Corp Law Cases 1-26-16

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G.R. No. L-23145 November 29, 1968

TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased. RENATO D. TAYAG, ancillaryadministrator-appellee,vs.BENGUET CONSOLIDATED, INC., oppositor-appellant.

Cirilo F. Asperillo, Jr., for ancillary administrator-appellee.Ross, Salcedo, Del Rosario, Bito and Misa for oppositor-appellant.

FERNANDO, J .:

Confronted by an obstinate and adamant refusal of the domiciliary administrator, the County TrustCompany of New York, United States of America, of the estate of the deceased Idonah SladePerkins, who died in New York City on March 27, 1960, to surrender to the ancillary administrator inthe Philippines the stock certificates owned by her in a Philippine corporation, BenguetConsolidated, Inc., to satisfy the legitimate claims of local creditors, the lower court, then presided bythe 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 theopposition filed by the Benguet Consolidated, Inc., the Court hereby (1) considers as lost for allpurposes in connection with the administration and liquidation of the Philippine estate of IdonahSlade Perkins the stock certificates covering the 33,002 shares of stock standing in her name in thebooks of the Benguet Consolidated, Inc., (2) orders said certificates cancelled, and (3) directs saidcorporation to issue new certificates in lieu thereof, the same to be delivered by said corporation toeither 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, theCounty 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 andexpresses a policy, to paraphrase Frankfurter, arising out of a specific problem, addressed to theattainment of specific ends by the use of specific remedies, with full and ample support from legaldoctrines of weight and significance.

The facts will explain why. As set forth in the brief of appellant Benguet Consolidated, Inc., IdonahSlade Perkins, who died on March 27, 1960 in New York City, left among others, two stockcertificates covering 33,002 shares of appellant, the certificates being in the possession of theCounty Trust Company of New York, which as noted, is the domiciliary administrator of the estate ofthe deceased.2 Then came this portion of the appellant's brief: "On August 12, 1960, ProsperoSanidad instituted ancillary administration proceedings in the Court of First Instance of Manila;Lazaro A. Marquez was appointed ancillary administrator, and on January 22, 1963, he wassubstituted by the appellee Renato D. Tayag. A dispute arose between the domiciary administratorin New York and the ancillary administrator in the Philippines as to which of them was entitled to thepossession 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" themwith the ancillary administrator or with the Clerk of Court. The domiciliary administrator did notcomply 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 inthe name of Idonah Slade Perkins by Benguet Consolidated, Inc., be declared [or] considered aslost."3

It is to be noted further that appellant Benguet Consolidated, Inc. admits that "it is immaterial" as faras it is concerned as to "who is entitled to the possession of the stock certificates in question;

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appellant opposed the petition of the ancillary administrator because the said stock certificates are inexistence, they are today in the possession of the domiciliary administrator, the County TrustCompany, in New York, U.S.A...."4

It is its view, therefore, that under the circumstances, the stock certificates cannot be declared orconsidered 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 orderconstitutes an emphatic affirmation of judicial authority sought to be emasculated by the wilfulconduct 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 realitiesof the situation. What cannot be ignored is that conduct bordering on wilful defiance, if it had notactually reached it, cannot without undue loss of judicial prestige, be condoned or tolerated. For thelaw is not so lacking in flexibility and resourcefulness as to preclude such a solution, the more so asdeeper 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 noless than that of the country. Through this challenged order, there is thus dispelled the atmosphereof contingent frustration brought about by the persistence of the domiciliary administrator to hold onto the stock certificates after it had, as admitted, voluntarily submitted itself to the jurisdiction of thelower court by entering its appearance through counsel on June 27, 1963, and filing a petition forrelief 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 wasdecreed. For without it, what it had been decided would be set at naught and nullified. Unless such ablatant disregard by the domiciliary administrator, with residence abroad, of what was previouslyordained by a court order could be thus remedied, it would have entailed, insofar as this matter wasconcerned, 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 ancillaryadministrator to gain control and possession of all assets of the decedent within the jurisdiction ofthe Philippines. Nor could it. Such a power is inherent in his duty to settle her estate and satisfy theclaims of local creditors.5 As Justice Tuason speaking for this Court made clear, it is a "general ruleuniversally recognized" that administration, whether principal or ancillary, certainly "extends to theassets of a decedent found within the state or country where it was granted," the corollary being "thatan administrator appointed in one state or country has no power over property in another state orcountry."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 anestate. When a person dies intestate owning property in the country of his domicile as well as in aforeign country, administration is had in both countries. That which is granted in the jurisdiction ofdecedent's last domicile is termed the principal administration, while any other administration istermed the ancillary administration. The reason for the latter is because a grant of administrationdoes 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]. Theancillary administration is proper, whenever a person dies, leaving in a country other than that of his

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last domicile, property to be administered in the nature of assets of the deceased liable for hisindividual 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 rightto "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. "Inthe instant case, the actual situs of the shares of stock is in the Philippines, the corporation beingdomiciled [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 thelegality of the challenged order, how does appellant, Benguet Consolidated, Inc. propose to carry theextremely heavy burden of persuasion of precisely demonstrating the contrary? It would assign asthe 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

Morespecifically, appellant would stress that the "lower court could not "consider as lost" the stockcertificates 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 inthe 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 notsuffice to call for the reversal of the appealed order. Since there is a refusal, persistently adhered toby the domiciliary administrator in New York, to deliver the shares of stocks of appellant corporationowned by the decedent to the ancillary administrator in the Philippines, there was nothingunreasonable or arbitrary in considering them as lost and requiring the appellant to issue newcertificates in lieu thereof. Thereby, the task incumbent under the law on the ancillary administratorcould be discharged and his responsibility fulfilled.

Any other view would result in the compliance to a valid judicial order being made to depend on theuncontrolled discretion of the party or entity, in this case domiciled abroad, which thus far has shownthe utmost persistence in refusing to yield obedience. Certainly, appellant would not be heard tocontend in all seriousness that a judicial decree could be treated as a mere scrap of paper, the courtissuing 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 correspondexactly with the facts. To be more blunt, the quality of truth may be lacking in such a conclusionarrived at. It is to be remembered however, again to borrow from Frankfurter, "that fictions which thelaw may rely upon in the pursuit of legitimate ends have played an important part in itsdevelopment."11

Speaking of the common law in its earlier period, Cardozo could state fictions "were devices toadvance the ends of justice, [even if] clumsy and at times offensive." 12 Some of them have persistedeven to the present, that eminent jurist, noting "the quasi contract, the adopted child, the constructivetrust, all of flourishing vitality, to attest the empire of "as if" today."13 He likewise noted "a class offictions of another order, the fiction which is a working tool of thought, but which at times hides itselffrom view till reflection and analysis have brought it to the light."14

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What cannot be disputed, therefore, is the at times indispensable role that fictions as such played inthe law. There should be then on the part of the appellant a further refinement in the catholicity of itscondemnation of such judicial technique. If ever an occasion did call for the employment of a legalfiction to put an end to the anomalous situation of a valid judicial order being disregarded withapparent impunity, this is it. What is thus most obvious is that this particular alleged error does notcarry persuasion.

3. Appellant Benguet Consolidated, Inc. would seek to bolster the above contention by its invokingone of the provisions of its by-laws which would set forth the procedure to be followed in case of alost, stolen or destroyed stock certificate; it would stress that in the event of a contest or thependency 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 isadmitted 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 isimmaterial ... who is entitled to the possession of the stock certificates ..." Even if such were not thecase, 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. Itwould be most highly unorthodox, however, if a corporate by-law would be accorded such a highestate in the jural order that a court must not only take note of it but yield to its alleged controllingforce.

The fear of appellant of a contingent liability with which it could be saddled unless the appealedorder be set aside for its inconsistency with one of its by-laws does not impress us. Its obedience toa 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 asthey have developed gives substance to such a fear. Gossamer possibilities of a future prejudice toappellant 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 withimplications 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 oflaw...."16 It owes its life to the state, its birth being purely dependent on its will. As Berle so aptlystated: "Classically, a corporation was conceived as an artificial person, owing its existence throughcreation by a sovereign power."17 As a matter of fact, the statutory language employed owes much toChief 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 andin reality a person, but the law treats it as though it were a person by process of fiction, or byregarding it as an artificial person distinct and separate from its individual stockholders.... It owes itsexistence to law. It is an artificial person created by law for certain specific purposes, the extent ofwhose existence, powers and liberties is fixed by its charter."19 Dean Pound's terse summary, a

juristic person, resulting from an association of human beings granted legal personality by the state,puts the matter neatly.20

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There is thus a rejection of Gierke's genossenchaft theory, the basic theme of which to quote fromFriedmann, "is the reality of the group as a social and legal entity, independent of state recognitionand concession."21 A corporation as known to Philippine jurisprudence is a creature without anyexistence until it has received the imprimatur of the state according to law. It is logicallyinconceivable therefore that it will have rights and privileges of a higher priority than that of itscreator. 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 persuasiveauthority in our jurisdiction, comes more often within the ken of the judiciary than the other twocoordinate branches. It institutes the appropriate court action to enforce its right. Correlatively, it isnot immune from judicial control in those instances, where a duty under the law as ascertained in anappropriate 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 itnot autonomy which may be conceded but license which cannot be tolerated. It is to argue that itmay, when so minded, overrule the state, the source of its very existence; it is to contend that whatany of its governmental organs may lawfully require could be ignored at will. So extravagant a claimcannot possibly merit approval.

5. One last point. In Viloria v. Administrator of Veterans Affairs,22 it was shown that in a guardianshipproceedings then pending in a lower court, the United States Veterans Administration filed a motionfor the refund of a certain sum of money paid to the minor under guardianship, alleging that thelower court had previously granted its petition to consider the deceased father as not entitled toguerilla benefits according to a determination arrived at by its main office in the United States. Themotion 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 theUnited 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, makethe decisions of the U.S. Veterans' Administrator final and conclusive when made on claims propertysubmitted 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 actionsagainst the Administrator (which must be filed strictly in accordance with the conditions that areimposed by the Veterans' Act, including the exclusive review by United States courts), and thoseactions 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 wouldmake the findings of the Veterans' Administrator, in actions where he is a party, conclusive on ourcourts. That, in effect, would deprive our tribunals of judicial discretion and render them meresubordinate instrumentalities of the Veterans' Administrator."

It is bad enough as the Viloria decision made patent for our judiciary to accept as final andconclusive, determinations made by foreign governmental agencies. It is infinitely worse if throughthe absence of any coercive power by our courts over juridical persons within our jurisdiction, theforce 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 thecountry.

Yet that would be the effect, even if unintended, of the proposition to which appellant BenguetConsolidated seems to be firmly committed as shown by its failure to accept the validity of the order

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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 negativeresponse 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 alwayseasy 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 asense of realism requires. For through the appealed order, the imperative requirement of justiceaccording 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 FirstInstance, dated May 18, 1964, is affirmed. With costs against oppositor-appelant BenguetConsolidated, Inc.

G.R. No. L-17295 July 30, 1962

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

vs.SECRETARY OF COMMERCE AND INDUSTRY, defendant-appellee.

Felicisimo E. Escaran for plaintiffs-appellants.Office of the Solicitor General for defendant-appellee.

DIZON, J.:

Action for declaratory relief filed in the Court of First Instance of Iloilo by Ang Pue & Company, AngPue and Tan Siong against the Secretary of Commerce and Industry to secure judgment "declaringthat plaintiffs could extend for five years the term of the partnership pursuant to the provisions ofplaintiffs' Amendment to the Article of Co-partnership."

The answer filed by the defendant alleged, in substance, that the extension for another five years ofthe 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 thepartnership Ang Pue & Company for a term of five years from May 1, 1953, extendible by theirmutual consent. The purpose of the partnership was "to maintain the business of generalmerchandising, buying and selling at wholesale and retail, particularly of lumber, hardware and otherconstruction materials for commerce, either native or foreign." The corresponding articles ofpartnership (Exhibit B) were registered in the Office of the Securities & Exchange Commission onJune 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 couldcontinue to engage in the retail business until the expiration of its term.

On April 15, 1958 — prior to the expiration of the five-year term of the partnership Ang Pue &Company, but after the enactment of the Republic Act 1180, the partners already mentionedamended the original articles of part ownership (Exhibit B) so as to extend the term of life of thepartnership to another five years. When the amended articles were presented for registration in the

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Office of the Securities & Exchange Commission on April 16, 1958, registration was refused uponthe 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 thisappeal.

The question before us is too clear to require an extended discussion. To organize a corporation or apartnership that could claim a juridical personality of its own and transact business as such, is not amatter of absolute right but a privilege which may be enjoyed only under such terms as the Statemay deem necessary to impose. That the State, through Congress, and in the manner provided bylaw, had the right to enact Republic Act No. 1180 and to provide therein that only Filipinos andconcerns wholly owned by Filipinos may engage in the retail business can not be seriously disputed.That this provision was clearly intended to apply to partnership already existing at the time of theenactment of the law is clearly showing by its provision giving them the right to continue engaging intheir retail business until the expiration of their term or life.

To argue that because the original articles of partnership provided that the partners could extend theterm of the partnership, the provisions of Republic Act 1180 cannot be adversely affect appellants

herein, is to erroneously assume that the aforesaid provision constitute a property right of which thepartners can not be deprived without due process or without their consent. The agreement containtherein must be deemed subject to the law existing at the time when the partners came to agreeregarding the extension. In the present case, as already stated, when the partners amended thearticles of partnership, the provisions of Republic Act 1180 were already in force, and there can benot the slightest doubt that the right claimed by appellants to extend the original term of theirpartnership to another five years would be in violation of the clear intent and purpose of the lawaforesaid.

WHEREFORE, the judgment appealed from is affirmed, with costs.

[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.

D E C I S I O N

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

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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 constitutionalquestions 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 bythe 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,

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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 theabsolute 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.

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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, theinterests 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 tothe 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.

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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.

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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 havebeen created only by general and not special law. And insofar as the decree also interferes with purely

private agreements without any demonstrated connection with the public interest, there is likewise an

impairment of the obligation of the contract.

With the above pronouncements, we feel there is no more need to rule on the authority of President

Marcos to promulgate Pres. Decree No. 1717 under Amendment No. 6 of the 1973 Constitution. Even if

he had such authority, the decree must fall just the same because of its violation of the Bill of Rights.

WHEREFORE, the petition is DISMISSED. Pres. Decree No. 1717 is declared UNCONSTITUTIONAL. The

temporary restraining order dated August 30, 1988, is LIFTED. Costs against the petitioners.- nad

SO ORDERED.

[G.R. No. 147402. January 14, 2004]

ENGR. RANULFO C. FELICIANO, in his capacity as General Manager ofthe Leyte Metropolitan Water District (LMWD), TaclobanCity, pet i t ioner, vs . COMMISSION ON AUDIT, Chairman CELSO D.

GANGAN, Commissioners RAUL C. FLORES and EMMANUEL M.DALMAN, and Regional Director of COA Region VIII, respondents .

D E C I S I O N

CARPIO, J .:

The Case

This is a petition for certiorar i [1]

to annul the Commission on Audits (COA)Resolution dated 3 January 2000 and the Decision dated 30 January 2001denying the Motion for Reconsideration. The COA denied petitioner RanulfoC. Felicianos request for COA to cease all audit services, and to stop chargingauditing fees, to Leyte Metropolitan Water District (LMWD). The COA alsodenied petitioners request for COA to refund all auditing fees previously paid byLMWD.

http://sc.judiciary.gov.ph/jurisprudence/2004/jan2004/147402.htm#_ftn1




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Antecedent Facts

A Special Audit Team from COA Regional Office No. VIII audited theaccounts of LMWD. Subsequently, LMWD received a letter from COA dated 19

July 1999 requesting payment of auditing fees. As General Manager of LMWD,petitioner sent a reply dated 12 October 1999 informing COAs Regional Directorthat the water district could not pay the auditing fees.Petitioner cited as basisfor his action Sections 6 and 20 of Presidential Decree 198 (PD 198)[2], as wellas Section 18 of Republic Act No. 6758 (RA 6758). The Regional Directorreferred petitioners reply to the COA Chairman on 18 October 1999.

On 19 October 1999, petitioner wrote COA through the Regional Directorasking for refund of all auditing fees LMWD previously paid to COA.

On 16 March 2000, petitioner received COA Chairman Celso D. Gangans

Resolution dated 3 January 2000 denying his requests. Petitioner filed a motionfor reconsideration on 31 March 2000, which COA denied on 30 January 2001.

On 13 March 2001, petitioner filed this instant petition. Attached to thepetition were resolutions of the Visayas Association of Water Districts (VAWD)and the Philippine Association of Water Districts (PAWD) supporting thepetition.

The Ruling of the Commission on Audit

The COA ruled that this Court has already settled COAs audit jurisdictionover local water districts in Davao City Water Distr ict v. Civi l Service

Comm iss ion and Commiss ion on A udi t ,[3] as follows:

The above-quoted provision [referring to Section 3(b) PD 198] definitely sets to

naught petitioners contention that they are private corporations. It is clear therefrom

that the power to appoint the members who will comprise the members of the Board

of Directors belong to the local executives of the local subdivision unit where such

districts are located. In contrast, the members of the Board of Directors or the trustees

of a private corporation are elected from among members or stockholders thereof. Itwould not be amiss at this point to emphasize that a private corporation is created for

the private purpose, benefit, aim and end of its members or stockholders. Necessarily,

said members or stockholders should be given a free hand to choose who will

compose the governing body of their corporation. But this is not the case here and this

clearly indicates that petitioners are not private corporations.









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The COA also denied petitioners request for COA to stop charging auditing feesas well as petitioners request for COA to refund all auditing fees already paid.

The Issues

Petitioner contends that COA committed grave abuse of discretionamounting to lack or excess of jurisdiction by auditing LMWD and requiring it topay auditing fees. Petitioner raises the following issues for resolution:

1. Whether a Local Water District (LWD) created under PD 198, as amended,

is a government-owned or controlled corporation subject to the audit

jurisdiction of COA;

2. Whether Section 20 of PD 198, as amended, prohibits COAs certified

public accountants from auditing local water districts; and

3. Whether Section 18 of RA 6758 prohibits the COA from charging

government-owned and controlled corporations auditing fees.

The Ruling of the Court

The petition lacks merit.

The Constitution and existing laws[4] mandate COA to audit all governmentagencies, including government-owned and controlled corporations (GOCCs)with original charters. An LWD is a GOCC with an original charter. Section 2(1),

Article IX-D of the Constitution provides for COAs audit jurisdiction, as follows:

SECTION 2. (1) The Commission on Audit shall have the power, authority and duty

to examine, audit, and settle all accounts pertaining to the revenue and receipts of, and

expenditures or uses of funds and property, owned or held in trust by, or pertaining to,

the Government, or any of its subdivisions, agencies, or instrumentalities, including

government-owned and controlled corporations with original charters, and on a

post-audit basis: (a) constitutional bodies, commissions and offices that have been

granted fiscal autonomy under this Constitution; (b) autonomous state colleges and

universities; (c) other government-owned or controlled corporations and their

subsidiaries; and (d) such non-governmental entities receiving subsidy or equity,

directly or indirectly, from or through the government, which are required by law or

the granting institution to submit to such audit as a condition of subsidy or

equity. However, where the internal control system of the audited agencies is




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inadequate, the Commission may adopt such measures, including temporary or special

pre-audit, as are necessary and appropriate to correct the deficiencies. It shall keep the

general accounts of the Government and, for such period as may be provided by law,

preserve the vouchers and other supporting papers pertaining thereto. (Emphasis

supplied)

The COAs audit jurisdiction extends not only to government agencies orinstrumentalities, but also to government-owned and controlled corporationswith original charters as well as other government-owned or controlledcorporations without original charters.

Whether LWDs are Private or Government-Ownedand Controlled Corporations with Original Charters

Petitioner seeks to revive a well-settled issue. Petitioner asks for a re-examination of a doctrine backed by a long line of cases culminating in DavaoCity Water Distr ic t v. Civ i l Serv ice Comm ission [5] and just recently reiteratedin De Jesus v. Commiss ion on Audi t .[6] Petitioner maintains that LWDs are notgovernment-owned and controlled corporations with originalcharters. Petitioner even argues that LWDs are private corporations. Petitionerasks the Court to consider certain interpretations of the applicable laws, whichwould give a new perspective to the issue of the true character of waterdistricts.[7]

Petitioner theorizes that what PD 198 created was the Local Waters Utilities Administration (LWUA) and not the LWDs. Petitioner claims that LWDs arecreated pursuant to and not created directly by PD 198. Thus, petitionerconcludes that PD 198 is not an original charter that would place LWDs withinthe audit jurisdiction of COA as defined in Section 2(1), Article IX-D of theConstitution. Petitioner elaborates that PD 198 does not create LWDs since itdoes not expressly direct the creation of such entities, but only provides for theirformation on an optional or voluntary basis.[8] Petitioner adds that the operativeact that creates an LWD is the approval of the Sanggunian Resolution asspecified in PD 198.

Petitioners contention deserves scant consideration.

We begin by explaining the general framework under the fundamentallaw. The Constitution recognizes two classes of corporations. The first refers toprivate corporations created under a general law. The second refers togovernment-owned or controlled corporations created by specialcharters. Section 16, Article XII of the Constitution provides:



http://sc.judiciary.gov.ph/jurisprudence/2003/jun2003/149154.htm
















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Sec. 16. The Congress shall not, except by general law, provide for the formation,

organization, or regulation of private corporations. Government-owned or controlled

corporations may be created or established by special charters in the interest of the

common good and subject to the test of economic viability.

The Constitution emphatically prohibits the creation of private corporationsexcept by a general law applicable to all citizens.[9] The purpose of thisconstitutional provision is to ban private corporations created by specialcharters, which historically gave certain individuals, families or groups specialprivileges denied to other citizens.[10]

In short, Congress cannot enact a law creating a private corporation with aspecial charter. Such legislation would be unconstitutional. Private corporationsmay exist only under a general law. If the corporation is private, it mustnecessarily exist under a general law. Stated differently, only corporations

created under a general law can qualify as private corporations.Under existinglaws, that general law is the Corporation Code,[11] except that the CooperativeCode governs the incorporation of cooperatives.[12]

The Constitution authorizes Congress to create government-owned orcontrolled corporations through special charters. Since private corporationscannot have special charters, it follows that Congress can create corporationswith special charters only if such corporations are government-owned orcontrolled.

Obviously, LWDs are not private corporations because they are not created

under the Corporation Code. LWDs are not registered with the Securities andExchange Commission.Section 14 of the Corporation Code states that [A]llcorporations organized under this code shall file with the Securities andExchange Commission articles of incorporation x x x. LWDs have no articles ofincorporation, no incorporators and no stockholders or members. There are nostockholders or members to elect the board directors of LWDs as in the case ofall corporations registered with the Securities and Exchange Commission. Thelocal mayor or the provincial governor appoints the directors of LWDs for a fixedterm of office. This Court has ruled that LWDs are not created under theCorporation Code, thus:

From the foregoing pronouncement, it is clear that what has been excluded from the

coverage of the CSC are those corporations created pursuant to the Corporation

Code. Significantly, petitioners are not created under the said code, but on the

contrary, they were created pursuant to a special law and are governedprimarily by its provision.[13] (Emphasis supplied)





















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LWDs exist by virtue of PD 198, which constitutes their specialcharter. Since under the Constitution only government-owned or controlledcorporations may have special charters, LWDs can validly exist only if they aregovernment-owned or controlled. To claim that LWDs are private corporationswith a special charter is to admit that their existence is constitutionally infirm.

Unlike private corporations, which derive their legal existence and powerfrom the Corporation Code, LWDs derive their legal existence and power fromPD 198. Sections 6 and 25 of PD 198 [14] provide:

Section 6. Formation of District. This Act is the source of authorization and power

to form and maintain a district. For purposes of this Act, a district shall be

considered as a quasi-public corporation performing public service and

supplying public wants. As such, a district shall exercise the powers, rights and

privileges given to private corporations under existing laws, in addition to the

powers granted in, and subject to such restrictions imposed, under this Act.

(a) The name of the local water district, which shall include the name of the city,

municipality, or province, or region thereof, served by said system, followed by the

words Water District.

(b) A description of the boundary of the district. In the case of a city or municipality,

such boundary may include all lands within the city or municipality. A district may

include one or more municipalities, cities or provinces, or portions thereof.

(c) A statement completely transferring any and all waterworks and/or seweragefacilities managed, operated by or under the control of such city, municipality or

province to such district upon the filing of resolution forming the district.

(d) A statement identifying the purpose for which the district is formed, which shall

include those purposes outlined in Section 5 above.

(e) The names of the initial directors of the district with the date of expiration of term

of office for each.

(f) A statement that the district may only be dissolved on the grounds and under theconditions set forth in Section 44 of this Title.

(g) A statement acknowledging the powers, rights and obligations as set forth in

Section 36 of this Title.




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Nothing in the resolution of formation shall state or infer that the local legislative body

has the power to dissolve, alter or affect the district beyond that specifically provided

for in this Act.

If two or more cities, municipalities or provinces, or any combination thereof, desire

to form a single district, a similar resolution shall be adopted in each city,municipality and province.

x x x

Sec. 25. Authorization. The district may exercise all the powers which are

expressly granted by this Title or which are necessarily implied from orincidental to the powers and purposes herein stated. For the purpose of carrying

out the objectives of this Act, a district is hereby granted the power of eminent

domain, the exercise thereof shall, however, be subject to review by the

Administration.(Emphasis supplied)

Clearly, LWDs exist as corporations only by virtue of PD 198,which expressly confers on LWDs corporate powers. Section 6 of PD 198provides that LWDs shall exercise the powers, rights and privileges given toprivate corporations under existing laws. Without PD 198, LWDs would have nocorporate powers. Thus, PD 198 constitutes the special enabling charter ofLWDs. The ineluctable conclusion is that LWDs are government-owned andcontrolled corporations with a special charter.

The phrase government-owned and controlled corporations with originalcharters means GOCCs created under special laws and not under the generalincorporation law. There is no difference between the term original charters andspecial charters. The Court clarified this in National Service Corp orat ion v .

NLRC [15] by citing the deliberations in the Constitutional Commission, as follows:

THE PRESIDING OFFICER (Mr. Trenas). The session is resumed.

Commissioner Romulo is recognized.

MR. ROMULO. Mr. Presiding Officer, I am amending my original proposedamendment to now read as follows: including government-owned or controlled

corporations WITH ORIGINAL CHARTERS. The purpose of this amendment is to

indicate that government corporations such as the GSIS and SSS, which have original

charters, fall within the ambit of the civil service. However, corporations which are

subsidiaries of these chartered agencies such as the Philippine Airlines, Manila Hotel

and Hyatt are excluded from the coverage of the civil service.




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THE PRESIDING OFFICER (Mr. Trenas). What does the Committee say?

MR. FOZ. Just one question, Mr. Presiding Officer. By the term original

charters, what exactly do we mean?

MR. ROMULO. We mean that they were created by law, by an act of Congress,or by special law.

MR. FOZ. And not under the general corporation law.

MR. ROMULO. That is correct. Mr. Presiding Officer.

MR. FOZ. With that understanding and clarification, the Committee accepts the

amendment.

MR. NATIVIDAD. Mr. Presiding Officer, so those created by the generalcorporation law are out.

MR. ROMULO. That is correct. (Emphasis supplied)

Again, in Davao City Water Distr ict v. Civi l Service Commis sio n ,[16] theCourt reiterated the meaning of the phrase government-owned and controlledcorporations with original charters in this wise:

By government-owned or controlled corporation with original charter, We mean

government owned or controlled corporation created by a special law and notunder the Corporation Code of the Philippines. Thus, in the case of Lumanta v.

NLRC (G.R. No. 82819, February 8, 1989, 170 SCRA 79, 82), We held:

The Court, in National Service Corporation (NASECO) v. National Labor

Relations Commission, G.R. No. 69870, promulgated on 29 November 1988,

quoting extensively from the deliberations of the 1986 Constitutional

Commission in respect of the intent and meaning of the new phrase with original

charter, in effect held that government-owned and controlled corporations with

original charter refer to corporations chartered by special law as distinguished

from corporations organized under our general incorporation statute theCorporation Code. In NASECO, the company involved had been organized under

the general incorporation statute and was a subsidiary of the National Investment

Development Corporation (NIDC) which in turn was a subsidiary of the Philippine

National Bank, a bank chartered by a special statute. Thus, government-owned or

controlled corporations like NASECO are effectively, excluded from the scope of the

Civil Service. (Emphasis supplied)





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Petitioners contention that the Sangguniang Bayan resolution creates theLWDs assumes that the Sangguniang Bayan has the power to createcorporations. This is a patently baseless assumption. The Local GovernmentCode[17] does not vest in the Sangguniang Bayan the power to createcorporations.[18] What the Local Government Code empowers the Sangguniang

Bayan to do is to provide for the establishment of a waterworks system subjectto existing laws. Thus, Section 447(5)(vii) of the Local Government Codeprovides:

SECTION 447. Powers, Duties, Functions and Compensation. (a) The sangguniang

bayan, as the legislative body of the municipality, shall enact ordinances, approve

resolutions and appropriate funds for the general welfare of the municipality and its

inhabitants pursuant to Section 16 of this Code and in the proper exercise of the

corporate powers of the municipality as provided for under Section 22 of this Code,

and shall:

x x x

(vii) Subject to existing laws, provide for the establishment, operation, maintenance,

and repair of an efficient waterworks system to supply water for the inhabitants;

regulate the construction, maintenance, repair and use of hydrants, pumps, cisterns

and reservoirs; protect the purity and quantity of the water supply of the municipality

and, for this purpose, extend the coverage of appropriate ordinances over all territory

within the drainage area of said water supply and within one hundred (100) meters of

the reservoir, conduit, canal, aqueduct, pumping station, or watershed used in

connection with the water service; and regulate the consumption, use or wastage of

water;

x x x. (Emphasis supplied)

The Sangguniang Bayan may establish a waterworks system only inaccordance with the provisions of PD 198. The Sangguniang Bayan has nopower to create a corporate entity that will operate its waterworkssystem. However, the Sangguniang Bayan may avail of existing enabling laws,like PD 198, to form and incorporate a water district. Besides, even assuming

for the sake of argument that the Sangguniang Bayan has the power to createcorporations, the LWDs would remain government-owned or controlledcorporations subject to COAs audit jurisdiction. The resolution of theSangguniang Bayan would constitute an LWDs special charter, making theLWD a government-owned and controlled corporation with an original charter.Inany event, the Court has already ruled in Baguio Water Distr ict v.








