concept of "piercing the corporate veil,"
which was adopted by the peace of Treaties of 1919
and the Mixed Arbitral established after the First
World War.
The United States of America did not adopt the
control test during the First World War. Courts
refused to recognized the concept whereby
American-registered corporations could be
considered as enemies and thus subject to domestic
legislation and administrative measures regarding
enemy property.
World War II revived the problem again. It was
known that German and other enemy interests were
cloaked by domestic corporation structure. It was
not only by legal ownership of shares that a material
influence could be exercised on the management of
the corporation but also by long term loans and
other factual situations. For that reason, legislation
on enemy property enacted in various countries
during World War II adopted by statutory provisions
to the control test and determined, to various
degrees, the incidents of control. Court decisions
were rendered on the basis of such newly enacted
statutory provisions in determining enemy character
of domestic corporation.
The United States did not, in the amendments of the
Trading with the Enemy Act during the last war,
include as did other legislations the applications of
the control test and again, as in World War I, courts
refused to apply this concept whereby the enemy
character of an American or neutral-registered
corporation is determined by the enemy nationality
of the controlling stockholders.
Measures of blocking foreign funds, the so called
freezing regulations, and other administrative
practice in the treatment of foreign-owned property
in the United States allowed to large degree the
determination of enemy interest in domestic
corporations and thus the application of the control
test. Court decisions sanctioned such administrative
practice enacted under the First War Powers Act of
1941, and more recently, on December 8, 1947, the
Supreme Court of the United States definitely
a p p r o v e d o f t h e c o n t r o l t h e o r y. I n
Clark vs. Uebersee Finanz Korporation, A. G.,
dealing with a Swiss corporation allegedly controlled
by German interest, the Court: "The property of all
foreign interest was placed within the reach of the
vesting power (of the Alien Property Custodian) not
to appropriate friendly or neutral assets but to reach
enemy interest which masqueraded under those
innocent fronts. . . . The power of seizure and
vesting was extended to all property of any foreign
country or national so that no innocent appearing
device could become a Trojan horse."
It becomes unnecessary, therefore, to dwell at
length on the authorities cited in support of the
appealed decision. However, we may add that,
in Haw Pia vs. China Banking Corporation,* 45 Off
Gaz., (Supp. 9) 299, we already held that China
Banking Corporation came within the meaning of the
word "enemy" as used in the Trading with the
Enemy Acts of civilized countries not only because it
was incorporated under the laws of an enemy
country but because it was controlled by enemies.
The Philippine Insurance Law (Act No. 2427, as
amended,) in section 8, provides that "anyone
except a public enemy may be insured." It stands to
reason that an insurance policy ceases to be
allowable as soon as an insured becomes a public
enemy.
Effect of war, generally. — All intercourse between
citizens of belligerent powers which is inconsistent
with a state of war is prohibited by the law of
nations. Such prohibition includes all negotiations,
commerce, or trading with the enemy; all acts which
will increase, or tend to increase, its income or
resources; all acts of voluntary submission to it; or
receiving its protection; also all acts concerning the
transmission of money or goods; and all contracts
relating thereto are thereby nullified. It further
prohibits insurance upon trade with or by the enemy,
upon the life or lives of aliens engaged in service
with the enemy; this for the reason that the subjects
of one country cannot be permitted to lend their
assistance to protect by insurance the commerce or
property of belligerent, alien subjects, or to do
anything detrimental too their country's interest. The
purpose of war is to cripple the power and exhaust
the resources of the enemy, and it is inconsistent
that one country should destroy its enemy's property
and repay in insurance the value of what has been
so destroyed, or that it should in such manner
increase the resources of the enemy, or render it
aid, and the commencement of war determines, for
like reasons, all trading intercourse with the enemy,
which prior thereto may have been lawful. All
individuals therefore, who compose the belligerent
powers, exist, as to each other, in a state of utter
exclusion, and are public enemies. (6 Couch, Cyc.
of Ins. Law, pp. 5352-5353.)
In the case of an ordinary fire policy, which grants
insurance only from year, or for some other specified
term it is plain that when the parties become alien
enemies, the contractual tie is broken and the
contractual rights of the parties, so far as not vested.
lost. (Vance, the Law on Insurance, Sec. 44, p. 112.)
The respondent having become an enemy
corporation on December 10, 1941, the insurance
policy issued in its favor on October 1, 1941, by the
petitioner (a Philippine corporation) had ceased to
be valid and enforcible, and since the insured goods
were burned after December 10, 1941, and during
the war, the respondent was not entitled to any
indemnity under said policy from the petitioner.
However, elementary rules of justice (in the absence
of specific provision in the Insurance Law) require
that the premium paid by the respondent for the
period covered by its policy from December 11,
1941, should be returned by the petitioner.
The Court of Appeals, in deciding the case, stated
that the main issue hinges on the question of
whether the policy in question became null and void
upon the declaration of war between the United
States and Germany on December 10, 1941, and its
judgment in favor of the respondent corporation was
predicated on its conclusion that the policy did not
cease to be in force. The Court of Appeals
necessarily assumed that, even if the payment by
the petitioner to the respondent was involuntary, its
action is not tenable in view of the ruling on the
validity of the policy. As a matter of fact, the Court of
Appeals held that "any intimidation resorted to by
the appellee was not unjust but the exercise of its
lawful right to claim for and received the payment of
the insurance policy," and that the ruling of the
Bureau of Financing to the effect that "the appellee
was entitled to payment from the appellant was, well
founded." Factually, there can be no doubt that the
Director of the Bureau of Financing, in ordering the
petitioner to pay the claim of the respondent, merely
obeyed the instruction of the Japanese Military
Administration, as may be seen from the following:
"In view of the findings and conclusion of this office
contained in its decision on Administrative Case
dated February 9, 1943 copy of which was sent to
your office and the concurrence therein of the
Financial Department of the Japanese Military
Administration, and following the instruction of said
authority, you are hereby ordered to pay the claim of
Messrs. Christern, Huenefeld & Co., Inc. The
payment of said claim, however, should be made by
means of crossed check." (Emphasis supplied.)

It results that the petitioner is entitled to recover

what paid to the respondent under the
circumstances on this case. However, the petitioner
will be entitled to recover only the equivalent, in
actual Philippines currency of P92,650 paid on April
19, 1943, in accordance with the rate fixed in the
Ballantyne scale.

Wherefore, the appealed decision is hereby

reversed and the respondent corporation is ordered
to pay to the petitioner the sum of P77,208.33,
Philippine currency, less the amount of the premium,
in Philippine currency, that should be returned by the
petitioner for the unexpired term of the policy in
question, beginning December 11, 1941. Without
costs. So ordered.

Feria, Pablo, Bengzon, Tuason, Montemayor, Jugo

and Bautista Angelo, JJ., concur.
 Republic of the Philippines
 Petitioner Narra acquired its MPSA from Alpha
SUPREME COURT
 Resources and Development Corporation and
Baguio City
THIRD DIVISION
G.R. No. 195580 April 21, 2014
NARRA NICKEL MINING AND DEVELOPMENT
CORP., TESORO MINING AND DEVELOPMENT,
INC., and MCARTHUR MINING, INC., Petitioners, 

vs.