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Trajano [19] that the Sangguniang Bayan resolution is not the special charter ofLWDs, thus:

While it is true that a resolution of a local sanggunian is still necessary for the final

creation of a district, this Court is of the opinion that said resolution cannot be

considered as its charter, the same being intended only to implement the provisions ofsaid decree.

Petitioner further contends that a law must create directly and explicitly aGOCC in order that it may have an original charter. In short, petitioner arguesthat one special law cannot serve as enabling law for several GOCCs but onlyfor one GOCC. Section 16, Article XII of the Constitution mandates thatCongress shall not, except by general law,[20] provide for the creation of privatecorporations. Thus, the Constitution prohibits one special law to create oneprivate corporation, requiring instead a general law to create private

corporations. In contrast, the same Section 16 states that Government-ownedor controlled corporations may be created or established by specialcharters. Thus, the Constitution permits Congress to create a GOCC with aspecial charter. There is, however, no prohibition on Congress to create severalGOCCs of the same class under one special enabling charter.

The rationale behind the prohibition on private corporations having specialcharters does not apply to GOCCs. There is no danger of creating specialprivileges to certain individuals, families or groups if there is one special lawcreating each GOCC. Certainly, such danger will not exist whether one special

law creates one GOCC, or one special enabling law creates severalGOCCs. Thus, Congress may create GOCCs either by special charters specificto each GOCC, or by one special enabling charter applicable to a class ofGOCCs, like PD 198 which applies only to LWDs.

Petitioner also contends that LWDs are private corporations becauseSection 6 of PD 198 [21] declares that LWDs shall be considered quasi-public innature. Petitioners rationale is that only private corporations may be deemedquasi-public and not public corporations. Put differently, petitioner rationalizesthat a public corporation cannot be deemed quasi-public because suchcorporation is already public. Petitioner concludes that the term quasi-publiccan only apply to private corporations. Petitioners argument is inconsequential.

Petitioner forgets that the constitutional criterion on the exercise of COAsaudit jurisdiction depends on the governments ownership or control of acorporation. The nature of the corporation, whether it is private, quasi-public, orpublic is immaterial.











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The Constitution vests in the COA audit jurisdiction over government-ownedand controlled corporations with original charters, as well as government-owned or controlled corporations without original charters. GOCCs with originalcharters are subject to COA pre-audit, while GOCCs without original chartersare subject to COA post-audit. GOCCs without original charters refer to

corporations created under the Corporation Code but are owned or controlledby the government. The nature or purpose of the corporation is not material indetermining COAs audit jurisdiction. Neither is the manner of creation of acorporation, whether under a general or special law.

The determining factor of COAs audit jurisdiction is governmentownership or control of the corporation. In Phil ippine Veterans Bank

Emp loyees Union -NUBE v. Phil ipp ine Veterans Bank ,[22] the Court even ruledthat the criterion of ownership and control is more important than the issue oforiginal charter, thus:

This point is important because the Constitution provides in its Article IX-B, Section

2(1) that the Civil Service embraces all branches, subdivisions, instrumentalities, and

agencies of the Government, including government-owned or controlled corporations

with original charters. As the Bank is not owned or controlled by the Government

although it does have an original charter in the form of R.A. No. 3518,[23] it clearly

does not fall under the Civil Service and should be regarded as an ordinarycommercial corporation. Section 28 of the said law so provides. The consequence is

that the relations of the Bank with its employees should be governed by the labor

laws, under which in fact they have already been paid some of their claims. (Emphasis

supplied)

Certainly, the government owns and controls LWDs. The governmentorganizes LWDs in accordance with a specific law, PD 198. There is no privateparty involved as co-owner in the creation of an LWD. Just prior to the creationof LWDs, the national or local government owns and controls all theirassets. The government controls LWDs because under PD 198 the municipalor city mayor, or the provincial governor, appoints all the board directors of anLWD for a fixed term of six years.[24] The board directors of LWDs are not co-owners of the LWDs.LWDs have no private stockholders or members. The

board directors and other personnel of LWDs are government employeessubject to civil service laws[25] and anti-graft laws.[26]

While Section 8 of PD 198 states that [N]o public official shall serve asdirector of an LWD, it only means that the appointees to the board of directorsof LWDs shall come from the private sector. Once such private sectorrepresentatives assume office as directors, they become public officialsgoverned by the civil service law and anti-graft laws. Otherwise, Section 8 of




















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PD 198 would contravene Section 2(1), Article IX-B of the Constitution declaringthat the civil service includes government-owned or controlled corporations withoriginal charters.

If LWDs are neither GOCCs with original charters nor GOCCs without

original charters, then they would fall under the term agencies orinstrumentalities of the government and thus still subject to COAs audit jurisdiction. However, the stark and undeniable fact is that the governmentowns LWDs. Section 45[27] of PD 198 recognizes government ownership ofLWDs when Section 45 states that the board of directors may dissolve an LWDonly on the condition that another public entity has acquired the assets of thedistrict and has assumed all obligations and liabilities attached thereto. Theimplication is clear that an LWD is a public and not a private entity.

Petitioner does not allege that some entity other than the government ownsor controls LWDs. Instead, petitioner advances the theory that the WaterDistricts owner is the District itself .[28] Assuming for the sake of argument that anLWD is self-owned,[29] as petitioner describes an LWD, the government in anyevent controls all LWDs. First, government officials appoint all LWD directors toa fixed term of office. Second, any per diem of LWD directors in excess of P50is subject to the approval of the Local Water Utilities Administration, anddirectors can receive no other compensation for their services to theLWD.[30] Third, the Local Water Utilities Administration can require LWDs tomerge or consolidate their facilities or operations.[31] This element of governmentcontrol subjects LWDs to COAs audit jurisdiction.

Petitioner argues that upon the enactment of PD 198, LWDs became privateentities through the transfer of ownership of water facilities from localgovernment units to their respective water districts as mandated by PD198. Petitioner is grasping at straws. Privatization involves the transfer ofgovernment assets to a private entity. Petitioner concedes that the owner of theassets transferred under Section 6 (c) of PD 198 is no other than the LWDitself .[32] The transfer of assets mandated by PD 198 is a transfer of the watersystems facilities managed, operated by or under the control of such city,municipality or province to such (water) district.[33] In short, the transfer is fromone government entity to another government entity. PD 198 is bereft of any

indication that the transfer is to privatize the operation and control of watersystems.

Finally, petitioner claims that even on the assumption that the governmentowns and controls LWDs, Section 20 of PD 198 prevents COA from auditingLWDs. [34] Section 20 of PD 198 provides:
































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Sec. 20. System of Business Administration. The Board shall, as soon as practicable,

prescribe and define by resolution a system of business administration and accounting

for the district, which shall be patterned upon and conform to the standards

established by the Administration. Auditing shall be performed by a certified

public accountant not in the government service. The Administration may,

however, conduct annual audits of the fiscal operations of the district to be performed by an auditor retained by the Administration. Expenses incurred in connection

therewith shall be borne equally by the water district concerned and the

Administration.[35] (Emphasis supplied)

Petitioner argues that PD 198 expressly prohibits COA auditors, or anygovernment auditor for that matter, from auditing LWDs. Petitioner asserts thatthis is the import of the second sentence of Section 20 of PD 198 when it statesthat [A]uditing shall be performed by a certified public accountant not in thegovernment service.[36]

PD 198 cannot prevail over the Constitution. No amount of clever legislationcan exclude GOCCs like LWDs from COAs audit jurisdiction. Section 3, ArticleIX-C of the Constitution outlaws any scheme or devise to escape COAs audit

jurisdiction, thus:

Sec. 3. No law shall be passed exempting any entity of the Government or its

subsidiary in any guise whatever, or any investment of public funds, from the

jurisdiction of the Commission on Audit.(Emphasis supplied)

The framers of the Constitution added Section 3, Article IX-D of theConstitution precisely to annul provisions of Presidential Decrees, like that ofSection 20 of PD 198, that exempt GOCCs from COA audit. The followingexchange in the deliberations of the Constitutional Commission elucidates thisintent of the framers:

MR. OPLE: I propose to add a new section on line 9, page 2 of the amended

committee report which reads: NO LAW SHALL BE PASSED EXEMPTING ANY

ENTITY OF THE GOVERNMENT OR ITS SUBSIDIARY IN ANY GUISE

WHATEVER, OR ANY INVESTMENTS OF PUBLIC FUNDS, FROM THE

JURISDICTION OF THE COMMISSION ON AUDIT.

May I explain my reasons on record.

We know that a number of entities of the government took advantage of the

absence of a legislature in the past to obtain presidential decrees exemptingthemselves from the jurisdiction of the Commission on Audit, one notable









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example of which is the Philippine National Oil Company which is really an empty

shell. It is a holding corporation by itself, and strictly on its own account. Its funds

were not very impressive in quantity but underneath that shell there were billions of

pesos in a multiplicity of companies. The PNOC the empty shell under a presidential

decree was covered by the jurisdiction of the Commission on Audit, but the billions of

pesos invested in different corporations underneath it were exempted from thecoverage of the Commission on Audit.

Another example is the United Coconut Planters Bank. The Commission on Audit has

determined that the coconut levy is a form of taxation; and that, therefore, these funds

attributed to the shares of 1,400,000 coconut farmers are, in effect, public funds. And

that was, I think, the basis of the PCGG in undertaking that last major sequestration of

up to 94 percent of all the shares in the United Coconut Planters Bank. The charter of

the UCPB, through a presidential decree, exempted it from the jurisdiction of the

Commission on Audit, it being a private organization.

So these are the fetuses of future abuse that we are slaying right here with this

additional section.

May I repeat the amendment, Madam President: NO LAW SHALL BE PASSED

EXEMPTING ANY ENTITY OF THE GOVERNMENT OR ITS SUBSIDIARY IN

ANY GUISE WHATEVER, OR ANY INVESTMENTS OF PUBLIC FUNDS,

FROM THE JURISDICTION OF THE COMMISSION ON AUDIT.

THE PRESIDENT: May we know the position of the Committee on the proposed

amendment of Commissioner Ople?

MR. JAMIR : If the honorable Commissioner will change the number of the section

to 4, we will accept the amendment.

MR. OPLE: Gladly, Madam President. Thank you.

MR. DE CASTRO: Madam President, point of inquiry on the new amendment.

THE PRESIDENT: Commissioner de Castro is recognized.

MR. DE CASTRO: Thank you. May I just ask a few questions of Commissioner

Ople.

Is that not included in Section 2 (1) where it states: (c) government-owned or

controlled corporations and their subsidiaries? So that if these government-owned and

controlled corporations and their subsidiaries are subjected to the audit of the COA,

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any law exempting certain government corporations or subsidiaries will be already

unconstitutional.

So I believe, Madam President, that the proposed amendment is unnecessary.

MR. MONSOD: Madam President, since this has been accepted, we would like toreply to the point raised by Commissioner de Castro.

THE PRESIDENT: Commissioner Monsod will please proceed.

MR. MONSOD: I think the Commissioner is trying to avoid the situation that

happened in the past, because the same provision was in the 1973 Constitution and yet

somehow a law or a decree was passed where certain institutions were exempted from

audit. We are just reaffirming, emphasizing, the role of the Commission on Audit so

that this problem will never arise in the future.[37]

There is an irreconcilable conflict between the second sentence of Section20 of PD 198 prohibiting COA auditors from auditing LWDs and Sections 2(1)and 3, Article IX-D of the Constitution vesting in COA the power to audit allGOCCs. We rule that the second sentence of Section 20 of PD 198 isunconstitutional since it violates Sections 2(1) and 3, Article IX-D of theConstitution.

On the Legality of COAs

Practice of Charging Auditing Fees

Petitioner claims that the auditing fees COA charges LWDs for auditservices violate the prohibition in Section 18 of RA 6758,[38] which states:

Sec. 18. Additional Compensation of Commission on Audit Personnel and of other

Agencies. In order to preserve the independence and integrity of the Commission on

Audit (COA), its officials and employees are prohibited from receiving salaries,

honoraria, bonuses, allowances or other emoluments from any government entity,

local government unit, government-owned or controlled corporations, and government

financial institutions, except those compensation paid directly by COA out of its

appropriations and contributions.

Government entities, including government-owned or controlled corporations

including financial institutions and local government units are hereby prohibited from

assessing or billing other government entities, including government-owned or

controlled corporations including financial institutions or local government units for









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services rendered by its officials and employees as part of their regular functions for

purposes of paying additional compensation to said officials and

employees. (Emphasis supplied)

Claiming that Section 18 is absolute and leaves no doubt,[39] petitioner asks COA

to discontinue its practice of charging auditing fees to LWDs since such practiceallegedly violates the law.

Petitioners claim has no basis.

Section 18 of RA 6758 prohibits COA personnel from receiving any kind ofcompensation from any government entity except compensation paid directlyby COA out of its appropriations and contributions. Thus, RA6758 itself recognizes an exception to the statutory ban on COA personnelreceiving compensation from GOCCs. In Tejada v. Domingo ,[40]the Courtdeclared:

There can be no question that Section 18 of Republic Act No. 6758 is designed to

strengthen further the policy x x x to preserve the independence and integrity of the

COA, by explicitly PROHIBITING: (1) COA officials and employees from receiving

salaries, honoraria, bonuses, allowances or other emoluments from any government

entity, local government unit, GOCCs and government financial institutions,except

such compensation paid directly by the COA out of its appropriations andcontributions, and (2) government entities, including GOCCs, government financial

institutions and local government units from assessing or billing other government

entities, GOCCs, government financial institutions or local government units for

services rendered by the latters officials and employees as part of their regular

functions for purposes of paying additional compensation to said officials and

employees.

x x x

The first aspect of the strategy is directed to the COA itself, while the second aspect is

addressed directly against the GOCCs and government financial institutions. Under

the first, COA personnel assigned to auditing units of GOCCs or government

financial institutions can receive only such salaries, allowances or fringe benefits

paid directly by the COA out of its appropriations and contributions.The

contributions referred to are the cost of audit services earlier mentioned whichcannot include the extra emoluments or benefits now claimed by petitioners. The

COA is further barred from assessing or billing GOCCs and government financial

institutions for services rendered by its personnel as part of their regular audit

functions for purposes of paying additional compensation to such personnel. x x

x. (Emphasis supplied)









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In Tejada , the Court explained the meaning of the word contributions inSection 18 of RA 6758, which allows COA to charge GOCCs the cost of its auditservices:

x x x the contributions from the GOCCs are limited to the cost of audit services which

are based on the actual cost of the audit function in the corporation concerned plus areasonable rate to cover overhead expenses. The actual audit cost shall include

personnel services, maintenance and other operating expenses, depreciation on capital

and equipment and out-of-pocket expenses. In respect to the allowances and fringe

benefits granted by the GOCCs to the COA personnel assigned to the formers auditing

units, the same shall be directly defrayed by COA from its own appropriations x x

x. [41]

COA may charge GOCCs actual audit cost but GOCCs must pay the samedirectly to COA and not to COA auditors. Petitioner has not alleged that COA

charges LWDs auditing fees in excess of COAs actual audit cost. Neither haspetitioner alleged that the auditing fees are paid by LWDs directly to individualCOA auditors. Thus, petitioners contention must fail.

WHEREFORE, the Resolution of the Commission on Audit dated 3 January2000 and the Decision dated 30 January 2001 denying petitioners Motion forReconsideration are AFFIRMED. The second sentence of Section 20 ofPresidential Decree No. 198 is declared VOID for being inconsistent withSections 2 (1) and 3, Article IX-D of the Constitution. No costs.

SO ORDERED.

G.R. No. L-19891 July 31, 1964

J.R.S. BUSINESS CORPORATION, J.R. DA SILVA and A.J. BELTRAN, petitioners,vs.IMPERIAL INSURANCE, INC., MACARIO M. OFILADA, Sheriff of Manila andHON. AGUSTIN MONTESA, Judge of the Court of First Instance of Manila, respondents.

Felipe N. Aurea for petitioners.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 dulyfranchised 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 acomplaint (Civ. Case No. 47520), for sum of money against the petitioner corporation. After thedefendants therein have submitted their Answer, the parties entered into a Compromise Agreement,assisted by their respective counsels, the pertinent portions of which recite:





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1) WHEREAS, the DEFENDANTS admit and confess their joint and solidary indebtedness tothe PLAINTIFF in the full sum of PESOS SIXTY ONE THOUSAND ONE HUNDREDSEVENTY-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 herebypromise to pay their aforementioned obligation to the PLAINTIFF at its business address at301-305 Banquero St., (Ground Floor), Regina Building, Escolta, Manila, within sixty (60)days from March 16, 1962 or on or before May 14, 1962;

3) WHEREAS, in the event the DEFENDANTS FAIL to pay in full the total amount of PESOSSIXTY ONE THOUSAND ONE HUNDRED SEVENTY TWO & 32/100 (P61,172.32),Philippine Currency, for any reason whatsoever, on May 14, 1962, the PLAINTIFF shall beentitled, as a matter of right, to move for the execution of the decision to be rendered in theabove-entitled case by this Honorable Court based on this COMPROMISE AGREEMENT.

On March 17, 1962, the lower court rendered judgment embodying the contents of the saidcompromise agreement, the dispositive portion of which reads —

WHEREFORE, the Court hereby approves the above-quoted compromise agreement andrenders judgment in accordance therewith, enjoining the parties to comply faithfully andstrictly with the terms and conditions thereof, without special pronouncement as to costs.

Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admittedand approved by this Honorable Court, without prejudice to the parties adducing otherevidence 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 theInsurance of a Writ of Execution". On May 23, 1962, a Writ of Execution was issued by respondentSheriff of Manila and on May 26, 1962, Notices of Sale were sent out for the auction of the personalproperties 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 ofoperation, 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, thrucounsel, presented an "Urgent Petition for Postponement of Auction Sale and for Release of Levy onthe Business Name and Right to Operate of Defendant JRS Business Corporation", stating thatpetitioners were busy negotiating for a loan with which to pay the judgment debt; that the judgmentwas for money only and, therefore, plaintiff (respondent Insurance Company) was not authorized totake over and appropriate for its own use, the business name of the defendants; that the right tooperate under the franchise, was not transferable and could not be considered a personal orimmovable, property, subject to levy and sale. On June 10, 1962, a Supplemental Motion forRelease of Execution, was filed by counsel of petitioner JRS Business Corporation, claiming that the

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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 ofPublic Auction Sale and for Ruling on Motion for Release of Levy on the Business Name, Right toOperate 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 withinthe 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 postponementof 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, JRSBusiness Corporation, the business name, right of operation, the whole assets, furnitures andequipments, the total liabilities and Net Worth, books of accounts, etc., etc.), were bought byrespondent Imperial Insurance, Inc., for P10,000.00, which was the highest bid offered. Immediatelyafter the sale, respondent Insurance Company took possession of the proper ties and startedrunning the affairs and operating the business of the JRS Business Corporation. Hence, the presentappeal.

It would seem that the matters which need determination are (1) whether the respondent Judgeacted without or in excess of his jurisdiction or with grave abuse of discretion in promulgating theOrder of June 21, 1962, denying the motion for postponement of the scheduled sale at publicauction, 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 bethe subject of levy, execution and sale.

The respondent Court's act of postponing the scheduled sale was within the discretion of respondentJudge, the exercise of which, one way or the other, did not constitute grave abuse of discretionand/or excess of jurisdiction. There was a decision rendered and the corresponding writ of executionwas issued. Respondent Judge had jurisdiction over the matter and erroneous conclusions of law orfact, 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 citedtherein.)

The corporation law, on forced sale of franchises, provides —

Any franchise granted to a corporation to collect tolls or to occupy, enjoy, or use publicproperty or any portion of the public domain or any right of way over public property or thepublic domain, and any rights and privileges acquired under such franchise may be leviedupon and sold under execution, together with the property necessary for the enjoyment, theexercise of the powers, and the receipt of the proceeds of such franchise or right of way, inthe same manner and with like effect as any other property to satisfy any judgment againstthe 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 ofsaid franchise or right of way is especially decreed and ordered in the judgment: Andprovided, further, That the sale shall not become effective until confirmed by the court afterdue 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.

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"A franchise is a special privilege conferred by governmental authority, and whichdoes 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 isemployed and the property and corporation to which it is applied. It may havedifferent significations.

"For practical purposes, franchises, so far as relating to corporations, are divisibleinto (1) corporate or general franchises; and (2) special or secondary franchises. Theformer is the franchise to exist as a corporation, while the latter are certain rights andprivileges conferred upon existing corporations, such as the right to use the streets ofa municipality to lay pipes or tracks, erect poles or string wires." 2 Fletcher'sCyclopedia 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 theindividuals 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; 3Thompson on Corporations 2d Ed.] Secs. 2863, 2864),and cannot be conveyed in theabsence 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; VicksburgWaterworks 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 thespecify or secondary franchises of a corporation are vested in the corporation and mayordinarily be conveyed or mortgaged under a general power granted to a corporation todispose of its property (Adams v. Railroad, supra; 14A C.J. 542, 557; 3 Thompson on Corp.[2nd Ed.] Sec. 2909), except such special or secondary franchises as are charged with a

public use (2 Fletcher's Cyc. Corp. see. 1225; 14A C.J. 544; 3 Thompson on Corp. [2d Ed.]sec. 2908; Arthur v. Commercial & R.R. Bank, supra; McAllister v. Plant, 54 Miss. 106).

The right to operate a messenger and express delivery service, by virtue of a legislative enactment,is admittedly a secondary franchise (R.A. No. 3260, entitled "An Act granting the JRS Business

Corporation a franchise to conduct a messenger and express service)" and, as such, under ourcorporation law, is subject to levy and sale on execution together and including all the propertynecessary for the enjoyment thereof. The law, however, indicates the procedure under which thesame (secondary franchise and the properties necessary for its enjoyment) may be sold underexecution. Said franchise can be sold under execution, when such sale is especially decreed andordered in the judgment and it becomes effective only when the sale is confirmed by the Court afterdue notice (Sec. 56, Corp. Law). The compromise agreement and the judgment based thereon, donot contain any special decree or order making the franchise answerable for the judgment debt. Thesame thing may be stated with respect to petitioner's trade name or business name and its capitalstock. Incidentally, the trade name or business name corresponds to the initials of the President ofthe petitioner corporation and there can be no serious dispute regarding the fact that a trade nameor business name and capital stock are necessarily included in the enjoyment of the franchise. Likethat 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 statedheretofore, no such directive appears in the decision. Moreover, a trade name or business namecannot be sold separately from the franchise, and the capital stock of the petitioner corporation orany other corporation, for the matter, represents the interest and is the property of stockholders inthe 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 Wordsand Phrases, 109).

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It, therefore, results that the inclusion of the franchise, the trade name and/or business name and thecapital stock of the petitioner corporation, in the sale of the properties of the JRS BusinessCorporation, has no justification. The sale of the properties of petitioner corporation is set aside, inso far as it authorizes the levy and sale of its franchise, trade name and capital stocks. Withoutpronouncement as to costs.

[G.R. No. 125027. August 12, 2002]

ANITA MANGILA, peti t ioner, vs. COURT OF APPEALS and LORETAGUINA, respondents .

D E C I S I O N

CARPIO, J .:

The Case

This is a petition fore review on certiorari under Rule 45 of the Rules of Court, seekingto set aside the Decision[1] of the Court of Appeals affirming the Decision[2] of the RegionalTrial Court, Branch 108, Pasay City. The trial court upheld the writ of attachment and thedeclaration of default on petitioner while ordering her to pay private respondentP109,376.95 plus 18 percent interest per annum, 25 percent attorneys fees and costs ofsuit.

The Facts

Petitioner Anita Mangila (petitioner for brevity) is an exporter of sea foods and doingbusiness under the name and style of Seafoods Products. Private respondent LoretaGuina (private respondent for brevity) is the President and General Manager of Air SwiftInternational, a single registered proprietorship engaged in the freight forwardingbusiness.

Sometime in January 1988, petitioner contracted the freight forwarding services of

private respondent for shipment of petitioners products, such as crabs, prawns andassorted fishes, to Guam (USA) where petitioner maintains an outlet. Petitioner agreedto pay private respondent cash on delivery. Private respondents invoice stipulates acharge of 18 percent interest per annum on all overdue accounts. In case of suit, thesame invoice stipulates attorneys fees equivalent to 25 percent of the amount due pluscosts of suit.[3]

http://sc.judiciary.gov.ph/jurisprudence/2002/aug2002/125027.htm#_edn1










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On the first shipment, petitioner requested for seven days within which to pay privaterespondent. However, for the next three shipments, March 17, 24 and 31, 1988, petitionerfailed to pay private respondent shipping charges amounting to P109, 376.95.[4]

Despite several demands, petitioner never paid private respondent. Thus, on June10, 1988, private respondent filed Civil Case No. 5875 before the Regional Trial Court of

Pasay City for collection of sum of money.

On August 1, 1988, the sheriff filed his Sheriffs Return showing that summons wasnot served on petitioner. A woman found at petitioners house informed the sheriff thatpetitioner transferred her residence to Sto. Nio, Guagua, Pampanga. The sheriff foundout further that petitioner had left the Philippines for Guam.[5]

Thus, on September 13, 1988, construing petitioners departure from the Philippinesas done with intent to defraud her creditors, private respondent filed a Motion forPreliminary Attachment. On September 26, 1988, the trial court issued an Order ofPreliminary Attachment[6] against petitioner. The following day, the trial court issued a Writof Preliminary Attachment.

The trial court granted the request of its sheriff for assistance from their counterpartsin RTC, Pampanga. Thus, on October 28, 1988, Sheriff Alfredo San Miguel of RTCPampanga served on petitioners household help in San Fernando, Pampanga, the Noticeof Levy with the Order, Affidavit and Bond.[7]

On November 7, 1988, petitioner filed an Urgent Motion to Discharge Attachment[8] without submitting herself to the jurisdiction of the trial court. She pointedout that up to then, she had not been served a copy of the Complaint and the summons.Hence, petitioner claimed the court had not acquired jurisdiction over her person.[9]

In the hearing of the Urgent Motion to Discharge Attachment on November 11, 1988,

private respondent sought and was granted a re-setting to December 9, 1988. On thatdate, private respondents counsel did not appear, so the Urgent Motion to Discharge Attachment was deemed submitted for resolution.[10]

The trial court granted the Motion to Discharge Attachment on January 13, 1989 uponfiling of petitioners counter-bond. The trial court, however, did not rule on the question of

jurisdiction and on the validity of the writ of preliminary attachment.

On December 26, 1988, private respondent applied for an alias summons, which thetrial court issued on January 19, 1989.[11] It was only on January 26, 1989 that summonswas finally served on petitioner .[12]

On February 9, 1989, petitioner filed a Motion to Dismiss the Complaint on the ground

of improper venue. Private respondents invoice for the freight forwarding servicestipulates that if court litigation becomes necessary to enforce collection xxx the agreedvenue for such action is Makati, Metro Manila.[13] Private respondent filed an Oppositionasserting that although Makati appears as the stipulated venue, the same was merely aninadvertence by the printing press whose general manager executed anaffidavit[14] admitting such inadvertence. Moreover, private respondent claimed thatpetitioner knew that private respondent was holding office in Pasay City and not inMakati.[15] The lower court, finding credence in private respondents assertion, denied the

















































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Motion to Dismiss and gave petitioner five days to file her Answer. Petitioner filed a Motionfor Reconsideration but this too was denied.

Petitioner filed her Answer [16] on June 16, 1989, maintaining her contention that thevenue was improperly laid.

On June 26, 1989, the trial court issued an Order setting the pre-trial for July 18, 1989at 8:30 a.m. and requiring the parties to submit their pre-trial briefs. Meanwhile, privaterespondent filed a Motion to Sell Attached Properties but the trial court denied the motion.

On motion of petitioner, the trial court issued an Order resetting the pre-trial from July18, 1989 to August 24, 1989 at 8:30 a.m..

On August 24, 1989, the day of the pre-trial, the trial court issued anOrder [17] terminating the pre-trial and allowing the private respondent to presentevidence ex-parte on September 12, 1989 at 8:30 a.m.. The Order stated that when thecase was called for pre-trial at 8:31 a.m., only the counsel for private respondentappeared. Upon the trial courts second call 20 minutes later, petitioners counsel was still

nowhere to be found. Thus, upon motion of private respondent, the pre-trial wasconsidered terminated.