R E D M O N T C O N S O L I D AT E D M I N E S
CORP., Respondent.
DECISION
VELASCO, JR., J.:
Before this Court is a Petition for Review on
Certiorari under Rule 45 filed by Narra Nickel and
Mining Development Corp. (Narra), Tesoro Mining
and Development, Inc. (Tesoro), and McArthur
Mining Inc. (McArthur), which seeks to reverse the
October 1, 2010 Decision1 and the February 15,
2011 Resolution of the Court of Appeals (CA).
The Facts
Sometime in December 2006, respondent Redmont
Consolidated Mines Corp. (Redmont), a domestic
corporation organized and existing under Philippine
laws, took interest in mining and exploring certain
areas of the province of Palawan. After inquiring with
the Department of Environment and Natural
Resources (DENR), it learned that the areas where
it wanted to undertake exploration and mining
activities where already covered by Mineral
Production Sharing Agreement (MPSA) applications
of petitioners Narra, Tesoro and McArthur.
Petitioner McArthur, through its predecessor-in-
interest Sara Marie Mining, Inc. (SMMI), filed an
application for an MPSA and Exploration Permit
(EP) with the Mines and Geo-Sciences Bureau
(MGB), Region IV-B, Office of the Department of
Environment and Natural Resources (DENR).
Subsequently, SMMI was issued MPSA-AMA-
IVB-153 covering an area of over 1,782 hectares in
Barangay Sumbiling, Municipality of Bataraza,
Province of Palawan and EPA-IVB-44 which
includes an area of 3,720 hectares in Barangay
Malatagao, Bataraza, Palawan. The MPSA and EP
were then transferred to Madridejos Mining
Corporation (MMC) and, on November 6, 2006,
assigned to petitioner McArthur.2
Patricia Louise Mining & Development Corporation
(PLMDC) which previously filed an application for an
MPSA with the MGB, Region IV-B, DENR on
January 6, 1992. Through the said application, the
DENR issued MPSA-IV-1-12 covering an area of
3.277 hectares in barangays Calategas and San
Isidro, Municipality of Narra, Palawan.
Subsequently, PLMDC conveyed, transferred and/or
assigned its rights and interests over the MPSA
application in favor of Narra.
Another MPSA application of SMMI was filed with
the DENR Region IV-B, labeled as MPSA-AMA-
IVB-154 (formerly EPA-IVB-47) over 3,402 hectares
in Barangays Malinao and Princesa Urduja,
Municipality of Narra, Province of Palawan. SMMI
subsequently conveyed, transferred and assigned
its rights and interest over the said MPSA
application to Tesoro.
On January 2, 2007, Redmont filed before the Panel
of Arbitrators (POA) of the DENR three (3) separate
petitions for the denial of petitioners’ applications for
MPSA designated as AMA-IVB-153, AMA-IVB-154
and MPSA IV-1-12.
In the petitions, Redmont alleged that at least 60%
of the capital stock of McArthur, Tesoro and Narra
are owned and controlled by MBMI Resources, Inc.
(MBMI), a 100% Canadian corporation. Redmont
reasoned that since MBMI is a considerable
stockholder of petitioners, it was the driving force
behind petitioners’ filing of the MPSAs over the
areas covered by applications since it knows that it
can only participate in mining activities through
corporations which are deemed Filipino citizens.
Redmont argued that given that petitioners’ capital
stocks were mostly owned by MBMI, they were
likewise disqualified from engaging in mining
activities through MPSAs, which are reserved only
for Filipino citizens.
In their Answers, petitioners averred that they were
qualified persons under Section 3(aq) of Republic
Act No. (RA) 7942 or the Philippine Mining Act of
1995 which provided:
Sec. 3 Definition of Terms. As used in and for
purposes of this Act, the following terms, whether in
singular or plural, shall mean:
xxxx
(aq) "Qualified person" means any citizen of the
Philippines with capacity to contract, or a
corporation, partnership, association, or cooperative
organized or authorized for the purpose of engaging
in mining, with technical and financial capability to
undertake mineral resources development and duly
registered in accordance with law at least sixty per
cent (60%) of the capital of which is owned by
citizens of the Philippines: Provided, That a legally
organized foreign-owned corporation shall be
deemed a qualified person for purposes of granting
an exploration permit, financial or technical
assistance agreement or mineral processing permit.
Additionally, they stated that their nationality as
applicants is immaterial because they also applied
for Financial or Technical Assistance Agreements
(FTAA) denominated as AFTA-IVB-09 for McArthur,
AFTA-IVB-08 for Tesoro and AFTA-IVB-07 for Narra,
which are granted to foreign-owned corporations.
Nevertheless, they claimed that the issue on
nationality should not be raised since McArthur,
Tesoro and Narra are in fact Philippine Nationals as
60% of their capital is owned by citizens of the
Philippines. They asserted that though MBMI owns
40% of the shares of PLMC (which owns 5,997
shares of Narra),3 40% of the shares of MMC (which
owns 5,997 shares of McArthur)4 and 40% of the
shares of SLMC (which, in turn, owns 5,997 shares
of Tesoro),5 the shares of MBMI will not make it the
owner of at least 60% of the capital stock of each of
petitioners. They added that the best tool used in
determining the nationality of a corporation is the
"control test," embodied in Sec. 3 of RA 7042 or the
Foreign Investments Act of 1991. They also claimed
that the POA of DENR did not have jurisdiction over
the issues in Redmont’s petition since they are not
enumerated in Sec. 77 of RA 7942. Finally, they
stressed that Redmont has no personality to sue
them because it has no pending claim or application
over the areas applied for by petitioners.
On December 14, 2007, the POA issued a
Resolution disqualifying petitioners from gaining
MPSAs. It held:
[I]t is clearly established that respondents are not
qualified applicants to engage in mining activities.
On the other hand, [Redmont] having filed its own
applications for an EPA over the areas earlier
covered by the MPSA application of respondents
may be considered if and when they are qualified
under the law. The violation of the requirements for
the issuance and/or grant of permits over mining
areas is clearly established thus, there is reason to
believe that the cancellation and/or revocation of
permits already issued under the premises is in
order and open the areas covered to other qualified
applicants.
xxxx
WHEREFORE, the Panel of Arbitrators finds the
Respondents, McArthur Mining Inc., Tesoro Mining
and Development, Inc., and Narra Nickel Mining and
Development Corp. as, DISQUALIFIED for being
considered as Foreign Corporations. Their Mineral
Production Sharing Agreement (MPSA) are hereby x
x x DECLARED NULL AND VOID.6
The POA considered petitioners as foreign
corporations being "effectively controlled" by MBMI,
a 100% Canadian company and declared their
MPSAs null and void. In the same Resolution, it
gave due course to Redmont’s EPAs. Thereafter, on
February 7, 2008, the POA issued an
Order7 denying the Motion for Reconsideration filed
by petitioners.
Aggrieved by the Resolution and Order of the POA,
McArthur and Tesoro filed a joint Notice of
Appeal8 and Memorandum of Appeal9 with the
Mines Adjudication Board (MAB) while Narra
separately filed its Notice of Appeal 10 and
Memorandum of Appeal.11
In their respective memorandum, petitioners
emphasized that they are qualified persons under
the law. Also, through a letter, they informed the
MAB that they had their individual MPSA
applications converted to FTAAs. McArthur’s FTAA
was denominated as AFTA-IVB-0912 on May 2007,
while Tesoro’s MPSA application was converted to
AFTA-IVB-0813 on May 28, 2007, and Narra’s FTAA
was converted to AFTA-IVB-0714 on March 30, 2006.
Pending the resolution of the appeal filed by
petitioners with the MAB, Redmont filed a
Complaint15 with the Securities and Exchange
Commission (SEC), seeking the revocation of the
certificates for registration of petitioners on the
ground that they are foreign-owned or controlled
corporations engaged in mining in violation of
Philippine laws. Thereafter, Redmont filed on
September 1, 2008 a Manifestation and Motion to
Suspend Proceeding before the MAB praying for the
suspension of the proceedings on the appeals filed
by McArthur, Tesoro and Narra.
Subsequently, on September 8, 2008, Redmont filed
before the Regional Trial Court of Quezon City,
Branch 92 (RTC) a Complaint16 for injunction with
application for issuance of a temporary restraining
order (TRO) and/or writ of preliminary injunction,
docketed as Civil Case No. 08-63379. Redmont
prayed for the deferral of the MAB proceedings
pending the resolution of the Complaint before the
SEC.
But before the RTC can resolve Redmont’s
Complaint and applications for injunctive reliefs, the
MAB issued an Order on September 10, 2008,
finding the appeal meritorious. It held:
WHEREFORE, in view of the foregoing, the Mines
Adjudication Board hereby REVERSES and SETS
ASIDE the Resolution dated 14 December 2007 of
the Panel of Arbitrators of Region IV-B (MIMAROPA)
in POA-DENR Case Nos. 2001-01, 2007-02 and
2007-03, and its Order dated 07 February 2008
denying the Motions for Reconsideration of the
Appellants. The Petition filed by Redmont
Consolidated Mines Corporation on 02 January
2007 is hereby ordered DISMISSED.17
Belatedly, on September 16, 2008, the RTC issued
an Order18 granting Redmont’s application for a
TRO and setting the case for hearing the prayer for
the issuance of a writ of preliminary injunction on
September 19, 2008.
Meanwhile, on September 22, 2008, Redmont filed
a Motion for Reconsideration19 of the September 10,
2008 Order of the MAB. Subsequently, it filed a
Supplemental Motion for Reconsideration20 on
September 29, 2008.
Before the MAB could resolve Redmont’s Motion for
Reconsideration and Supplemental Motion for
Reconsideration, Redmont filed before the RTC a
Supplemental Complaint 21 in Civil Case No.
08-63379.
On October 6, 2008, the RTC issued an
Order22 granting the issuance of a writ of preliminary
injunction enjoining the MAB from finally disposing
of the appeals of petitioners and from resolving
Redmont’s Motion for Reconsideration and
Supplement Motion for Reconsideration of the
MAB’s September 10, 2008 Resolution.
On July 1, 2009, however, the MAB issued a second
Order denying Redmont’s Motion for
Reconsideration and Supplemental Motion for
Reconsideration and resolving the appeals filed by
petitioners.
Hence, the petition for review filed by Redmont
before the CA, assailing the Orders issued by the
MAB. On October 1, 2010, the CA rendered a
Decision, the dispositive of which reads:
WHEREFORE, the Petition is PARTIALLY
GRANTED. The assailed Orders, dated September
10, 2008 and July 1, 2009 of the Mining Adjudication
Board are reversed and set aside. The findings of
the Panel of Arbitrators of the Department of
Environment and Natural Resources that
respondents McArthur, Tesoro and Narra are foreign
corporations is upheld and, therefore, the rejection
of their applications for Mineral Product Sharing
Agreement should be recommended to the
Secretary of the DENR.
With respect to the applications of respondents
McArthur, Tesoro and Narra for Financial or
Technical Assistance Agreement (FTAA) or
conversion of their MPSA applications to FTAA, the
matter for its rejection or approval is left for
determination by the Secretary of the DENR and the
President of the Republic of the Philippines.
SO ORDERED.23
In a Resolution dated February 15, 2011, the CA
denied the Motion for Reconsideration filed by
petitioners.
After a careful review of the records, the CA found
that there was doubt as to the nationality of
petitioners when it realized that petitioners had a
common major investor, MBMI, a corporation
composed of 100% Canadians. Pursuant to the first
sentence of paragraph 7 of Department of Justice
(DOJ) Opinion No. 020, Series of 2005, adopting the
1967 SEC Rules which implemented the
requirement of the Constitution and other laws
pertaining to the exploitation of natural resources,
the CA used the "grandfather rule" to determine the
nationality of petitioners. It provided:
Shares belonging to corporations or partnerships at
least 60% of the capital of which is owned by Filipino
citizens shall be considered as of Philippine
nationality, but if the percentage of Filipino
ownership in the corporation or partnership is less
than 60%, only the number of shares corresponding
to such percentage shall be counted as of Philippine
nationality. Thus, if 100,000 shares are registered in
the name of a corporation or partnership at least
60% of the capital stock or capital, respectively, of
which belong to Filipino citizens, all of the shares
shall be recorded as owned by Filipinos. But if less
than 60%, or say, 50% of the capital stock or capital
of the corporation or partnership, respectively,
belongs to Filipino citizens, only 50,000 shares shall
be recorded as belonging to aliens.24(emphasis
supplied)
In determining the nationality of petitioners, the CA
looked into their corporate structures and their
corresponding common shareholders. Using the
grandfather rule, the CA discovered that MBMI in
effect owned majority of the common stocks of the
petitioners as well as at least 60% equity interest of
other majority shareholders of petitioners through
joint venture agreements. The CA found that through
a "web of corporate layering, it is clear that one
common controlling investor in all mining
corporations involved x x x is MBMI."25 Thus, it
concluded that petitioners McArthur, Tesoro and
Narra are also in partnership with, or privies-in-
interest of, MBMI.
Furthermore, the CA viewed the conversion of the
MPSA applications of petitioners into FTAA
applications suspicious in nature and, as a
consequence, it recommended the rejection of
petitioners’ MPSA applications by the Secretary of
the DENR.
With regard to the settlement of disputes over rights
to mining areas, the CA pointed out that the POA
has jurisdiction over them and that it also has the
power to determine the of nationality of petitioners
as a prerequisite of the Constitution prior the
conferring of rights to "co-production, joint venture or
production-sharing agreements" of the state to
mining rights. However, it also stated that the POA’s
jurisdiction is limited only to the resolution of the
dispute and not on the approval or rejection of the
MPSAs. It stipulated that only the Secretary of the
DENR is vested with the power to approve or reject
applications for MPSA.
Finally, the CA upheld the findings of the POA in its
December 14, 2007 Resolution which considered
petitioners McArthur, Tesoro and Narra as foreign
corporations. Nevertheless, the CA determined that
the POA’s declaration that the MPSAs of McArthur,
Tesoro and Narra are void is highly improper.
While the petition was pending with the CA,
Redmont filed with the Office of the President (OP) a
petition dated May 7, 2010 seeking the cancellation
of petitioners’ FTAAs. The OP rendered a
Decision26 on April 6, 2011, wherein it canceled and
revoked petitioners’ FTAAs for violating and
circumventing the "Constitution x x x[,] the Small
Scale Mining Law and Environmental Compliance
Certificate as well as Sections 3 and 8 of the
Foreign Investment Act and E.O. 584."27 The OP, in
affirming the cancellation of the issued FTAAs,
agreed with Redmont stating that petitioners
committed violations against the abovementioned
laws and failed to submit evidence to negate them.
The Decision further quoted the December 14, 2007
Order of the POA focusing on the alleged
misrepresentation and claims made by petitioners of
being domestic or Filipino corporations and the
admitted continued mining operation of PMDC using
their locally secured Small Scale Mining Permit
inside the area earlier applied for an MPSA
application which was eventually transferred to
Narra. It also agreed with the POA’s estimation that
the filing of the FTAA applications by petitioners is a
clear admission that they are "not capable of
conducting a large scale mining operation and that
they need the financial and technical assistance of a
foreign entity in their operation, that is why they
sought the participation of MBMI Resources,
Inc."28 The Decision further quoted:
The filing of the FTAA application on June 15, 2007,
during the pendency of the case only demonstrate
the violations and lack of qualification of the
respondent corporations to engage in mining. The
filing of the FTAA application conversion which is
allowed foreign corporation of the earlier MPSA is an
admission that indeed the respondent is not Filipino
but rather of foreign nationality who is disqualified
under the laws. Corporate documents of MBMI
Resources, Inc. furnished its stockholders in their
head office in Canada suggest that they are
conducting operation only through their local
counterparts.29
The Motion for Reconsideration of the Decision was
further denied by the OP in a Resolution30 dated
July 6, 2011. Petitioners then filed a Petition for
Review on Certiorari of the OP’s Decision and
Resolution with the CA, docketed as CA-G.R. SP
No. 120409. In the CA Decision dated February 29,
2012, the CA affirmed the Decision and Resolution
of the OP. Thereafter, petitioners appealed the same
CA decision to this Court which is now pending with
a different division.
Thus, the instant petition for review against the
October 1, 2010 Decision of the CA. Petitioners put
forth the following errors of the CA:
I.
The Court of Appeals erred when it did not dismiss
the case for mootness despite the fact that the
subject matter of the controversy, the MPSA
Applications, have already been converted into
FTAA applications and that the same have already
been granted.
II.
The Court of Appeals erred when it did not dismiss
the case for lack of jurisdiction considering that the
Panel of Arbitrators has no jurisdiction to determine
the nationality of Narra, Tesoro and McArthur.
III.
The Court of Appeals erred when it did not dismiss
the case on account of Redmont’s willful forum
shopping.
IV.
The Court of Appeals’ ruling that Narra, Tesoro and
McArthur are foreign corporations based on the
"Grandfather Rule" is contrary to law, particularly the
express mandate of the Foreign Investments Act of
1991, as amended, and the FIA Rules.
V.
The Court of Appeals erred when it applied the
exceptions to the res inter alios acta rule.
VI.
The Court of Appeals erred when it concluded that
the conversion of the MPSA Applications into FTAA
Applications were of "suspicious nature" as the
same is based on mere conjectures and surmises
without any shred of evidence to show the same.31
We find the petition to be without merit.
This case not moot and academic
The claim of petitioners that the CA erred in not
rendering the instant case as moot is without merit.
Basically, a case is said to be moot and/or academic
when it "ceases to present a justiciable controversy
by virtue of supervening events, so that a
declaration thereon would be of no practical use or
value." 32 Thus, the courts "generally decline
jurisdiction over the case or dismiss it on the ground
of mootness."33
The "mootness" principle, however, does accept
certain exceptions and the mere raising of an issue
of "mootness" will not deter the courts from trying a
case when there is a valid reason to do so. In David
v. Macapagal-Arroyo (David), the Court provided
four instances where courts can decide an otherwise
moot case, thus:
1.) There is a grave violation of the Constitution;
2.) The exceptional character of the situation and
paramount public interest is involved;
3.) When constitutional issue raised requires
formulation of controlling principles to guide the
bench, the bar, and the public; and
4.) The case is capable of repetition yet evading
review.34
All of the exceptions stated above are present in the
instant case. We of this Court note that a grave
violation of the Constitution, specifically Section 2 of
Article XII, is being committed by a foreign
corporation right under our country’s nose through a
myriad of corporate layering under different,
allegedly, Filipino corporations. The intricate
corporate layering utilized by the Canadian
company, MBMI, is of exceptional character and
involves paramount public interest since it
undeniably affects the exploitation of our Country’s
natural resources. The corresponding actions of
petitioners during the lifetime and existence of the
instant case raise questions as what principle is to
be applied to cases with similar issues. No definite
ruling on such principle has been pronounced by the
Court; hence, the disposition of the issues or errors
in the instant case will serve as a guide "to the
bench, the bar and the public."35 Finally, the instant
case is capable of repetition yet evading review,
since the Canadian company, MBMI, can keep on
utilizing dummy Filipino corporations through various
schemes of corporate layering and conversion of
applications to skirt the constitutional prohibition
against foreign mining in Philippine soil.
Conversion of MPSA applications to FTAA
applications
We shall discuss the first error in conjunction with
the sixth error presented by petitioners since both
involve the conversion of MPSA applications to
FTAA applications. Petitioners propound that the CA
erred in ruling against them since the questioned
MPSA applications were already converted into
FTAA applications; thus, the issue on the prohibition
relating to MPSA applications of foreign mining
corporations is academic. Also, petitioners would
want us to correct the CA’s finding which deemed
the aforementioned conversions of applications as
suspicious in nature, since it is based on mere
conjectures and surmises and not supported with
evidence.
We disagree.
The CA’s analysis of the actions of petitioners after
the case was filed against them by respondent is on
point. The changing of applications by petitioners
from one type to another just because a case was
filed against them, in truth, would raise not a few
sceptics’ eyebrows. What is the reason for such
conversion? Did the said conversion not stem from
the case challenging their citizenship and to have
the case dismissed against them for being "moot"? It
is quite obvious that it is petitioners’ strategy to have
the case dismissed against them for being "moot."
Consider the history of this case and how petitioners
responded to every action done by the court or
appropriate government agency: on January 2,
2007, Redmont filed three separate petitions for
denial of the MPSA applications of petitioners before
the POA. On June 15, 2007, petitioners filed a
conversion of their MPSA applications to FTAAs.
The POA, in its December 14, 2007 Resolution,
observed this suspect change of applications while
the case was pending before it and held:
The filing of the Financial or Technical Assistance
Agreement application is a clear admission that the
respondents are not capable of conducting a large
scale mining operation and that they need the
financial and technical assistance of a foreign entity
in their operation that is why they sought the
participation of MBMI Resources, Inc. The
participation of MBMI in the corporation only proves
the fact that it is the Canadian company that will
provide the finances and the resources to operate
the mining areas for the greater benefit and interest
of the same and not the Filipino stockholders who
only have a less substantial financial stake in the
corporation.
xxxx
x x x The filing of the FTAA application on June 15,
2007, during the pendency of the case only
demonstrate the violations and lack of qualification
of the respondent corporations to engage in mining.
The filing of the FTAA application conversion which
is allowed foreign corporation of the earlier MPSA is
an admission that indeed the respondent is not
Filipino but rather of foreign nationality who is
disqualified under the laws. Corporate documents of
MBMI Resources, Inc. furnished its stockholders in
their head office in Canada suggest that they are
conducting operation only through their local
counterparts.36
On October 1, 2010, the CA rendered a Decision
which partially granted the petition, reversing and
setting aside the September 10, 2008 and July 1,
2009 Orders of the MAB. In the said Decision, the
CA upheld the findings of the POA of the DENR that
the herein petitioners are in fact foreign corporations
thus a recommendation of the rejection of their
MPSA applications were recommended to the
Secretary of the DENR. With respect to the FTAA
applications or conversion of the MPSA applications
to FTAAs, the CA deferred the matter for the
determination of the Secretary of the DENR and the
President of the Republic of the Philippines.37
In their Motion for Reconsideration dated October
26, 2010, petitioners prayed for the dismissal of the
petition asserting that on April 5, 2010, then
President Gloria Macapagal-Arroyo signed and
issued in their favor FTAA No. 05-2010-IVB, which
rendered the petition moot and academic. However,
the CA, in a Resolution dated February 15, 2011
denied their motion for being a mere "rehash of their
claims and defenses."38 Standing firm on its
Decision, the CA affirmed the ruling that petitioners
are, in fact, foreign corporations. On April 5, 2011,
petitioners elevated the case to us via a Petition for
Review on Certiorari under Rule 45, questioning the
Decision of the CA. Interestingly, the OP rendered a
Decision dated April 6, 2011, a day after this petition
for review was filed, cancelling and revoking the
FTAAs, quoting the Order of the POA and stating
that petitioners are foreign corporations since they
needed the financial strength of MBMI, Inc. in order
to conduct large scale mining operations. The OP
Decision also based the cancellation on the
misrepresentation of facts and the violation of the
"Small Scale Mining Law and Environmental
Compliance Certificate as well as Sections 3 and 8
of the Foreign Investment Act and E.O. 584."39 On
July 6, 2011, the OP issued a Resolution, denying
the Motion for Reconsideration filed by the
petitioners.
Respondent Redmont, in its Comment dated
October 10, 2011, made known to the Court the fact
of the OP’s Decision and Resolution. In their Reply,
petitioners chose to ignore the OP Decision and
continued to reuse their old arguments claiming that
they were granted FTAAs and, thus, the case was
moot. Petitioners filed a Manifestation and
Submission dated October 19, 2012,40 wherein they
asserted that the present petition is moot since, in a
remarkable turn of events, MBMI was able to sell/
assign all its shares/interest in the "holding
companies" to DMCI Mining Corporation (DMCI), a
Filipino corporation and, in effect, making their
respective corporations fully-Filipino owned.
Again, it is quite evident that petitioners have been
trying to have this case dismissed for being "moot."
Their final act, wherein MBMI was able to allegedly
sell/assign all its shares and interest in the petitioner
"holding companies" to DMCI, only proves that they
were in fact not Filipino corporations from the start.
The recent divesting of interest by MBMI will not
change the stand of this Court with respect to the
nationality of petitioners prior the suspicious change
in their corporate structures. The new documents
filed by petitioners are factual evidence that this
Court has no power to verify.
The only thing clear and proved in this Court is the
fact that the OP declared that petitioner corporations
have violated several mining laws and made
misrepresentations and falsehood in their
applications for FTAA which lead to the revocation of
the said FTAAs, demonstrating that petitioners are
not beyond going against or around the law using
shifty actions and strategies. Thus, in this instance,
we can say that their claim of mootness is moot in
itself because their defense of conversion of MPSAs
to FTAAs has been discredited by the OP Decision.
Grandfather test
The main issue in this case is centered on the issue
of petitioners’ nationality, whether Filipino or foreign.
In their previous petitions, they had been adamant in
insisting that they were Filipino corporations, until
they submitted their Manifestation and Submission
dated October 19, 2012 where they stated the
alleged change of corporate ownership to reflect
their Filipino ownership. Thus, there is a need to
determine the nationality of petitioner corporations.
Basically, there are two acknowledged tests in
determining the nationality of a corporation: the
control test and the grandfather rule. Paragraph 7 of
DOJ Opinion No. 020, Series of 2005, adopting the
1967 SEC Rules which implemented the
requirement of the Constitution and other laws
pertaining to the controlling interests in enterprises
engaged in the exploitation of natural resources
owned by Filipino citizens, provides:
Shares belonging to corporations or partnerships at
least 60% of the capital of which is owned by Filipino
citizens shall be considered as of Philippine
nationality, but if the percentage of Filipino
ownership in the corporation or partnership is less
than 60%, only the number of shares corresponding
to such percentage shall be counted as of Philippine
nationality. Thus, if 100,000 shares are registered in
the name of a corporation or partnership at least
60% of the capital stock or capital, respectively, of
which belong to Filipino citizens, all of the shares
shall be recorded as owned by Filipinos. But if less
than 60%, or say, 50% of the capital stock or capital
of the corporation or partnership, respectively,
belongs to Filipino citizens, only 50,000 shares shall
be counted as owned by Filipinos and the other
50,000 shall be recorded as belonging to aliens.
The first part of paragraph 7, DOJ Opinion No. 020,
stating "shares belonging to corporations or
partnerships at least 60% of the capital of which is
owned by Filipino citizens shall be considered as of
Philippine nationality," pertains to the control test or
the liberal rule. On the other hand, the second part
of the DOJ Opinion which provides, "if the
percentage of the Filipino ownership in the
corporation or partnership is less than 60%, only the
number of shares corresponding to such percentage
shall be counted as Philippine nationality," pertains
to the stricter, more stringent grandfather rule.
Prior to this recent change of events, petitioners
were constant in advocating the application of the
"control test" under RA 7042, as amended by RA
8179, otherwise known as the Foreign Investments
Act (FIA), rather than using the stricter grandfather
rule. The pertinent provision under Sec. 3 of the FIA
provides:
SECTION 3. Definitions. - As used in this Act:
a.) The term Philippine national shall mean a citizen
of the Philippines; or a domestic partnership or
association wholly owned by the citizens of the
Philippines; a corporation organized under the laws
of the Philippines of which at least sixty percent
(60%) of the capital stock outstanding and entitled to
vote is wholly owned by Filipinos or a trustee of
funds for pension or other employee retirement or
separation benefits, where the trustee is a Philippine
national and at least sixty percent (60%) of the fund
will accrue to the benefit of Philippine nationals:
Provided, That were a corporation and its non-
Filipino stockholders own stocks in a Securities and
Exchange Commission (SEC) registered enterprise,
at least sixty percent (60%) of the capital stock
outstanding and entitled to vote of each of both
corporations must be owned and held by citizens of
the Philippines and at least sixty percent (60%) of
the members of the Board of Directors, in order that
the corporation shall be considered a Philippine
national. (emphasis supplied)
The grandfather rule, petitioners reasoned, has no
leg to stand on in the instant case since the
definition of a "Philippine National" under Sec. 3 of
the FIA does not provide for it. They further claim
that the grandfather rule "has been abandoned and
is no longer the applicable rule."41 They also opined
that the last portion of Sec. 3 of the FIA admits the
application of a "corporate layering" scheme of
corporations. Petitioners claim that the clear and
unambiguous wordings of the statute preclude the
court from construing it and prevent the court’s use
of discretion in applying the law. They said that the
plain, literal meaning of the statute meant the
application of the control test is obligatory.
We disagree. "Corporate layering" is admittedly
allowed by the FIA; but if it is used to circumvent the
Constitution and pertinent laws, then it becomes
illegal. Further, the pronouncement of petitioners
that the grandfather rule has already been
abandoned must be discredited for lack of basis.
Art. XII, Sec. 2 of the Constitution provides:
Sec. 2. All lands of the public domain, waters,
minerals, coal, petroleum and other mineral oils, all
forces of potential energy, fisheries, forests or
timber, wildlife, flora and fauna, and other natural
resources are owned by the State. With the
exception of agricultural lands, all other natural
resources shall not be alienated. The exploration,
development, and utilization of natural resources
shall be under the full control and supervision of the
State. The State may directly undertake such
activities, or it may enter into co-production, joint
venture or production-sharing agreements with
Filipino citizens, or corporations or associations at
least sixty per centum of whose capital is owned by
such citizens. Such agreements may be for a period
not exceeding twenty-five years, renewable for not
more than twenty-five years, and under such terms
and conditions as may be provided by law.
xxxx
The President may enter into agreements with
Foreign-owned corporations involving either
technical or financial assistance for large-scale
exploration, development, and utilization of minerals,
petroleum, and other mineral oils according to the
general terms and conditions provided by law, based
on real contributions to the economic growth and
general welfare of the country. In such agreements,
the State shall promote the development and use of
local scientific and technical resources. (emphasis
supplied)
The emphasized portion of Sec. 2 which focuses on
the State entering into different types of agreements
for the exploration, development, and utilization of
natural resources with entities who are deemed
Filipino due to 60 percent ownership of capital is
pertinent to this case, since the issues are centered
on the utilization of our country’s natural resources
or specifically, mining. Thus, there is a need to
ascertain the nationality of petitioners since, as the
Constitution so provides, such agreements are only
allowed corporations or associations "at least 60
percent of such capital is owned by such citizens."
The deliberations in the Records of the 1986
Constitutional Commission shed light on how a
citizenship of a corporation will be determined:
Mr. BENNAGEN: Did I hear right that the
Chairman’s interpretation of an independent national
economy is freedom from undue foreign control?
What is the meaning of undue foreign control?
MR. VILLEGAS: Undue foreign control is foreign
control which sacrifices national sovereignty and the
welfare of the Filipino in the economic sphere.
MR. BENNAGEN: Why does it have to be qualified
still with the word "undue"? Why not simply freedom
from foreign control? I think that is the meaning of
independence, because as phrased, it still allows for
foreign control.
MR. VILLEGAS: It will now depend on the
interpretation because if, for example, we retain the
60/40 possibility in the cultivation of natural
resources, 40 percent involves some control; not
total control, but some control.
MR. BENNAGEN: In any case, I think in due time
we will propose some amendments.
MR. VILLEGAS: Yes. But we will be open to
improvement of the phraseology.
Mr. BENNAGEN: Yes.
Thank you, Mr. Vice-President.
xxxx
MR. NOLLEDO: In Sections 3, 9 and 15, the
Committee stated local or Filipino equity and foreign
equity; namely, 60-40 in Section 3, 60-40 in Section
9, and 2/3-1/3 in Section 15.
MR. VILLEGAS: That is right.
MR. NOLLEDO: In teaching law, we are always
faced with the question: ‘Where do we base the
equity requirement, is it on the authorized capital
stock, on the subscribed capital stock, or on the
paid-up capital stock of a corporation’? Will the
Committee please enlighten me on this?
MR. VILLEGAS: We have just had a long discussion
with the members of the team from the UP Law
Center who provided us with a draft. The phrase that
is contained here which we adopted from the UP
draft is ‘60 percent of the voting stock.’
MR. NOLLEDO: That must be based on the
subscribed capital stock, because unless declared
delinquent, unpaid capital stock shall be entitled to
vote.
MR. VILLEGAS: That is right.
MR. NOLLEDO: Thank you.
With respect to an investment by one corporation in
another corporation, say, a corporation with 60-40
percent equity invests in another corporation which
is permitted by the Corporation Code, does the
Committee adopt the grandfather rule?
MR. VILLEGAS: Yes, that is the understanding of
the Committee.
MR. NOLLEDO: Therefore, we need additional
Filipino capital?
MR. VILLEGAS: Yes.42 (emphasis supplied)
It is apparent that it is the intention of the framers of
the Constitution to apply the grandfather rule in
cases where corporate layering is present.
Elementary in statutory construction is when there is
conflict between the Constitution and a statute, the
Constitution will prevail. In this instance, specifically
pertaining to the provisions under Art. XII of the
Constitution on National Economy and Patrimony,
Sec. 3 of the FIA will have no place of application.
As decreed by the honorable framers of our
Constitution, the grandfather rule prevails and must
be applied.
Likewise, paragraph 7, DOJ Opinion No. 020, Series
of 2005 provides:
The above-quoted SEC Rules provide for the
manner of calculating the Filipino interest in a
corporation for purposes, among others, of
determining compliance with nationality
requirements (the ‘Investee Corporation’). Such
manner of computation is necessary since the
shares in the Investee Corporation may be owned
both by individual stockholders (‘Investing
Individuals’) and by corporations and partnerships
(‘Investing Corporation’). The said rules thus provide
for the determination of nationality depending on the
ownership of the Investee Corporation and, in
certain instances, the Investing Corporation.
Under the above-quoted SEC Rules, there are two
cases in determining the nationality of the Investee
Corporation. The first case is the ‘liberal rule’, later
coined by the SEC as the Control Test in its 30 May
1990 Opinion, and pertains to the portion in said
Paragraph 7 of the 1967 SEC Rules which states,
‘(s)hares belonging to corporations or partnerships
at least 60% of the capital of which is owned by
Filipino citizens shall be considered as of Philippine
nationality.’ Under the liberal Control Test, there is
no need to further trace the ownership of the 60%
(or more) Filipino stockholdings of the Investing
Corporation since a corporation which is at least
60% Filipino-owned is considered as Filipino.
The second case is the Strict Rule or the
Grandfather Rule Proper and pertains to the portion
in said Paragraph 7 of the 1967 SEC Rules which
states, "but if the percentage of Filipino ownership in
the corporation or partnership is less than 60%, only
the number of shares corresponding to such
percentage shall be counted as of Philippine
nationality." Under the Strict Rule or Grandfather
Rule Proper, the combined totals in the Investing
Corporation and the Investee Corporation must be
traced (i.e., "grandfathered") to determine the total
percentage of Filipino ownership.
Moreover, the ultimate Filipino ownership of the
shares must first be traced to the level of the
Investing Corporation and added to the shares
directly owned in the Investee Corporation x x x.
xxxx
In other words, based on the said SEC Rule and
DOJ Opinion, the Grandfather Rule or the second
part of the SEC Rule applies only when the 60-40
Filipino-foreign equity ownership is in doubt (i.e., in
cases where the joint venture corporation with
Filipino and foreign stockholders with less than 60%
Filipino stockholdings [or 59%] invests in other joint
venture corporation which is either 60-40% Filipino-
alien or the 59% less Filipino). Stated differently,
where the 60-40 Filipino- foreign equity ownership is
not in doubt, the Grandfather Rule will not apply.
(emphasis supplied)
After a scrutiny of the evidence extant on record, the
Court finds that this case calls for the application of
the grandfather rule since, as ruled by the POA and
affirmed by the OP, doubt prevails and persists in
the corporate ownership of petitioners. Also, as
found by the CA, doubt is present in the 60-40
Filipino equity ownership of petitioners Narra,
McArthur and Tesoro, since their common investor,
the 100% Canadian corporation––MBMI, funded
them. However, petitioners also claim that there is
"doubt" only when the stockholdings of Filipinos are
less than 60%.43
The assertion of petitioners that "doubt" only exists
when the stockholdings are less than 60% fails to
convince this Court. DOJ Opinion No. 20, which
petitioners quoted in their petition, only made an
example of an instance where "doubt" as to the
ownership of the corporation exists. It would be
ludicrous to limit the application of the said word
only to the instances where the stockholdings of
non-Filipino stockholders are more than 40% of the
total stockholdings in a corporation. The
corporations interested in circumventing our laws
would clearly strive to have "60% Filipino
Ownership" at face value. It would be senseless for
these applying corporations to state in their
respective articles of incorporation that they have
less than 60% Filipino stockholders since the
applications will be denied instantly. Thus, various
corporate schemes and layerings are utilized to
circumvent the application of the Constitution.
Obviously, the instant case presents a situation 1
which exhibits a scheme employed by stockholders PhP 1,000.00
to circumvent the law, creating a cloud of doubt in PhP 1,000.00
the Court’s mind. To determine, therefore, the actual
participation, direct or indirect, of MBMI, the Total
grandfather rule must be used. 10,000
PhP 10,000,000.00
McArthur Mining, Inc. PhP 2,708,174.60
(emphasis supplied)
To establish the actual ownership, interest or Interestingly, looking at the corporate structure of
participation of MBMI in each of petitioners’ MMC, we take note that it has a similar structure
corporate structure, they have to be "grandfathered." and composition as McArthur. In fact, it would seem
that MBMI is also a major investor and
"controls" 45 MBMI and also, similar nominal
As previously discussed, McArthur acquired its
shareholders were present, i.e. Fernando B.
MPSA application from MMC, which acquired its
Esguerra (Esguerra), Lauro L. Salazar (Salazar),
application from SMMI. McArthur has a capital stock
Michael T. Mason (Mason) and Kenneth Cawkell
of ten million pesos (PhP 10,000,000) divided into
(Cawkell):
10,000 common shares at one thousand pesos
(PhP 1,000) per share, subscribed to by the
following:44 Madridejos Mining Corporation