On September 12, 1989, petitioner filed her Motion for Reconsideration of the Orderterminating the pre-trial. Petitioner explained that her counsel arrived 5 minutes after thesecond call, as shown by the transcript of stenographic notes, and was late because ofheavy traffic. Petitioner claims that the lower court erred in allowing private respondent topresent evidenceex-parte since there was no Order considering the petitioner as indefault. Petitioner contends that the Order of August 24, 1989 did not state that petitionerwas declared as in default but still the court allowed private respondent to presentevidence ex-parte.[18]

On October 6, 1989, the trial court denied the Motion for Reconsideration andscheduled the presentation of private respondents evidence ex-parte on October 10,1989.

On October 10, 1989, petitioner filed an Omnibus Motion stating that the presentationof evidence ex-parte should be suspended because there was no declaration of petitioneras in default and petitioners counsel was not absent, but merely late.

On October 18, 1989, the trial court denied the Omnibus Motion.[19]

On November 20, 1989, the petitioner received a copy of the Decision of November10, 1989, ordering petitioner to pay respondent P109,376.95 plus 18 percent interest perannum, 25 percent attorneys fees and costs of suit. Private respondent filed a Motion for

Execution Pending Appeal but the trial court denied the same.

The Ruling of the Court of Appeals

On December 15, 1995, the Court of Appeals rendered a decision affirming thedecision of the trial court. The Court of Appeals upheld the validity of the issuance of the

















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writ of attachment and sustained the filing of the action in the RTC of Pasay. The Courtof Appeals also affirmed the declaration of default on petitioner and concluded that thetrial court did not commit any reversible error.

Petitioner filed a Motion for Reconsideration on January 5, 1996 but the Court of Appeals denied the same in a Resolution dated May 20, 1996.

Hence, this petition.

The Issues

The issues raised by petitioner may be re-stated as follows:

I.

WHETHER RESPONDENT COURT ERRED IN NOT HOLDING THAT THE

WRIT OF ATTACHMENT WAS IMPROPERLY ISSUED AND SERVED;

II.

WHETHER THERE WAS A VALID DECLARATION OF DEFAULT;

III.

WHETHER THERE WAS IMPROPER VENUE.

IV.

WHETHER RESPONDENT COURT ERRED IN DECLARING THAT

PETITIONER IS OBLIGED TO PAY P109, 376.95, PLUS ATTORNEYS FEES.[20]

The Ruling of the Court

Imp roper Issuance and Service of Wri t of Attachmen t

Petitioner ascribes several errors to the issuance and implementation of the writ of

attachment. Among petitioners arguments are: first, there was no ground for the issuanceof the writ since the intent to defraud her creditors had not been established; second, thevalue of the properties levied exceeded the value of private respondents claim. However,the crux of petitioners arguments rests on the question of the validity of the writ ofattachment. Because of failure to serve summons on her before or simultaneously withthe writs implementation, petitioner claims that the trial court had not acquired jurisdictionover her person and thus the service of the writ is void.





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As a preliminary note, a distinction should be made between issuance andimplementation of the writ of attachment. It is necessary to distinguish between the twoto determine when jurisdiction over the person of the defendant should be acquired tovalidly implement the writ. This distinction is crucial in resolving whether there is merit inpetitioners argument.

This Court has long settled the issue of when jurisdiction over the person of thedefendant should be acquired in cases where a party resorts to provisional remedies. Aparty to a suit may, at any time after filing the complaint, avail of the provisional remediesunder the Rules of Court. Specifically, Rule 57 on preliminary attachment speaks of thegrant of the remedy at the commencement of the act ion or at any t ime

thereafter . [21] This phrase refers to the date of filing of the complaint which is the momentthat marks the commencement of the action. The reference plainly is to a time beforesummons is served on the defendant, or even before summons issues.

In Davao L ight & Power Co., Inc. v. Court o f Ap peals , [22] this Court clarified theactual time when jurisdiction should be had:

It goes without saying that whatever be the acts done by the Court prior to the

acquisition of jurisdiction over the person of defendant - issuance of summons, order

of attachment and writ of attachment - these do not and cannot bind and affect the

defendant unti l and unless ju risdiction over his person is eventually obtained by the

court, either by service on him of summons or other coercive process or his voluntary

submission to the courts authority. Hence, when the sheriff or other proper officer

commences implementation of the writ of attachment, it is essential that he serve on

the defendant not only a copy of the applicants affidavit and attachment bond, and of

the order of attachment, as explicitly required by Section 5 of Rule 57, but also

the summons addressed to said defendant as well as a copy of the complaint xxx.(Emphasis supplied.)

Furthermore, we have held that the grant of the provisional remedy of attachment involvesthree stages: first, the court issues the order granting the application; second, the writ ofattachment issues pursuant to the order granting the writ; and third, the writ isimplemented. For the ini t ia l two stages, i t is not necessary that jur isdict ion over theperson of the defendant be f i rst obtained. However, once the implementat ion of the

wr i t commences, the court must have acquired jurisdiction over the defendant forwithout such jurisdiction, the court has no power and authority to act in any manneragainst the defendant. Any order issuing from the Court will not bind the defendant. [23]

In the instant case, the Writ of Preliminary Attachment was issued on September 27,1988 and implemented on October 28, 1988. However, the al ias summon s was served

only on January 26, 1989 or almost th ree months after the implementat ion o f the

wr i t of attachm ent.

The trial court had the authority to issue the Writ of Attachment on September 27since a motion for its issuance can be filed at the commencement of the action. However,on the day the writ was implemented, the trial court should have, previously or













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simultaneously with the implementation of the writ, acquired jurisdiction over thepetitioner. Yet, as was shown in the records of the case, the summons was actuallyserved on petitioner several months after the writ had been implemented.

Private respondent, nevertheless, claims that the prior or contemporaneous serviceof summons contemplated in Section 5 of Rule 57 provides for exceptions. Among such

exceptions are where the summons could not be served personally or by substitutedservice despite diligent efforts or where the defendant is a resident temporarily absenttherefrom x x x. Private respondent asserts that when she commenced this action, shetried to serve summons on petitioner but the latter could not be located at her customaryaddress in Kamuning, Quezon City or at her new address in Guagua,Pampanga.[24] Furthermore, respondent claims that petitioner was not even in Pampanga;rather, she was in Guam purportedly on a business trip.

Private respondent never showed that she effected substituted service on petitionerafter her personal service failed. Likewise, if it were true that private respondent could notascertain the whereabouts of petitioner after a diligent inquiry, still she had some other

recourse under the Rules of Civil Procedure. The rules provide for certain remedies in cases where personal service could not be

effected on a party. Section 14, Rule 14 of the Rules of Court provides that whenever thedefendants whereabouts are unknown and cannot be ascertained by diligent inquiry,service may, by leave of court, be effected upon him by publication in a newspaper ofgeneral circulation x x x. Thus, if petitioners whereabouts could not be ascertained afterthe sheriff had served the summons at her given address, then respondent could haveimmediately asked the court for service of summons by publication on petitioner .[25]

Moreover, as private respondent also claims that petitioner was abroad at the time ofthe service of summons, this made petitioner a resident who is temporarily out of the

country. This is the exact situation contemplated in Section 16,[26]

Rule 14 of the Rules ofCivil Procedure, providing for service of summons by publication.

In conclusion, we hold that the alias summons belatedly served on petitioner cannotbe deemed to have cured the fatal defect in the enforcement of the writ. The trial courtcannot enforce such a coercive process on petitioner without first obtaining jurisdictionover her person. The preliminary writ of attachment must be served after or simultaneouswith the service of summons on the defendant whether by personal service, substitutedservice or by publication as warranted by the circumstances of the case. [27] Thesubsequent service of summons does not confer a retroactive acquisition of jurisdictionover her person because the law does not allow for retroactivity of a belated service.

Improper Venue

Petitioner assails the filing of this case in the RTC of Pasay and points to a provisionin private respondents invoice which contains the following:

















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3. If court litigation becomes necessary to enforce collection, an additional equivalent

(sic) to 25% of the principal amount will be charged. The agreed venue for such

action is Makati, Metro Manila, Philippines.[28]

Based on this provision, petitioner contends that the action should have been

instituted in the RTC of Makati and to do otherwise would be a ground for the dismissalof the case.

We resolve to dismiss the case on the ground of improper venue but not for thereason stated by petitioner.

The Rules of Court provide that parties to an action may agree in writing on the venueon which an action should be brought.[29] However, a mere stipulation on the venue of anaction is not enough to preclude parties from bringing a case in other venues.[30] Theparties must be able to show that such stipulation is exclusive. Thus, absent words thatshow the parties intention to restrict the filing of a suit in a particular place, courts willallow the filing of a case in any venue, as long as jurisdictional requirements are followed.

Venue stipulations in a contract, while considered valid and enforceable, do not as a rulesupersede the general rule set forth in Rule 4 of the Revised Rules of Court. [31] In theabsence of qualifying or restrictive words, they should be considered merely as anagreement on additional forum, not as limiting venue to the specified place. [32]

In the instant case, the stipulation does not limit the venue exclusively to Makati.There are no qualifying or restrictive words in the invoice that would evince the intentionof the parties that Makati is the only or exclusive venue where the action could beinstituted. We therefore agree with private respondent that Makati is not the only venuewhere this case could be filed.

Nevertheless, we hold that Pasay is not the proper venue for this case.

Under the 1997 Rules of Civil Procedure, the general rule is venue in personal actionsis where the defendant or any of the defendants resides or may be found, or where theplaintiff or any of the plaintiffs resides, at the election of the plaintiff . [33] The exception tothis rule is when the parties agree on an exclusive venue other than the places mentionedin the rules. But, as we have discussed, this exception is not applicable in this case.Hence, following the general rule, the instant case may be brought in the place ofresidence of the plaintiff or defendant, at the election of the plaintiff (private respondentherein).

In the instant case, the residence of private respondent (plaintiff in the lower court)was not alleged in the complaint. Rather, what was alleged was the postal address of her

sole proprietorship, Air Swift International. It was only when private respondent testifiedin court, after petitioner was declared in default, that she mentioned her residence to bein Better Living Subdivision, Paraaque City.

In the earlier case of Sy v. Tyson Enterprises, Inc.,[34] the reverse happened. Theplaintiff in that case was Tyson Enterprises, Inc., a corporation owned and managed byDominador Ti. The complaint, however, did not allege the office or place of business ofthe corporation, which was in Binondo, Manila. What was alleged was the residence of





























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Dominador Ti, who lived in San Juan, Rizal. The case was filed in the Court of FirstInstance of Rizal, Pasig. The Court there held that the evident purpose of alleging theaddress of the corporations president and manager was to justify the filing of the suit inRizal, Pasig instead of in Manila. Thus, the Court ruled that there was no question thatvenue was improperly laid in that case and held that the place of business of Tyson

Enterpises, Inc. is considered as its residence for purposes of venue. Furthermore, theCourt held that the residence of its president is not the residence of the corporationbecause a corporation has a personality separate and distinct from that of its officers andstockholders.

In the instant case, it was established in the lower court that petitioner resides in SanFernando, Pampanga[35] while private respondent resides in Paraaque City.[36] However,this case was brought in Pasay City, where the business of private respondent is found.This would have been permissible had private respondents business been a corporation,

just like the case inSy v. Tyson Enterprises, Inc. However, as admitted by privaterespondent in her Complaint[37] in the lower court, her business is a sole proprietorship,and as such, does not have a separate juridical personality that could enable it to file a

suit in court.[38] In fact, there is no law authorizing sole proprietorships to file a suit incourt.[39]

A sole proprietorship does not possess a juridical personality separate and distinctfrom the personality of the owner of the enterprise.[40] The law merely recognizes theexistence of a sole proprietorship as a form of business organization conducted for profitby a single individual and requires its proprietor or owner to secure licenses and permits,register its business name, and pay taxes to the national government. [41] The law does notvest a separate legal personality on the sole proprietorship or empower it to file or defendan action in court.[42]

Thus, not being vested with legal personality to file this case, the sole proprietorship

is not the plaintiff in this case but rather Loreta Guina in her personal capacity. In fact, thecomplaint in the lower court acknowledges in its caption that the plaintiff and defendantare Loreta Guina and Anita Mangila, respectively. The title of the petition before us doesnot state, and rightly so, Anita Mangila v. Air Swift International, but rather Anita Mangilav. Loreta Guina. Logically then, it is the residence of private respondent Guina,the proprietor with the juridical personality, which should be considered as one of theproper venues for this case.

All these considered, private respondent should have filed this case either in SanFernando, Pampanga (petitioners residence) or Paraaque (private respondentsresidence). Since private respondent (complainant below) filed this case in Pasay, wehold that the case should be dismissed on the ground of improper venue.

Although petitioner filed an Urgent Motion to Discharge Attachment in the lower court,petitioner expressly stated that she was filing the motion without submitting to the

jurisdiction of the court. At that time, petitioner had not been served the summons and acopy of the complaint.[43] Thereafter, petitioner timely filed a Motion to Dismiss[44] on theground of improper venue. Rule 16, Section 1 of the Rules of Court provides that a motionto dismiss may be filed [W]ithin the time for but before filing the answer to the complaintor pleading asserting a claim. Petitioner even raised the issue of improper venue in his







































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Answer [45] as a special and affirmative defense. Petitioner also continued to raise the issueof improper venue in her Petition for Review[46] before this Court. We thus hold that thedismissal of this case on the ground of improper venue is warranted.

The rules on venue, like other procedural rules, are designed to insure a just andorderly administration of justice or the impartial and evenhanded determination of every

action and proceeding. Obviously, this objective will not be attained if the plaintiff is givenunrestricted freedom to choose where to file the complaint or petition.[47]

We find no reason to rule on the other issues raised by petitioner.

WHEREFORE, the petition is GRANTED on the grounds of improper venue andinvalidity of the service of the writ of attachment. The decision of the Court of Appealsand the order of respondent judge denying the motion to dismiss are REVERSED andSET ASIDE. Civil Case No. 5875 is hereby dismissed without prejudice to refiling it in theproper venue. The attached properties of petitioner are ordered returned to herimmediately.

SO ORDERED.

G.R. No. L-4935 May 28, 1954

J. M. TUASON & CO., INC., represented by it Managing PARTNER, GREGORIA ARANETA,INC., plaintiff-appellee,vs.QUIRINO 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, torecover 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 landsought to be recovered. The original complaint described the land as a portion of a lot registered inplaintiff's name under Transfer Certificate of Title No. 37686 of the land record of Rizal Province andas containing an area of 13 hectares more or less. But the complaint was amended by reducing thearea of 6 hectares, more or less, after the defendant had indicated the plaintiff's surveyors theportion of land claimed and occupied by him. The second amendment became necessary and wasallowed following the testimony of plaintiff's surveyors that a portion of the area was embraced inanother 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 areaoccupied 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, exclusiveand public and notorious possession (of land in dispute) under claim of ownership, adverse to theentire world by defendant and his predecessor in interest" from "time in-memorial". The answerfurther alleges that registration of the land in dispute was obtained by plaintiff or its predecessors ininterest thru "fraud or error and without knowledge (of) or interest either personal or thru publication












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to defendant and/or predecessors in interest." The answer therefore prays that the complaint bedismissed with costs and plaintiff required to reconvey the land to defendant or pay its value.

After trial, the lower court rendered judgment for plaintiff, declaring defendant to be without any rightto the land in question and ordering him to restore possession thereof to plaintiff and to pay the lattera monthly rent of P132.62 from January, 1940, until he vacates the land, and also to pay the costs.

Appealing directly to this court because of the value of the property involved, defendant makes thefollowing assignment or errors:

I. The trial court erred in not dismissing the case on the ground that the case was not broughtby 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 ofTitle Nos. 37686 and 37677.

Vl. The trial court erred in not finding that the defendant is the true and lawful owner of theland.

VII. The trial court erred in finding that the defendant is liable to pay the plaintiff the amountof 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 thedefendant.

As to the first assigned error, there is nothing to the contention that the present action is not broughtby the real party in interest, that is, by J. M. Tuason and Co., Inc. What the Rules of Court require isthat 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, inthe name of the plaintiff. That practice appears to have been followed in this case, since thecomplaint is signed by the law firm of Araneta and Araneta, "counsel for plaintiff" and commenceswith the statement "comes now plaintiff, through its undersigned counsel." It is true that thecomplaint 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 representedby 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 powerto enter into a partnership, it may nevertheless enter into a joint venture with another where thenature of that venture is in line with the business authorized by its charter." (Wyoming-Indiana OilGas Co. vs. Weston, 80 A. L. R., 1043, citing 2 Fletcher Cyc. of Corp., 1082.) There is nothing in therecord to indicate that the venture in which plaintiff is represented by Gregorio Araneta, Inc. as "itsmanaging 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 bymere reference to section 4 of Rule 17, Rules of Court, which sanctions such amendment. It reads:

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Sec. 4. Amendment to conform to evidence. — When issues not raised by the pleadings aretried by express or implied consent of the parties, they shall be treated in all respects, as ifthey had been raised in the pleadings. Such amendment of the pleadings as may benecessary to cause them to conform to the evidence and to raise these issues may be madeupon motion of any party at my time, even of the trial of these issues. If evidence is objectedto 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 themerits of the action will be subserved thereby and the objecting party fails to satisfy the courtthat the admission of such evidence would prejudice him in maintaining his action or defenseupon the merits. The court may grant a continuance to enable the objecting party to meetsuch evidence.

Under this provision amendment is not even necessary for the purpose of rendering judgment onissues proved though not alleged. Thus, commenting on the provision, Chief Justice Moran says inthis 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, noamendment to the complaint is necessary, especially where defendant has himself raised thepoint on which recovery is based, and that the appellate court treat the pleadings asamended to conform to the evidence, although the pleadings were not actually amended. (IMoran, 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 redpencil with the name Quirino Bolaños," defendant later changed his lawyer and also his theory andtried 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 lotNo. 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 lotshaving been originally registered on July 8, 1914 under original certificate of title No. 735. Theidentity 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 establishedby the testimony of his own witness, Quirico Feria. The combined testimony of these three witnessesclearly shows that the portion claimed by defendant is made up of a part of lot 4-B-3-C and major onportion of lot 4-B-4, and is well within the area covered by the two transfer certificates of title alreadymentioned. 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 noticeto 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, theland prior to the registration proceedings. (Soroñgon vs. Makalintal,1 45 Off. Gaz., 3819.) Nor couldtitle to that land in derogation of that of plaintiff, the registered owner, be acquired by prescription oradverse possession. (Section 46, Act No. 496.) Adverse, notorious and continuous possessionunder 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 tosecure possession under a decree of registration does not prescribed. (Francisco vs. Cruz, 43 Off.

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Gaz., 5105, 5109-5110.) A recent decision of this Court on this point is that rendered in the caseof Jose Alcantara et al., vs. Mariano et al ., 92 Phil., 796. This disposes of the alleged errors V andVI.

As to error VII, it is claimed that `there was no evidence to sustain the finding that defendant shouldbe 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 thepremises, as stipulated at the hearing was P10 a month for each hectare and that the area occupiedby defendant was 13.2619 hectares. The total rent to be paid for the area occupied should thereforebe P132.62 a month. It is appears from the testimony of J. A. Araneta and witness EmigdioTanjuatco 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 alongthat 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 entireworld by defendant and his predecessors in interest.' This assignment of error is thus clearly withoutmerit.

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 todismiss alleging that there is pending before the Court of First Instance of Rizal another actionbetween the same parties and for the same cause and seeking to sustain that allegation with a copyof the complaint filed in said action. But an examination of that complaint reveals that appellant'sallegation is not correct, for the pretended identity of parties and cause of action in the two suitsdoes not appear. That other case is one for recovery of ownership, while the present one is forrecovery of possession. And while appellant claims that he is also involved in that order actionbecause 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 ofothers. The motion for dismissal is clearly without merit.

Wherefore, the judgment appealed from is affirmed, with costs against the plaintiff.

G.R. No. 75875 December 15, 1989

WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM and CHARLESCHAMSAY, petitioners,vs.SANITARY WARES MANUFACTURING CORPORATOIN, ERNESTO V. LAGDAMEO, ERNESTOR. 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, ENRIQUEB. 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

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LUCIANO E. SALAZAR, petitioner,vs.SANITARY WARES MANUFACTURING CORPORATION, ERNESTO V. LAGDAMEO, ERNESTOR. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN,BALDWIN YOUNG, AVELINO V. CRUZ and the COURT OF APPEALS, respondents.

Belo, Abiera & Associates for petitioners in 75875.

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

GUTIERREZ, JR., J.:

These consolidated petitions seek the review of the amended decision of the Court of Appeals inCA-G.R. SP Nos. 05604 and 05617 which set aside the earlier decision dated June 5, 1986, of thethen Intermediate Appellate Court and directed that in all subsequent elections for directors ofSanitary Wares Manufacturing Corporation (Saniwares), American Standard Inc. (ASI) cannot

nominate more than three (3) directors; that the Filipino stockholders shall not interfere in ASI'schoice of its three (3) nominees; that, on the other hand, the Filipino stockholders can nominate onlysix (6) candidates and in the event they cannot agree on the six (6) nominees, they shall vote onlyamong themselves to determine who the six (6) nominees will be, with cumulative voting to beallowed 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 ofmanufacturing and marketing sanitary wares. One of the incorporators, Mr. Baldwin Young wentabroad 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 investorsagreed to participate in the ownership of an enterprise which would engage primarily in the businessof 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 anincorporated enterprise and that the name of the corporation shall initially be "Sanitary WaresManufacturing Corporation."

The Agreement has the following provisions relevant to the issues in these cases on the nominationand election of the directors of the corporation:

3. Articles of Incorporation

(a) The Articles of Incorporation of the Corporation shall be substantially in the formannexed hereto as Exhibit A and, insofar as permitted under Philippine law, shallspecifically provide for

(1) Cumulative voting for directors:

xxx xxx xxx

5. Management

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(a) The management of the Corporation shall be vested in a Board of Directors,which shall consist of nine individuals. As long as American-Standard shall own atleast 30% of the outstanding stock of the Corporation, three of the nine directorsshall be designated by American-Standard, and the other six shall be designated bythe 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 certainofficers, such as a member of the Executive Committee whose vote was required for importantcorporate transactions.

Later, the 30% capital stock of ASI was increased to 40%. The corporation was also registered withthe Board of Investments for availment of incentives with the condition that at least 60% of thecapital stock of the corporation shall be owned by Philippine nationals.

The joint enterprise thus entered into by the Filipino investors and the American corporationprospered. Unfortunately, with the business successes, there came a deterioration of the initiallyharmonious 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 itapparently had other subsidiaries of joint joint venture groups in the countries where Philippineexports were contemplated. On March 8, 1983, the annual stockholders' meeting was held. Themeeting 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 theelection 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, andBaldwin Young. Mr. Eduardo R, Ceniza then nominated Mr. Luciano E. Salazar, who in turnnominated Mr. Charles Chamsay. The chairman, Baldwin Young ruled the last two nominations outof order on the basis of section 5 (a) of the Agreement, the consistent practice of the parties duringthe 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 argumentsensued. An appeal was made by the ASI representative to the body of stockholderspresent that a vote be taken on the ruling of the Chairman. The Chairman, BaldwinYoung, declared the appeal out of order and no vote on the ruling was taken. TheChairman then instructed the Corporate Secretary to cast all the votes present andrepresented by proxy equally for the 6 nominees of the Philippine Investors and the 3nominees of ASI, thus effectively excluding the 2 additional persons nominated,namely, Luciano E. Salazar and Charles Chamsay. The ASI representative, Mr.Jaqua protested the decision of the Chairman and announced that all votes accruingto ASI shares, a total of 1,329,695 (p. 27, Rollo, AC-G.R. SP No. 05617) were beingcumulatively voted for the three ASI nominees and Charles Chamsay, and instructedthe Secretary to so vote. Luciano E. Salazar and other proxy holders announced thatall 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 allvotes equally in favor of the three ASI nominees, namely, Wolfgang Aurbach, JohnGriffin and David Whittingham and the six originally nominated by Rogelio Vinluan,namely, Ernesto Lagdameo, Sr., Raul Boncan, Ernesto Lagdameo, Jr., EnriqueLagdameo, George F. Lee, and Baldwin Young. The Secretary then certified for theelection of the following Wolfgang Aurbach, John Griffin, David Whittingham Ernesto

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Lagdameo, Sr., Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, Raul A.Boncan, Baldwin Young. The representative of ASI then moved to recess themeeting 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 themeeting adjourned. Protests against the adjournment were registered and having

been ignored, Mr. Jaqua the ASI representative, stated that the meeting was notadjourned but only recessed and that the meeting would be reconvened in the nextroom. The Chairman then threatened to have the stockholders who did not agree tothe decision of the Chairman on the casting of votes bodily thrown out. The ASIGroup, 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 ofthe American Standard Building. The continued meeting was presided by Luciano E.Salazar, while Andres Gatmaitan acted as Secretary. On the basis of the cumulativevotes cast earlier in the meeting, the ASI Group nominated its four nominees;Wolfgang Aurbach, John Griffin, David Whittingham and Charles Chamsay. LucianoE. Salazar voted for himself, thus the said five directors were certified as electeddirectors by the Acting Secretary, Andres Gatmaitan, with the explanation that therewas 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 andExchange Commission (SEC). The first petition filed was for preliminary injunction by Saniwares,Emesto V. Lagdameo, Baldwin Young, Raul A. Bonean Ernesto R. Lagdameo, Jr., EnriqueLagdameo and George F. Lee against Luciano Salazar and Charles Chamsay. The case wasdenominated as SEC Case No. 2417. The second petition was for quo warranto and application forreceivership by Wolfgang Aurbach, John Griffin, David Whittingham, Luciano E. Salazar and CharlesChamsay 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 decisionupholding the election of the Lagdameo Group and dismissing the quo warranto petition of Salazarand Chamsay. The ASI Group and Salazar appealed the decision to the SEC en banc whichaffirmed the hearing officer's decision.

The SEC decision led to the filing of two separate appeals with the Intermediate Appellate Court byWolfgang 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 wereconsolidated and the appellate court in its decision ordered the remand of the case to the Securitiesand Exchange Commission with the directive that a new stockholders' meeting of Saniwares beordered 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, JohnGriffin, David P. Whittingham and Charles Chamsay in G.R. No. 75875 assign the following errors:

I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED ELECTION OFPRIVATE RESPONDENTS AS MEMBERS OF THE BOARD OF DIRECTORS OFSANIWARES WHEN IN FACT THERE WAS NO ELECTION AT ALL.

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II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS FROMEXERCISING THEIR FULL VOTING RIGHTS REPRESENTED BY THE NUMBEROF SHARES IN SANIWARES, THUS DEPRIVING PETITIONERS AND THECORPORATION THEY REPRESENT OF THEIR PROPERTY RIGHTS WITHOUTDUE PROCESS OF LAW.

III. THE COURT OF APPEALS IMPOSES CONDITIONS AND READSPROVISIONS INTO THE AGREEMENT OF THE PARTIES WHICH WERE NOTTHERE, 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 followinggrounds:

11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of binding contractualagreements entered into by stockholders and the replacement of the conditions ofsuch agreements with terms never contemplated by the stockholders but merelydictated by the CA .

11.2. The Amended decision would likewise sanction the deprivation of the propertyrights of stockholders without due process of law in order that a favored group ofstockholders may be illegally benefitted and guaranteed a continuing monopoly ofthe 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, WHILERECOGNIZING THAT THE STOCKHOLDERS OF SANIWARES ARE DIVIDEDINTO TWO BLOCKS, FAILS TO FULLY ENFORCE THE BASIC INTENT OF THE

AGREEMENT AND THE LAW.

II

THE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT PRIVATEPETITIONERS HEREIN WERE THE DULY ELECTED DIRECTORS DURING THE 8MARCH 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 followingfactors should be determined: (1) the nature of the business established by the parties whether itwas a joint venture or a corporation and (2) whether or not the ASI Group may vote their additional10% equity during elections of Saniwares' board of directors.

The rule is that whether the parties to a particular contract have thereby established amongthemselves a joint venture or some other relation depends upon their actual intention which isdetermined in accordance with the rules governing the interpretation and construction of contracts.

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(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 theparties should be viewed strictly on the "Agreement" dated August 15,1962 wherein it is clearlystated 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 heretopartners 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 wasto establish a joint venture presented by the Lagdameo and Young Group on the ground that itcontravenes 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 beenreduced 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 theterms of the agreement other than the contents of the writing, except in the followingcases:

(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 bythe 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 Answerto Counterclaim in SEC Case No. 2417 that the Agreement failed to express the true intent of theparties, 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 thirdparties and is not inconsistent with, and does not preclude, the existence of twodistinct groups of stockholders in Saniwares one of which (the Philippine Investors)shall constitute the majority, and the other ASI shall constitute the minoritystockholder. In any event, the evident intention of the Philippine Investors and ASI inentering into the Agreement is to enter into ajoint venture enterprise, and if somewords 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 variousstipulations of a contract shall be interpreted together attributing to the doubtful ones

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that sense which may result from all of them taken jointly (Art. 1374, New CivilCode). Moreover, in order to judge the intention of the contracting parties, theircontemporaneous 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 joinedtheir efforts in furtherance of an enterprise for their joint profit, the question whetherthey intended by their agreement to create a joint adventure, or to assume someother 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 thetestimonial evidence presented by the Lagdameo and Young Group shows that the parties agreed toestablish a joint venture and not a corporation. The history of the organization of Saniwares and theunusual 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 agreedto accept the role of minority vis-a-vis the Philippine National group of investors, onthe condition that the Agreement should contain provisions to protect ASI as theminority.