Name Name
Nationality Nationality
Number of Shares Number of Shares
Amount Subscribed Amount Subscribed
Amount Paid Amount Paid
Madridejos Mining Olympic Mines &
Corporation
Filipino
5,997 Development
PhP 5,997,000.00
PhP 825,000.00 Corp.
MBMI Resources, Inc.
Canadian Filipino
3,998 6,663
PhP 3,998,000.0 PhP 6,663,000.00
PhP 1,878,174.60 PhP 0
Lauro L. Salazar
Filipino MBMI Resources,
1
PhP 1,000.00
PhP 1,000.00
Inc.
Fernando B. Esguerra
Filipino
1 Canadian
PhP 1,000.00 3,331
PhP 1,000.00 PhP 3,331,000.00
Manuel A. Agcaoili PhP 2,803,900.00
Filipino Amanti Limson
1 Filipino
PhP 1,000.00 1
PhP 1,000.00 PhP 1,000.00
Michael T. Mason PhP 1,000.00
American Fernando B.
1
PhP 1,000.00
PhP 1,000.00 Esguerra
Kenneth Cawkell
Canadian Filipino
 1 the Olympic Properties. The Company holds directly
PhP 1,000.00 and indirectly an initial 60% interest in the joint
PhP 1,000.00 venture. Under certain circumstances and upon
Lauro Salazar achieving certain milestones, the Company may
Filipino earn up to a 100% interest, subject to a 2.5% net
1 revenue royalty.47 (emphasis supplied)
PhP 1,000.00
PhP 1,000.00 Thus, as demonstrated in this first corporation,
Emmanuel G. McArthur, when it is "grandfathered," company
layering was utilized by MBMI to gain control over
McArthur. It is apparent that MBMI has more than
Hernando 60% or more equity interest in McArthur, making the
latter a foreign corporation.
Filipino
1 Tesoro Mining and Development, Inc.
PhP 1,000.00
PhP 1,000.00 Tesoro, which acquired its MPSA application from
Michael T. Mason SMMI, has a capital stock of ten million pesos (PhP
American 10,000,000) divided into ten thousand (10,000)
1 common shares at PhP 1,000 per share, as
PhP 1,000.00 demonstrated below:
PhP 1,000.00
Kenneth Cawkell [[reference = http://sc.judiciary.gov.ph/pdf/web/
Canadian v i e w e r. h t m l ? f i l e = / j u r i s p r u d e n c e / 2 0 1 4 /
1 april2014/195580.pdf]]
PhP 1,000.00
PhP 1,000.00
Name
Total
10,000 Nationality
PhP 10,000,000.00
PhP 2,809,900.00 Number of