An examination of the Agreement shows that certain provisions were included toprotect the interests of ASI as the minority. For example, the vote of 7 out of 9directors 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 ExecutiveCommittee 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 thearticles and by-laws of Saniwares [Sec. 3 (a) (iv) and (b) (iii)]. ASI is also given theright to designate the president and plant manager [Sec. 5 (6)]. The Agreementfurther provides that the sales policy of Saniwares shall be that which is normallyfollowed 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 Saniwaresand 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 votesof the board of directors for certain actions, in effect gave ASI (which designates 3directors under the Agreement) an effective veto power. Furthermore, the grant to

ASI of the right to designate certain officers of the corporation; the super-majorityvoting requirements for amendments of the articles and by-laws; and mostsignificantly to the issues of tms case, the provision that ASI shall designate 3 out ofthe 9 directors and the other stockholders shall designate the other 6, clearly indicatethat there are two distinct groups in Saniwares, namely ASI, which owns 40% of the

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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 ofstockholders who established a corporation with provisions for a special contractualrelationship 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 theselection of the nine directors on a six to three ratio. Each group is assured of a fixed number ofdirectors in the board.

Moreover, ASI in its communications referred to the enterprise as joint venture. Baldwin Young alsotestified that Section 16(c) of the Agreement that "Nothing herein contained shall be construed toconstitute any of the parties hereto partners or joint venturers in respect of any transactionhereunder" was merely to obviate the possibility of the enterprise being treated as partnership for taxpurposes 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 hugemultinational corporations of the developed world. Arrangements are formalized where a foreigngroup becomes a minority owner of a firm in exchange for its manufacturing expertise, use of itsbrand names, and other such assistance. However, there is always a danger from sucharrangements. The foreign group may, from the start, intend to establish its own sole or monopolisticoperations and merely uses the joint venture arrangement to gain a foothold or test the Philippinewaters, so to speak. Or the covetousness may come later. As the Philippine firm enlarges itsoperations and becomes profitable, the foreign group undermines the local majority ownership andactively tries to completely or predominantly take over the entire company. This undermining of jointventures is not consistent with fair dealing to say the least. To the extent that such subversiveactions can be lawfully prevented, the courts should extend protection especially in industries whereconstitutional 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 toenter 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 theparties thereto, may provide that in exercising any voting rights, the shares held bythem 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'schapter on close corporations and Saniwares cannot be a close corporation becauseit has 95 stockholders. Firstly, although Saniwares had 95 stockholders at the time ofthe disputed stockholders meeting, these 95 stockholders are not separate fromeach other but are divisible into groups representing a single Identifiable interest. Forexample, ASI, its nominees and lawyers count for 13 of the 95 stockholders. TheYoungYutivo family count for another 13 stockholders, the Chamsay family for 8

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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 asone (which, it is respectfully submitted, they should be for purposes of determininghow closely held Saniwares is there were as of 8 March 1983, practically only 17stockholders 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 corporationbecause 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 publicissue or a widely held corporation.

In the United States, many courts have taken a realistic approach to joint venturecorporations and have not rigidly applied principles of corporation law designedprimarily for public issue corporations. These courts have indicated that expressarrangements between corporate joint ventures should be construed with lessemphasis on the ordinary rules of law usually applied to corporate entities and withmore 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 Ryv. 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 VentureCorporations", 11 Vand Law Rev. p. 680,1958). These American cases dealt withlegal questions as to the extent to which the requirements arising from the corporateform 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 thanthe 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 deviatefrom the traditional pattern of corporation management. A noted authority haspointed out that just as in close corporations, shareholders' agreements in jointventure corporations often contain provisions which do one or more of the following:(1) require greater than majority vote for shareholder and director action; (2) givecertain shareholders or groups of shareholders power to select a specified number ofdirectors; (3) give to the shareholders control over the selection and retention ofemployees; 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 ofSEC 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 closecorporations. As Campos and Lopez-Campos explain:

Paragraph 2 refers to pooling and voting agreements in particular. Does thisprovision necessarily imply that these agreements can be valid only in closecorporations as defined by the Code? Suppose that a corporation has twenty fivestockholders, 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 ofdirectors? It is submitted that there is no reason for denying stockholders of

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corporations other than close ones the right to enter into not voting or poolingagreements to protect their interests, as long as they do not intend to commit anywrong, 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 inclose corporations. But they may also be found necessary even in widely heldcorporations. Moreover, since the Code limits the legal meaning of close

corporations to those which comply with the requisites laid down by section 96, it isentirely possible that a corporation which is in fact a close corporation will not comewithin the definition. In such case, its stockholders should not be precluded fromentering 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 ornomination of directors restricts the right of the Agreement's signatories to vote fordirectors, such contractual provision, as correctly held by the SEC, is valid andbinding 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 duringelections of Saniwares' board of directors, the Court of Appeals correctly stated:

As in other joint venture companies, the extent of ASI's participation in themanagement of the corporation is spelled out in the Agreement. Section 5(a) hereofsays that three of the nine directors shall be designated by ASI and the remaining sixby the other stockholders, i.e., the Filipino stockholders. This allocation of boardseats is obviously in consonance with the minority position of ASI.

Having entered into a well-defined contractual relationship, it is imperative that theparties should honor and adhere to their respective rights and obligations thereunder.

Appellants seem to contend that any allocation of board seats, even in joint venturecorporations, 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 CorporationCode. This Court should not be prepared to hold that any agreement which curtails inany way cumulative voting should be struck down, even if such agreement has beenfreely entered into by experienced businessmen and do not prejudice those who arenot parties thereto. It may well be that it would be more cogent to hold, as theSecurities and Exchange Commission has held in the decision appealed from, thatcumulative voting rights may be voluntarily waived by stockholders who enter intospecial relationships with each other to pursue and implement specific purposes, asin joint venture relationships between foreign and local stockholders, so long as suchagreements 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 theparticular contractual rights and obligations which the parties have assumed forthemselves.

On the one hand, the clearly established minority position of ASI and the contractualallocation of board seats Cannot be disregarded. On the other hand, the rights of thestockholders to cumulative voting should also be protected.

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In our decision sought to be reconsidered, we opted to uphold the second over thefirst. Upon further reflection, we feel that the proper and just solution to give dueconsideration to both factors suggests itself quite clearly. This Court shouldrecognize and uphold the division of the stockholders into two groups, and at thesame time uphold the right of the stockholders within each group to cumulative votingin 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 Filipinostockholders cannot agree who their six nominees will be, a vote would have to betaken among the Filipino stockholders only. During this voting, each Filipinostockholder can cumulate his votes. ASI, however, should not be allowed to interferein the voting within the Filipino group. Otherwise, ASI would be able to designatemore than the three directors it is allowed to designate under the Agreement, andmay even be able to get a majority of the board seats, a result which is clearlycontrary to the contractual intent of the parties.

Such a ruling will give effect to both the allocation of the board seats and thestockholder's right to cumulative voting. Moreover, this ruling will also give dueconsideration to the issue raised by the appellees on possible violation orcircumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and thenationalization requirements of the Constitution and the laws if ASI is allowed tonominate 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 tovote their additional equity pursuant to Section 24 of the Corporation Code which gives thestockholders of a corporation the right to cumulate their votes in electing directors. Petitioner Salazaradds 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 directorsor governing body of corporations or associations engaging in partially nationalizedactivities shall be allowed in proportion to their allowable participation or share in the

capital of such entities. (amendments introduced by Presidential Decree 715, section1, promulgated May 28, 1975)

The ASI Group's argument is correct within the context of Section 24 of the Corporation Code. Thepoint of query, however, is whether or not that provision is applicable to a joint venture with clearlydefined agreements:

The legal concept of ajoint venture is of common law origin. It has no precise legaldefinition but it has been generally understood to mean an organization formed forsome temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is in facthardly distinguishable from the partnership, since their elements are similarcommunity 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 commonlaw jurisdictions is that the partnership contemplates a general business with somedegree of continuity, while the joint venture is formed for the execution of a singletransaction, 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,

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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 aform of partnership and should thus be governed by the law of partnerships. TheSupreme Court has however recognized a distinction between these two businessforms, and has held that although a corporation cannot enter into a partnershipcontract, 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 andSelected Cases, Corporation Code 1981)

Moreover, the usual rules as regards the construction and operations of contracts generally apply toa 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 ofwhether 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 theallocation of director seats under Section 5 (a) of the "Agreement," and the right of each group ofstockholders 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 Agreementrelates 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 membersof the board of directors.

To allow the ASI Group to vote their additional equity to help elect even a Filipino director who wouldbe beholden to them would obliterate their minority status as agreed upon by the parties. As aptlystated by the appellate court:

... ASI, however, should not be allowed to interfere in the voting within the Filipinogroup. Otherwise, ASI would be able to designate more than the three directors it isallowed to designate under the Agreement, and may even be able to get a majority ofthe board seats, a result which is clearly contrary to the contractual intent of theparties.

Such a ruling will give effect to both the allocation of the board seats and thestockholder's right to cumulative voting. Moreover, this ruling will also give dueconsideration to the issue raised by the appellees on possible violation orcircumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and thenationalization requirements of the Constitution and the laws if ASI is allowed tonominate 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 thenationalization 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 electboard directors in proportion to their share in the capital of the entity . It is to be noted, however, thatthe same law also limits the election of aliens as members of the board of directors in proportion totheir allowance participation of said entity. In the instant case, the foreign Group ASI was limited todesignate three directors. This is the allowable participation of the ASI Group. Hence, in futuredealings, this limitation of six to three board seats should always be maintained as long as the jointventure agreement exists considering that in limiting 3 board seats in the 9-man board of directors

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there are provisions already agreed upon and embodied in the parties' Agreement to protect theinterests arising from the minority status of the foreign investors.

With these findings, we the decisions of the SEC Hearing Officer and SEC which were impliedlyaffirmed by the appellate court declaring Messrs. Wolfgang Aurbach, John Griffin, David PWhittingham, 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 March8,1983 annual stockholders' meeting.

On the other hand, the Lagdameo and Young Group (petitioners in G.R. No. 75951) object to acumulative voting during the election of the board of directors of the enterprise as ruled by theappellate court and submits that the six (6) directors allotted the Filipino stockholders should beselected 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 Filipinostockholders are allowed to select their nominees separately and not as a common slot determinedby the majority of their group.

Section 5 (a) of the Agreement which uses the word designates in the allocation of board directorsshould 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 nomineeswhich is cumulative voting while section 5(a) relates to the manner of nominating the members of theboard of directors. The petitioners in G.R. No. 75951 agreed to this procedure, hence, they cannotnow impugn its legality.

The insinuation that the ASI Group may be able to control the enterprise under the cumulative votingprocedure cannot, however, be ignored. The validity of the cumulative voting procedure isdependent on the directors thus elected being genuine members of the Filipino group, not voterswhose interest is to increase the ASI share in the management of Saniwares. The joint venturecharacter of the enterprise must always be taken into account, so long as the company exists underits original agreement. Cumulative voting may not be used as a device to enable ASI to achievestealthily 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 tomaintain the minority status of the foreign investors group as earlier discussed. They should bemaintained.

WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are DISMISSED and thepetition in G.R. No. 75951 is partly GRANTED. The amended decision of the Court of Appeals isMODIFIED in that Messrs. Wolfgang Aurbach John Griffin, David Whittingham Emesto V.Lagdameo, Baldwin Young, Raul A. Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo, andGeorge F. Lee are declared as the duly elected directors of Saniwares at the March 8,1983 annualstockholders' meeting. In all other respects, the questioned decision is AFFIRMED. Costs against

the petitioners in G.R. Nos. 75975-76 and G.R. No. 75875.

SO ORDERED.

G.R. No. 167379 June 27, 2006

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

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MA. CLARITA T. LAZATIN-MAGAT, JOSE SERAFIN T. LAZATIN, JAIME TEODORO T. LAZATINand JOSE MARCOS T. LAZATIN, Respondents.

D E C I S I O N

CALLEJO, SR., J.:

Before us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure ofthe Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 69200 and its Resolution 2 denyingpetitioners’ motion for reconsideration thereof.

The factual and procedural antecedents are as follows:

Primelink Properties and Development Corporation (Primelink for brevity) is a domestic corporationengaged in real estate development. Rafaelito W. Lopez is its President and Chief ExecutiveOfficer .3

Ma. Clara T. Lazatin-Magat and her brothers, Jose Serafin T. Lazatin, Jaime T. Lazatin and Jose

Marcos T. Lazatin (the Lazatins for brevity), are co-owners of two (2) adjoining parcels of land, with acombined area of 30,000 square meters, located in Tagaytay City and covered by TransferCertificate of Title (TCT) No. T-108484of the Register of Deeds of Tagaytay City.

On March 10, 1994, the Lazatins and Primelink, represented by Lopez, in his capacity as President,entered into a Joint Venture Agreement5 (JVA) for the development of the aforementioned propertyinto a residential subdivision to be known as "Tagaytay Garden Villas." Under the JVA, the Lazatinsiblings obliged themselves to contribute the two parcels of land as their share in the joint venture.For its part, Primelink undertook to contribute money, labor, personnel, machineries, equipment,contractor’s pool, marketing activities, managerial expertise and other needed resources to developthe property and construct therein the units for sale to the public. Specifically, Primelink bound itselfto accomplish the following, upon the execution of the deed:

a.) Survey the land, and prepare the projects master plans, engineering designs, structuraland architectural plans, site development plans, and such other need plans in accordancewith existing laws and the rules and regulations of appropriate government institutions, firmsor agencies;

b.) Secure and pay for all the licenses, permits and clearances needed for the projects;

c.) Furnish all materials, equipment, labor and services for the development of the land inpreparation for the construction and sale of the different types of units (single-detached,duplex/twin, cluster and row house);

d.) Guarantee completion of the land development work if not prevented by force majeure orfortuitous event or by competent authority, or other unavoidable circumstances beyond theDEVELOPER’S control, not to exceed three years from the date of the signing of this JointVenture Agreement, except the installation of the electrical facilities which is solelyMERALCO’S responsibility;

e.) Provide necessary manpower resources, like executive and managerial officers, supportpersonnel and marketing staff, to handle all services related to land and housing

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development (administrative and construction) and marketing (sales, advertising andpromotions).6

The Lazatins and Primelink covenanted that they shall be entitled to draw allowances/advances asfollows:

1. During the first two years of the Project, the DEVELOPER and the LANDOWNER candraw allowances or make advances not exceeding a total of twenty percent (20%) of the netrevenue for that period, on the basis of sixty percent (60%) for the DEVELOPER and fortypercent (40%) for the LANDOWNERS.

The drawing allowances/advances are limited to twenty percent (20%) of the net revenue forthe first two years, in order to have sufficient reserves or funds to protect and/or guaranteethe construction and completion of the different types of units mentioned above.

2. After two years, the DEVELOPER and the LANDOWNERS shall be entitled to drawingallowances and/or advances equivalent to sixty percent (60%) and forty percent (40%),respectively, of the total net revenue or income of the sale of the units.7

They also agreed to share in the profits from the joint venture, thus:

1. The DEVELOPER shall be entitled to sixty percent (60%) of the net revenue or income ofthe Joint Venture project, after deducting all expenses incurred in connection with the landdevelopment (such as administrative management and construction expenses), andmarketing (such as sales, advertising and promotions), and

2. The LANDOWNERS shall be entitled to forty percent (40%) of the net revenue or incomeof the Joint Venture project, after deducting all the above-mentioned expenses.8

Primelink submitted to the Lazatins its Projection of the Sales-Income-Cost of the project:

SALES-INCOME-COST PROJECTION

lawphil.net

SELLING PRICE COST PRICE DIFFERENCE INCOME

CLUSTER:

A1 3,200,000 - A2 1,260,000 = 1,940,000 x 24 = P 46,560,000.00

TWIN:

B1 2,500,000 - B2 960,000 = 1,540,000 x 24 = 36,960,000.00

SINGLE:

C1 3,500,000 - C2 1,400,000 = 2,100,000 x 16 = 33,600,000.00

ROW-TYPE TOWNHOMES:

D1 1,600,000 - D2 700,000 = 900,000 x 24 = 21,600,000.00

P138,720,000.00

(GROSS) Total Cash Price (A1+B1+C1+D1) = P231,200,000.00













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Total Building Expense (A2+B2+C2+D2) = 92,480,000.00

COMPUTATION OF ADD’L. INCOME ON INTEREST

TCP x 30% D/P = P 69,360,000 P 69,360,000.00

Balance = 70% = 161,840,000

x .03069 x 48 = P238,409,740 238,409,740.00

Total Amount (TCP + int. earn.) P307,769,740.00

EXPENSES:

less: A Building expenses P 92,480,000.00

B Commission (8% of TCP) 18,496,000.00

C Admin. & Mgmt. expenses (2% of TCP) 4,624,000.00

D Advertising & Promo exp. (2% of TCP) 4,624,000.00

E Building expenses for the openspaces and Amenities (Developmentcost not incl. Housing) 400 x 30,000 sqms. 12,000,000.00

TOTAL EXPENSES (A+B+C+D+E) P132,224,000.00

RECONCILIATION OF INCOME VS. EXPENSES

Total Projected Income (incl. income from interest earn.) P307,769,740.00

less: 132,224,000.00

Total Expenses P175,545,740.009

The parties agreed that any unsettled or unresolved misunderstanding or conflicting opinionsbetween the parties relative to the interpretation, scope and reach, and theenforcement/implementation of any provision of the agreement shall be referred to Voluntary

Arbitration in accordance with the Arbitration Law.10

The Lazatins agreed to subject the title over the subject property to an escrow agreement.Conformably with the escrow agreement, the owner’s duplicate of the title was deposited with theChina Banking Corporation.11However, Primelink failed to immediately secure a Development Permitfrom Tagaytay City, and applied the permit only on August 30, 1995. On October 12, 1995, the Cityissued a Development Permit to Primelink.12

In a Letter 13 dated April 10, 1997, the Lazatins, through counsel, demanded that Primelink complywith its obligations under the JVA, otherwise the appropriate action would be filed against it toprotect their rights and interests. This impelled the officers of Primelink to meet with the Lazatins andenabled the latter to review its business records/papers. In another Letter 14 dated October 22, 1997,the Lazatins informed Primelink that they had decided to rescind the JVA effective upon its receipt ofthe said letter. The Lazatins demanded that Primelink cease and desist from further developing theproperty.























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Subsequently, on January 19, 1998, the Lazatins filed, with the Regional Trial Court (RTC) ofTagaytay City, Branch 18, a complaint for rescission accounting and damages, with prayer fortemporary restraining order and/or preliminary injunction against Primelink and Lopez. The case wasdocketed as Civil Case No. TG-1776. Plaintiffs alleged, among others, that, despite the lapse ofalmost four (4) years from the execution of the JVA and the delivery of the title and possession of theland to defendants, the land development aspect of the project had not yet been completed, and the

construction of the housing units had not yet made any headway, based on the following facts,namely: (a) of the 50 housing units programmed for Phase I, only the following types of housesappear on the site in these condition: (aa) single detached, one completed and two unitsuncompleted; (bb) cluster houses, one unit nearing completion; (cc) duplex, two units completed andtwo units unfinished; and (dd) row houses, two units, completed; (b) in Phase II thereof, all that wasdone by the defendants was to grade the area; the units so far constructed had been the object ofnumerous complaints by their owners/purchasers for poor workmanship and the use of sub-standardmaterials in their construction, thus, undermining the project’s marketability. Plaintiffs also allegedthat defendants had, without justifiable reason, completely disregarded previously agreed accountingand auditing procedures, checks and balances system installed for the mutual protection of bothparties, and the scheduled regular meetings were seldom held to the detriment and disadvantage ofplaintiffs. They averred that they sent a letter through counsel, demanding compliance of what wasagreed upon under the agreement but defendants refused to heed said demand. After a succession

of letters with still no action from defendants, plaintiffs sent a letter on October 22, 1997, a letterformally rescinding the JVA.

Plaintiffs also claimed that in a sales-income-costs projection prepared and submitted bydefendants, they (plaintiffs) stood to receive the amount of P70,218,296.00 as their net share in the

joint venture project; to date, however, after almost four (4) years and despite the undertaking in theJVA that plaintiffs shall initially get 20% of the agreed net revenue during the first two (2) years (onthe basis of the 60%-40% sharing) and their full 40% share thereafter, defendants had yet to deliverthese shares to plaintiffs which by conservative estimates would amount to no lessthan P40,000,000.00.15

Plaintiffs prayed that, after due proceedings, judgment be rendered in their favor, thus:

WHEREFORE, it is respectfully prayed of this Honorable Court that a temporary restraining order beforthwith issued enjoining the defendants to immediately stop their land development, constructionand marketing of the housing units in the aforesaid project; after due proceedings, to issue a writ ofpreliminary injunction enjoining and prohibiting said land development, construction and marketing ofhousing units, pending the disposition of the instant case.

After trial, a decision be rendered:

1. Rescinding the Joint Venture Agreement executed between the plaintiffs and thedefendants;

2. Immediately restoring to the plaintiffs possession of the subject parcels of land;

3. Ordering the defendants to render an accounting of all income generated as well asexpenses incurred and disbursement made in connection with the project;

4. Making the Writ of Preliminary Injunction permanent;

5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount Forty MillionPesos (P40,000,000.00) in actual and/or compensatory damages;





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6. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of TwoMillion Pesos (P2,000,000.00) in exemplary damages;

7. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount equivalentto ten percent (10%) of the total amount due as and for attorney’s fees; and

8. To pay the costs of this suit.

Other reliefs and remedies as are just and equitable are likewise being prayed for .16

Defendants opposed plaintiffs’ plea for a writ of preliminary injunction on the ground that plaintiffs’complaint was premature, due to their failure to refer their complaint to a Voluntary Arbitratorpursuant to the JVA in relation to Section 2 of Republic Act No. 876 before filing their complaint inthe RTC. They prayed for the dismissal of the complaint under Section 1(j), Rule 16 of the Rules ofCourt:

WHEREFORE, it is respectfully prayed that an Order be issued:

a) dismissing the Complaint on the basis of Section 1(j), Rule 16 of the aforecited Rules ofCourt, or, in the alternative,

b) requiring the plaintiffs to make initiatory step for arbitration by filing the demand toarbitrate, and then asking the parties to resolve their controversies, pursuant to the

Arbitration Law, or in the alternative;

c) staying or suspending the proceedings in captioned case until the completion of thearbitration, and

d) denying the plaintiffs’ prayer for the issuance of a temporary restraining order or writ ofpreliminary injunction.

Other reliefs and remedies just and equitable in the premises are prayed for .17

In the meantime, before the expiration of the reglementary period to answer the complaint,defendants, invoking their counsel’s heavy workload, prayed for a 15 -day extension18 within which tofile their answer. The additional time prayed for was granted by the RTC.19 However, instead of filingtheir answer, defendants prayed for a series of 15-day extensions in eight (8) successive motions forextensions on the same justification.20 The RTC again granted the additional time prayed for, but ingranting the last extension, it warned against further extension.21Despite the admonition, defendantsagain moved for another 15-day extension,22 which, this time, the RTC denied. No answer havingbeen filed, plaintiffs moved to declare the defendants in default,23 which the RTC granted in itsOrder 24 dated June 24, 1998.

On June 25, 1998, defendants filed, via registered mail, their "Answer with Counterclaim andOpposition to the Prayer for the Issuance of a Writ of Preliminary Injunction."25 On July 8, 1998,defendants filed a Motion to Set Aside the Order of Default.26 This was opposed by plaintiffs.27 In anOrder 28 dated July 14, 1998, the RTC denied defendants’ motion to set aside the order of default andordered the reception of plaintiffs’ evidence ex parte. Defendants filed a motion forreconsideration29 of the July 14, 1998 Order, which the RTC denied in its Order 30 dated October 21,1998.



























































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Defendants thereafter interposed an appeal to the CA assailing the Order declaring them in default,as well as the Order denying their motion to set aside the order of default, alleging that these werecontrary to facts of the case, the law and jurisprudence.31 On September 16, 1999, the appellatecourt issued a Resolution32 dismissing the appeal on the ground that the Orders appealed from wereinterlocutory in character and, therefore, not appealable. No motion for reconsideration of the Orderof the dismissal was filed by defendants.

In the meantime, plaintiffs adduced ex parte their testimonial and documentary evidence. On April17, 2000, the RTC rendered a Decision, the dispositive part of which reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants asfollows:

1. Ordering the rescission of the Joint Venture Agreement as of the date of filing of thiscomplaint;

2. Ordering the defendants to return possession, including all improvements therein, of thereal estate property belonging to the plaintiffs which is described in, and covered by Transfer

Certificate of Title No. T-10848 of the Register of Deeds of Tagaytay City, and located inBarangay Anulin, City of Tagaytay;

3. Ordering the defendants to turn over all documents, records or papers that have beenexecuted, prepared and retained in connection with any contract to sell or deed of sale of alllots/units sold during the effectivity of the joint venture agreement;

4. Ordering the defendants to pay the plaintiffs the sum of P1,041,524.26 representing theirshare of the net income of the P2,603,810.64 as of September 30, 1995, as stipulated in the

joint venture agreement;

5. Ordering the defendants to pay the plaintiffs’ attorney’s fees in the amount

of P104,152.40;

6. Ordering the defendants to pay the costs.

SO ORDERED.33

The trial court anchored its decision on the following findings:

x x x Evidence on record have shown patent violations by the defendants of the stipulationsparticularly paragr aph II covering Developer’s (defendant) undertakings, as well as paragraph III andparagraph V of the JVA. These violations are not limited to those made against the plaintiffs alone asit appears that some of the unit buyers themselves have their own separate gripes against the

defendants as typified by the letters (Exhibits "G" and "H") of Mr. Emmanuel Enciso.

x x x x

Rummaging through the evidence presented in the course of the testimony of Mrs. Maminta on August 6, 1998 (Exhibits "N," "O," "P," "Q" and "R" as well as submarkings, pp. 60 to 62, TSN August 6, 1998) this court has observed, and is thus convinced, that a pattern of what appears to bea scheme or plot to reduce and eventually blot out the net income generated from sales of housingunits by defendants, has been established. Exhibit "P-2" is explicit in declaring that, as of September













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30, 1995, the joint venture project earned a net income of aboutP2,603,810.64. This amount,however, was drastically reduced in a subsequent financial report submitted by the defendantsto P1,954,216.39. Shortly thereafter, and to the dismay of the plaintiffs, the defendants submitted anincome statement and a balance sheet (Exhibits "R" and "R-1") indicating a net lossof P5,122,906.39 as of June 30, 1997.

Of the reported net income of P2,603,810.64 (Exhibit "P-2") the plaintiffs should have received thesum ofP1,041,524.26 representing their 40% share under paragraph II and V of the JVA. But thiswas not to be so. Even before the plaintiffs could get hold of their share as indicated above, thedefendants closed the chance altogether by declaring a net loss. The court perceives this to be onecalculated coup-de-grace that would put to thin air plaintiffs’ hope of getting their share in the profitunder the JVA.

That this matter had reached the court is no longer a cause for speculation. The way the defendantstreated the JVA and the manner by which they handled the project itself vis-à-vis their partners, theplaintiffs herein, there is bound to be certain conflict as the latter repeatedly would received thelosing end of the bargain.

Under the intolerable circumstances, the plaintiffs could not have opted for some other recourse butto file the present action to enforce their rights. x x x34

On May 15, 2000, plaintiffs filed a Motion for Execution Pending Appeal35 alleging defendants’dilatory tactics for its allowance. This was opposed by defendants.36

On May 22, 2000, the RTC resolved the motion for execution pending appeal in favor ofplaintiffs.37 Upon posting a bond of P1,000,000.00 by plaintiffs, a writ of execution pending appealwas issued on June 20, 2000.38

Defendants appealed the decision to the CA on the following assignment of errors:

I

THE TRIAL COURT ERRED IN DECIDING THE CASE WITHOUT FIRST REFERRING THECOMPLAINT FOR VOLUNTARY ARBITRATION (RA NO. 876), CONTRARY TO THE MANDATEDVOLUNTARY ARBITRATION CLAUSE UNDER THE JOINT VENTURE AGREEMENT, AND THEDOCTRINE IN "MINDANAO PORTLAND CEMENT CORPORATION V. MCDONOUGHCONSTRUCTION COMPANY OF FLORIDA" (19 SCRA 814-815).

II

THE TRIAL COURT ERRED IN ISSUING A WRIT OF EXECUTION PENDING APPEAL EVEN INTHE ABSENCE OF GOOD AND COMPELLING REASONS TO JUSTIFY SAID ISSUANCE, ANDDESPITE PRIMELINK’S STRONG OPPOSITION THERETO.

III

THE TRIAL COURT ERRED IN REFUSING TO DECIDE PRIMELINK’S MOTION TO QUASH THEWRIT OF EXECUTION PENDING APPEAL AND THE MOTION FOR RECONSIDERATION,

ALTHOUGH THE COURT HAS RETAINED ITS JURISDICTION TO RULE ON ALL QUESTIONSRELATED TO EXECUTION.




















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IV

THE TRIAL COURT ERRED IN RESCINDING THE JOINT VENTURE AGREEMENT ALTHOUGHPRIMELINK HAS SUBSTANTIALLY DEVELOPED THE PROJECT AND HAS SPENT MORE ORLESS FORTY MILLION PESOS, AND DESPITE APPELLEES’ FAILURE TO PRESENTSUFFICIENT EVIDENCE JUSTIFYING THE SAID RESCISSION.

V

THE TRIAL COURT ERRED IN DECIDING THAT THE APPELLEES HAVE THE RIGHT TO TAKEOVER THE SUBDIVISION AND TO APPROPRIATE FOR THEMSELVES ALL THE EXISTINGIMPROVEMENTS INTRODUCED THEREIN BY PRIMELINK, ALTHOUGH SAID RIGHT WASNEITHER ALLEGED NOR PRAYED FOR IN THE COMPLAINT, MUCH LESS PROVEN DURINGTHE EX PARTE HEARING, AND EVEN WITHOUT ORDERING APPELLEES TO FIRSTREIMBURSE PRIMELINK OF THE SUBSTANTIAL DIFFERENCE BETWEEN THE MARKETVALUE OF APPELLEES’ RAW, UNDEVELOPED AND UNPRODUCTIVE LAND (CONTRIBUTEDTO THE PROJECT) AND THE SUM OF MORE OR LESS FORTY MILLION PESOS WHICHPRIMELINK HAD SPENT FOR THE HORIZONTAL AND VERTICAL DEVELOPMENT OF THE

PROJECT, THEREBY ALLOWING APPELLEES TO UNJUSTLY ENRICH THEMSELVES AT THEEXPENSE OF PRIMELINK.39

The appeal was docketed in the CA as CA-G.R. CV No. 69200.

On August 9, 2004, the appellate court rendered a decision affirming, with modification, theappealed decision. The fallo of the decision reads:

WHEREFORE, in view of the foregoing, the assailed decision of the Regional Trial Court ofTagaytay City, Branch 18, promulgated on April 17, 2000 in Civil Case No. TG-1776, is hereby

AFFIRMED. Accordingly, Transfer Certificate of Title No. T-10848 held for safekeeping byChinabank pursuant to the Escrow Agreement is ordered released for return to the plaintiffs-appellees and conformably with the affirmed decision, the cancellation by the Register of Deeds ofTagaytay City of whatever annotation in TCT No. 10848 by virtue of the Joint Venture Agreement, isnow proper.

SO ORDERED.40

Citing the ruling of this Court in Aurbach v. Sanitary Wares Manufacturing Corporation ,41 theappellate court ruled that, under Philippine law, a joint venture is a form of partnership and is to begoverned by the laws of partnership. The aggrieved parties filed a motion forreconsideration,42 which the CA denied in its Resolution43dated March 7, 2005.

Petitioners thus filed the instant Petition for Review on Certiorari, alleging that:

1) DID THE HONORABLE COURT OF APPEALS COMMIT A FATAL AND REVERSIBLELEGAL ERROR AND/OR GRAVE ABUSE OF DISCRETION IN ORDERING THE RETURNTO THE RESPONDENTS OF THE PROPERTY WITH ALL IMPROVEMENTS THEREON,EVEN WITHOUT ORDERING/REQUIRING THE RESPONDENTS TO FIRST PAY ORREIMBURSE PRIMELINK OF ALL EXPENSES INCURRED IN DEVELOPING ANDMARKETING THE PROJECT, LESS THE ORIGINAL VALUE OF THE PROPERTY, ANDTHE SHARE DUE RESPONDENTS FROM THE PROFITS (IF ANY) OF THE JOINTVENTURE PROJECT?



















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2) IS THE AFORESAID ORDER ILLEGAL AND CONFISCATORY, OPPRESSIVE ANDUNCONSCIONABLE, CONTRARY TO THE TENETS OF GOOD HUMAN RELATIONS ANDVIOLATIVE OF EXISTING LAWS AND JURISPRUDENCE ON JUDICIAL NOTICE,DEFAULT, UNJUST ENRICHMENT AND RESCISSION OF CONTRACT WHICHREQUIRES MUTUAL RESTITUTION, NOT UNILATERAL APPROPRIATION, OFPROPERTY BELONGING TO ANOTHER?44

Petitioners maintain that the aforesaid portion of the decision which unconditionally awards torespondents "all improvements" on the project without requiring them to pay the value thereof or toreimburse Primelink for all expenses incurred therefore is inherently and essentially illegal andconfiscatory, oppressive and unconscionable, contrary to the tenets of good human relations, andwill allow respondents to unjustly enrich themselves at Primelink’s expense. At the time respondentscontributed the two parcels of land, consisting of 30,000 square meters to the joint venture projectwhen the JVA was signed on March 10, 1994, the said properties were worth not more than P500.00per square meter, the "price tag" agreed upon the parties for the purpose of the JVA. Moreover,before respondents rescinded the JVA sometime in October/November 1997, the property hadalready been substantially developed as improvements had already been introduced thereon;petitioners had likewise incurred administrative and marketing expenses, among others, amountingto more or less P40,000,000.00.45

Petitioners point out that respondents did not pray in their complaint that they be declared theowners and entitled to the possession of the improvements made by petitioner Primelink on theproperty; neither did they adduce evidence to prove their entitlement to said improvements. Itfollows, petitioners argue, that respondents were not entitled to the improvements although petitionerPrimelink was declared in default.

They also aver that, under Article 1384 of the New Civil Code, rescission shall be only to the extentnecessary to cover the damages caused and that, under Article 1385 of the same Code, rescissioncreates the obligation to return the things which were not object of the contract, together with theirfruits, and the price with its interest; consequently, it can be effected only when respondents canreturn whatever they may be obliged to return. Respondents who sought the rescission of the JVA

must place petitioner Primelink in the status quo. They insist that respondents cannot rescind and, atthe same time, retain the consideration, or part of the consideration received under the JVA. Theycannot have the benefits of rescission without assuming its burden. All parties must be restored totheir original positions as nearly as possible upon the rescission of a contract. In the event thatrestoration to the status quo is impossible, rescission may be granted if the Court can balance theequities and fashion an appropriate remedy that would be equitable to both parties and affordcomplete relief.

Petitioners insist that being defaulted in the court a quo would in no way defeat their claim forreimbursement because "[w]hat matters is that the improvements exist and they cannot bedenied."46 Moreover, they point out, the ruling of this Court in Aurbach v. Sanitary WaresManufacturing Corporation47 cited by the CA is not in point.

On the other hand, the CA ruled that although respondents therein (plaintiffs below) did notspecifically pray for their takeover of the property and for the possession of the improvements on theparcels of land, nevertheless, respondents were entitled to said relief as a necessary consequenceof the ruling of the trial court ordering the rescission of the JVA. The appellate court cited the rulingof this Court in the Aurbach case and Article 1838 of the New Civil Code, to wit:















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As a general rule, the relation of the parties in joint ventures is governed by their agreement. Whenthe agreement is silent on any particular issue, the general principles of partnership may be resortedto.48

Respondents, for their part, assert that Articles 1380 to 1389 of the New Civil Code deal withrescissible contracts. What applies is Article 1191 of the New Civil Code, which reads:

ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligorsshould not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with thepayment of damages in either case. He may also seek rescission, even after he has chosenfulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of aperiod.

This is understood to be without prejudice to the rights of third persons who have acquired the thing,

in accordance with articles 1385 and 1388 and the Mortgage Law.

They insist that petitioners are not entitled to rescission for the improvements because, as found bythe RTC and the CA, it was petitioner Primelink that enriched itself at the expense of respondents.Respondents reiterate the ruling of the CA, and argue as follows:

PRIMELINK argued that the LAZATINs in their complaint did not allege, did not prove and did notpray that they are and should be entitled to take over the development of the project, and that theimprovements and existing structures which were introduced by PRIMELINK after spending more orless Forty Million Pesos – be awarded to them. They merely asked in the complaint that the jointventure agreement be rescinded, and that the parcels of land they contributed to the project bereturned to them.

PRIMELINK’s argument lacks merit. The order of the court for PRIMELINK to return possession ofthe real estate property belonging to the LAZATINs including all improvements thereon was not a

judgment that was different in kind than what was prayed for by the LAZATINs. The order to returnthe property with all the improvements thereon is just a necessary consequence to the order ofrescission.

As a general rule, the relation of the parties in joint ventures is governed by their agreement. Whenthe agreement is silent on any particular issue, the general principles of partnership may be resortedto. In Aurbach v. Sanitary Wares Manufacturing Corporation, the Supreme Court discussed thefollowing points regarding joint ventures and partnership:

The legal concept of a joint venture is of common law origin. It has no precise legal definition, but ithas been generally understood to mean an organization formed for some temporary purpose. (Gatesv. Megargel, 266 Fed. 811 [1920]) It is, in fact, hardly distinguishable from the partnership, sinceelements are similar – community of interest in the business, sharing of profits and losses, and amutual right of control. (Blackner v. McDermott, 176 F.2d 498 [1949]; Carboneau v. Peterson, 95P.2d 1043 [1939]; Buckley v. Chadwick, 45 Cal.2d 183, 288 P.2d 12, 289 P.2d 242 [1955]) The maindistinction cited by most opinions in common law jurisdictions is that the partnership contemplates ageneral business with some degree of continuity, while the joint venture is formed for the executionof a single transaction, and is thus of a temporary nature. (Tuffs v. Mann, 116 Cal.App. 170, 2 P.2d500 [1931]; Harmon v. Martin, 395 III. 595, 71 N.E.2d 74 [1947]; Gates v. Megargel, 266 Fed. 811





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[1920]) This observation is not entirely accurate in this jurisdiction, since under the Civil Code, apartnership may be particular or universal, and a particular partnership may have for its object aspecific undertaking. (Art. 1783, Civil Code). It would seem therefore that, under Philippine law, a

joint venture is a form of partnership and should thus be governed by the laws of partnership. TheSupreme Court has, however, recognized a distinction between these two business forms, and hasheld that although a corporation cannot enter into a partnership contract, it may, however, engage in

a joint venture with others. (At p. 12, Tuazon v. Bolanos, 95 Phil. 906 [1954]; Campos and Lopez – Campos Comments, Notes and Selected Cases, Corporation Code 1981) (Emphasis Supplied)

The LAZATINs were able to establish fraud on the part of PRIMELINK which, in the words of thecourt a quo, was a pattern of what appears to be a scheme or plot to reduce and eventually blot outthe net incomes generated from sales of housing units by the defendants. Under Article 1838 of theCivil Code, where the partnership contract is rescinded on the ground of the fraud ormisrepresentation of one of the parties thereto, the party entitled to rescind is, without prejudice toany other right is entitled to a lien on, or right of retention of, the surplus of the partnershipproperty after satisfying the partnership liabilities to third persons for any sum of money paid by himfor the purchase of an interest in the partnership and for any capital or advance contributed by him.In the instant case, the joint venture still has outstanding liabilities to third parties or the buyers of theproperty.

It is not amiss to state that title to the land or TCT No. T-10848 which is now held by Chinabank forsafekeeping pursuant to the Escrow Agreement executed between Primelink Properties andDevelopment Corporation and Ma. Clara T. Lazatin-Magat should also be returned to the LAZATINsas a necessary consequence of the order of rescission of contract. The reason for the existence ofthe Escrow Agreement has ceased to exist when the joint venture agreement was rescinded.49

Respondents stress that petitioners must bear any damages or losses they may have suffered. Theylikewise stress that they did not enrich themselves at the expense of petitioners.

In reply, petitioners assert that it is unjust and inequitable for respondents to retain the improvementseven if their share in the P1,041,524.26 of the net income of the property and the sale of the land

were to be deducted from the value of the improvements, plus administrative and marketingexpenses in the total amount ofP40,000,000.00. Petitioners will still be entitled to an accounting fromrespondents. Respondents cannot deny the existence and nature of said improvements as they arevisible to the naked eye.

The threshold issues are the following: (1) whether respondents are entitled to the possession of theparcels of land covered by the JVA and the improvements thereon introduced by petitioners as theircontribution to the JVA; (2) whether petitioners are entitled to reimbursement for the value of theimprovements on the parcels of land.

The petition has no merit.

On the first issue, we agree with petitioners that respondents did not specifically pray in theircomplaint below that possession of the improvements on the parcels of land which they contributedto the JVA be transferred to them. Respondents made a specific prayer in their complaint that, uponthe rescission of the JVA, they be placed in possession of the parcels of land subject of theagreement, and for other "reliefs and such other remedies as are just and equitable in the premises."However, the trial court was not precluded from awarding possession of the improvements on theparcels of land to respondents in its decision. Section 2(c), Rule 7 of the Rules of Court provides thata pleading shall specify the relief sought but it may add as general prayer for such further or otherrelief as may be deemed just and equitable. Even without the prayer for a specific remedy, proper





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relief may be granted by the court if the facts alleged in the complaint and the evidence introducedso warrant.50 The court shall grant relief warranted by the allegations and the proof even if no suchrelief is prayed for .51 The prayer in the complaint for other reliefs equitable and just in the premises

justifies the grant of a relief not otherwise specifically prayed for .52

The trial court was not proscribed from placing respondents in possession of the parcels of land and

the improvements on the said parcels of land. It bears stressing that the parcels of land, as well asthe improvements made thereon, were contributed by the parties to the joint venture under the JVA,hence, formed part of the assets of the joint venture.53 The trial court declared that respondents wereentitled to the possession not only of the parcels of land but also of the improvements thereon as aconsequence of its finding that petitioners breached their agreement and defrauded respondents ofthe net income under the JVA.

On the second issue, we agree with the CA ruling that petitioner Primelink and respondents enteredinto a joint venture as evidenced by their JVA which, under the Court’s ruling in Aurbach, is a form ofpartnership, and as such is to be governed by the laws on partnership.

When the RTC rescinded the JVA on complaint of respondents based on the evidence on record

that petitioners willfully and persistently committed a breach of the JVA, the court therebydissolved/cancelled the partnership.54With the rescission of the JVA on account of petitioners’fraudulent acts, all authority of any partner to act for the partnership is terminated except so far asmay be necessary to wind up the partnership affairs or to complete transactions begun but not yetfinished.55 On dissolution, the partnership is not terminated but continues until the winding up ofpartnership affairs is completed.56 Winding up means the administration of the assets of thepartnership for the purpose of terminating the business and discharging the obligations of thepartnership.

The transfer of the possession of the parcels of land and the improvements thereon to respondentswas only for a specific purpose: the winding up of partnership affairs, and the partition anddistribution of the net partnership assets as provided by law.57 After all, Article 1836 of the New CivilCode provides that unless otherwise agreed by the parties in their JVA, respondents have the right

to wind up the partnership affairs:

Art. 1836. Unless otherwise agreed, the partners who have not wrongfully dissolved the partnershipor the legal representative of the last surviving partner, not insolvent, has the right to wind up thepartnership affairs, provided, however, that any partner, his legal representative or his assignee,upon cause shown, may obtain winding up by the court.

It must be stressed, too, that although respondents acquired possession of the lands and theimprovements thereon, the said lands and improvements remained partnership property, subject tothe rights and obligations of the parties, inter se, of the creditors and of third parties under Articles1837 and 1838 of the New Civil Code, and subject to the outcome of the settlement of the accountsbetween the parties as provided in Article 1839 of the New Civil Code, absent any agreement of the

parties in their JVA to the contrary.58

Until the partnership accounts are determined, it cannot beascertained how much any of the parties is entitled to, if at all.

It was thus premature for petitioner Primelink to be demanding that it be indemnified for the value ofthe improvements on the parcels of land owned by the joint venture/partnership. Notably, the JVA ofthe parties does not contain any provision designating any party to wind up the affairs of thepartnership.




































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Thus, under Article 1837 of the New Civil Code, the rights of the parties when dissolution is causedin contravention of the partnership agreement are as follows:

(1) Each partner who has not caused dissolution wrongfully shall have:

(a) All the rights specified in the first paragraph of this article, and

(b) The right, as against each partner who has caused the dissolution wrongfully, todamages for breach of the agreement.

(2) The partners who have not caused the dissolution wrongfully, if they all desire to continuethe business in the same name either by themselves or jointly with others, may do so, duringthe agreed term for the partnership and for that purpose may possess the partnershipproperty, provided they secure the payment by bond approved by the court, or pay to anypartner who has caused the dissolution wrongfully, the value of his interest in the partnershipat the dissolution, less any damages recoverable under the second paragraph, No. 1(b) ofthis article, and in like manner indemnify him against all present or future partnershipliabilities.

(3) A partner who has caused the dissolution wrongfully shall have:

(a) If the business is not continued under the provisions of the second paragraph,No. 2, all the rights of a partner under the first paragraph, subject to liability fordamages in the second paragraph, No. 1(b), of this article.

(b) If the business is continued under the second paragraph, No. 2, of this article, theright as against his co-partners and all claiming through them in respect of theirinterests in the partnership, to have the value of his interest in the partnership, lessany damage caused to his co-partners by the dissolution, ascertained and paid tohim in cash, or the payment secured by a bond approved by the court, and to be

released from all existing liabilities of the partnership; but in ascertaining the value ofthe partner’s interest the value of the good-will of the business shall not beconsidered.

And under Article 1838 of the New Civil Code, the party entitled to rescind is, without prejudice toany other right, entitled:

(1) To a lien on, or right of retention of, the surplus of the partnership property after satisfyingthe partnership liabilities to third persons for any sum of money paid by him for the purchaseof an interest in the partnership and for any capital or advances contributed by him;

(2) To stand, after all liabilities to third persons have been satisfied, in the place of thecreditors of the partnership for any payments made by him in respect of the partnershipliabilities; and

(3) To be indemnified by the person guilty of the fraud or making the representation againstall debts and liabilities of the partnership.

The accounts between the parties after dissolution have to be settled as provided in Article 1839 ofthe New Civil Code:

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Art. 1839. In settling accounts between the partners after dissolution, the following rules shall beobserved, subject to any agreement to the contrary:

(1) The assets of the partnership are:

(a) The partnership property,

(b) The contributions of the partners necessary for the payment of all the liabilitiesspecified in No. 2.

(2) The liabilities of the partnership shall rank in order of payment, as follows:

(a) Those owing to creditors other than partners,

(b) Those owing to partners other than for capital and profits,

(c) Those owing to partners in respect of capital,

(d) Those owing to partners in respect of profits.

(3) The assets shall be applied in the order of their declaration in No. 1 of this article to thesatisfaction of the liabilities.

(4) The partners shall contribute, as provided by article 1797, the amount necessary tosatisfy the liabilities.

(5) An assignee for the benefit of creditors or any person appointed by the court shall havethe right to enforce the contributions specified in the preceding number.

(6) Any partner or his legal representative shall have the right to enforce the contributionsspecified in No. 4, to the extent of the amount which he has paid in excess of his share of theliability.

(7) The individual property of a deceased partner shall be liable for the contributionsspecified in No. 4.

(8) When partnership property and the individual properties of the partners are in possessionof a court for distribution, partnership creditors shall have priority on partnership property andseparate creditors on individual property, saving the rights of lien or secured creditors.

(9) Where a partner has become insolvent or his estate is insolvent, the claims against hisseparate property shall rank in the following order:

(a) Those owing to separate creditors;

(b) Those owing to partnership creditors;

(c) Those owing to partners by way of contribution.

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IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The assailed Decision and Resolutionof the Court of Appeals in CA-G.R. CV No. 69200 are AFFIRMED insofar as they conform to thisDecision of the Court.

Costs against petitioners.

SO ORDERED.

G.R. No. 15574 September 17, 1919

SMITH, BELL & COMPANY (LTD.), petitioner,vs.JOAQUIN NATIVIDAD, Collector of Customs of the port of Cebu, respondent.

Ross and Lawrence for petitioner. Attorney-General Paredes for respondent.

MALCOLM, J.:

A writ of mandamus is prayed for by Smith, Bell & Co. (Ltd.), against Joaquin Natividad, Collector ofCustoms of the port of Cebu, Philippine Islands, to compel him to issue a certificate of Philippineregistry to the petitioner for its motor vessel Bato. The Attorney-General, acting as counsel forrespondent, demurs to the petition on the general ground that it does not state facts sufficient toconstitute a cause of action. While the facts are thus admitted, and while, moreover, the pertinentprovisions of law are clear and understandable, and interpretative American jurisprudence is foundin 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 theGovernment of the Philippine Islands, through its Legislature, can deny the registry of vessels in itscoastwise trade to corporations having alien stockholders.

FACTS.

Smith, Bell & Co., (Ltd.), is a corporation organized and existing under the laws of the PhilippineIslands. A majority of its stockholders are British subjects. It is the owner of a motor vessel known asthe Bato built for it in the Philippine Islands in 1916, of more than fifteen tons gross The Bato wasbrought to Cebu in the present year for the purpose of transporting plaintiff's merchandise betweenports in the Islands. Application was made at Cebu, the home port of the vessel, to the Collector ofCustoms for a certificate of Philippine registry. The Collector refused to issue the certificate, givingas his reason that all the stockholders of Smith, Bell & Co., Ltd., were not citizens either of theUnited States or of the Philippine Islands. The instant action is the result.

LAW.

The Act of Congress of April 29, 1908, repealing the Shipping Act of April 30, 1906 but reenacting aportion 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 ofvessels owned in the Philippine Islands, the Government of the Philippine Islands is herebyauthorized to adopt, from time to time, and enforce regulations governing the transportationof merchandise and passengers between ports or places in the Philippine Archipelago. (35Stat. at L., 70; Section 3912, U. S. Comp Stat. [1916]; 7 Pub. Laws, 364.)

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The Act of Congress of August 29, 1916, commonly known as the Jones Law, still in force, providesin 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 equalprotection 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 thelegislative authority herein provided or by Act of Congress of the United States.

SEC. 7. That the legislative authority herein provided shall have power, when notinconsistent with this Act, by due enactment to amend, alter modify, or repeal any law, civil orcriminal, 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 alllaws relating to revenue provided as to the tariff to all laws relating to revenue and taxation ineffect in the Philippines.

SEC. 8. That general legislative power, except as otherwise herein provided, is herebygranted to the Philippine Legislature, authorized by this Act.

SEC. 10. That while this Act provides that the Philippine government shall have the authorityto enact a tariff law the trade relations between the islands and the United States shallcontinue 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 lawuntil they shall receive the approval of the President of the United States, nor shall any act ofthe Philippine Legislature affecting immigration or the currency or coinage laws of thePhilippines become a law until it has been approved by the President of the UnitedStates: Provided further, That the President shall approve or disapprove any act mentionedin the foregoing proviso within six months from and after its enactment and submission forhis approval, and if not disapproved within such time it shall become a law the same as if ithad been specifically approved.

SEC. 31. That all laws or parts of laws applicable to the Philippines not in conflict with any ofthe 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 lawamended section 1172 of the Administrative Code to read as follows:

SEC. 1172. Certificate of Philippine register. — Upon registration of a vessel of domesticownership, and of more than fifteen tons gross, a certificate of Philippine register shall beissued 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 ormore of the following classes of persons: (a) Citizens or native inhabitants of the PhilippineIslands; (b) citizens of the United States residing in the Philippine Islands; (c ) any corporationor company composed wholly of citizens of the Philippine Islands or of the United States orof both, created under the laws of the United States, or of any State thereof, or of thereof, orthe managing agent or master of the vessel resides in the Philippine Islands

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Any vessel of more than fifteen gross tons which on February eighth, nineteen hundred andeighteen, had a certificate of Philippine register under existing law, shall likewise be deemeda vessel of domestic ownership so long as there shall not be any change in the ownershipthereof nor any transfer of stock of the companies or corporations owning such vessel toperson not included under the last preceding paragraph.

Sections 2 and 3 of Act No. 2761 amended sections 1176 and 1202 of the Administrative Code toread as follows:

SEC. 1176. Investigation into character of vessel.— No application for a certificate ofPhilippine register shall be approved until the collector of customs is satisfied from aninspection of the vessel that it is engaged or destined to be engaged in legitimate tradeand that it is of domestic ownership as such ownership is defined in section eleven hundredand 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 tradeand is entitled to have or retain the certificate of Philippine register.

SEC. 1202. Limiting number of foreign officers and engineers on board vessels. — NoPhilippine vessel operating in the coastwise trade or on the high seas shall be permitted tohave on board more than one master or one mate and one engineer who are not citizens ofthe United States or of the Philippine Islands, even if they hold licenses under section onethousand one hundred and ninety-nine hereof. No other person who is not a citizen of theUnited States or of the Philippine Islands shall be an officer or a member of the crew of suchvessel. Any such vessel which fails to comply with the terms of this section shall be requiredto pay an additional tonnage tax of fifty centavos per net ton per month during thecontinuance 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 ofthe Philippine Islands, through its Legislature, can deny the registry of vessel in its coastwise tradeto corporations having alien stockholders .

OPINION.

1. Considered from a positive standpoint, there can exist no measure of doubt as to the power of thePhilippine Legislature to enact Act No. 2761. The Act of Congress of April 29, 1908, with its specificdelegation of authority to the Government of the Philippine Islands to regulate the transportation ofmerchandise and passengers between ports or places therein, the liberal construction given to theprovisions 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 away be inconsistent with the Act of Congress regulating the coasting trade of the Continental UnitedStates, yet the general rule that only such laws of the United States have force in the Philippines asare expressly extended thereto, and the abnegation of power by Congress in favor of the PhilippineIslands would leave no starting point for convincing argument. As a matter of fact, counsel forpetitioner does not assail legislative action from this direction (See U. S. vs. Bull [1910], 15 Phil., 7;Sinnot vs. Davenport [1859] 22 How., 227.)

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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 againin the first paragraph of the Philippine Bill of Rights as set forth in the Jones Law, provides "That nolaw shall be enacted in said Islands which shall deprive any person of life, liberty, or property withoutdue process of law, or deny to any person therein the equal protection of the laws." Counsel saysthat 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 corporationsbased on the citizenship of one or more of their stockholders is capricious, and that Act No. 2761deprives the corporation of its properly without due process of law because by the passage of thelaw company was automatically deprived of every beneficial attribute of ownership in the Bato andleft 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 beenused in the same sense as like provisions found in the United States Constitution. While the "dueprocess of law and equal protection of the laws" clause of the Philippine Bill of Rights is couched inslightly different words than the corresponding clause of the Fourteenth Amendment to the UnitedStates 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 classicdecisions of the United States Supreme Court. Even at the expense of restating what is so wellknown, 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 ofRights, are universal in their application to all person within the territorial jurisdiction, without regardto any differences of race, color, or nationality. The word "person" includes aliens. (Yick Wo vs.Hopkins [1886], 118 U. S., 356; Truaxvs. Raich [1915], 239 U. S., 33.) Private corporations, likewise,are "persons" within the scope of the guaranties in so far as their property is concerned. (SantaClara County vs. Southern Pac. R. R. Co. [1886], 118.U. S., 394; Pembina MiningCo. 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 madeamong 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 lawsheld 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 inordinary kinds of business to earn their living. (Statevs. Montgomery [1900], 94 Maine, 192, peddling— but see. Commonwealth vs. Hana [1907], 195 Mass., 262; Templar vs. Board of Examiners ofBarbers [1902], 131 Mich., 254, barbers; Yick Wo vs. Hopkins [1886], 118 U. S.,.356, discriminationagainst 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 inevitablededuction that Act No. 2761 is unconstitutional by reason of its denial to a corporation, some ofwhole 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 theprovisions 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 anywild 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 propertyin fish and oysters found in the public waters of the State; Heim vs. McCall [1915], 239 U. S.,.175,

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and Crane vs. New York [1915], 239 U. S., 195, limiting employment on public works by, or for, theState 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, thatneither the Fourteenth Amendment to the United States Constitution, broad and comprehensive as itis, 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 itsresources and add to its wealth and prosperity. From the very necessities of society, legislation of aspecial 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], 115U.S., 650.) This is the same police power which the United States Supreme Court say "extends to sodealing with the conditions which exist in the state as to bring out of them the greatest welfare in ofits people." (Bacon vs. Walker [1907], 204 U.S., 311.) For quite similar reasons, none of theprovision of the Philippine Organic Law could could have had the effect of denying to theGovernment of the Philippine Islands, acting through its Legislature, the right to exercise that mostessential, insistent, and illimitable of powers, the sovereign police power, in the promotion of thegeneral welfare and the public interest. (U. S. vs. Toribio [1910], 15 Phil., 85; Churchill andTait 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 thecommon 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 permitsof the limitation of employment in the construction of public works by, or for, the State or amunicipality 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 toclassification, it is admitted that a State may classify with reference to the evil to be prevented; thequestion is a practical one, dependent upon experience. (Patsone vs. Commonwealth ofPennsylvania [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 PhilippineIslands or of the United States or both, as not infringing Philippine Organic Law, it must be doneunder some one of the exceptions here mentioned This must be done, moreover, having particularlyin mind what is so often of controlling effect in this jurisdiction — our local experience and ourpeculiar local conditions.

To recall a few facts in geography, within the confines of Philippine jurisdictional limits are foundmore than three thousand islands. Literally, and absolutely, steamship lines are, for an Insularterritory 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 promotionof the general welfare is sustained. Time and again, with such conditions confronting it, has theexecutive 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. TheGovernment has thus assumed to act for the all-sufficient and primitive reason of the benefit andprotection of its own citizens and of the self-preservation and integrity of its dominion. ( Inre Patterson [1902], 1 Phil., 93; Forbes vs. Chuoco, Tiaco and Crossfield [1910], 16 Phil., 534;.228U.S., 549; In re McCulloch Dick [1918], 38 Phil., 41.) Boats owned by foreigners, particularly by suchsolid and reputable firms as the instant claimant, might indeed traverse the waters of the Philippinesfor ages without doing any particular harm. Again, some evilminded foreigner might very easily takeadvantage of such lavish hospitality to chart Philippine waters, to obtain valuable information forunfriendly 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

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deemed part of the national domain, open to public use. (Book II, Tit. IV, Ch. I, Civil Code; SpanishLaw of Waters of August 3, 1866, arts 1, 2, 3.) Common carriers which in the Philippines as in theUnited States and other countries are, as Lord Hale said, "affected with a public interest," can onlybe permitted to use these public waters as a privilege and under such conditions as to therepresentatives 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 beforementioned, 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 birdor animal except in defense of person or property, and `to that end' makes it unlawful forsuch foreign-born person to own or be possessed of a shotgun or rifle; with a penalty of $25and a forfeiture of the gun or guns. The plaintiff in error was found guilty and was sentencedto pay the abovementioned fine. The judgment was affirmed on successive appeals. (231Pa., 46; 79 Atl., 928.) He brings the case to this court on the ground that the statute iscontrary to the 14th Amendment and also is in contravention of the treaty between the UnitedStates and Italy, to which latter country the plaintiff in error belongs .