Shares
(emphasis supplied)
Amount
Noticeably, Olympic Mines & Development
Corporation (Olympic) did not pay any amount with Subscribed
respect to the number of shares they subscribed to
in the corporation, which is quite absurd since Amount Paid
Olympic is the major stockholder in MMC. MBMI’s
2006 Annual Report sheds light on why Olympic Sara Marie
failed to pay any amount with respect to the number
of shares it subscribed to. It states that Olympic
entered into joint venture agreements with several
Mining, Inc.
Philippine companies, wherein it holds directly and
indirectly a 60% effective equity interest in the
Olympic Properties.46 Quoting the said Annual Filipino
report: 5,997
PhP 5,997,000.00
PhP 825,000.00
On September 9, 2004, the Company and Olympic
MBMI
Mines & Development Corporation ("Olympic")
entered into a series of agreements including a
Property Purchase and Development Agreement
(the Transaction Documents) with respect to three Resources, Inc.
nickel laterite properties in Palawan, Philippines (the
"Olympic Properties"). The Transaction Documents Canadian
effectively establish a joint venture between the 3,998
Company and Olympic for purposes of developing PhP 3,998,000.00
 PhP 1,878,174.60 Name
Lauro L. Salazar
Filipino Nationality
1
PhP 1,000.00 Number of
PhP 1,000.00
Fernando B.
Shares

Amount
Esguerra
Subscribed
Filipino
1
PhP 1,000.00 Amount Paid
PhP 1,000.00
Manuel A. Olympic Mines &

Agcaoili Development

Filipino Corp.
1
PhP 1,000.00 Filipino
PhP 1,000.00 6,663
Michael T. Mason PhP 6,663,000.00
American PhP 0
1 MBMI Resources,
PhP 1,000.00
PhP 1,000.00
Kenneth Cawkell Inc.
Canadian
1 Canadian
PhP 1,000.00 3,331
PhP 1,000.00 PhP 3,331,000.00
PhP 2,794,000.00
Total Amanti Limson
10,000 Filipino
PhP 10,000,000.00 1
PhP 2,708,174.60 PhP 1,000.00
PhP 1,000.00
Fernando B.
(emphasis supplied)

Except for the name "Sara Marie Mining, Inc.," the Esguerra
table above shows exactly the same figures as the
corporate structure of petitioner McArthur, down to Filipino
the last centavo. All the other shareholders are the 1
same: MBMI, Salazar, Esguerra, Agcaoili, Mason PhP 1,000.00
and Cawkell. The figures under "Nationality," PhP 1,000.00
"Number of Shares," "Amount Subscribed," and Lauro Salazar
"Amount Paid" are exactly the same. Delving Filipino
deeper, we scrutinize SMMI’s corporate structure: 1
PhP 1,000.00
Sara Marie Mining, Inc. PhP 1,000.00
Emmanuel G.
[[reference = http://sc.judiciary.gov.ph/pdf/web/
v i e w e r. h t m l ? f i l e = / j u r i s p r u d e n c e / 2 0 1 4 /
april2014/195580.pdf]] Hernando
 Filipino [[reference = http://sc.judiciary.gov.ph/pdf/web/
1 v i e w e r. h t m l ? f i l e = / j u r i s p r u d e n c e / 2 0 1 4 /
PhP 1,000.00 april2014/195580.pdf]]
PhP 1,000.00
Michael T. Mason Name
American
1 Nationality
PhP 1,000.00
PhP 1,000.00
Number of
Kenneth Cawkell
Canadian
1 Shares
PhP 1,000.00
PhP 1,000.00 Amount

Total Subscribed
10,000
PhP 10,000,000.00 Amount Paid
PhP 2,809,900.00
Patricia Louise

(emphasis supplied)
Mining &
After subsequently studying SMMI’s corporate
structure, it is not farfetched for us to spot the Development
glaring similarity between SMMI and MMC’s
corporate structure. Again, the presence of identical
Corp.
stockholders, namely: Olympic, MBMI, Amanti
Limson (Limson), Esguerra, Salazar, Hernando,
Mason and Cawkell. The figures under the headings Filipino
"Nationality," "Number of Shares," "Amount 5,997
Subscribed," and "Amount Paid" are exactly the PhP 5,997,000.00
same except for the amount paid by MBMI which PhP 1,677,000.00
now reflects the amount of two million seven MBMI
hundred ninety four thousand pesos (PhP
2,794,000). Oddly, the total value of the amount paid
is two million eight hundred nine thousand nine Resources, Inc.
hundred pesos (PhP 2,809,900).
Canadian
Accordingly, after "grandfathering" petitioner Tesoro 3,998
and factoring in Olympic’s participation in SMMI’s PhP 3,996,000.00
corporate structure, it is clear that MBMI is in control PhP 1,116,000.00
of Tesoro and owns 60% or more equity interest in Higinio C.
Tesoro. This makes petitioner Tesoro a non-Filipino
corporation and, thus, disqualifies it to participate in
the exploitation, utilization and development of our Mendoza, Jr.
natural resources.
Filipino
Narra Nickel Mining and Development Corporation 1
PhP 1,000.00
Moving on to the last petitioner, Narra, which is the PhP 1,000.00
transferee and assignee of PLMDC’s MPSA Henry E.
application, whose corporate structure’s
arrangement is similar to that of the first two
petitioners discussed. The capital stock of Narra is Fernandez
ten million pesos (PhP 10,000,000), which is divided
into ten thousand common shares (10,000) at one Filipino
thousand pesos (PhP 1,000) per share, shown as 1
follows: PhP 1,000.00
 PhP 1,000.00 Amount Paid
Manuel A. Palawan Alpha South Resources Development
Corporation
Filipino
Agcaoili 6,596
PhP 6,596,000.00
Filipino PhP 0
1 MBMI Resources,
PhP 1,000.00
PhP 1,000.00
Ma. Elena A. Inc.