Under the 14th Amendment the objection is twofold; unjustifiably depriving the alien ofproperty, and discrimination against such aliens as a class. But the former really dependsupon the latter, since it hardly can be disputed that if the lawful object, the protection of wildlife (Geer vs. Connecticut, 161 U.S., 519; 40 L. ed., 793; 16 Sup. Ct. Rep., 600), warrants thediscrimination, the, means adopted for making it effective also might be adopted. . . .

The discrimination undoubtedly presents a more difficult question. But we start withreference to the evil to be prevented, and that if the class discriminated against is orreasonably might be considered to define those from whom the evil mainly is to be feared, itproperly may be picked out. A lack of abstract symmetry does not matter. The question is apractical one, dependent upon experience. . . .

The question therefore narrows itself to whether this court can say that the legislature ofPennsylvania was not warranted in assuming as its premise for the law that residentunnaturalized 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 bevery 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 popularspeech in some states it was right; but it is enough that this court has no such knowledge oflocal 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 lawsclause of the Philippine Bill of Rights, nevertheless, Act No. 2761 of the Philippine Legislature, indenying to corporations such as Smith, Bell &. Co. Ltd., the right to register vessels in the Philippinescoastwise trade, does not belong to that vicious species of class legislation which must always becondemned, but does fall within authorized exceptions, notably, within the purview of the policepower, and so does not offend against the constitutional provision.

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This opinion might well be brought to a close at this point. It occurs to us, however, that thelegislative history of the United States and the Philippine Islands, and, probably, the legislativehistory of other countries, if we were to take the time to search it out, might disclose similar attemptsat restriction on the right to enter the coastwise trade, and might thus furnish valuable aid by whichto ascertain and, if possible, effectuate legislative intention.

3. The power to regulate commerce, expressly delegated to the Congress by theConstitution, includes the power to nationalize ships built and owned in the United States byregistries 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 mayregulate in any way it may see fit between these two extremes." (U.S.vs. Craig [1886], 28Fed., 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 longconvened 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 anyship or vessel to obtain the benefits of American registry, it must belong wholly to a citizen or citizensof the United States "and no other." (1 Stat. at L., 55.) That Act was shortly after repealed, but thesame idea was carried into the Acts of Congress of December 31, 1792 and February 18, 1793. (1Stat. at L., 287, 305.).Section 4 of the Act of 1792 provided that in order to obtain the registry of anyvessel, an oath shall be taken and subscribed by the owner, or by one of the owners thereof, beforethe officer authorized to make such registry, declaring, "that there is no subject or citizen of anyforeign prince or state, directly or indirectly, by way of trust, confidence, or otherwise, interested insuch vessel, or in the profits or issues thereof." Section 32 of the Act of 1793 even went so far as tosay "that if any licensed ship or vessel shall be transferred to any person who is not at the time ofsuch 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 toa foreigner, Chief Justice Marshall said that all the privileges of an American bottom were ipsofacto 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 beregistered 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 haveaffected them, until amended by the Act of May 28, 1896 (29 Stat. at L., 188) which extended theprivileges of registry from vessels wholly owned by a citizen or citizens of the United States tocorporations created under the laws of any of the states thereof. The law, as amended, madepossible the deduction that a vessel belonging to a domestic corporation was entitled to registry orenrollment even though some stock of the company be owned by aliens. The right of ownership ofstock 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 inoperation in the Islands with a civil law history which it wisely continued in force Article fifteen of theSpanish Code of Commerce permitted any foreigner to engage in Philippine trade if he had legalcapacity to do so under the laws of his nation. When the Philippine Commission came to enact theCustoms Administrative Act (No. 355) in 1902, it returned to the old American policy of limiting theprotection and flag of the United States to vessels owned by citizens of the United States or bynative inhabitants of the Philippine Islands (Sec. 117.) Two years later, the same body reverted tothe existing Congressional law by permitting certification to be issued to a citizen of the UnitedStates or to a corporation or company created under the laws of the United States or of any state

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thereof or of the Philippine Islands (Act No. 1235, sec. 3.) The two administration codes repeated thesame provisions with the necessary amplification of inclusion of citizens or native inhabitants of thePhilippine 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 wasmerely 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 ofPhilippine 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 ananti-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 inpassing navigation or tariff laws on different occasions. The object of such a law, the United StatesSupreme 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], 198U.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, actslicensing gaming houses, retailers of spirituous liquors, etc. The act, in this instance, isdistinctly of that character, and forms part of an extensive system, the object of which is toencourage American shipping, and place them on an equal footing with the shipping of othernations. Almost every commercial nation reserves to its own subjects a monopoly of itscoasting 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 tothe act of her enrollment. But it is to confer on her American privileges, ascontradistinguished 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 newcountry did so imbued with a spirit of Americanism. Domestic navigation and trade, it decreed, couldonly be carried on by citizens of the United States. If the representatives of the American peopleacted in this patriotic manner to advance the national policy, and if their action was accepted withoutprotest 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 itsprosperity? Quite similarly, the Philippine Legislature made up entirely of Filipinos, representing themandate of the Filipino people and the guardian of their rights, acting under practically autonomouspowers, and imbued with a strong sense of Philippinism, has desired for these Islands safety fromforeign 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, especiallycan a court, that with all the facts and circumstances affecting the Filipino people before it, thePhilippine 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 monasticseclusion amidst dusty tomes and ancient records, but, as keen spectators of passing events andalive to the dictates of the general — the national — welfare, can incline the scales of their decisionsin favor of that solution which will most effectively promote the public policy. All the presumption is infavor of the constitutionally of the law and without good and strong reasons, courts should not

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attempt to nullify the action of the Legislature. "In construing a statute enacted by the PhilippineCommission (Legislature), we deem it our duty not to give it a construction which would berepugnant to an Act of Congress, if the language of the statute is fairly susceptible of anotherconstruction 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 opinionthat the limitation of domestic ownership for purposes of obtaining a certificate of Philippine registryin the coastwise trade to citizens of the Philippine Islands, and to citizens of the United States, doesnot violate the provisions of paragraph 1 of section 3 of the Act of Congress of August 29, 1916 Notreaty right relied upon Act No. 2761 of the Philippine Legislature is held valid and constitutional .

The petition for a writ of mandamus is denied, with costs against the petitioner. So ordered.

G.R. No. L-19550 June 19, 1967

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

HON. JOSE W. DIOKNO, in his capacity as SECRETARY OF JUSTICE; JOSE LUKBAN, in hiscapacity as Acting Director, National Bureau of Investigation; SPECIAL PROSECUTORSPEDRO D. CENZON, EFREN I. PLANA and MANUEL VILLAREAL, JR. and ASST. FISCALMANASES G. REYES; JUDGE AMADO ROAN, Municipal Court of Manila; JUDGE ROMANCANSINO, Municipal Court of Manila; JUDGE HERMOGENES CALUAG, Court of FirstInstance of Rizal-Quezon City Branch, and JUDGE DAMIAN JIMENEZ, Municipal Court ofQuezon 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 forrespondents.

CONCEPCION, C.J.:

Upon application of the officers of the government named on the margin1 — hereinafter referred toas 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 thecorporations of which they were officers,5 directed to the any peace officer, to search the personsabove-named and/or the premises of their offices, warehouses and/or residences, and to seize andtake 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 allbusiness 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 orintended to be used as the means of committing the offense," which is described in the applicationsadverted 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 Constitutionand the Rules of Court — because, inter alia: (1) they do not describe with particularity the

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documents, books and things to be seized; (2) cash money, not mentioned in the warrants, wereactually seized; (3) the warrants were issued to fish evidence against the aforementioned petitionersin deportation cases filed against them; (4) the searches and seizures were made in an illegalmanner; and (5) the documents, papers and cash money seized were not delivered to the courts thatissued the warrants, to be disposed of in accordance with law — on March 20, 1962, said petitionersfiled 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 beissued restraining Respondents-Prosecutors, their agents and /or representatives from using theeffects seized as aforementioned or any copies thereof, in the deportation cases already advertedto, and that, in due course, thereafter, decision be rendered quashing the contested search warrantsand declaring the same null and void, and commanding the respondents, their agents orrepresentatives to return to petitioners herein, in accordance with Section 3, Rule 67, of the Rules ofCourt, the documents, papers, things and cash moneys seized or confiscated under the searchwarrants in question.

In their answer, respondents-prosecutors alleged, 6 (1) that the contested search warrants are validand have been issued in accordance with law; (2) that the defects of said warrants, if any, werecured by petitioners' consent; and (3) that, in any event, the effects seized are admissible inevidence against herein petitioners, regardless of the alleged illegality of the aforementionedsearches 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 thepapers, documents and things seized from the offices of the corporations above mentioned areconcerned; but, the injunction was maintained as regards the papers, documents and things foundand seized in the residences of petitioners herein.7

Thus, the documents, papers, and things seized under the alleged authority of the warrants inquestion may be split into two (2) major groups, namely: (a) those found and seized in the offices ofthe aforementioned corporations, and (b) those found and seized in the residences of petitionersherein.

As regards the first group, we hold that petitioners herein have no cause of action to assail thelegality of the contested warrants and of the seizures made in pursuance thereof, for the simplereason that said corporations have their respective personalities, separate and distinct from thepersonality of herein petitioners, regardless of the amount of shares of stock or of the interest ofeach of them in said corporations, and whatever the offices they hold therein may be.8 Indeed, it iswell settled that the legality of a seizure can be contested only by the party whose rights have beenimpaired thereby,9 and that the objection to an unlawful search and seizure is purely personal andcannot be availed of by third parties. 10 Consequently, petitioners herein may not validly object to theuse in evidence against them of the documents, papers and things seized from the offices andpremises of the corporations adverted to above, since the right to object to the admission of saidpapers in evidence belongsexclusively to the corporations, to whom the seized effects belong, andmay not be invoked by the corporate officers in proceedings against them in their individualcapacity. 11 Indeed, it has been held:

. . . that the Government's action in gaining possession of papers belonging tothe corporation did not relate to nor did it affect the personal defendants. If these paperswere unlawfully seized and thereby the constitutional rights of or any one were invaded, theywere the rights of the corporation and not the rights of the other defendants. Next, it is clearthat a question of the lawfulness of a seizure can be raised only by one whose rights havebeen invaded . Certainly, such a seizure, if unlawful, could not affect the constitutional rights

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of defendants whose property had not been seized or the privacy of whose homes had notbeen 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. UnitedStates (C.C.A.)291 F. 501, 511. It follows, therefore, that the question of the admissibility ofthe evidence based on an alleged unlawful search and seizure does not extend to thepersonal 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, theaforementioned resolution of June 29, 1962, lifted the writ of preliminary injunction previously issuedby this Court,12 thereby, in effect, restraining herein Respondents-Prosecutors from using them inevidence 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 theauthority 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 warrantsand that accordingly, the seizures effected upon the authority there of are null and void. In thisconnection, the Constitution13 provides:

The right of the people to be secure in their persons, houses, papers, and effects againstunreasonable searches and seizures shall not be violated, and no warrants shall issue butupon probable cause, to be determined by the judge after examination under oath oraffirmation of the complainant and the witnesses he may produce, and particularly describingthe 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 nowarrant shall issue but upon probable cause, to be determined by the judge in the manner set forthin 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 samewere issued upon applications stating that the natural and juridical person therein named hadcommitted a "violation of Central Ban Laws, Tariff and Customs Laws, Internal Revenue (Code) andRevised Penal Code." In other words, nospecific offense had been alleged in said applications. Theaverments thereof with respect to the offense committed were abstract . As a consequence, itwas impossible for the judges who issued the warrants to have found the existence of probablecause, for the same presupposes the introduction of competent proof that the party against whom itis sought has performed particular acts, or committed specific omissions, violating a given provisionof our criminal laws. As a matter of fact, the applications involved in this case do not allege anyspecific acts performed by herein petitioners. It would be the legal heresy, of the highest order, toconvict 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 — withoutreference 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 mostfundamental rights guaranteed in our Constitution, for it would place the sanctity of the domicile andthe privacy of communication and correspondence at the mercy of the whims caprice or passion ofpeace officers. This is precisely the evil sought to be remedied by the constitutional provision abovequoted — to outlaw the so-called general warrants. It is not difficult to imagine what would happen,

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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 searchwarrants, that this Court deemed it fit to amend Section 3 of Rule 122 of the former Rules ofCourt 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 withthis qualification, the Court added thereto a paragraph, directing that "no search warrant shall issuefor more than one specific offense."

The grave violation of the Constitution made in the application for the contested search warrants wascompounded 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 allbusiness transactions including disbursement receipts, balance sheets and related profit andloss statements.

Thus, the warrants authorized the search for and seizure of records pertaining to all businesstransactions of petitioners herein, regardless of whether the transactions were legal or illegal . Thewarrants sanctioned the seizure of all records of the petitioners and the aforementionedcorporations, whatever their nature, thus openly contravening the explicit command of our Bill ofRights — that the things to be seized be particularly described — as well as tending to defeat itsmajor objective: the elimination of general warrants.

Relying upon Moncado vs. People's Court (80 Phil. 1), Respondents-Prosecutors maintain that, evenif the searches and seizures under consideration were unconstitutional, the documents, papers andthings 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 beabandoned. Said position was in line with the American common law rule, that the criminal shouldnot be allowed to go free merely "because the constable has blundered," 16 upon the theory that theconstitutional prohibition against unreasonable searches and seizures is protected by means otherthan the exclusion of evidence unlawfully obtained, 17 such as the common-law action for damagesagainst the searching officer, against the party who procured the issuance of the search warrant andagainst 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 otherlaws.

However, most common law jurisdictions have already given up this approach and eventuallyadopted the exclusionary rule, realizing that this is the only practical means of enforcing theconstitutional injunction against unreasonable searches and seizures. In the language of JudgeLearned Hand:

As we understand it, the reason for the exclusion of evidence competent as such, which hasbeen unlawfully acquired, is that exclusion is the only practical way of enforcing theconstitutional privilege. In earlier times the action of trespass against the offending officialmay have been protection enough; but that is true no longer. Only in case the prosecutionwhich itself controls the seizing officials, knows that it cannot profit by their wrong will thatwrong be repressed .18

In fact, over thirty (30) years before, the Federal Supreme Court had already declared:

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If letters and private documents can thus be seized and held and used in evidence against acitizen accused of an offense, the protection of the 4th Amendment, declaring his rights to besecure against such searches and seizures, is of no value, and, so far as those thus placedare concerned, might as well be stricken from the Constitution. The efforts of the courts andtheir officials to bring the guilty to punishment, praiseworthy as they are, are not to be aidedby 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 sameFederal Court. 20 After 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 ofprivacy free from unreasonable state intrusion, and after its dozen years on our books, areled by it to close the only courtroom door remaining open to evidence secured by officiallawlessness in flagrant abuse of that basic right, reserved to all persons as a specificguarantee against that very same unlawful conduct. We hold that all evidence obtained bysearches and seizures in violation of the Constitution is, by that same authority, inadmissiblein a State.

Since the Fourth Amendment's right of privacy has been declared enforceable against theStates through the Due Process Clause of the Fourteenth, it is enforceable against them bythe same sanction of exclusion as it used against the Federal Government. Were itotherwise, then just as without the Weeks rule the assurance against unreasonable federalsearches and seizures would be "a form of words," valueless and underserving of mention ina perpetual charter of inestimable human liberties, so too, without that rule the freedom fromstate invasions of privacy would be so ephemeral and so neatly severed from its conceptualnexus with the freedom from all brutish means of coercing evidence as not to permit thisCourt's high regard as a freedom "implicit in the concept of ordered liberty ." At the time thatthe Court held in Wolf that the amendment was applicable to the States through the DueProcess 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 inviolation of its provisions. Even Wolf "stoutly adhered" to that proposition. The right to whenconceded operatively enforceable against the States, was not susceptible of destruction byavulsion of the sanction upon which its protection and enjoyment had always been deemeddependent under the Boyd, Weeks and Silverthorne Cases. Therefore, in extending thesubstantive protections of due process to all constitutionally unreasonable searches — stateor federal — it was logically and constitutionally necessarily that the exclusion doctrine — anessential part of the right to privacy — be also insisted upon as an essential ingredient of theright newly recognized by the Wolf Case. In short, the admission of the new constitutionalRight 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 theunlawful seizure. To hold otherwise is to grant the right but in reality to withhold its privilegeand enjoyment . Only last year the Court itself recognized that the purpose of theexclusionary 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 ofconstitutional restraints on which the liberties of the people rest. Having once recognized thatthe 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, thereforeconstitutional 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

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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 whichthe Constitution guarantees him to the police officer no less than that to which honest lawenforcement is entitled, and, to the courts, that judicial integrity so necessary in the trueadministration of justice. (emphasis ours.)

Indeed, the non-exclusionary rule is contrary, not only to the letter, but also, to the spirit of theconstitutional injunction against unreasonable searches and seizures. To be sure, if the applicant fora search warrant has competent evidence to establish probable cause of the commission of a givencrime by the party against whom the warrant is intended, then there is no reason why the applicantshould not comply with the requirements of the fundamental law. Upon the other hand, if he has nosuch 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 warrantand/or make unreasonable searches or seizures would suffice to protect the constitutional guaranteeunder consideration, overlooks the fact that violations thereof are, in general, committed By agentsof the party in power, for, certainly, those belonging to the minority could not possibly abuse a powerthey 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 thefact that the psychological and moral effect of the possibility 21 of securing their conviction, is watereddown 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, DeweyBoulevard, House No. 1436, Colorado Street, and Room No. 304 of the Army-Navy Club, should beincluded 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 abovereferred to include personal belongings of said petitioners and other effects under their exclusivepossession and control, for the exclusion of which they have a standing under the latest rulings ofthe federal courts of federal courts of the United States. 22

We note, however, that petitioners' theory, regarding their alleged possession of and control over theaforementioned 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 bereadjustment of that followed in said petitions, to suit the approach intimated in the Resolutionsought to be reconsidered and amended. Then, too, some of the affidavits or copies of allegedaffidavits attached to said motion for reconsideration, or submitted in support thereof, contain eitherinconsistent allegations, or allegations inconsistent with the theory now advanced by petitionersherein.

Upon the other hand, we are not satisfied that the allegations of said petitions said motion forreconsideration, and the contents of the aforementioned affidavits and other papers submitted insupport of said motion, have sufficiently established the facts or conditions contemplated in thecases relied upon by the petitioners; to warrant application of the views therein expressed, shouldwe agree thereto. At any rate, we do not deem it necessary to express our opinion thereon, it beingbest to leave the matter open for determination in appropriate cases in the future.

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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, asspecified in the Resolution of June 29, 1962, are null and void; that the searches and seizurestherein made are illegal; that the writ of preliminary injunction heretofore issued, in connection withthe documents, papers and other effects thus seized in said residences of herein petitioners ishereby 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 theaforementioned motion for Reconsideration and Amendment should be, as it is hereby, denied; andthat 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 premisesenumerated in the same Resolution, without special pronouncement as to costs.

It is so ordered.

Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar and Sanchez, JJ., concur.

CASTRO, J., concurring and dissenting:

From my analysis of the opinion written by Chief Justice Roberto Concepcion and from the import ofthe deliberations of the Court on this case, I gather the following distinct conclusions:

1. All the search warrants served by the National Bureau of Investigation in this case aregeneral warrants and are therefore proscribed by, and in violation of, paragraph 3 of section1 of Article III (Bill of Rights) of the Constitution;

2. All the searches and seizures conducted under the authority of the said search warrantswere consequently illegal;

3. The non-exclusionary rule enunciated in Moncado vs. People, 80 Phil. 1, should be, and isdeclared, abandoned;

4. The search warrants served at the three residences of the petitionersare expressly declared null and void the searches and seizures therein madeare expressly declared illegal; and the writ of preliminary injunction heretofore issued againstthe use of the documents, papers and effect seized in the said residences is madepermanent; and

5. Reasoning that the petitioners have not in their pleadings satisfactorily demonstrated thatthey have legal standing to move for the suppression of the documents, papers and effectsseized in the places other than the three residences adverted to above, the opinion writtenby the Chief Justice refrains from expressly declaring as null and void the such warrantsserved at such other places and as illegal the searches and seizures made therein, andleaves "the matter open for determination in appropriate cases in the future."

It is precisely the position taken by the Chief Justice summarized in the immediately precedingparagraph (numbered 5) with which I am not in accord.

I do not share his reluctance or unwillingness to expressly declare, at this time, the nullity of thesearch warrants served at places other than the three residences, and the illegibility of the searchesand seizures conducted under the authority thereof. In my view even the exacerbating passions andprejudices inordinately generated by the environmental political and moral developments of this case

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should not deter this Court from forthrightly laying down the law not only for this case but as well forfuture cases and future generations. All the search warrants, without exception, in this case areadmittedly general, blanket and roving warrants and are therefore admittedly and indisputablyoutlawed by the Constitution; and the searches and seizures made were therefore unlawful. That thepetitioners, let us assume in gratia argumente, have no legal standing to ask for the suppression ofthe papers, things and effects seized from places other than their residences, to my mind, cannot in

any manner affect, alter or otherwise modify the intrinsic nullity of the search warrants and theintrinsic illegality of the searches and seizures made thereunder. Whether or not the petitionerspossess legal standing the said warrants are void and remain void, and the searches and seizureswere illegal and remain illegal. No inference can be drawn from the words of the Constitution that"legal standing" or the lack of it is a determinant of the nullity or validity of a search warrant or of thelawfulness or illegality of a search or seizure.

On the question of legal standing, I am of the conviction that, upon the pleadings submitted to thisCourt the petitioners have the requisite legal standing to move for the suppression and return of thedocuments, papers and effects that were seized from places other than their family residences.

Our constitutional provision on searches and seizures was derived almost verbatim from the Fourth Amendment to the United States Constitution. In the many years of judicial construction andinterpretation of the said constitutional provision, our courts have invariably regarded as doctrinal thepronouncement made on the Fourth Amendment by federal courts, especially the Federal SupremeCourt and the Federal Circuit Courts of Appeals.

The U.S. doctrines and pertinent cases on standing to move for the suppression or return ofdocuments, papers and effects which are the fruits of an unlawful search and seizure, may besummarized as follows; (a) ownership of documents, papers and effects gives "standing;" (b)ownership and/or control or possession — actual or constructive — of premises searched gives"standing"; and (c) the "aggrieved person" doctrine where the search warrant and the swornapplication for search warrant are "primarily" directed solely and exclusively against the "aggrievedperson," gives "standing."

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

Ownership of matters seized gives "standing."

Ownership of the properties seized alone entitles the petitioners to bring a motion to return andsuppress, and gives them standing as persons aggrieved by an unlawful search and seizureregardless of their location at the time of seizure. Jones vs. United States, 362 U.S. 257, 261 (1960)(narcotics stored in the apartment of a friend of the defendant); Henzel vs. United States, 296 F. 2d.650, 652-53 (5th Cir. 1961), (personal and corporate papers of corporation of which the defendantwas president), United States vs. Jeffers, 342 U.S. 48 (1951) (narcotics seized in an apartment notbelonging to the defendant); Pielow vs. United States, 8 F. 2d 492, 493 (9th Cir. 1925) (books seizedfrom the defendant's sister but belonging to the defendant); Cf. Villano vs. United States, 310 F. 2d

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680, 683 (10th Cir. 1962) (papers seized in desk neither owned by nor in exclusive possession of thedefendant).

In a very recent case (decided by the U.S. Supreme Court on December 12, 1966), it was held thatunder the constitutional provision against unlawful searches and seizures, a person places himselfor his property within a constitutionally protected area, be it his home or his office, his hotel room or

his automobile:

Where the argument falls is in its misapprehension of the fundamental nature and scope ofFourth Amendment protection. What the Fourth Amendment protects is the security a manrelies upon when he places himself or his property within a constitutionally protected area, beit his home or his office, his hotel room or his automobile. There he is protected fromunwarranted governmental intrusion. And when he puts some thing in his filing cabinet, in hisdesk drawer, or in his pocket, he has the right to know it will be secure from an unreasonablesearch or an unreasonable seizure. So it was that the Fourth Amendment could not toleratethe warrantless search of the hotel room in Jeffers, the purloining of the petitioner's privatepapers in Gouled , or the surreptitious electronic surveilance in Silverman. Countless othercases which have come to this Court over the years have involved a myriad of differingfactual contexts in which the protections of the Fourth Amendment have been appropriatelyinvoked. No doubt, the future will bring countless others. By nothing we say here do weeither foresee or foreclose factual situations to which the Fourth Amendment may beapplicable. (Hoffa vs. U.S., 87 S. Ct. 408 (December 12, 1966). See also U.S. vs. Jeffers,342 U.S. 48, 72 S. Ct. 93 (November 13, 1951). (Emphasis supplied).

Control of premises searched gives "standing."

Independent of ownership or other personal interest in the records and documents seized, thepetitioners have standing to move for return and suppression by virtue of their proprietary orleasehold interest in many of the premises searched. These proprietary and leasehold interests havebeen sufficiently set forth in their motion for reconsideration and need not be recounted here, exceptto emphasize that the petitioners paid rent, directly or indirectly, for practically all the premises

searched (Room 91, 84 Carmen Apts; Room 304, Army & Navy Club; Premises 2008, DeweyBoulevard; 1436 Colorado Street); maintained personal offices within the corporate offices (IBMC,USTC); had made improvements or furnished such offices; or had paid for the filing cabinets inwhich the papers were stored (Room 204, Army & Navy Club); and individually, or through theirrespective spouses, owned the controlling stock of the corporations involved. The petitioners'proprietary interest in most, if not all, of the premises searched therefore independently gives themstanding to move for the return and suppression of the books, papers and affects seized therefrom.

In Jones vs. United States, supra, the U.S. Supreme Court delineated the nature and extent of theinterest in the searched premises necessary to maintain a motion to suppress. After reviewing whatit considered to be the unduly technical standard of the then prevailing circuit court decisions, theSupreme Court said (362 U.S. 266):

We do not lightly depart from this course of decisions by the lower courts. We arepersuaded, however, that it is unnecessarily and ill-advised to import into the lawsurrounding the constitutional right to be free from unreasonable searches and seizuressubtle distinctions, developed and refined by the common law in evolving the body of privateproperty law which, more than almost any other branch of law, has been shaped bydistinctions whose validity is largely historical. Even in the area from which they derive, dueconsideration has led to the discarding of those distinctions in the homeland of the commonlaw. See Occupiers' Liability Act, 1957, 5 and 6 Eliz. 2, c. 31, carrying out Law Reform

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Committee, Third Report, Cmd. 9305. Distinctions such as those between "lessee","licensee," "invitee," "guest," often only of gossamer strength, ought not be determinative infashioning procedures ultimately referable to constitutional safeguards. See also Chapmanvs. United States, 354 U.S. 610, 616-17 (1961).

It has never been held that a person with requisite interest in the premises searched must own the

property seized in order to have standing in a motion to return and suppress. In Alioto vs. UnitedStates, 216 F. Supp. 48 (1963), a Bookkeeper for several corporations from whose apartment thecorporate records were seized successfully moved for their return. In United States vs. Antonelli,Fireworks Co., 53 F. Supp. 870, 873 (W D. N. Y. 1943), the corporation's president successfullymoved for the return and suppression is to him of both personal and corporate documents seizedfrom his home during the course of an illegal search:

The lawful possession by Antonelli of documents and property, "either his own or thecorporation's was entitled to protection against unreasonable search and seizure. Under thecircumstances in the case at bar, the search and seizure were unreasonable and unlawful.The motion for the return of seized article and the suppression of the evidence so obtainedshould be granted. (Emphasis supplied).

Time was when only a person who had property in interest in either the place searched or thearticles seize had the necessary standing to invoke the protection of the exclusionary rule. Butin MacDonald vs. Unite States, 335 U.S. 461 (1948), Justice Robert Jackson joined by Justice FelixFrankfurter, advanced the view that "even a guest may expect the shelter of the rooftree he is underagainst criminal intrusion." This view finally became the official view of the U.S. Supreme Court andwas articulated in United States vs. Jeffers, 432 U.S 48 (1951). Nine years later, in 1960, in Jonesvs. Unite States, 362 U.S. 257, 267, the U.S. Supreme Court went a step further. Jones was a mereguest in the apartment unlawfully searched but the Court nonetheless declared that the exclusionaryrule protected him as well. The concept of "person aggrieved by an unlawful search and seizure"was enlarged to include "anyone legitimately on premise where the search occurs."

Shortly after the U.S. Supreme Court's Jones decision the U.S. Court of Appeals for the Fifth Circuit

held that the defendant organizer, sole stockholder and president of a corporation had standing in amail fraud prosecution against him to demand the return and suppression of corporateproperty. Henzel vs. United States, 296 F 2d 650, 652 (5th Cir. 1961), supra. The court concludethat the defendant had standing on two independent grounds:First— he had a sufficient interest inthe property seized, and second— he had an adequate interest in the premises searched (just likein the case at bar). A postal inspector had unlawfully searched the corporation' premises and hadseized most of the corporation's book and records. Looking to Jones, the court observed:

Jones clearly tells us, therefore, what is not required qualify one as a "person aggrieved byan unlawful search and seizure." It tells us that appellant should not have been precludedfrom objecting to the Postal Inspector's search and seizure of the corporation's books andrecords merely because the appellant did not show ownership or possession of the books

and records or a substantial possessory interest in the invade premises . . . (Henzel vs.United States, 296 F. 2d at 651). .

Henzel was soon followed by Villano vs. United States, 310 F. 2d 680, 683, (10th Cir. 1962).In Villano, police officers seized two notebooks from a desk in the defendant's place of employment;the defendant did not claim ownership of either; he asserted that several employees (includinghimself) used the notebooks. The Court held that the employee had a protected interest and thatthere also was an invasion of privacy. Both Henzel andVillano considered also the fact that the

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search and seizure were "directed at" the moving defendant. Henzel vs. United States, 296 F. 2d at682; Villano vs. United States, 310 F. 2d at 683.

In a case in which an attorney closed his law office, placed his files in storage and went to PuertoRico, the Court of Appeals for the Eighth Circuit recognized his standing to move to quash asunreasonable search and seizure under the Fourth Amendment of the U.S. Constitution a grand jury

subpoena duces tecum directed to the custodian of his files. The Government contended that thepetitioner had no standing because the books and papers were physically in the possession of thecustodian, and because the subpoena was directed against the custodian. The court rejected thecontention, holding that

Schwimmer legally had such possession, control and unrelinquished personal rights in thebooks and papers as not to enable the question of unreasonable search and seizure to beescaped through the mere procedural device of compelling a third-party naked possessor toproduce and deliver them. Schwimmer vs. United States, 232 F. 2d 855, 861 (8th Cir. 1956).

Aggrieved person doctrine where the search warrant s primarily directed against said persongives "standing."

The latest United States decision squarely in point is United States vs. Birrell , 242 F. Supp. 191(1965, U.S.D.C. S.D.N.Y.). The defendant had stored with an attorney certain files and papers,which attorney, by the name of Dunn, was not, at the time of the seizing of the records, Birrell'sattorney. * Dunn, in turn, had stored most of the records at his home in the country and on a farmwhich, according to Dunn's affidavit, was under his (Dunn's) "control and management." The papersturned out to be private, personal and business papers together with corporate books and records ofcertain unnamed corporations in which Birrell did not even claim ownership. (All of these typerecords were seized in the case at bar). Nevertheless, the search in Birrell was held invalid by thecourt which held that even though Birrell did not own the premises where the records were stored,he had "standing" to move for the return of all the papers and properties seized. The court, relyingon Jones vs. U.S.,supra; U.S. vs. Antonelli Fireworks Co., 53 F. Supp. 870, Aff'd 155 F. 2d631: Henzel vs. U.S., supra; andSchwimmer vs. U.S., supra, pointed out that

It is overwhelmingly established that the searches here in question were directed solely andexclusively against Birrell. The only person suggested in the papers as having violated thelaw was Birrell. The first search warrant described the records as having been used "incommitting a violation of Title 18, United States Code, Section 1341, by the use of the mailsby one Lowell M. Birrell, . . ." The second search warrant was captioned: "United States of

America vs. Lowell M. Birrell . (p. 198)

Possession (actual or constructive), no less than ownership, gives standing to move tosuppress. Such was the rule even before Jones. (p. 199)

If, as thus indicated Birrell had at least constructive possession of the records stored with

Dunn, it matters not whether he had any interest in the premises searched. See also Jeffersv. United States, 88 U.S. Appl. D.C. 58, 187 F. 2d 498 (1950), affirmed 432 U.S. 48, 72 S.Ct. 93, 96 L. Ed. 459 (1951).

The ruling in the Birrell case was reaffirmed on motion for reargument; the United States did notappeal from this decision. The factual situation in Birrell is strikingly similar to the case of the presentpetitioners; as in Birrell , many personal and corporate papers were seized from premises notpetitioners' family residences; as in Birrell , the searches were "PRIMARILY DIRECTED SOLETY

AND EXCLUSIVELY" against the petitioners. Still both types of documents were suppressed

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in Birrell because of the illegal search. In the case at bar, the petitioners connection with thepremises raided is much closer than in Birrell .

Thus, the petitioners have full standing to move for the quashing of all the warrants regardlesswhether these were directed against residences in the narrow sense of the word, as long as thedocuments were personal papers of the petitioners or (to the extent that they were corporate papers)

were held by them in a personal capacity or under their personal control.

Prescinding a from the foregoing, this Court, at all events, should order the return to the petitionersall personal and private papers and effects seized, no matter where these were seized, whether fromtheir residences or corporate offices or any other place or places. The uncontradicted swornstatements of the petitioners in their, various pleadings submitted to this Court indisputably showthat amongst the things seized from the corporate offices and other placeswere personal and private papers and effects belonging to the petitioners.

If there should be any categorization of the documents, papers and things which where the objectsof the unlawful searches and seizures, I submit that the grouping should be:(a) personal or private papers of the petitioners were they were unlawfully seized, be it their family

residences offices, warehouses and/or premises owned and/or possessed (actually orconstructively) by them as shown in all the search and in the sworn applications filed in securing thevoid search warrants and (b) purely corporate papers belonging to corporations. Under suchcategorization or grouping, the determination of which unlawfully seized papers, documents andthings are personal/private of the petitioners or purely corporate papers will have to be left to thelower courts which issued the void search warrants in ultimately effecting the suppression and/orreturn of the said documents.

And as unequivocally indicated by the authorities above cited, the petitioners likewise have clearlegal standing to move for the suppression of purely corporate papers as "President and/or GeneralManager" of the corporations involved as specifically mentioned in the void search warrants.

Finally, I must articulate my persuasion that although the cases cited in my disquisition were criminalprosecutions, the great clauses of the constitutional proscription on illegal searches and seizures donot withhold the mantle of their protection from cases not criminal in origin or nature.

[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.

D E C I S I O N

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VILLAMOR, J.:

This is an original action of certiorari , prohibition and mandamus, with prayer for a writ of preliminary

mandatory and prohibitory injunction. In their petition Bache & Co. (Phil.), Inc., a corporation duly

organized and existing under the laws of the Philippines, and its President, Frederick E. Seggerman, pray

this Court to declare null and void Search Warrant No. 2-M-70 issued by respondent Judge on February

25, 1970; to order respondents to desist from enforcing the same and/or keeping the documents,

papers and effects seized by virtue thereof, as well as from enforcing the tax assessments on petitioner

corporation alleged by petitioners to have been made on the basis of the said documents, papers and

effects, and to order the return of the latter to petitioners. We gave due course to the petition but did

not issue the writ of preliminary injunction prayed for therein.

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

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

addressed to respondent Judge Vivencio M. Ruiz requesting the issuance of a search warrant against

petitioners for violation of Section 46(a) of the National Internal Revenue Code, in relation to all other

pertinent provisions thereof, particularly Sections 53, 72, 73, 208 and 209, and authorizing Revenue

Examiner Rodolfo de Leon, one of herein respondents, to make and file the application for search

warrant which was attached to the letter.

In the afternoon of the following day, February 25, 1970, respondent De Leon and his witness,

respondent Arturo Logronio, went to the Court of First Instance of Rizal. They brought with them the

following papers: respondent 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’

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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 ofinjunction 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

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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

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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 answerto 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

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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 mannerrespondent Judge did not have the opportunity to observe the demeanor of the complainant and his

witness, and to propound initial and follow-up questions which the judicial mind, on account of its

training, was in the best position to conceive. These were important in arriving at a sound inference on

the all-important question of whether or not there was probable cause.

2. The search warrant was issued for more than one specific offense.

Search Warrant No. 2-M-70 was issued for" [v]iolation of Sec. 46(a) of the National Internal Revenue

Code in relation to all other pertinent provisions thereof particularly Secs. 53, 72, 73, 208 and 209." The

question is: Was the said search warrant issued "in connection with one specific offense," as required by

Sec. 3, Rule 126?

To arrive at the correct answer it is essential to examine closely the provisions of the Tax Code referred

to above. Thus we find the following:chanrob1es virtual 1aw library

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

Sec. 53 requires the withholding of income taxes at source.

Sec. 72 imposes surcharges for failure to render income tax returns and for rendering false and

fraudulent returns.

Sec. 73 provides the penalty for failure to pay the income tax, to make a return or to supply the

information required under the Tax Code.

Sec. 208 penalizes" [a]ny person who distills, rectifies, repacks, compounds, or manufactures any article

subject to a specific tax, without having paid the privilege tax therefore, or who aids or abets in the

conduct of illicit distilling, rectifying, compounding, or illicit manufacture of any article subject to specific

tax . . .," and provides that in the case of a corporation, partnership, or association, the official and/or

employee who caused the violation shall be responsible.

Sec. 209 penalizes the failure to make a return of receipts, sales, business, or gross value of output

removed, or to pay the tax due thereon.

The search warrant in question was issued for at least four distinct offenses under the Tax Code. The

first is the violation of Sec. 46(a), Sec. 72 and Sec. 73 (the filing of income tax returns), which are

interrelated. The second is the violation of Sec. 53 (withholding of income taxes at source). The third is

the violation of Sec. 208 (unlawful pursuit of business or occupation); and the fourth is the violation of

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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 notapplicable, 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 disbursementsbooks, 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.’

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"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: theelimination 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

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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 appliedwithout considering the circumstances. (Matutina v. Buslon, Et Al., 109 Phil., 140.) In the case at bar

time is of the essence in view of the tax assessments sought to be enforced by respondent officers of

the Bureau of Internal Revenue against petitioner corporation, On account of which immediate and

more direct action becomes necessary. (Matute v. Court of Appeals, Et Al., 26 SCRA 768.) Lastly, the rule

does not apply where, as in this case, the deprivation of petitioners’ fundamental right to due process

taints the proceeding against them in the court below not only with irregularity but also with nullity.

(Matute v. Court of Appeals, Et Al., supra.)

It is next contended by respondents that a corporation is not entitled to protection against

unreasonable search and seizures. Again, we find no merit in the contention.

"Although, for the reasons above stated, we are of the opinion that an officer of a corporation which is

charged with a violation of a statute of the state of its creation, or of an act of Congress passed in the

exercise of its constitutional powers, cannot refuse to produce the books and papers of such

corporation, we do not wish to be understood as holding that a corporation is not entitled to immunity,

under the 4th Amendment, against unreasonable searches and seizures. A corporation is, after all, but

an association of individuals under an assumed name and with a distinct legal entity. In organizing itself

as a collective body it waives no constitutional immunities appropriate to such body. Its property cannot

be taken without compensation. It can only be proceeded against by due process of law, and is

protected, under the 14th Amendment, against unlawful discrimination . . ." (Hale v. Henkel, 201 U.S.

43, 50 L. ed. 652.)

"In Linn v. United States, 163 C.C.A. 470, 251 Fed. 476, 480, it was thought that a different rule applied

to a corporation, the ground that it was not privileged from producing its books and papers. But the

rights of a corporation against unlawful search and seizure are to be protected even if the same result

might have been achieved in a lawful way." (Silverthorne Lumber Company, Et. Al. v. United States of

America, 251 U.S. 385, 64 L. ed. 319.)

In Stonehill, Et. Al. v. Diokno, Et Al., supra, this Court impliedly recognized the right of a corporation to

object against unreasonable searches and seizures, thus:jgc:chanrobles.com.ph

"As regards the first group, we hold that petitioners herein have no cause of action to assail the legality

of the contested warrants and of the seizures made in pursuance thereof, for the simple reason that

said corporations have their respective personalities, separate and distinct from the personality of

herein petitioners, regardless of the amount of shares of stock or the interest of each of them in said

corporations, whatever, the offices they hold therein may be. Indeed, it is well settled that the legality of

a seizure can be contested only by the party whose rights have been impaired thereby, and that the

objection to an unlawful search and seizure is purely personal and cannot be availed of by third parties.

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Consequently, petitioners herein may not validly object to the use in evidence against them of the

documents, papers and things seized from the offices and premises of the corporations adverted to

above, since the right to object to the admission of said papers in evidence belongs exclusively to the

corporations, to whom the seized effects belong, and may not be invoked by the corporate officers in

proceedings against them in their individual capacity . . ."cralaw virtua1aw library

In the Stonehill case only the officers of the various corporations in whose offices documents, papers

and effects were searched and seized were the petitioners. In the case at bar, the corporation to whom

the seized documents belong, and whose rights have thereby been impaired, is itself a petitioner. On

that score, petitioner corporation here stands on a different footing from the corporations in Stonehill.

The tax assessments referred to earlier in this opinion were, if not entirely — as claimed by petitioners

— at least partly — as in effect admitted by respondents — based on the documents seized by virtue of

Search Warrant No. 2-M-70. Furthermore, the fact that the assessments were made some one and one-

half months after the search and seizure on February 25, 1970, is a strong indication that the documents

thus seized served as basis for the assessments. Those assessments should therefore not be enforced.

PREMISES CONSIDERED, the petition is granted. Accordingly, Search Warrant No. 2-M-70 issued by

respondent Judge is declared null and void; respondents are permanently enjoined from enforcing the

said search warrant; the documents, papers and effects seized thereunder are ordered to be returned to

petitioners; and respondent officials the Bureau of Internal Revenue and their representatives are

permanently enjoined from enforcing the assessments mentioned in Annex "G" of the present petition,

as well as other assessments based on the documents, papers and effects seized under the search

warrant herein nullified, and from using the same against petitioners in any criminal or other

proceeding. No pronouncement as to costs.

G.R. No. 75885 May 27, 1987

BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO), petitioner,vs.PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, CHAIRMAN JOVITO SALONGA,COMMISSIONER MARY CONCEPCION BAUTISTA, COMMISSIONER RAMON DIAZ,COMMISSIONER RAUL R. DAZA, COMMISSIONER QUINTIN S. DOROMAL, CAPT. JORGE B.SIACUNCO, et al., respondents.

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 asthe Bataan Shipyard and Engineering Co., Inc. are: (1) Executive Orders Numbered 1 and 2,promulgated by President Corazon C. Aquino on February 28, 1986 and March 12, 1986,respectively, and (2) the sequestration, takeover, and other orders issued, and acts done, in

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accordance with said executive orders by the Presidential Commission on Good Government and/orits 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 wasissued on April 14, 1986 by Commissioner Mary Concepcion Bautista. It was addressed to three ofthe 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 sequesterthe following companies.

1. Bataan Shipyard and Engineering Co., Inc. (Engineering Island

Shipyard and Mariveles Shipyard)

2. Baseco Quarry

3. Philippine Jai-Alai Corporation

4. Fidelity Management Co., Inc.

5. Romson Realty, Inc.

6. Trident Management Co.

7. New Trident Management

8. Bay Transport

9. And all affiliate companies of Alfredo "Bejo" Romualdez

You are hereby ordered:

1. To implement this sequestration order with a minimum disruption of thesecompanies' business activities.

2. To ensure the continuity of these companies as going concerns, the care andmaintenance of these assets until such time that the Office of the President throughthe 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 theMilitary/Police authorities, and such other acts essential to the achievement of thissequestration order. 1

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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 ofDirectors 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 1973to 1986 duly certified by the Corporate Secretary.

4. Audited Financial Statements such as Balance Sheet, Profit & Loss and othersfrom 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 forwithdrawals 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, theofficers would be cited for "contempt in pursuance with Presidential Executive Order Nos. 1 and 2."

c. Orders Re Engineer Island

(1) Termination of Contract for Security Services

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A third order assailed by petitioner corporation, hereafter referred to simply as BASECO, is thatissued on April 21, 1986 by a Capt. Flordelino B. Zabala, a member of the task force assigned tocarry out the basic sequestration order. He sent a letter to BASECO's Vice-President forFinance, 3 terminating the contract for security services within the Engineer Island compound betweenBASECO and "Anchor and FAIRWAYS" and "other civilian security agencies," CAPCOM militarypersonnel 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 andContractors," particularly a "Mr. Buddy Ondivilla National Marine Corporation," advising of theamendment in part of their contracts with BASECO in the sense that the stipulated charges for useof the BASECO road network were made payable "upon entry and not anymore subject to monthlybilling 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 introduceimprovements 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 therevenue which would flow into the government coffers," in consideration of Deltamarine's beinggranted "priority in using the improved portion of the wharf ahead of anybody" and exemption "fromthe payment of any charges for the use of wharf including the area where it may install its baggingequipments" "until the improvement remains in a condition suitable for port operations." 5 It seemshowever that this contract was never consummated. Capt. Jorge B. Siacunco, "Head- (PCGG) BASECOManagement Team," advised Deltamarine by letter dated July 30, 1986 that "the new management is notin a position to honor the said contract" and thus "whatever improvements * * (may be introduced) shallbe 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, MayorMelba O. Buenaventura, "to plan and implement progress towards maximizing the continuousoperation of the BASECO Sesiman Rock Quarry * * by conventional methods;" but afterwards,Commissioner Bautista, in representation of the PCGG, authorized another party, A.T. Abesamis, tooperate the quarry, located at Mariveles, Bataan, an agreement to this effect having been executedby 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 Buenaventurawas 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 thePCGG of BASECO, "the Philippine Dockyard Corporation and all their affiliated companies." 9 Diazinvoked the provisions of Section 3 (c) of Executive Order No. 1, empowering the Commission —

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* * To provisionally takeover in the public interest or to prevent its disposal ordissipation, business enterprises and properties taken over by the government of theMarcos 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 bythe appropriate authorities.

A management team was designated to implement the order, headed by Capt. Siacunco, and wasgiven 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 effectivelyand efficiently; revenues are duly accounted for; and disburses funds only as may benecessary;

5. Does actions including among others, seeking of military support as may benecessary, that will ensure compliance to this order;

6. Holds itself fully accountable to the Presidential Commission on Good Governmenton 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 thePCGG. 10

2. Petitioner's Plea and Postulates

It is the foregoing specific orders and acts of the PCGG and its members and agents which, torepeat, petitioner BASECO would have this Court nullify. More particularly, BASECO prays that thisCourt-

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 andacts done on the basis thereof, inclusive of the takeover order of July 14, 1986 and the terminationof 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 madewithin the context of Executive Orders Nos. 1 and 2 before March 25, 1986 when the FreedomConstitution was promulgated, under the principle that the law promulgated by the ruler under arevolutionary regime is the law of the land, it ceased to be acceptable when the same ruler opted topromulgate 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

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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 theSequestration Order * * and Takeover Order * * issued purportedly under the authority of saidExecutive 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 acourt, but a purely investigative agency and therefore not competent to act as prosecutor and judgein the same cause; Third, there is nothing in the issuances which envisions any proceeding, processor remedy by which petitioner may expeditiously challenge the validity of the takeover after the samehas been effected; and Fourthly, being directed against specified persons, and in disregard of theconstitutional 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 apparentlyalready 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 andmanagement of its business affairs by —

1) terminating its contract for security services with Fairways & Anchor, without the consent andagainst the will of the contracting parties; and amending the mode of payment of entry feesstipulated in its Lease Contract with National Stevedoring & Lighterage Corporation, these actsbeing in violation of the non-impairment clause of the constitution; 15

2) allowing PCGG Agent Silverio Berenguer to enter into an "anomalous contract" with DeltamarineIntegrated 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 atSesiman, Mariveles; 17

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

5) authorizing the takeover of BASECO, Philippine Dockyard Corporation, and all their affiliatedcompanies;

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 premisesat Mariveles * * rolls of cable wires, worth P600,000.00 on May 11, 1986; 21

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9) allowing "indiscriminate diggings" at Engineer Island to retrieve gold bars supposed to have beenburied 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 downrightignorance of the law governing these remedies. It is needful that these misconceptions and doubtsbe dispelled so that uninformed and useless debates about them may be avoided, and argumentstainted 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 objectionsraised 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 oflegislative power which she was authorized to continue to wield "(until a legislature is elected andconvened under a new Constitution" — "shall give priority to measures to achieve the mandate of thepeople," 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 ofassets 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 thePresident in regard to (certain specified) matters," among which was precisely-

* * The recovery of all in-gotten wealth accumulated by former President FerdinandE. Marcos, his immediate family, relatives, subordinates and close associates,whether located in the Philippines or abroad, including the takeover orsequestration of all business enterprises and entities owned or controlled by them,during his administration, directly or through nominees, by taking undue advantage oftheir public office and/or using their powers, authority, influence, connections orrelationship. 27

In relation to the takeover or sequestration that it was authorized to undertake in the fulfillment of itsmission, 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 anybuilding or office wherein any ill-gotten wealth or properties may be found, and anyrecords pertaining thereto, in order to prevent their destruction, concealment ordisappearance which would frustrate or hamper the investigation or otherwiseprevent the Commission from accomplishing its task.

2. To provisionally take over in the public interest or to prevent the disposal ordissipation, business enterprises and properties taken over by the government of the

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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 bythe appropriate authorities.

3. To enjoin or restrain any actual or threatened commission of acts by any person orentity 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 conductinvestigations; require submission of evidence by subpoenae ad testificandum and ducestecum; administer oaths; punish for contempt. 29 It was given power also to promulgate such rules andregulations 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 "therecovery of ill-gotten properties amassed by the leaders and supporters of the previous regime." Itdeclares that:

1) * * the Government of the Philippines is in possession of evidence showing thatthere 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 orwere acquired by them directly or indirectly, through or as a result of the improper orillegal use of funds or properties owned by the government of the Philippines or anyof its branches, instrumentalities, enterprises, banks or financial institutions, or bytaking undue advantage of their office, authority, influence, connections orrelationship, resulting in their unjust enrichment and causing grave damage andprejudice to the Filipino people and the Republic of the Philippines:" and

2) * * said assets and properties are in the form of bank accounts, deposits, trustaccounts, shares of stocks, buildings, shopping centers, condominiums, mansions,residences, estates, and other kinds of real and personal properties in the Philippinesand in various countries of the world." 31

Upon these premises, the President-

1) froze "all assets and properties in the Philippines in which former PresidentMarcos and/or his wife, Mrs. Imelda Romualdez Marcos, their close relatives,subordinates, business associates, dummies, agents, or nominees have any interestor participation;

2) prohibited former President Ferdinand Marcos and/or his wife * *, their close

relatives, subordinates, business associates, duties, agents, or nomineesfrom transferring, conveying, encumbering, concealing or dissipating said assets orproperties in the Philippines and abroad, pending the outcome of appropriateproceedings in the Philippines to determine whether any such assets or propertieswere acquired by them through or as a result of improper or illegal use of or theconversion of funds belonging to the Government of the Philippines or any of itsbranches, instrumentalities, enterprises, banks or financial institutions, or by takingundue advantage of their official position, authority, relationship, connection or

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influence to unjustly enrich themselves at the expense and to the grave damage andprejudice of the Filipino people and the Republic of the Philippines;

3) prohibited "any person from transferring, conveying, encumbering or otherwisedepleting or concealing such assets and properties or from assisting or taking part intheir 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, whetherlocated 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 withinthirty (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, "withthe assistance of the Office of the Solicitor General and other government agencies, * * to file and prosecute all cases investigated by it * * as may be warranted by its findings." 34 All such cases, whether

civil or criminal, are to be filed "with the Sandiganbayanwhich shall have exclusive and original jurisdictionthereof." 35 Executive Order No. 14 also pertinently provides that civil suits for restitution, reparation ofdamages, or indemnification for consequential damages, forfeiture proceedings provided for underRepublic Act No. 1379, or any other civil actions under the Civil Code or other existing laws, in connectionwith * * (said Executive Orders Numbered 1 and 2) may be filed separately from and proceedindependently of any criminal proceedings and may be proved by a preponderance of evidence;" andthat, moreover, the "technical rules of procedure and evidence shall not be strictly applied to* * (said)civilcases." 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 theprevious regime";37

a) more particularly, that ill-gotten wealth (was) accumulated by former PresidentFerdinand E. Marcos, his immediate family, relatives, subordinates and close associates,* * located in the Philippines or abroad, * * (and) business enterprises and entities (cameto be) owned or controlled by them, during * * (the Marcos) administration, directly orthrough nominees, by taking undue advantage of their public office and/or using theirpowers, authority, influence, Connections or relationship; 38

b) otherwise stated, that "there are assets and properties purportedly pertaining toformer President Ferdinand E. Marcos, and/or his wife Mrs. Imelda RomualdezMarcos, their close relatives, subordinates, business associates, dummies, agents ornominees which had been or were acquired by them directly or indirectly, through oras a result of the improper or illegal use of funds or properties owned by theGovernment 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 andcausing grave damage and prejudice to the Filipino people and the Republic of thePhilippines"; 39

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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 Philippinesand 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 formerPresident 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 "torecover all ill-gotten wealth."

Neither can there be any debate about the proposition that assuming the above described factualpremises of the Executive Orders and Proclamation No. 3 to be true, to be demonstrable bycompetent evidence, the recovery from Marcos, his family and his dominions of the assets andproperties 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 theequally 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 freesociety 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 itsnecessary components freedom of conscience, freedom of expression, and freedomin the pursuit of happiness. Along with these freedoms are included economicfreedom and freedom of enterprise within reasonable bounds and under propercontrol. * * Evincing much concern for the protection of property, the Constitutiondistinctly recognizes the preferred position which real estate has occupied in law forages. Property is bound up with every aspect of social life in a democracy asdemocracy is conceived in the Constitution. The Constitution realizes theindispensable role which property, owned in reasonable quantities and usedlegitimately, plays in the stimulation to economic effort and the formation and growthof a solid social middle class that is said to be the bulwark of democracy and thebackbone 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 willhave to be duly established by adequate proof in each case, in a proper judicial proceeding, so thatthe 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 immediatefamily, relatives, and close associates both here and abroad," and they have resorted to all sorts ofclever 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 procedureto be followed explicitly laid down, in Executive Order No. 14.

b. Need of Provisional Measures to Collect and Conserve Assets Pending Suits

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Nor may it be gainsaid that pending the institution of the suits for the recovery of such "ill-gottenwealth" 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 ofthe assets and properties subject of the suits, or to restrain or foil acts that may render moot andacademic, 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-gottenwealth." The remedy of "provisional takeover" is peculiar to cases where "business enterprises andproperties (were) taken over by the government of the Marcos Administration or by entities orpersons 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 buildingor 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 ordissipation 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 tothe 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 theState. 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 concealingsuch property, or from assisting or taking part in its transfer, encumbrance, concealment, ordissipation." 46 In other words, it commands the possessor to hold the property and conserve it subject tothe orders and disposition of the authority decreeing such freezing. In this sense, it is akin to agarnishment by which the possessor or ostensible owner of property is enjoined not to deliver, transfer, orotherwise dispose of any effects or credits in his possession or control, and thus becomes in a sense aninvoluntary depositary thereof. 47

c. Provisional Takeover

In providing for the remedy of "provisional takeover," the law acknowledges the apparent distinctionbetween "ill gotten" "business enterprises and entities" (going concerns, businesses in actualoperation), generally, as to which the remedy of sequestration applies, it being necessarily inferredthat the remedy entails no interference, or the least possible interference with the actualmanagement and operations thereof; and "business enterprises which were taken over by thegovernment government of the Marcos Administration or by entities or persons close to him," inparticular, as to which a "provisional takeover" is authorized, "in the public interest or to preventdisposal or dissipation of the enterprises." 48 Such a "provisional takeover" imports something morethan sequestration or freezing, more than the placing of the business under physical possession and

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control, albeit without or with the least possible interference with the management and carrying on of thebusiness itself. In a "provisional takeover," what is taken into custody is not only the physical assets of thebusiness enterprise or entity, but the business operation as well. It is in fine the assumption of control notonly over things, but over operations or on- going activities. But, to repeat, such a "provisional takeover" isallowed 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 theremedies 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 thepublic interest the disappearance or dissipation of property or business, and conserve it pendingadjudgment in appropriate proceedings of the primary issue of whether or not the acquisition of titleor other right thereto by the apparent owner was attended by some vitiating anomaly. None of theremedies is meant to deprive the owner or possessor of his title or any right to the propertysequestered, frozen or taken over and vest it in the sequestering agency, the Government or otherperson. 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 beunderstood 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 suspectshall last "until the transactions leading to such acquisition * * can be disposed of by the appropriateauthorities." 49 Executive Order No. 2 declares that the assets or properties therein mentioned shallremain frozen "pending the outcome of appropriate proceedings in the Philippines to determine whetherany 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 assetsare "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 BASECO50

that sequestration, freezing orprovisional takeover is designed to be an end in itself, that it is the device through which persons may bedeprived of their property branded as "ill-gotten," that it is intended to bring about a permanent, ratherthan a passing, transitional state of affairs. That this is not so is quite explicitly declared by the governingrules.

Be this as it may, the 1987 Constitution should allay any lingering fears about the duration of theseprovisional remedies. Section 26 of its Transitory Provisions, 51 lays down the relevant rule in plainterms, apart from extending ratification or confirmation (although not really necessary) to the institution bypresidential fiat of the remedy of sequestration and freeze orders:

SEC. 26. The authority to issue sequestration or freeze orders under ProclamationNo. 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 thisConstitution. 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 primafacie case. The order and the list of the sequestered or frozen properties shallforthwith be registered with the proper court. For orders issued before the ratificationof this Constitution, the corresponding judicial action or proceeding shall be filedwithin six months from its ratification. For those issued after such ratification, the

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judicial action or proceeding shall be commenced within six months from theissuance thereof.