Canadian
Bocalan 3,396
PhP 3,396,000.00
Filipino PhP 2,796,000.00
1 Higinio C. Mendoza, Jr.
PhP 1,000.00 Filipino
PhP 1,000.00 1
Bayani H. Agabin PhP 1,000.00
Filipino PhP 1,000.00
1 Fernando B. Esguerra
PhP 1,000.00 Filipino
PhP 1,000.00 1
Robert L. PhP 1,000.00
PhP 1,000.00
Henry E. Fernandez
Filipino
McCurdy
1
PhP 1,000.00
American PhP 1,000.00
1 Lauro L. Salazar
PhP 1,000.00 Filipino
PhP 1,000.00 1
Kenneth Cawkell PhP 1,000.00
Canadian PhP 1,000.00
1 Manuel A. Agcaoili
PhP 1,000.00 Filipino
PhP 1,000.00 1
PhP 1,000.00
Total PhP 1,000.00
10,000 Bayani H. Agabin
PhP 10,000,000.00 Filipino
PhP 2,800,000.00 1
(emphasis supplied) PhP 1,000.00
Again, MBMI, along with other nominal stockholders, PhP 1,000.00
i.e., Mason, Agcaoili and Esguerra, is present in this Michael T. Mason
corporate structure. American
1
Patricia Louise Mining & Development Corporation PhP 1,000.00
PhP 1,000.00
Using the grandfather method, we further look and Kenneth Cawkell
examine PLMDC’s corporate structure: Canadian
1
Name PhP 1,000.00
Nationality PhP 1,000.00
Number of Shares
Total
Amount Subscribed 10,000
 PhP 10,000,000.00
PhP 2,708,174.60
(emphasis supplied)
Yet again, the usual players in petitioners’ corporate
structures are present. Similarly, the amount of
money paid by the 2nd tier majority stock holder, in
this case, Palawan Alpha South Resources and
Development Corp. (PASRDC), is zero.
Studying MBMI’s Summary of Significant Accounting
Policies dated October 31, 2005 explains the reason
behind the intricate corporate layering that MBMI
immersed itself in:
JOINT VENTURES The Company’s ownership
interests in various mining ventures engaged in the
acquisition, exploration and development of mineral
properties in the Philippines is described as follows:
(a) Olympic Group
The Philippine companies holding the Olympic
Property, and the ownership and interests therein,
are as follows:
Olympic- Philippines (the "Olympic Group")
Sara Marie Mining Properties Ltd. ("Sara Marie")
33.3%
Tesoro Mining & Development, Inc. (Tesoro) 60.0%
Pursuant to the Olympic joint venture agreement the
Company holds directly and indirectly an effective
equity interest in the Olympic Property of 60.0%.
Pursuant to a shareholders’ agreement, the
Company exercises joint control over the companies
in the Olympic Group.
(b) Alpha Group
The Philippine companies holding the Alpha
Property, and the ownership interests therein, are as
follows:
Alpha- Philippines (the "Alpha Group")
Patricia Louise Mining Development Inc. ("Patricia")
34.0%
Narra Nickel Mining & Development Corporation
(Narra) 60.4%
Under a joint venture agreement the Company holds
directly and indirectly an effective equity interest in
the Alpha Property of 60.4%. Pursuant to a
shareholders’ agreement, the Company exercises
joint control over the companies in the Alpha Group.
48 (emphasis supplied)
Concluding from the above-stated facts, it is quite
safe to say that petitioners McArthur, Tesoro and
Narra are not Filipino since MBMI, a 100%
Canadian corporation, owns 60% or more of their
equity interests. Such conclusion is derived from
grandfathering petitioners’ corporate owners,
namely: MMI, SMMI and PLMDC. Going further and
adding to the picture, MBMI’s Summary of
Significant Accounting Policies statement– –
regarding the "joint venture" agreements that it
entered into with the "Olympic" and "Alpha"
groups––involves SMMI, Tesoro, PLMDC and Narra.
Noticeably, the ownership of the "layered"
corporations boils down to MBMI, Olympic or
corporations under the "Alpha" group wherein MBMI
has joint venture agreements with, practically
exercising majority control over the corporations
mentioned. In effect, whether looking at the capital
structure or the underlying relationships between
and among the corporations, petitioners are NOT
Filipino nationals and must be considered foreign
since 60% or more of their capital stocks or equity
interests are owned by MBMI.
Application of the res inter alios acta rule
Petitioners question the CA’s use of the exception of
the res inter alios acta or the "admission by co-
partner or agent" rule and "admission by privies"
under the Rules of Court in the instant case, by
pointing out that statements made by MBMI should
not be admitted in this case since it is not a party to
the case and that it is not a "partner" of petitioners.
Secs. 29 and 31, Rule 130 of the Revised Rules of
Court provide:
Sec. 29. Admission by co-partner or agent.- The act
or declaration of a partner or agent of the party
within the scope of his authority and during the
existence of the partnership or agency, may be
given in evidence against such party after the
partnership or agency is shown by evidence other
than such act or declaration itself. The same rule
applies to the act or declaration of a joint owner, joint
debtor, or other person jointly interested with the
party.
Sec. 31. Admission by privies.- Where one derives
title to property from another, the act, declaration, or
omission of the latter, while holding the title, in
relation to the property, is evidence against the
former.
Petitioners claim that before the above-mentioned
Rule can be applied to a case, "the partnership
relation must be shown, and that proof of the fact
must be made by evidence other than the admission
itself."49 Thus, petitioners assert that the CA erred in
finding that a partnership relationship exists between
them and MBMI because, in fact, no such
partnership exists.
Partnerships vs. joint venture agreements
Petitioners claim that the CA erred in applying Sec.
29, Rule 130 of the Rules by stating that "by
entering into a joint venture, MBMI have a joint
interest" with Narra, Tesoro and McArthur. They
challenged the conclusion of the CA which pertains
to the close characteristics of
"partnerships" and "joint venture agreements."
Further, they asserted that before this particular
partnership can be formed, it should have been
formally reduced into writing since the capital
involved is more than three thousand pesos (PhP
3,000). Being that there is no evidence of written
agreement to form a partnership between petitioners
and MBMI, no partnership was created.
We disagree.
A partnership is defined as two or more persons who
bind themselves to contribute money, property, or
industry to a common fund with the intention of
dividing the profits among themselves.50 On the
other hand, joint ventures have been deemed to be
"akin" to partnerships since it is difficult to distinguish
between joint ventures and partnerships. Thus:
[T]he relations of the parties to a joint venture and
the nature of their association are so similar and
closely akin to a partnership that it is ordinarily held
that their rights, duties, and liabilities are to be
tested by rules which are closely analogous to and
substantially the same, if not exactly the same, as
those which govern partnership. In fact, it has been
said that the trend in the law has been to blur the
distinctions between a partnership and a joint
venture, very little law being found applicable to one
that does not apply to the other.51
Though some claim that partnerships and joint
ventures are totally different animals, there are very
few rules that differentiate one from the other; thus,
joint ventures are deemed "akin" or similar to a
partnership. In fact, in joint venture agreements,
rules and legal incidents governing partnerships are
applied.52
Accordingly, culled from the incidents and records of
this case, it can be assumed that the relationships
entered between and among petitioners and MBMI
are no simple "joint venture agreements." As a rule,
corporations are prohibited from entering into
partnership agreements; consequently, corporations
enter into joint venture agreements with other
corporations or partnerships for certain transactions
in order to form "pseudo partnerships."
Obviously, as the intricate web of "ventures" entered
into by and among petitioners and MBMI was
executed to circumvent the legal prohibition against
corporations entering into partnerships, then the
relationship created should be deemed as
"partnerships," and the laws on partnership should
be applied. Thus, a joint venture agreement
between and among corporations may be seen as
similar to partnerships since the elements of
partnership are present.
Considering that the relationships found between
petitioners and MBMI are considered to be
partnerships, then the CA is justified in applying Sec.
29, Rule 130 of the Rules by stating that "by
entering into a joint venture, MBMI have a joint
interest" with Narra, Tesoro and McArthur.
Panel of Arbitrators’ jurisdiction
We affirm the ruling of the CA in declaring that the
POA has jurisdiction over the instant case. The POA
has jurisdiction to settle disputes over rights to
mining areas which definitely involve the petitions
filed by Redmont against petitioners Narra, McArthur
and Tesoro. Redmont, by filing its petition against
petitioners, is asserting the right of Filipinos over
mining areas in the Philippines against alleged
foreign-owned mining corporations. Such claim
constitutes a "dispute" found in Sec. 77 of RA 7942:
Within thirty (30) days, after the submission of the
case by the parties for the decision, the panel shall
have exclusive and original jurisdiction to hear and
decide the following:
(a) Disputes involving rights to mining areas
(b) Disputes involving mineral agreements or
permits
We held in Celestial Nickel Mining Exploration
Corporation v. Macroasia Corp.:53
The phrase "disputes involving rights to mining
areas" refers to any adverse claim, protest, or
opposition to an application for mineral agreement.
The POA therefore has the jurisdiction to resolve
any adverse claim, protest, or opposition to a
pending application for a mineral agreement filed
with the concerned Regional Office of the MGB. This
is clear from Secs. 38 and 41 of the DENR AO
96-40, which provide:
Sec. 38.
xxxx
Within thirty (30) calendar days from the last date of
publication/posting/radio announcements, the
authorized officer(s) of the concerned office(s) shall
issue a certification(s) that the publication/posting/
radio announcement have been complied with. Any
adverse claim, protest, opposition shall be filed
directly, within thirty (30) calendar days from the last
date of publication/posting/radio announcement,
with the concerned Regional Office or through any
concerned PENRO or CENRO for filing in the
concerned Regional Office for purposes of its
resolution by the Panel of Arbitrators pursuant to the
provisions of this Act and these implementing rules
and regulations. Upon final resolution of any
adverse claim, protest or opposition, the Panel of
Arbitrators shall likewise issue a certification to that
effect within five (5) working days from the date of
finality of resolution thereof. Where there is no
adverse claim, protest or opposition, the Panel of
Arbitrators shall likewise issue a Certification to that
effect within five working days therefrom.
xxxx
No Mineral Agreement shall be approved unless the
requirements under this Section are fully complied
with and any adverse claim/protest/opposition is
finally resolved by the Panel of Arbitrators.
Sec. 41.
xxxx
Within fifteen (15) working days form the receipt of
the Certification issued by the Panel of Arbitrators as
provided in Section 38 hereof, the concerned
Regional Director shall initially evaluate the Mineral
Agreement applications in areas outside Mineral
reservations. He/She shall thereafter endorse his/
her findings to the Bureau for further evaluation by
the Director within fifteen (15) working days from
receipt of forwarded documents. Thereafter, the
Director shall endorse the same to the secretary for
consideration/approval within fifteen working days
from receipt of such endorsement.
In case of Mineral Agreement applications in areas
with Mineral Reservations, within fifteen (15)
working days from receipt of the Certification issued
by the Panel of Arbitrators as provided for in Section
38 hereof, the same shall be evaluated and
endorsed by the Director to the Secretary for
consideration/approval within fifteen days from
receipt of such endorsement. (emphasis supplied)
It has been made clear from the aforecited
provisions that the "disputes involving rights to
mining areas" under Sec. 77(a) specifically refer
only to those disputes relative to the applications for
a mineral agreement or conferment of mining rights.
The jurisdiction of the POA over adverse claims,
protest, or oppositions to a mining right application is
further elucidated by Secs. 219 and 43 of DENR AO
95-936, which read:
Sec. 219. Filing of Adverse Claims/Conflicts/
Oppositions.- Notwithstanding the provisions of
Sections 28, 43 and 57 above, any adverse claim,
protest or opposition specified in said sections may
also be filed directly with the Panel of Arbitrators
within the concerned periods for filing such claim,
protest or opposition as specified in said Sections.
Sec. 43. Publication/Posting of Mineral Agreement.-
xxxx
The Regional Director or concerned Regional
Director shall also cause the posting of the
application on the bulletin boards of the Bureau,
concerned Regional office(s) and in the concerned
province(s) and municipality(ies), copy furnished the
barangays where the proposed contract area is
located once a week for two (2) consecutive weeks
in a language generally understood in the locality.
After forty-five (45) days from the last date of
publication/posting has been made and no adverse
claim, protest or opposition was filed within the said
forty-five (45) days, the concerned offices shall issue
a certification that publication/posting has been
made and that no adverse claim, protest or
opposition of whatever nature has been filed. On the
other hand, if there be any adverse claim, protest or
opposition, the same shall be filed within forty-five
(45) days from the last date of publication/posting,
with the Regional Offices concerned, or through the
Department’s Community Environment and Natural
Resources Officers (CENRO) or Provincial
Environment and Natural Resources Officers
(PENRO), to be filed at the Regional Office for
resolution of the Panel of Arbitrators. However
previously published valid and subsisting mining
claims are exempted from posted/posting required
under this Section.
No mineral agreement shall be approved unless the
requirements under this section are fully complied
with and any opposition/adverse claim is dealt with
in writing by the Director and resolved by the Panel
of Arbitrators. (Emphasis supplied.)
It has been made clear from the aforecited
provisions that the "disputes involving rights to
mining areas" under Sec. 77(a) specifically refer
only to those disputes relative to the applications for
a mineral agreement or conferment of mining rights.
The jurisdiction of the POA over adverse claims,
protest, or oppositions to a mining right application is
further elucidated by Secs. 219 and 43 of DENRO
AO 95-936, which reads:
Sec. 219. Filing of Adverse Claims/Conflicts/
Oppositions.- Notwithstanding the provisions of
Sections 28, 43 and 57 above, any adverse claim,
protest or opposition specified in said sections may
also be filed directly with the Panel of Arbitrators
within the concerned periods for filing such claim,
protest or opposition as specified in said Sections.
Sec. 43. Publication/Posting of Mineral Agreement
Application.-
xxxx
The Regional Director or concerned Regional
Director shall also cause the posting of the
application on the bulletin boards of the Bureau,
concerned Regional office(s) and in the concerned
province(s) and municipality(ies), copy furnished the
barangays where the proposed contract area is
located once a week for two (2) consecutive weeks
in a language generally understood in the locality.
After forty-five (45) days from the last date of
publication/posting has been made and no adverse
claim, protest or opposition was filed within the said
forty-five (45) days, the concerned offices shall issue
a certification that publication/posting has been
made and that no adverse claim, protest or
opposition of whatever nature has been filed. On the
other hand, if there be any adverse claim, protest or
opposition, the same shall be filed within forty-five
(45) days from the last date of publication/posting,
with the Regional offices concerned, or through the
Department’s Community Environment and Natural
Resources Officers (CENRO) or Provincial
Environment and Natural Resources Officers
(PENRO), to be filed at the Regional Office for
resolution of the Panel of Arbitrators. However,
previously published valid and subsisting mining
claims are exempted from posted/posting required
under this Section.
No mineral agreement shall be approved unless the
requirements under this section are fully complied
with and any opposition/adverse claim is dealt with
in writing by the Director and resolved by the Panel
of Arbitrators. (Emphasis supplied.)
These provisions lead us to conclude that the power
of the POA to resolve any adverse claim, opposition,
or protest relative to mining rights under Sec. 77(a)
of RA 7942 is confined only to adverse claims,
conflicts and oppositions relating to applications for
the grant of mineral rights.
POA’s jurisdiction is confined only to resolutions of
such adverse claims, conflicts and oppositions and it
has no authority to approve or reject said
applications. Such power is vested in the DENR
Secretary upon recommendation of the MGB
Director. Clearly, POA’s jurisdiction over "disputes
involving rights to mining areas" has nothing to do
with the cancellation of existing mineral agreements.
(emphasis ours)
Accordingly, as we enunciated in Celestial, the POA
unquestionably has jurisdiction to resolve disputes
over MPSA applications subject of Redmont’s
petitions. However, said jurisdiction does not include
either the approval or rejection of the MPSA
applications, which is vested only upon the
Secretary of the DENR. Thus, the finding of the
POA, with respect to the rejection of petitioners’
MPSA applications being that they are foreign
corporation, is valid.
Justice Marvic Mario Victor F. Leonen, in his
Dissent, asserts that it is the regular courts, not the
POA, that has jurisdiction over the MPSA
applications of petitioners.
This postulation is incorrect.
It is basic that the jurisdiction of the court is
determined by the statute in force at the time of the
commencement of the action.54
Sec. 19, Batas Pambansa Blg. 129 or "The Judiciary
Reorganization
Act of 1980" reads:
Sec. 19. Jurisdiction in Civil Cases.—Regional Trial
Courts shall exercise exclusive original jurisdiction:
1. In all civil actions in which the subject of the
litigation is incapable of pecuniary estimation.
On the other hand, the jurisdiction of POA is
unequivocal from Sec. 77 of RA 7942:
Section 77. Panel of Arbitrators.—
x x x Within thirty (30) days, after the submission of
the case by the parties for the decision, the panel
shall have exclusive and original jurisdiction to hear
and decide the following:
(c) Disputes involving rights to mining areas
(d) Disputes involving mineral agreements or
permits
It is clear that POA has exclusive and original
jurisdiction over any and all disputes involving rights
to mining areas. One such dispute is an MPSA
application to which an adverse claim, protest or
opposition is filed by another interested applicant.
1âwphi1 In the case at bar, the dispute arose or
originated from MPSA applications where petitioners
are asserting their rights to mining areas subject of
their respective MPSA applications. Since
respondent filed 3 separate petitions for the denial of
said applications, then a controversy has developed
between the parties and it is POA’s jurisdiction to
resolve said disputes.
Moreover, the jurisdiction of the RTC involves civil
actions while what petitioners filed with the DENR
Regional Office or any concerned DENRE or
CENRO are MPSA applications. Thus POA has
jurisdiction.
Furthermore, the POA has jurisdiction over the
MPSA applications under the doctrine of primary
jurisdiction. Euro-med Laboratories v. Province of
Batangas55 elucidates:
The doctrine of primary jurisdiction holds that if a
case is such that its determination requires the
expertise, specialized training and knowledge of an
administrative body, relief must first be obtained in
an administrative proceeding before resort to the
courts is had even if the matter may well be within
their proper jurisdiction.
owned.56 Petitioners reasoned that they now cannot
be considered as foreign-owned; the transfer of their
shares supposedly cured the "defect" of their
previous nationality. They claimed that their current
FTAA contract with the State should stand since
"even wholly-owned foreign corporations can enter
into an FTAA with the State."57Petitioners stress that
there should no longer be any issue left as regards
their qualification to enter into FTAA contracts since
they are qualified to engage in mining activities in
the Philippines. Thus, whether the "grandfather rule"
or the "control test" is used, the nationalities of
petitioners cannot be doubted since it would pass
both tests.
The sale of the MBMI shareholdings to DMCI does
not have any bearing in the instant case and said
fact should be disregarded. The manifestation can
no longer be considered by us since it is being
tackled in G.R. No. 202877 pending before this
Court.1âwphi1 Thus, the question of whether
petitioners, allegedly a Philippine-owned corporation
due to the sale of MBMI's shareholdings to DMCI,
are allowed to enter into FTAAs with the State is a
non-issue in this case.
In ending, the "control test" is still the prevailing
mode of determining whether or not a corporation is
a Filipino corporation, within the ambit of Sec. 2, Art.
II of the 1987 Constitution, entitled to undertake the
exploration, development and utilization of the
natural resources of the Philippines. When in the
mind of the Court there is doubt, based on the
attendant facts and circumstances of the case, in
the 60-40 Filipino-equity ownership in the
corporation, then it may apply the "grandfather rule."
WHEREFORE, premises considered, the instant
petition is DENIED. The assailed Court of Appeals
Decision dated October 1, 2010 and Resolution
dated February 15, 2011 are hereby AFFIRMED.
SO ORDERED.

Whatever may be the decision of the POA will

eventually reach the court system via a resort to the
CA and to this Court as a last recourse.

Selling of MBMI’s shares to DMCI

As stated before, petitioners’ Manifestation and

Submission dated October 19, 2012 would want us
to declare the instant petition moot and academic
due to the transfer and conveyance of all the
shareholdings and interests of MBMI to DMCI, a
corporation duly organized and existing under
Philippine laws and is at least 60% Philippine-
 Republic of the Philippines
 I.
SUPREME COURT

Manila
SPECIAL THIRD DIVISION
G.R. No. 195580 January 28, 2015
NARRA NICKEL MINING AND DEVELOPMENT
CORP., TESORO MINING AND DEVELOPMENT,
INC., and McARTHUR MINING, INC., Petitioners, 
 application for a Financial Technical Assistance
vs.
 Agreement (FTAA), as petitioners have in fact been
REDMONT CONSOLIDATED MINES
CORP., Respondent.
RESOLUTION
VELASCO, JR., J.:
Before the Court is the Motion for Reconsideration
of its April 21, 2014 Decision, which denied the
Petition for Review on Certiorari under Rule 45
jointly interposed by petitioners Narra Nickel and
Mining Development Corp. (Narra), Tesoro Mining
and Development, Inc. (Tesoro), and McArthur
Mining Inc. (McArthur), and affirmed the October 1,
2010 Decision and February 15, 2011 Resolution of
the Court of Appeals (CA) in CA-G.R. SP No.
109703.
Very simply, the challenged Decision sustained the
appellate court's ruling that petitioners, being foreign
corporations, are not entitled to Mineral Production
Sharing Agreements (MPSAs). In reaching its
conclusion, this Court upheld with approval the
appellate court's finding that there was doubt as to
petitioners' nationality since a 100% Canadian-
owned firm, MBMI Resources, Inc. (MBMI),
effectively owns 60% of the common stocks of the
petitioners by owning equity interest of petitioners'
other majority corporate shareholders.
In a strongly worded Motion for Reconsideration
dated June 5, 2014, petitioners-movants argued, in
the main, that the Court's Decision was not in accord
with law and logic. In its September 2, 2014
Comment, on the other hand, respondent Redmont
Consolidated Mines Corp. (Redmont) countered that
petitioners’ motion for reconsideration is nothing but
a rehash of their arguments and should, thus, be
denied outright for being pro-forma. Petitioners have
interposed on September 30, 2014 their Reply to the
respondent’s Comment.
After considering the parties’ positions, as
articulated in their respective submissions, We
resolve to deny the motion for reconsideration.
The case has not been rendered moot and
academic
Petitioners have first off criticized the Court for
resolving in its Decision a substantive issue,
which,as argued, has supposedly been rendered
moot by the fact that petitioners’ applications for
MPSAs had already been converted to an
granted an FTAA. Further, the nationality issue, so
petitioners presently claim, had been rendered
moribund by the fact that MBMI had already
divested itself and sold all its shareholdings in the
petitioners, as well as in their corporate
stockholders, to a Filipino corporation—DMCI
Mining Corporation (DMCI).
As a counterpoint, respondent Redmontavers that
the present case has not been rendered moot by the
supposed issuance of an FTAA in petitioners’ favor
as this FTAA was subsequently revoked by the
Office of the President (OP) and is currently a
subject of a petition pending in the Court’s First
Division. Redmont likewise contends that the
supposed sale of MBMI’s interest in the petitioners
and in their "holding companies" is a question of fact
that is outside the Court’s province to verify in a
Rule 45 certiorari proceedings. In any case,
assuming that the controversy has been rendered
moot, Redmont claims that its resolution on the
merits is still justified by the fact that petitioners have
violated a constitutional provision, the violation is
capable of repetition yet evading review, and the
present case involves a matter of public concern.
Indeed, as the Court clarified in its Decision, the
conversion of the MPSA application to one for
FTAAs and the issuance by the OP of an FTAA in
petitioners’ favor are irrelevant. The OP itself has
already cancelled and revoked the FTAA thusissued
to petitioners. Petitioners curiously have omitted this
critical factin their motion for reconsideration.
Furthermore, the supposed sale by MBMI of its
shares in the petition ercorporations and in their
holding companies is not only a question of fact that
this Court is without authority toverify, it also does
not negate any violation of the Constitutional
provisions previously committed before any such
sale.
We can assume for the nonce that the controversy
had indeed been rendered moot by these two
events. Asthis Court has time and again declared,
the "moot and academic" principle is not a magical
formula that automatically dissuades courts in
resolving a case. 1 The Court may still take
cognizance of an otherwise moot and academic
case, if it finds that (a) there is a grave violation of
the Constitution;(b) the situation is of exceptional
character and paramount public interest is involved;
(c) the constitutional issue raised requires
formulation of controlling principles to guide the
bench, the bar, and the public; and (d) the case is
capable of repetition yet evading review.2 The
Court’s April 21, 2014 Decision explained in some
detail that all four (4) of the foregoing circumstances
are present in the case. If only to stress a point, we
will do so again. First, allowing the issuance of
MPSAs to applicants that are owned and controlled
by a 100% foreign-owned corporation, albeit through
an intricate web of corporate layering involving
alleged Filipino corporations, is tantamount to
permitting a blatant violation of Section 2, Article XII
of the Constitution. The Court simply cannot allow
this breach and inhibit itself from resolving the
controversy on the facile pretext that the case had
already been rendered academic.
Second, the elaborate corporate layering resorted to
by petitioners so as to make it appear that there is
compliance with the minimum Filipino ownership in
the Constitution is deftly exceptional in character.
More importantly, the case is of paramount public
interest, as the corporate layering employed by
petitioners was evidently designed to circumvent the
constitutional caveat allowing only Filipino citizens
and corporations 60%-owned by Filipino citizens to
explore, develop, and use the country’s natural
resources.
Third, the facts of the case, involving as they do a
web of corporate layering intended to go around the
Filipino ownership requirement in the Constitution
and pertinent laws, requirethe establishment of a
definite principle that will ensure that the
Constitutional provision reserving to Filipino citizens
or "corporations at least sixty per centum of whose
capital is owned by such citizens" be effectively
enforced and complied with. The case, therefore, is
an opportunity to establish a controlling principle that
will "guide the bench, the bar, and the public."
Lastly, the petitioners’ actions during the lifetime and
existence of the instant case that gave rise to the
present controversy are capable of repetition yet
evading review because, as shown by petitioners’
actions, foreign corporations can easily utilize
dummy Filipino corporations through various
schemes and stratagems to skirt the constitutional
prohibition against foreign mining in Philippine soil.
II.
The application of the Grandfather Ruleis justified by
the circumstances of the case to determine the
nationality of petitioners.
To petitioners, the Court’s application of the
Grandfather Rule to determine their nationality is
erroneous and allegedly without basis in the
Constitution, the Foreign Investments Act of 1991
(FIA), the Philippine Mining Act of 1995,3 and the
Rules issued by the Securities and Exchange
Commission (SEC). These laws and rules
supposedly espouse the application of the Control
Test in verifying the Philippine nationality of
corporate entities for purposes of determining
compliance withSec. 2, Art. XII of the Constitution
that only "corporations or associations at least sixty
per centum of whose capital is owned by such
[Filipino] citizens" may enjoy certain rights and
privileges, like the exploration and development of
natural resources.
The application of the Grandfather Rule in the
present case does not eschew the Control Test.
Clearly, petitioners have misread, and failed to
appreciate the clear import of, the Court’s April 21,
2014 Decision. Nowhere in that disposition did the
Court foreclose the application of the Control Test in
determining which corporations may be considered
as Philippine nationals. Instead, to borrow Justice
Leonen’s term, the Court used the Grandfather Rule
as a "supplement" to the Control Test so that the
intent underlying the averted Sec. 2, Art. XII of the
Constitution be given effect. The following excerpts
of the April 21, 2014 Decision cannot be clearer:
In ending, the "control test" is still the prevailing
mode of determining whether or not a corporation is
a Filipino corporation, within the ambit of Sec. 2, Art.
XII of the 1987 Constitution, entitled to undertake
the exploration, development and utilization of the
natural resources of the Philippines. When in the
mind of the Court, there is doubt, based on the
attendant facts and circumstances of the case, in
the 60-40 Filipino equity ownership in the
corporation, then it may apply the "grandfather rule."
(emphasis supplied)
With that, the use of the Grandfather Rule as a
"supplement" to the Control Test is not proscribed by
the Constitution or the Philippine Mining Act of 1995.
The Grandfather Rule implements the intent of the
Filipinization provisions of the Constitution.
To reiterate, Sec. 2, Art. XII of the Constitution
reserves the exploration, development, and
utilization of natural resources to Filipino citizens
and "corporations or associations at least sixty per
centum of whose capital is owned by such citizens."
Similarly, Section 3(aq) of the Philippine Mining Act
of 1995 considers a "corporation x x x registered in
accordance with law at least sixty per cent of the
capital of which is owned by citizens of the
Philippines" as a person qualified to undertake a
mining operation. Consistent with this objective, the
Grandfather Rulewas originally conceived to look
into the citizenshipof the individuals who ultimately
own and control the shares of stock of a corporation
for purposes of determining compliance with the
constitutional requirement of Filipino ownership. It
cannot, therefore, be denied that the framers of the
Constitution have not foreclosed the Grandfather
Rule as a tool in verifying the nationality of
corporations for purposes of ascertaining their right
to participate in nationalized or partly nationalized
activities. The following excerpts from the Record of
the 1986 Constitutional Commission suggest as
much:
MR. NOLLEDO: In Sections 3, 9 and 15, the
Committee stated local or Filipino equity and foreign
equity; namely, 60-40 in Section 3, 60-40 in Section
9, and 2/3-1/3 in Section 15.
MR. VILLEGAS: That is right.
xxxx
MR. NOLLEDO: Thank you.
With respect to an investment by one corporation in
another corporation, say, a corporation with 60-40
percent equity invests in another corporation which
is permitted by the Corporation Code, does the
Committee adopt the grandfather rule?
MR. VILLEGAS: Yes, that is the understanding of
the Committee.
As further defined by Dean Cesar Villanueva, the
Grandfather Rule is "the method by which the
percentage of Filipino equity in a corporation
engaged in nationalized and/or partly nationalized
areas of activities, provided for under the
Constitution and other nationalization laws, is
computed, in cases where corporate shareholders
are present, by attributing the nationality of the
second or even subsequent tier of ownership to
determine the nationality of the corporate
shareholder."4 Thus, to arrive at the actual Filipino
ownership and control in a corporation, both the
direct and indirect shareholdings in the corporation
are determined.
This concept of stock attribution inherent in the
Grandfather Rule to determine the ultimate
ownership in a corporation is observed by the
Bureau of Internal Revenue (BIR) in applying
Section 127 (B)5 of the National Internal Revenue
Code on taxes imposed on closely held
corporations, in relation to Section 96 of the
Corporation Code6 on close corporations. Thus, in
BIR Ruling No. 148-10, Commissioner Kim Henares
held:
In the case of a multi-tiered corporation, the stock
attribution rule must be allowed to run continuously
along the chain of ownership until it finally reaches
the individual stockholders. This is in consonance
with the "grandfather rule" adopted in the Philippines
under Section 96 of the Corporation Code(Batas
Pambansa Blg. 68) which provides that
notwithstanding the fact that all the issued stock of a
corporation are held by not more than twenty
persons, among others, a corporation is nonetheless
not to be deemed a close corporation when at least
two thirds of its voting stock or voting rights is owned
or controlled by another corporation which is not a
close corporation.7
In SEC-OGC Opinion No. 10-31 dated December 9,
2010 (SEC Opinion 10-31), the SEC applied the
Grandfather Rule even if the corporation engaged in
mining operation passes the 60-40 requirement of
the Control Test, viz:
You allege that the structure of MML’s ownership in
PHILSAGA is as follows: (1) MML owns 40% equity
in MEDC, while the 60% is ostensibly owned by
Philippine individual citizens who are actually MML’s
controlled nominees; (2) MEDC, in turn, owns 60%
equity in MOHC, while MML owns the remaining
40%; (3) Lastly, MOHC owns 60% of PHILSAGA,
while MML owns the remaining 40%. You provide
the following figure to illustrate this structure:
xxxx
We note that the Constitution and the statute use
the concept "Philippine citizens." Article III, Section 1
of the Constitution provides who are Philippine
citizens: x x x This enumeration is exhaustive. In
other words, there can be no other Philippine
citizens other than those falling within the
enumeration provided by the Constitution.
Obviously, only natural persons are susceptible of
citizenship. Thus, for purposes of the Constitutional
and statutory restrictions on foreign participation in
the exploitation of mineral resources, a corporation
investing in a mining joint venture can never be
considered as a Philippine citizen.
The Supreme Court En Banc confirms this [in]…
Pedro R. Palting, vs. San Jose Petroleum [Inc.]. The
Court held that a corporation investing in another
corporation engaged ina nationalized activity cannot
be considered as a citizen for purposes of the
Constitutional provision restricting foreign
exploitation of natural resources:
xxxx
Accordingly, we opine that we must look into the
citizenship of the individual stockholders, i.e. natural
persons, of that investor-corporation in order to
determine if the Constitutional and statutory
restrictions are complied with. If the shares of stock
of the immediate investor corporation is in turn held
and controlled by another corporation, then we must
look into the citizenship of the individual
stockholders of the latter corporation. In other
words, if there are layers of intervening corporations
investing in a mining joint venture, we must delve
into the citizenship of the individual stockholders of
each corporation. This is the strict application of the
grandfather rule, which the Commission has been
consistently applying prior to the 1990s. Indeed, the
framers of the Constitution intended for the
"grandfather rule" to apply in case a 60%-40%
Filipino-Foreign equity corporation invests in another
corporation engaging in an activity where the
Constitution restricts foreign participation.
xxxx
Accordingly, under the structure you represented,
the joint mining venture is 87.04 % foreign owned,
while it is only 12.96% owned by Philippine citizens.
Thus, the constitutional requirement of 60%
ownership by Philippine citizens isviolated.
(emphasis supplied)
Similarly, in the eponymous Redmont Consolidated
Mines Corporation v. McArthur Mining Inc., et al.,
8 the SEC en bancapplied the Grandfather Rule
despite the fact that the subject corporations
ostensibly have satisfied the 60-40 Filipino equity
requirement. The SEC en bancheld that to attain the
Constitutional objective of reserving to Filipinos the
utilization of natural resources, one should not stop
where the percentage of the capital stock is
60%.Thus:
[D]oubt, we believe, exists in the instant case
because the foreign investor, MBMI, provided
practically all the funds of the remaining appellee-
corporations. The records disclose that: (1) Olympic
Mines and Development Corporation ("OMDC"), a
domestic corporation, and MBMI subscribed to
6,663 and 3,331 shares, respectively, out of the
authorized capital stock of Madridejos; however,
OMDC paid nothing for this subscription while MBMI
paid ₱2,803,900.00 out of its total subscription cost
of ₱3,331,000.00; (2) Palawan Alpha South
Resource Development Corp. ("Palawan Alpha"),
also a domestic corporation, and MBMI subscribed
to 6,596 and 3,996 shares, respectively, out of the
authorized capital stock of PatriciaLouise; however,
Palawan Alpha paid nothing for this subscription
while MBMI paid ₱2,796,000.00 out of its total
subscription cost of ₱3,996,000.00; (3) OMDC and
MBMI subscribed to 6,663 and 3,331 shares,
respectively, out of the authorized capital stock of
Sara Marie; however, OMDC paid nothing for this
subscription while MBMI paid ₱2,794,000.00 out of
its total subscription cost of ₱3,331,000.00; and (4)
Falcon Ridge Resources Management Corp.
("Falcon Ridge"), another domestic corporation, and
MBMI subscribed to 5,997 and 3,998 shares,
respectively, out of the authorized capital stock of
San Juanico; however, Falcon Ridge paid nothing
for this subscription while MBMI paid ₱2,500,000.00
out of its total subscription cost of ₱3,998,000.00.
Thus, pursuant to the afore-quoted DOJ Opinion,
the Grandfather Rule must be used.
xxxx
The avowed purpose of the Constitution is to place
in the hands of Filipinos the exploitation of our
natural resources. Necessarily, therefore, the Rule
interpreting the constitutional provision should not
diminish that right through the legal fiction of
corporate ownership and control. But the
constitutional provision, as interpreted and
practicedvia the 1967 SEC Rules, has favored
foreigners contrary to the command of the
Constitution. Hence, the Grandfather Rule must be
applied to accurately determine the actual
participation, both direct and indirect, of foreigners in
a corporation engaged in a nationalized activity or
business.
The method employed in the Grandfather Rule of
attributing the shareholdings of a given corporate
shareholder to the second or even the subsequent
tier of ownership hews with the rule that the
"beneficial ownership" of corporations engaged in
nationalized activities must reside in the hands of
Filipino citizens. Thus, even if the 60-40 Filipino
equity requirement appears to have been satisfied,
the Department of Justice (DOJ), in its Opinion No.
144, S. of 1977, stated that an agreement that may
distort the actual economic or beneficial ownership
of a mining corporation may be struck down as
violative of the constitutional requirement, viz:
In this connection, you raise the following specific
questions:
1. Can a Philippine corporation with 30% equity
owned by foreigners enter into a mining service
contract with a foreign company granting the latter a
share of not morethan 40% from the proceeds of the
operations?
xxxx
By law, a mining lease may be granted only to a
Filipino citizen, or to a corporation or partnership
registered with the [SEC] at least 60% of the capital
of which is owned by Filipino citizens and
possessing x x x.The sixty percent Philippine equity
requirement in mineral resource exploitation x x xis
intended to insure, among other purposes, the
conservation of indigenous natural resources, for
Filipino posterityx x x. I think it is implicit in this
provision, even if it refers merely to ownership of
stock in the corporation holding the mining
concession, that beneficial ownership of the right to
dispose, exploit, utilize, and develop natural
resources shall pertain to Filipino citizens, and that
the nationality requirementis not satisfied unless
Filipinos are the principal beneficiaries in the
exploitation of the country’s natural resources. This
criterion of beneficial ownership is tacitly adopted in
Section 44 of P.D. No. 463, above-quoted, which
limits the service fee in service contracts to 40% of
the proceeds of the operation, thereby implying that
the 60-40 benefit-sharing ration is derived from the
60-40 equity requirement in the Constitution.
xxxx
It is obvious that while payments to a service
contractor may be justified as a service fee, and
therefore, properly deductible from gross proceeds,
the service contract could be employed as a means
of going about or circumventing the constitutional
limit on foreign equity participation and the obvious
constitutional policy to insure that Filipinos retain
beneficial ownership of our mineral resources. Thus,
every service contract scheme has to be evaluated
in its entirety, on a case to case basis, to determine
reasonableness of the total "service fee" x x x like
the options available tothe contractor to become
equity participant in the Philippine entity holding the
concession, or to acquire rights in the processing
and marketing stages. x x x (emphasis supplied)
The "beneficial ownership" requirement was
subsequently used in tandem with the "situs of
control" todetermine the nationality of a corporation
in DOJ Opinion No. 84, S.of 1988, through the
Grandfather Rule, despite the fact that both the
investee and investor corporations purportedly
satisfy the 60-40 Filipino equity requirement:9
This refers to your request for opinion on whether or
not there may be an investment in real estate by a
domestic corporation (the investing corporation)
seventy percent (70%) of the capital stock of which
is owned by another domestic corporation withat
least 60%-40% Filipino-Foreign Equity, while the
remaining thirty percent (30%) of the capital stock is
owned by a foreign corporation.
xxxx
This Department has had the occasion to rule in
several opinions that it is implicit in the constitutional
provisions, even if it refers merely to ownership of
stock in the corporation holding the land or natural
resource concession, that the nationality
requirement is not satisfied unless it meets the
criterion of beneficial ownership, i.e. Filipinos are the
principal beneficiaries in the exploration of natural
resources(Op. No. 144, s. 1977; Op. No. 130, s.
1985), and that in applying the same "the primordial
consideration is situs of control, whether in a stock
or nonstock corporation"(Op. No. 178, s. 1974). As
stated in the Register of Deeds vs. Ung Sui Si
Temple (97 Phil. 58), obviously toinsure that
corporations and associations allowed to acquire
agricultural land or to exploit natural resources "shall
be controlled by Filipinos." Accordingly, any
arrangement which attempts to defeat the
constitutional purpose should be eschewed (Op. No
130, s. 1985).
We are informed that in the registration of
corporations with the [SEC], compliance with the
sixty per centum requirement is being monitored by
SEC under the "Grandfather Rule" a method by
which the percentage of Filipino equity in
corporations engaged in nationalized and/or partly
nationalized areas of activities provided for under
the Constitution and other national laws is
accurately computed, and the diminution if said
equity prevented (SEC Memo, S. 1976). The
"Grandfather Rule" is applied specifically in cases
where the corporation has corporate stockholders
with alien stockholdings, otherwise, if the rule is not
applied, the presence of such corporate
stockholders could diminish the effective control of
Filipinos.
Applying the "Grandfather Rule" in the instant case,
the result is as follows: x x x the total foreign equity
in the investing corporation is 58% while the Filipino
equity is only 42%, in the investing corporation,
subject of your query, is disqualified from investing
in real estate, which is a nationalized activity, as it
does not meet the 60%-40% Filipino-Foreign equity
requirement under the Constitution.
This pairing of the concepts "beneficial ownership"
and the "situs of control" in determining what
constitutes"capital" has been adopted by this Court
in Heirs of Gamboa v. Teves.10 In its October 9,
2012 Resolution, the Court clarified, thus:
This is consistent with Section 3 of the FIA which
provides that where 100% of the capital stock is
heldby "a trustee of funds for pension or other
employee retirement or separation benefits," the
trustee is a Philippine national if "at least sixty
percent (60%) of the fund will accrue to the benefit
of Philippine nationals." Likewise, Section 1(b) of the
Implementing Rules of the FIA provides that "for
stocks to be deemed owned and held by Philippine
citizens or Philippine nationals, mere legal title is not
enough to meet the required Filipino equity. Full
beneficial ownership of the stocks, coupled with
appropriate voting rights, is essential." (emphasis
supplied)
In emphasizing the twin requirements of "beneficial
ownership" and "control" in determining compliance
with the required Filipino equity in Gamboa, the en
bancCourt explicitly cited with approval the SEC en
banc’s application in Redmont Consolidated Mines,
Corp. v. McArthur Mining, Inc., et al. of the
Grandfather Rule, to wit:
Significantly, the SEC en banc, which is the collegial
body statutorily empowered to issue rules and
opinions on behalf of SEC, has adopted the
Grandfather Rulein determining compliance with the
60-40 ownership requirement in favor of Filipino
citizens mandated by the Constitution for certain
economic activities. This prevailing SEC ruling,
which the SEC correctly adopted to thwart any
circumvention of the required Filipino "ownership
and control," is laid down in the 25 March 2010 SEC
en banc ruling in Redmont Consolidated Mines,
Corp. v. McArthur Mining, Inc., et al. x x x (emphasis
supplied)
Applying Gamboa, the Court, in Express
I n v e s t m e n t s I I I P r i v a t e L t d . v. B a y a n t e l
Communications, Inc.,11 denied the foreign creditors’
proposal to convert part of Bayantel’s debts to
common shares of the company at a rate of 77.7%.
Supposedly, the conversion of the debts to common
shares by the foreign creditors would be done, both
directly and indirectly, in order to meet the control
test principle under the FIA.Under the proposed
structure, the foreign creditors would own 40% of
the outstanding capital stock of the
telecommunications company on a direct basis,
while the remaining 40% of shares would be
registered to a holding company that shall retain, on
a direct basis, the other 60% equity reserved for
Filipino citizens. Nonetheless, the Court found the
proposal non-compliant with the Constitutional
requirement of Filipino ownership as the proposed
structure would give more than 60% of the
ownership of the common shares of Bayantel to the
foreign corporations, viz:
In its Rehabilitation Plan, among the material
financial commitments made by respondent
Bayantelis that its shareholders shall relinquish the
agreed-upon amount of common stock[s] as
payment to Unsecured Creditors as per the Term
Sheet. Evidently, the parties intend to convert the
unsustainable portion of respondent’s debt into
common stocks, which have voting rights. If we
indulge petitioners on their proposal, the Omnibus
Creditors which are foreign corporations, shall have
control over 77.7% of Bayantel, a public utility
company. This is precisely the scenario proscribed
by the Filipinization provision of the
Constitution.Therefore, the Court of Appeals acted
correctly in sustaining the 40% debt-to-equity ceiling
on conversion. (emphasis supplied) As shown by the
quoted legislative enactments, administrative
rulings, opinions, and this Court’s decisions, the
Grandfather Rule not only finds basis, but more
importantly, it implements the Filipino equity
requirement, in the Constitution.
Application of the Grandfather
Rule with the Control Test.
Admittedly, an ongoing quandary obtains as to the
role of the Grandfather Rule in determining
compliance with the minimum Filipino equity
requirement vis-à-vis the Control Test. This
confusion springs from the erroneous assumption
that the use of one method forecloses the use of the
other.
As exemplified by the above rulings, opinions,
decisions and this Court’s April 21, 2014 Decision,
the Control Test can be, as it has been, applied
jointly withthe Grandfather Rule to determine the
observance of foreign ownership restriction in
nationalized economic activities. The Control Test
and the Grandfather Rule are not, as it were,
incompatible ownership-determinant methods that
canonly be applied alternative to each other. Rather,
these methodscan, if appropriate, be used
cumulatively in the determination of the ownership
and control of corporations engaged in fully or partly
nationalized activities, as the mining operation
involved in this case or the operation of public
utilities as in Gamboa or Bayantel.
The Grandfather Rule, standing alone, should not be
used to determine the Filipino ownership and control
in a corporation, as it could result in an otherwise
foreign corporation rendered qualified to perform
nationalized or partly nationalized activities. Hence,
it is only when the Control Test is first complied with
that the Grandfather Rule may be applied. Put in
another manner, if the subject corporation’s Filipino
equity falls below the threshold 60%, the corporation
is immediately considered foreign-owned, in which
case, the needto resort to the Grandfather Rule
disappears.
On the other hand, a corporation that complies with
the 60-40 Filipino to foreign equity requirement can
be considered a Filipino corporation if there is no
doubtas to who has the "beneficial ownership" and
"control" of the corporation. In that instance, there is
no need fora dissection or further inquiry on the
ownership of the corporate shareholders in both the
investing and investee corporation or the application
of the Grandfather Rule.12 As a corollary rule, even if
the 60-40 Filipino to foreign equity ratio is apparently
met by the subject or investee corporation, a resort
to the Grandfather Rule is necessary if doubt
existsas to the locusof the "beneficial ownership"
and "control." In this case, a further investigation as
to the nationality of the personalities with the
beneficial ownership and control of the corporate
shareholders in both the investing and investee
corporations is necessary.
As explained in the April 21,2012 Decision, the
"doubt" that demands the application of the
Grandfather Rule in addition to or in tandem with the
Control Test is not confined to, or more bluntly, does
not refer to the fact that the apparent Filipino
ownership of the corporation’s equity falls below the
60% threshold. Rather, "doubt" refers to various
indicia that the "beneficial ownership" and "control"
of the corporation do not in fact reside in Filipino
shareholders but in foreign stakeholders. As
provided in DOJ Opinion No. 165, Series of 1984,
which applied the pertinent provisions of the Anti-
DummyLaw in relation to the minimum Filipino
equity requirement in the Constitution, "significant
indicators of the dummy status" have been
recognized in view of reports "that some Filipino
investors or businessmen are being utilized or [are]
allowing themselves to be used as dummies by
foreign investors" specifically in joint ventures for
national resource exploitation. These indicators are:
1. That the foreign investors provide practically all
the funds for the joint investment undertaken by
these Filipino businessmen and their foreign partner;
2. That the foreign investors undertake to provide
practically all the technological support for the joint
venture;
3. That the foreign investors, while being minority
stockholders, manage the company and prepare all
economic viability studies.
Thus, In the Matter of the Petition for Revocation of
the Certificate of Registration of Linear Works Realty
Development Corporation,13 the SEC held that when
foreigners contribute more capital to an enterprise,
doubt exists as to the actual control and ownership
of the subject corporation even if the 60% Filipino
equity threshold is met. Hence, the SEC in that one
ordered a further investigation, viz:
x x x The [SEC Enforcement and Prosecution
Department (EPD)] maintained that the basis for
determining the level of foreign participation is the
number of shares subscribed, regardless of the par
value. Applying such an interpretation, the EPD
rules that the foreign equity participation in Linear
works Realty Development Corporation amounts to
26.41% of the corporation’s capital stock since the
amount of shares subscribed by foreign nationals is
1,795 only out of the 6,795 shares. Thus, the subject
corporation is compliant with the 40% limit on
foreign equity participation. Accordingly, the EPD
dismissed the complaint, and did not pursue any
investigation against the subject corporation.
xxxx
x x x [I]n this respect we find no error in the assailed
order made by the EPD. The EPD did not err when it
did not take into account the par value of shares in
determining compliance with the constitutional and
statutory restrictionson foreign equity.
However, we are aware that some unscrupulous
individuals employ schemes to circumvent the
constitutional and statutory restrictions on foreign
equity. In the present case, the fact that the shares
of the Japanese nationals have a greater par value
but only have similar rights to those held by
Philippine citizens having much lower par value, is
highly suspicious. This is because a reasonable
investor would expect to have greater control and
economic rights than other investors who invested
less capital than him. Thus, it is reasonable to
suspectthat there may be secret arrangements
between the corporation and the stockholders
wherein the Japanese nationals who subscribed to
the shares with greater par value actually have
greater control and economic rights contrary to the
equality of shares based on the articles of
incorporation.
With this in mind, we find it proper for the EPD to
investigate the subject corporation. The EPD is
advised to avail of the Commission’s subpoena
powers in order to gather sufficient evidence, and Canadian-owned company, MBMI, holds 39.98% of
file the necessary complaint. its shares.

As will be discussed, even if atfirst glance the Name

petitioners comply with the 60-40 Filipino to foreign Nationality
equity ratio, doubt exists in the present case that Number of Shares
gives rise to a reasonable suspicion that the Filipino Amount Subscribed
shareholders do not actually have the requisite Amount Paid
number of control and beneficial ownership in Sara Marie Mining, Inc.
petitioners Narra, Tesoro, and McArthur. Hence, a Filipino
further investigation and dissection of the extent of 5,997
the ownership of the corporate shareholders through ₱5,997,000.00
the Grandfather Rule is justified. ₱825,000.00
MBMI Resources, Inc.16
Parenthetically, it is advanced that the application of Canadian
the Grandfather Rule is impractical as tracing the 3,998
shareholdings to the point when natural persons ₱3,998,000.00
hold rights to the stocks may very well lead to an ₱1,878,174.60
investigation ad infinitum. Suffice it to say in this Lauro L. Salazar
regard that, while the Grandfather Rule was Filipino
originally intended to trace the shareholdings to the 1
point where natural persons hold the shares, the ₱1,000.00
SEC had already set up a limit as to the number of ₱1,000.00
corporate layers the attribution of the nationality of Fernando B. Esguerra
the corporate shareholders may be applied. Filipino
1
In a 1977 internal memorandum, the SEC ₱1,000.00
suggested applying the Grandfather Rule on two (2) ₱1,000.00
levels of corporate relations for publicly-held Manuel A. Agcaoili
corporations or where the shares are traded in the Filipino
stock exchanges, and to three (3) levels for closely 1
held corporations or the shares of which are not ₱1,000.00
traded in the stock exchanges.14 These limits ₱1,000.00
comply with the requirement in Palting v. San Jose Michael T. Mason
Petroleum, Inc. 15 that the application of the American
Grandfather Rule cannot go beyond the level of 1
what is reasonable. ₱1,000.00
₱1,000.00
Kenneth Cawkel
A doubt exists as to the extent of control and
Canadian
beneficial ownership of MBMI over the petitioners
1
and their investing corporate stockholders.
₱1,000.00
₱1,000.00
In the Decision subject of this recourse, the Court
applied the Grandfather Rule to determine the Total
matter of true ownership and control over the 10,000
petitioners as doubt exists as to the actual extent of ₱10,000,000.00
the participation of MBMI in the equity of the ₱2,708,174.60
petitioners and their investing corporations. In turn, the Filipino corporation Olympic Mines &
Development Corp. (Olympic) holds 66.63% of Sara
We considered the following membership and Marie’s shares while the same Canadian company
control structures and like nuances: MBMI holds 33.31% of Sara Marie’s shares.
Nonetheless, it is admitted that Olympic did not pay
Tesoro a single peso for its shares. On the contrary, MBMI
paid for 99% of the paid-up capital of Sara Marie.
Supposedly Filipino corporation Sara Marie Mining,
Inc. (Sara Marie) holds 59.97% of the 10,000 Name
commonshares of petitioner Tesoro while the Nationality
Number of Shares
 Amount Subscribed of the Grandfather Rule is clearly called for, and as
Amount Paid shown below, the Filipinos’ control and economic
Olympic Mines & Development Corp.17 benefits in petitioner Tesoro (through Sara Marie)
Filipino fallbelow the threshold 60%, viz:
6,663
₱6,663,000.00 Filipino participation in petitioner Tesoro:
P0.00 40.01%
MBMI Resources, Inc.
Canadian 66.67
3,331
₱3,331,000.00
₱2,794,000.00 100
Amanti Limson (Filipino equity in Sara Marie) x 59.97 (Sara Marie’s
Filipino share in Tesoro) = 39.98%
1 39.98% + .03% (shares of individual Filipino
₱1,000.00 shareholders [SHs] in Tesoro)
₱1,000.00 =40.01%
Fernando B. Esguerra Foreign participation in petitioner Tesoro:
Filipino 59.99%
1
₱1,000.00 33.33
₱1,000.00
Lauro Salazar
Filipino 100
1 (Foreign equity in Sara Marie) x 59.97 (Sara Marie’s
₱1,000.00 share in Tesoro) = 19.99%
₱1,000.00 19.99% + 39.98% (MBMI’s direct participation in
Emmanuel G. Tesoro) + .02% (shares of foreign individual SHs in
Tesoro)
= 59.99%
With only 40.01% Filipino ownership in petitioner
Hernando
Tesoro, as compared to 59.99% foreign ownership
of its shares, it is clear that petitioner Tesoro does
Filipino not comply with the minimum Filipino equity
1 requirement imposed in Sec. 2, Art. XII of the
₱1,000.00 Constitution. Hence, the appellate court’s
₱1,000.00 observation that Tesoro is a foreign corporation not
Michael T. Mason entitled to an MPSA is apt.
American
1
McArthur
₱1,000.00
₱1,000.00
Kenneth Cawkel Petitioner McArthur follows the corporate layering
Canadian structure of Tesoro, as 59.97% of its 10, 000
1 common shares is owned by supposedly Filipino
₱1,000.00 Madridejos Mining Corporation (Madridejos), while
₱1,000.00 39.98% belonged to the Canadian MBMI.

Total Name
10,000 Nationality
₱10,000,000.00 Number of Shares
₱2,800,000.00 Amount Subscribed
The fact that MBMI had practically provided all Amount Paid
the funds in Sara Marie and Tesoro creates Madridejos Mining Corporation
serious doubt as to the true extent of its (MBMI) Filipino
control and ownership over both Sara Marie and 5,997
Tesoro since, as observed by the SEC, "a ₱5,997,000.00
reasonable investor would expect to have greater ₱825,000.00
control and economic rights than other investors MBMI Resources, Inc.18
who invested less capital than him." The application Canadian
 3,998 ₱1,000.00
₱3,998,000.0 Fernando B. Esguerra
₱1,878,174.60 Filipino
Lauro L. Salazar 1
Filipino ₱1,000.00
1 ₱1,000.00
₱1,000.00 Lauro Salazar
₱1,000.00 Filipino
Fernando B. 1
Filipino ₱1,000.00
1 ₱1,000.00
₱1,000.00 Emmanuel G. Hernando
₱1,000.00 Filipino
Manuel A. Agcaoili 1
Filipino ₱1,000.00
1 ₱1,000.00
₱1,000.00 Michael T. Mason
₱1,000.00 American
Michael T. Mason 1
American ₱1,000.00
1 ₱1,000.00
₱1,000.00 Kenneth Cawkel
₱1,000.00 Canadian
Kenneth Cawkel 1
Canadian ₱1,000.00
1 ₱1,000.00
₱1,000.00
₱1,000.00 Total
10,000
Total ₱10,000,000.00
10,000 ₱2,809,900.00
₱10,000,000.00 Again, the fact that MBMI had practically provided all
₱2,708,174.60 the funds in Madridejos and McArthur creates
In turn, 66.63% of Madridejos’ shares were held by serious doubt as to the true extent of its control and
Olympic while 33.31% of its shares belonged to ownership of MBMI over both Madridejos and
MBMI. Yet again, Olympic did not contribute to the McArthur. The application of the Grandfather Rule is
paid-up capital of Madridejos and it was MBMI that clearly called for, and as will be shown below, MBMI,
provided 99.79% of the paid-up capital of along with the other foreign shareholders, breached
Madridejos. the maximum limit of 40% ownership in petitioner
McArthur, rendering the petitioner disqualified to an
Name MPSA:
Nationality
Number of Shares Filipino participation in petitioner McArthur:
Amount Subscribed 40.01%
Amount Paid
Olympic Mines & Development Corp.19 66.67
Filipino
6,663
₱6,663,000.00 100
P0.00 (Filipino equity in Madridejos) x 59.97 (Madridejos’
MBMI Resources, Inc. share in McArthur) = 39.98%
Canadian 39.98% + .03% (shares of individual Filipino SHs in
3,331 McArthur)
₱3,331,000.00 =40.01%
₱2,803,900.00 Foreign participation in petitioner McArthur:
Amanti Limson 59.99%
Filipino
1 33.33
₱1,000.00
(Foreign equity in Madridejos) x 59.97 (Madridejos’ Canadian
share in McArthur) = 19.99% 1
19.99% + 39.98% (MBMI’s direct participation ₱1,000.00
inMcArthur) + .02% (shares of foreign individual SHs ₱1,000.00
in McArthur) Manuel A. Agcaoili
= 59.99% Filipino
As with petitioner Tesoro, with only 40.01% Filipino 1
ownership in petitioner McArthur, as compared to ₱1,000.00
59.99% foreign ownership of its shares, it is clear ₱1,000.00
that petitioner McArthur does not comply with the Bayani H. Agabin
minimum Filipino equity requirement imposed in Filipino
Sec. 2, Art. XII of the Constitution. Thus, the 1
appellate court did not err in holding that petitioner ₱1,000.00
McArthur is a foreign corporation not entitled to an ₱1,000.00
MPSA.
Total
Narra 10,000
₱10,000,000.00
As for petitioner Narra, 59.97% of its shares ₱2,800,000.00
belonged to Patricia Louise Mining & Development PLMDC’s shares, in turn, were held by Palawan
Corporation (PLMDC), while Canadian MBMI held Alpha South Resources Development Corporation
39.98% of its shares. (PASRDC), which subscribed to 65.96% of
PLMDC’s shares, and the Canadian MBMI, which
subscribed to 33.96% of PLMDC’s shares.
Name
Nationality
Number of Shares Name
Amount Subscribed Nationality
Amount Paid Number of Shares
Patricia Lousie Mining and Development Corp. Amount Subscribed
Filipino Amount Paid
5,997 Palawan Alpha South Resource Development Corp.
₱5,997,000.00 Filipino
₱1,677,000.00 6,596
MBMI Resources, Inc.20 ₱6,596,000.00
Canadian P0
3,996 MBMI Resources, Inc.21
₱3,996,000.00 Canadian
₱1,116,000.00 3,396
Higinio C. Mendoza, ₱3,396,000.00
Filipino ₱2,796,000.00
1 Higinio C. Mendoza, Jr.
₱1,000.00 Filipino
₱1,000.00 1
Henry E. Fernandez ₱1,000.00
Filipino ₱1,000.00
1 Fernando B. Esguerra
₱1,000.00 Filipino
₱1,000.00 1
Ma. Elena A. Bocalan ₱1,000.00
Filipino ₱1,000.00
1 Henry E. Fernandez
₱1,000.00 Filipino
₱1,000.00 1
Michael T. Mason ₱1,000.00
American ₱1,000.00
1 Ma. Elena A. Bocalan
₱1,000.00 Filipino
₱1,000.00 1
Robert L. McCurdy ₱1,000.00
 ₱1,000.00 20.38% + 39.96% (MBMI’s direct participation in
Michael T. Mason Narra) + .02% (shares of foreign individual SHs in
American McArthur)
1 = 60.36%
₱1,000.00 With 60.36% foreign ownership in petitioner Narra,
₱1,000.00 as compared to only 39.64% Filipino ownership of
Robert L. McCurdy its shares, it is clear that petitioner Narra does not
Canadian comply with the minimum Filipino equity requirement
1 imposed in Section 2, Article XII of the Constitution.
₱1,000.00 Hence, the appellate court did not err in holding that
₱1,000.00 petitioner McArthur is a foreign corporation not
Manuel A. Agcaoili entitled to an MPSA.
Filipino
1 It must be noted that the foregoing determination
₱1,000.00 and computation of petitioners’ Filipino equity
₱1,000.00 composition was based on their common
Bayani H, Agabin shareholdings, not preferred or redeemable shares.
Filipino Section 6 of the Corporation Code of the Philippines
1 explicitly provides that "no share may be deprived of
₱1,000.00 voting rights except those classified as ‘preferred’ or
₱1,000.00 ‘redeemable’ shares." Further, as Justice Leonen
puts it, there is "no indication that any of the shares
Total x x x do not have voting rights, [thus] it must be
10,000 assumed that all such shares have voting rights."22 It
₱10,000,000.00 cannot therefore be gain said that the foregoing
₱2,804,000.00 computation hewed with the pronouncements of
Yet again, PASRDC did not pay for any of its Gamboa, as implemented by SEC Memorandum
subscribed shares, while MBMI contributed 99.75% Circular No. 8, Series of 2013, (SEC Memo No.
of PLMDC’s paid-up capital. This fact creates 8)23 Section 2 of which states:
serious doubt as to the true extent of MBMI’s control
and ownership over both PLMDC and Narra since "a Section 2. All covered corporations shall, at all
reasonable investor would expect to have greater times, observe the constitutional or statutory
control and economic rights than other investors requirement.1âwphi1 For purposes of determining
who invested less capital than him." Thus, the compliance therewith, the required percentage of
application of the Grandfather Rule is justified. And Filipino ownership shall be applied to BOTH (a) the
as will be shown, it is clear that the Filipino total outstanding shares of stock entitled to vote in
ownership in petitioner Narra falls below the limit the election of directors; AND (b) the total number of
prescribed in both the Constitution and the outstanding shares of stock, whether or not entitled
Philippine Mining Act of 1995. to vote in the election of directors.

Filipino participation in petitioner Narra: 39.64% In fact, there is no indication that herein petitioners
issued any other class of shares besides the 10,000
66.02 common shares. Neither is it suggested that the
common shares were further divided into voting or
100 non-voting common shares. Hence, for purposes of
(Filipino equity in PLMDC) x 59.97 (PLMDC’s share this case, items a) and b) in SEC Memo No. 8 both
in Narra) = 39.59% refer to the 10,000 common shares of each of the
39.59% + .05% (shares of individual Filipino SHs in petitioners, and there is no need to separately apply
McArthur) the 60-40 ratio to any segment or part of the said
=39.64% common shares.
Foreign participation in petitioner Narra: 60.36%
III.
33.98
In mining disputes, the POA has jurisdiction to pass
upon the nationality of applications for MPSAs
100
(Foreign equity in PLMDC) x 59.97 (PLMDC’s share Petitioners also scoffed at this Court’s decision to
in Narra) = 20.38% uphold the jurisdiction of the Panel of Arbitrators
(POA) of the Department of Environment and
Natural Resources (DENR) since the POA’s pleadings shall be entertained. Let entry of judgment
determination of petitioners’ nationalities is be made in due course.
supposedly beyond its limited jurisdiction, as defined
in Gonzales v. Climax Mining Ltd.24 and Philex
Mining Corp. v. Zaldivia.25
SO ORDERED.
The April 21, 2014 Decision did not dilute, much less
overturn, this Court’s pronouncements in either
Gonzales or Philex Mining that POA’s jurisdiction "is
limited only to mining disputes which raise questions
of fact," and not judicial questions cognizable by
regular courts of justice. However, to properly
recognize and give effect to the jurisdiction vested in
the POA by Section 77 of the Philippine Mining Act
of 1995,26 and in parallel with this Court’s ruling in
Celestial Nickel Mining Exploration Corporation v.
Macroasia Corp.,27 the Court has recognized in its
Decision that in resolving disputes "involving rights
to mining areas" and "involving mineral agreements
or permits," the POA has jurisdiction to make a
preliminary finding of the required nationality of the
corporate applicant in order to determine its right to
a mining area or a mineral agreement.

There is certainly nothing novel or aberrant in this

approach. In ejectment and unlawful detainer cases,
where the subject of inquiry is possession de facto,
the jurisdiction of the municipal trial courts to make a
preliminary adjudication regarding ownership of the
real property involved is allowed, but only for
purposes of ruling on the determinative issue of
material possession.

The present case arose from petitioners' MPSA

applications, in which they asserted their respective
rights to the mining areas each applied for. Since
respondent Redmont, itself an applicant for
exploration permits over the same mining areas,
filed petitions for the denial of petitioners'
applications, it should be clear that there exists a
controversy between the parties and it is POA's
jurisdiction to resolve the said dispute. POA's ruling
on Redmont's assertion that petitioners are foreign
corporations not entitled to MPSA is but a necessary
incident of its disposition of the mining dispute
presented before it, which is whether the petitioners
are entitled to MPSAs.

Indeed, as the POA has jurisdiction to entertain

"disputes involving rights to mining areas," it
necessarily follows that the POA likewise wields the
authority to pass upon the nationality issue involving
petitioners, since the resolution of this issue is
essential and indispensable in the resolution of the
main issue, i.e., the determination of the petitioners'
right to the mining areas through MPSAs.

W H E R E F O R E , We D E N Y t h e m o t i o n f o r
reconsideration WITH FINALITY. No further