The sequestration or freeze order is deemed automatically lifted if no judicial actionor proceeding is commenced as herein provided. 52

f. Kinship to Attachment Receivership

As thus described, sequestration, freezing and provisional takeover are akin to the provisionalremedy of preliminary attachment, or receivership. 53 By attachment, a sheriff seizes property of adefendant in a civil suit so that it may stand as security for the satisfaction of any judgment that may beobtained, and not disposed of, or dissipated, or lost intentionally or otherwise, pending the action. 54 Byreceivership, property, real or personal, which is subject of litigation, is placed in the possession andcontrol of a receiver appointed by the Court, who shall conserve it pending final determination of the titleor right of possession over it. 55 All these remedies — sequestration, freezing, provisional, takeover,attachment and receivership — are provisional, temporary, designed for-particular exigencies, attendedby 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 ofno moment. The Solicitor General draws attention to the writ of distraint and levy which since 1936the Commissioner of Internal Revenue has been by law authorized to issue against property of adelinquent taxpayer. 56 BASECO itself declares that it has not manifested "a rigid insistence onsequestration as a purely judicial remedy * * (as it feels) that the law should not be ossified to a point thatmakes it insensitive to change." What it insists on, what it pronounces to be its "unyielding position, is thatany change in procedure, or the institution of a new one, should conform to due process and the otherprescriptions of the Bill of Rights of the Constitution." 57 It is, to be sure, a proposition on which there canbe no disagreement.

h. Orders May Issue Ex Parte

Like the remedy of preliminary attachment and receivership, as well as delivery of personal propertyin replevinsuits, sequestration and provisional takeover writs may issue ex parte. 58 And as inpreliminary attachment, receivership, and delivery of personality, no objection of any significance may beraised to the ex parte issuance of an order of sequestration, freezing or takeover, given its fundamentalcharacter 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 theprevious regime and protect the interest of the people;" 59 as well as the obvious need to avoid alertingsuspected possessors of "ill-gotten wealth" and thereby cause that disappearance or loss of propertyprecisely 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 theefforts 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 aprima facie factual foundation, at least, for the sequestration, freeze or takeover order, and adequateand 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 promulgatedby the PCGG.

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a. Prima Facie Evidence as Basis for Orders

Executive Order No. 14 enjoins that there be "due regard to the requirements of fairness and dueprocess." 62Executive Order No. 2 declares that with respect to claims on allegedly "ill-gotten" assets andproperties, "it is the position of the new democratic government that President Marcos * * (and otherparties 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 orcomplaint of an interested party, or motu proprio when the Commission has reasonable grounds tobelieve 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 onlyupon 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 partymay 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 orfreeze or hold order is directed may request the lifting thereof in writing, eitherpersonally or through counsel within five (5) days from receipt of the writ or order, orin 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 propriofor good cause shown, the Commission may lift the writ or order unconditionally orsubject to such conditions as it may deem necessary, taking into consideration theevidence and the circumstance of the case. The resolution of the commission maybe appealed by the party concerned to the Office of the President of the Philippineswithin 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 freezingof 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 infact 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 andpropriety of sequestration, freeze and takeover orders, it should be dispelled by the fact that theseparticular remedies and the authority of the PCGG to issue them have received constitutionalapprobation and sanction. As already mentioned, the Provisional or "Freedom" Constitutionrecognizes 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 previousregime and protect the interest of the people through orders of sequestration or freezing of assets oraccounts." And as also already adverted to, Section 26, Article XVIII of the 1987 Constitution67 treatsof, and ratifies the "authority to issue sequestration or freeze orders under Proclamation No. 3 datedMarch 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 ofliberty and property," 68 and as "the most essential, insistent and illimitable of powers * * in the promotion

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of general welfare and the public interest," 69and said to be co-extensive with self-protection and * * notinaptly 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 orderto collect evidenceestablishing instances of "ill-gotten wealth;" issue sequestration, and suchorders as may be warranted by the evidence thus collected and as may be necessary to preserveand conserve the assets of which it takes custody and control and prevent their disappearance, lossor dissipation; and eventually file and prosecute in the proper court of competent jurisdiction allcases investigated by it as may be warranted by its findings. It does not try and decide, or hear anddetermine, or adjudicate with any character of finality or compulsion, cases involving the essentialissue of whether or not property should be forfeited and transferred to the State because "ill-gotten"within the meaning of the Constitution and the executive orders. This function is reserved to thedesignated court, in this case, the Sandiganbayan. 71 There can therefore be no serious regardaccorded to the accusation, leveled by BASECO, 72 that the PCGG plays the perfidious role of prosecutorand judge at the same time.

11. Facts Preclude Grant of Relief to Petitioner

Upon these premises and reasoned conclusions, and upon the facts disclosed by the record,hereafter to be discussed, the petition cannot succeed. The writs of certiorari and prohibition prayedfor will not be issued.

The facts show that the corporation known as BASECO was owned or controlled by PresidentMarcos "during his administration, through nominees, by taking undue advantage of his public officeand/or using his powers, authority, or influence, " and that it was by and through the same means,that BASECO had taken over the business and/or assets of the National Shipyard and EngineeringCo., Inc., and other government-owned or controlled entities.

12. Organization and Stock Distribution of BASECO

BASECO describes itself in its petition as "a shiprepair and shipbuilding company * * incorporated asa domestic private corporation * * (on Aug. 30, 1972) by a consortium of Filipino shipowners andshipping executives. Its main office is at Engineer Island, Port Area, Manila, where its EngineerIsland Shipyard is housed, and its main shipyard is located at Mariveles Bataan." 73 Its Articles ofIncorporation disclose that its authorized capital stock is P60,000,000.00 divided into 60,000 shares, ofwhich 12,000 shares with a value of P12,000,000.00 have been subscribed, and on said subscription, theaggregate sum of P3,035,000.00 has been paid by the incorporators. 74 The same articles Identify theincorporators, numbering fifteen (15), as follows: (1) Jose A. Rojas, (2) Anthony P. Lee, (3) Eduardo T.Marcelo, (4) Jose P. Fernandez, (5) Generoso Tanseco, (6) Emilio T. Yap, (7) Antonio M. Ezpeleta, (8)Zacarias Amante, (9) Severino de la Cruz, (10) Jose Francisco, (11) Dioscoro Papa, (12) OctavioPosadas, (13) Manuel S. Mendoza, (14) Magiliw Torres, and (15) Rodolfo Torres.

By 1986, however, of these fifteen (15) incorporators, six (6) had ceased to be stockholders, namely:(1) Generoso Tanseco, (2) Antonio Ezpeleta, (3) Zacarias Amante, (4) Octavio Posadas, (5) MagiliwTorres, and (6) Rodolfo Torres. As of this year, 1986, there were twenty (20) stockholders listed inBASECO's Stock and Transfer Book. 75 Their names and the number of shares respectively held bythem are as follows:

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1. Jose A. Rojas 1,248shares

2. Severino G. dela Cruz

1,248shares

3. Emilio T. Yap 2,508shares

4. JoseFernandez

1,248shares

5. Jose Francisco 128 shares

6. Manuel S.Mendoza

96 shares

7. Anthony P. Lee 1,248shares

8. Hilario M. Ruiz 32 shares

9. Constante L.Fariñas

8 shares

10. FidelityManagement, Inc.

65,882shares

11. TridentManagement

7,412shares

12. United Phil.Lines

1,240shares

13. Renato M.Tanseco

8 shares

14. Fidel Ventura 8 shares

15. Metro BayDrydock

136,370shares

16. Manuel Jacela 1 share

17. Jonathan G.Lu

1 share

18. Jose J.Tanchanco

1 share

19. DioscoroPapa

128 shares

20. Edward T.Marcelo

4 shares

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TOTAL 218,819shares.

13 Acquisition of NASSCO by BASECO

Barely six months after its incorporation, BASECO acquired from National Shipyard & SteelCorporation, or NASSCO, a government-owned or controlled corporation, the latter's shipyard atMariveles, Bataan, known as the Bataan National Shipyard (BNS), and — except for NASSCO'sEngineer Island Shops and certain equipment of the BNS, consigned for future negotiation — all itsstructures, 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 onFebruary 13, 1973. The price was P52,000,000.00. As partial payment thereof, BASECO deliveredto NASSCO a cash bond of P11,400,000.00, convertible into cash within twenty-four (24) hours fromcompletion 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 bepaid in equal semi-annual installments over a term of nine (9) years, payment to commence after agrace 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 Officerof the Board of Directors, and David R. Ines, as General Manager. 77 This agreement bore, at the topright corner of the first page, the word "APPROVED" in the handwriting of President Marcos, followed byhis usual full signature. The document recited that a down payment of P5,862,310.00 had been made byBASECO, 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 theExport Processing Zone Authority for the price of P10,047,940.00 of which, as set out in thedocument of sale, P2,000.000.00 was paid upon its execution, and the balance stipulated to bepayable 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 theintervention of President Marcos, acquired ownership of the rest of the assets of NASSCO whichhad not been included in the first two (2) purchase documents. This was accomplished by a deedentitled "Contract of Purchase and Sale," 79which, like the Memorandum of Agreement dated October 9,

1973 supra also bore at the upper right-hand corner of its first page, the handwritten notation of PresidentMarcos reading, "APPROVED, July 29, 1973," and underneath it, his usual full signature. Transferred toBASECO were NASSCO's "ownership and all its titles, rights and interests over all equipment andfacilities 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 theequipment of the Bataan National Shipyards (BNS) which were excluded from the sale of NBS toBASECO 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 forthe 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

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been made, and the balance was stipulated to be paid at 7% interest per annum in equal semi annualinstallments over a term of nine (9) years, to commence after a grace period of two (2) years. Mr. ArturoPacificador 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 lastavailable Japanese war damage fund of $19,000,000.00," to pay for "Japanese made heavyequipment (brand new)." 80On September 3, 1975, it got another loan also from the NDC in the amountof P30,000,000.00 (id.). And on January 28, 1976, it got still another loan, this time from the GSIS, in thesum of P12,400,000.00. 81 The claim has been made that not a single centavo has been paid on theseloans. 82

18. Reports to President Marcos

In September, 1977, two (2) reports were submitted to President Marcos regarding BASECO. Thefirst was contained in a letter dated September 5, 1977 of Hilario M. Ruiz, BASECO president. 83 Thesecond 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 aRomualdez, 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 stateof affairs persisted, BASECO would not be able to pay its debts to the Government, which at thetime stood at the not inconsiderable amount of P165,854,000.00. 85 He suggested that, to "save thesituation," there be a "spin-off (of their) shipbuilding activities which shall be handled exclusively by anentirely 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 ofBASECO's shipbuilding loans from REPACOM amounting to P52.2M or a total ofP83.365M as NDC's equity contribution in the new corporation. LUSTEVECO willparticipate by absorbing and converting a portion of the REPACOM loan of BayShipyard 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 withthe following caption:

MEMORANDUM:

FOR : The President

SUBJECT: An Evaluation and Re-assessment of a Performance of a Mission

FROM: Capt. A.T. Romualdez.

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Like Ruiz, Romualdez wrote that BASECO faced great difficulties in meeting its loan obligations duechiefly 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) AnthonyP. 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 induraterecommendation, to wit:

* * (that) their replacements (be effected) so we can register their names in the stockbook prior to the implementation of your instructions to pass a board resolution tolegalize 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 andequipment at Engineer Island, Port Area Manila;

7. Contract dated October 1, 1974, between EPZA and BASECO re 300 hectares ofland at Mariveles, Bataan;

8. List of BASECO's fixed assets;

9. Loan Agreement dated September 3, 1975, BASECO's loan from NDC ofP30,000,000.00;

10. BASECO-REPACOM Agreement dated May 27, 1975;

11. GSIS loan to BASECO dated January 28, 1976 of P12,400,000.00 for thehousing facilities for BASECO's rank-and-file employees. 90

Capt. Romualdez also recommended that BASECO's loans be restructured "until such period whenBASECO will have enough orders for ships in order for the company to meet loan obligations," andthat —

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An LOI may be issued to government agencies using floating equipment, that alinkage scheme be applied to a certain percent of BASECO's net profit as part ofBASECO's amortization payments tomake it justifiable for you, Sir. 91

It is noteworthy that Capt. A.T. Romualdez does not appear to be a stockholder or officer ofBASECO, 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 asregards 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 Velascoof the Philippine National Oil Company and Chairman Constante Fariñas of the NationalDevelopment 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 theamount of P115,903,000 consisting of the following obligations of BASECO whichare 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 afterreceiving their president's memorandum, Messrs. Hilario M. Ruiz, Constante L. Fariñas andGeronimo Z. Velasco, in representation of their respective corporations, executed a PRE-INCORPORATION AGREEMENT dated October 20, 1977. 93 In it, they undertook to form ashipbuilding corporation to be known as "PHIL-ASIA SHIPBUILDING CORPORATION," to bring torealization their president's instructions. It would seem that the new corporation ultimately formed wasactually 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 February14, 1978, he issued Letter of Instructions No. 670 addressed to the Reparations CommissionREPACOM the Philippine National Oil Company (PNOC), the Luzon Stevedoring Company(LUSTEVECO), and the National Development Company (NDC). What is commanded therein issummarized by the Solicitor General, with pithy and not inaccurate observations as to the effectsthereof (in italics), as follows:

* * 1) the shipbuilding equipment procured by BASECO through reparations betransferred to NDC subject to reimbursement by NDC to BASECO (of) the amount of

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s allegedly representing the handling and incidental expenses incurred by BASECOin the installation of said equipment (so instead of NDC getting paid on its loan toBASECO, it was made to pay BASECO instead the amount of P18.285M); 2) theshipbuilding equipment procured from reparations through EPZA, now in thepossession of BASECO and BSDI (Bay Shipyard & Drydocking, Inc.) be transferredto LUSTEVECO through PNOC; and 3) the shipbuilding equipment (thus) transferred

be invested by LUSTEVECO, acting through PNOC and NDC, as the government'sequity participation in a shipbuilding corporation to be established in partnership withthe private sector.

xxx xxx xxx

And so, through a simple letter of instruction and memorandum, BASECO's loanobligation to NDC and REPACOM * * in the total amount of P83.365M and BSD'sREPACOM loan of P32.438M were wiped out and converted into non-votingpreferred 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 thecontrol by President Marcos of BASECO has been sufficiently shown.

Other evidence submitted to the Court by the Solicitor General proves that President Marcos notonly exercised control over BASECO, but also that he actually owns well nigh one hundred percentof its outstanding stock.

It will be recalled that according to petitioner- itself, as of April 23, 1986, there were 218,819 sharesof 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. Thefirst three corporations, among themselves, own an aggregate of 209,664 shares of BASECO stock, or95.82% of the outstanding stock.

Now, the Solicitor General has drawn the Court's attention to the intriguing circumstance that foundin Malacanang shortly after the sudden flight of President Marcos, were certificates corresponding tomore thanninety-five percent (95%) of all the outstanding shares of stock of BASECO, endorsed inblank, together with deeds of assignment of practically all the outstanding shares of stock of thethree (3) corporations above mentioned (which hold 95.82% of all BASECO stock), signed by theowners 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 ofMetro Bay Drydock Corporation— which allegedly owns 136,370 shares of BASECOstock;

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3) the deeds of assignment of 800 outstanding shares of Trident Management Co.,Inc. — which allegedly owns 7,412 shares of BASECO stock, assigned inblank; 98 and

4) stock certificates corresponding to 207,725 out of the 218,819 outstanding sharesof 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 theBASECO stockholders were still in possession of their respective stock certificates and had "neverendorsed * * them in blank or to anyone else," 100 that denial is exposed by his own prior and subsequent recordedstatements 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, amongwhom being the respondents themselves * * and petitioner is still endeavoring to secure copies thereof from them." 102 On the same day hefiled another motion praying that he be allowed "to secure copies of the Certificates of Stock in the name of Metro Bay Drydock, Inc., and ofall 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 aforestatedmotion 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 inMalacañang after the former President and his family fled the country." To this manifestation BASECO's counsel replied on November 5,1986, as already mentioned, Stubbornly insisting that the firm's stockholders had not really assigned their stock. 105

In view of the parties' conflicting declarations, this Court resolved on November 27, 1986 amongother things "to require * * the petitioner * * to deposit upon proper receipt with Clerk of Court JuanitoRanjo 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) daysfrom 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 certificatesreferred to" but that "it needs a more sufficient time therefor" (sic). BASECO's counsel however eventually had to confess inability to producethe 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 secureperformance of obligations, while others allegedly have entrusted them to third parties in view of last national emergency." 108 He hasconveniently omitted, nor has he offered to give the details of the transactions adverted to by him, or to explain why he had not impressed onthe supposed stockholders the primordial importance of convincing this Court of their present custody of the originals of the stock, or if hehad done so, why the stockholders are unwilling to agree to some sort of arrangement so that the originals of their certificates might at thevery least be exhibited to the Court. Under the circumstances, the Court can only conclude that he could not get the originals from thestockholders for the simple reason that, as the Solicitor General maintains, said stockholders in truth no longer have them in theirpossession, these having already been assigned in blank to then President Marcos.

21. Facts Justify Issuance of Sequestration and Takeover Orders

In the light of the affirmative showing by the Government that, prima facie at least, the stockholdersand directors of BASECO as of April, 1986 109 were mere "dummies," nominees or alter egos of President Marcos; at anyrate, that they are no longer owners of any shares of stock in the corporation, the conclusion cannot be avoided that said stockholders anddirectors have no basis and no standing whatever to cause the filing and prosecution of the instant proceeding; and to grant relief toBASECO, as prayed for in the petition, would in effect be to restore the assets, properties and business sequestered and taken over by thePCGG 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 theprivate corporation known as BASECO was "owned or controlled by former President Ferdinand E.Marcos * * during his administration, * * through nominees, by taking advantage of * * (his) publicoffice and/or using * * (his) powers, authority, influence * *," and that NASSCO and other property ofthe government had been taken over by BASECO; and the situation justified the sequestration aswell as the provisional takeover of the corporation in the public interest, in accordance with the termsof Executive Orders No. 1 and 2, pending the filing of the requisite actions with the Sandiganbayan

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to cause divestment of title thereto from Marcos, and its adjudication in favor of the Republicpursuant to Executive Order No. 14.

As already earlier stated, this Court agrees that this assessment of the facts is correct; accordingly, itsustains 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 notaccording to the parties affected prior notice and hearing, or an adequate remedy to impugn, setaside or otherwise obtain relief therefrom, or that the PCGG had acted as prosecutor and judge atthe 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 ofattainder. 110 "A bill of attainder is a legislative act which inflicts punishment without judicial trial." 111 "Its essence is the substitution of alegislative for a judicial determination of guilt." 112

In the first place, nothing in the executive orders can be reasonably construed as a determination ordeclaration of guilt. On the contrary, the executive orders, inclusive of Executive Order No. 14, makeit perfectly clear that any judgment of guilt in the amassing or acquisition of "ill-gotten wealth" is to behanded down by a judicial tribunal, in this case, the Sandiganbayan, upon complaint filed andprosecuted by the PCGG. In the second place, no punishment is inflicted by the executive orders, asthe merest glance at their provisions will immediately make apparent. In no sense, therefore, maythe 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 andseizures had been transgressed by the Order of April 18, 1986 which required it "to producecorporate 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 investigationconducted 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, whetherlocated in the Philippines or abroad, in their names as nominees, agents or trustees, to make fulldisclosure 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 unlessprotected by an immunity statute, it does not follow that a corporation, vested withspecial 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 privateindividuals have. * * They are not at all within the privilege against self-incrimination, although this court more than once has said that the privilege runs veryclosely with the 4th Amendment's Search and Seizure provisions. It is also settledthat an officer of the company cannot refuse to produce its records in its possession

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upon the plea that they will either incriminate him or may incriminate it." (OklahomaPress 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 thebenefit of the public. It received certain special privileges and franchises, and holdsthem 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 actas 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 outwhether it has exceeded its powers. It would be a strange anomaly to hold that astate, having chartered a corporation to make use of certain franchises, could not, inthe exercise of sovereignty, inquire how these franchises had been employed, andwhether they had been abused, and demand the production of the corporate booksand papers for that purpose. The defense amounts to this, that an officer of thecorporation which is charged with a criminal violation of the statute may plead thecriminality of such corporation as a refusal to produce its books. To state thisproposition is to answer it. While an individual may lawfully refuse to answerincriminating questions unless protected by an immunity statute, it does not followthat a corporation, vested with special privileges and franchises may refuse to showits hand when charged with an abuse of such privileges. (Wilson v. United States, 55Law Ed., 771, 780 [emphasis, the Solicitor General's])

At any rate, Executive Order No. 14-A, amending Section 4 of Executive Order No. 14 assuresprotection to individuals required to produce evidence before the PCGG against any possibleviolation of his right against self-incrimination. It gives them immunity from prosecution on the basisof testimony or information he is compelled to present. As amended, said Section 4 now providesthat —

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 theorder (or any information directly or indirectly derived from such testimony, or otherinformation) may be used against the witness in any criminal case, except aprosecution for perjury, giving a false statement, or otherwise failing to comply withthe order.

The constitutional safeguard against unreasonable searches and seizures finds no application to thecase at bar either. There has been no search undertaken by any agent or representative of thePCGG, 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 powersthat may be wielded by the PCGG with regard to the properties or businesses placed undersequestration or provisionally taken over. Obviously, it is not a question to which an answer can beeasily 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 ofdominion over property sequestered, frozen or provisionally taken over. AS already earlier stressed

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with no little insistence, the act of sequestration; freezing or provisional takeover of property does notimport or bring about a divestment of title over said property; does not make the PCGG the ownerthereof. In relation to the property sequestered, frozen or provisionally taken over, the PCGG is aconservator, not an owner. Therefore, it can not perform acts of strict ownership; and this is speciallytrue in the situations contemplated by the sequestration rules where, unlike cases of receivership, forexample, 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 leastpossible interference with business operations or activities so that, in the event that the accusation ofthe business enterprise being "ill gotten" be not proven, it may be returned to its rightful owner as faras 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 businesssequestered or provisionally taken over, much like a court-appointed receiver, 115 such as to bring anddefend actions in its own name; receive rents; collect debts due; pay outstanding debts; and generally do such other acts and things as maybe 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 itsefforts to carry out its task; punish for direct or indirect contempt in accordance with the Rules of Court; and seek and secure the assistanceof 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 PersonsClose to him; Limitations Thereon

Now, in the special instance of a business enterprise shown by evidence to have been "taken overby the government of the Marcos Administration or by entities or persons close to former PresidentMarcos," 117 the PCGG is given power and authority, as already adverted to, to "provisionally take (it) over in the public interest or toprevent * * (its) disposal or dissipation;" and since the term is obviously employed in reference to going concerns, or business enterprises inoperation, something more than mere physical custody is connoted; the PCGG may in this case exercise some measure of control in theoperation, running, or management of the business itself. But even in this special situation, the intrusion into management should berestricted to the minimum degree necessary to accomplish the legislative will, which is "to prevent the disposal or dissipation" of the businessenterprise. There should be no hasty, indiscriminate, unreasoned replacement or substitution of management officials or change of policies,particularly in respect of viable establishments. In fact, such a replacement or substitution should be avoided if at all possible, andundertaken only when justified by demonstrably tenable grounds and in line with the stated objectives of the PCGG. And it goes withoutsaying that where replacement of management officers may be called for, the greatest prudence, circumspection, care and attention - shouldaccompany that undertaking to the end that truly competent, experienced and honest managers may be recruited. There should be no role tobe 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. Thebusiness is not to be experimented or played around with, not run into the ground, not driven to bankruptcy, not fleeced, not ruined. Sightshould never be lost sight of the ultimate objective of the whole exercise, which is to turn over the business to the Republic, once judiciallyestablished to be "ill-gotten." Reason dictates that it is only under these conditions and circumstances that the supervision, administrationand 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 thePresident of the Philippines through a Memorandum dated June 26, 1986. That Memorandumauthorizes 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 incorporations at all stockholders' meetings called for the election of directors, declaration ofdividends, amendment of the Articles of Incorporation, etc." The Memorandum should be construedin such a manner as to be consistent with, and not contradictory of the Executive Orders earlierpromulgated on the same matter. There should be no exercise of the right to vote simply becausethe right exists, or because the stocks sequestered constitute the controlling or a substantial part of

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the corporate voting power. The stock is not to be voted to replace directors, or revise the articles orby-laws, or otherwise bring about substantial changes in policy, program or practice of thecorporation except for demonstrably weighty and defensible grounds, and always in the context ofthe stated purposes of sequestration or provisional takeover, i.e., to prevent the dispersion or unduedisposal of the corporate assets. Directors are not to be voted out simply because the power to doso 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 wastageof corporate property, and always under such circumstances as assure that the replacements aretruly possessed of competence, experience and probity.

In the case at bar, there was adequate justification to vote the incumbent directors out of office andelect others in their stead because the evidence showed prima facie that the former were just toolsof President Marcos and were no longer owners of any stock in the firm, if they ever were at all. Thisis 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 inrespondents' calling and holding of a stockholders' meeting for the election ofdirectors as authorized by the Memorandum of the President * * (to the PCGG) datedJune 26, 1986, particularly, where as in this case, the government can, through itsdesignated directors, properly exercise control and management over what appear tobe properties and assets owned and belonging to the government itself and overwhich the persons who appear in this case on behalf of BASECO have failed to showany right or even any shareholding in said corporation.

It must however be emphasized that the conduct of the PCGG nominees in the BASECO Board inthe management of the company's affairs should henceforth be guided and governed by the normsherein laid down. They should never for a moment allow themselves to forget that they areconservators, not owners of the business; they are fiduciaries, trustees, of whom the highest degreeof 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 theexecution of certain contracts, inclusive of the termination of the employment of some of itsexecutives, 119 this Court cannot, in the present state of the evidence on record, pass upon them. It is not necessary to do so. Theissues arising therefrom may and will be left for initial determination in the appropriate action. But the Court will state that absent any showingof any important cause therefor, it will not normally substitute its judgment for that of the PCGG in these individual transactions. It is clearhowever, that as things now stand, the petitioner cannot be said to have established the correctness of its submission that the acts of thePCGG in question were done without or in excess of its powers, or with grave abuse of discretion.

WHEREFORE, the petition is dismissed. The temporary restraining order issued on October 14,1986 is lifted.

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

G.R. No. L-22619 December 2, 1924

NATIONAL COAL COMPANY, plaintiff-appellee,vs.THE COLLECTOR OF INTERNAL REVENUE, defendant-appellant.

Attorney-General Villa-Real for appellant.Perfecto J. Salas Rodriguez for appellee.

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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 acorporation created by Act No. 2705 of the Philippine Legislature for the purpose of developing thecoal industry in the Philippine Islands and is actually engaged in coal mining on reserved landsbelonging to the Government. It claimed exemption from taxes under the provision of sections 14and 15 of Act No. 2719, and prayed for a judgment ordering the defendant to refund to the plaintiffsaid sum of P12,044.68, with legal interest from the date of the presentation of the complaint, andcosts against the defendant.

The defendant answered denying generally and specifically all the material allegations of thecomplaint, except the legal existence and personality of the plaintiff. As a special defense, thedefendant 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 bedismissed, with costs against the plaintiff.

Upon the issue thus presented, the case was brought on for trial. After a consideration of theevidence adduced by both parties, the Honorable Pedro Conception, judge, held that the words"lands owned by any person, etc.," in section 15 of Act No. 2719 should be understood to mean"lands held in lease or usufruct," in harmony with the other provision of said Act; that the coal landspossessed by the plaintiff, belonging to the Government, fell within the provisions of section 15 of

Act No. 2719; and that a tax of P0.04 per ton of 1,016 kilos on each ton of coal extracted therefrom,as provided in said section, was the only tax which should be collected from the plaintiff; andsentenced the defendant to refund to the plaintiff the sum of P11,081.11 which is the differencebetween the amount collected under section 1496 of the Administrative Code and the amount whichshould have been collected under the provisions of said section 15 of Act No. 2719. From that

sentence the defendant appealed, and now makes the following assignments of error:

I. The court below erred in holding that section 15 of Act No. 2719 does not refer to coal landsowned by persons and corporations.

II. The court below erred in holding that the plaintiff was not subject to the tax prescribed in section1496 of the Administrative Code.

The question confronting us in this appeal is whether the plaintiff is subject to the taxes undersection 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 ofthe Government to encourage the development of the natural resources of the country, and toprovided facilities therefor. By said Act, the company was granted the general powers of acorporation "and such other powers as may be necessary to enable it to prosecute the business ofdeveloping coal deposits in the Philippine Island and of mining, extracting, transporting and sellingthe coal contained in said deposits." (Sec. 2, Act No. 2705.) By the same law (Act No. 2705) theGovernment of the Philippine Islands is made the majority stockholder, evidently in order to insureproper government supervision and control, and thus to place the Government in a position to render

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all possible encouragement, assistance and help in the prosecution and furtherance of thecompany's business.

On May 14, 1917, two months after the passage of Act No. 2705, creating the National CoalCompany, the Philippine Legislature passed Act No. 2719 "to provide for the leasing anddevelopment 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." Almostimmediately after the issuance of said proclamation the National Coal Company took possession ofthe coal lands within the said reservation, with an area of about 400 hectares, without any furtherformality, contract or lease. Of the 30,000 shares of stock issued by the company, the Governmentof the Philippine Islands is the owner of 29,809 shares, that is, of 99 1/3 per centum of the wholecapital stock.

If we understand the theory of the plaintiff-appellee, it is, that it claims to be the owner of the landfrom which it has mined the coal in question and is therefore subject to the provisions of section 15of Act No. 2719 and not to the provisions of the section 1496 of the Administrative Code. Thatcontention of the plaintiff leads us to an examination of the evidence upon the question of theownership of the land from which the coal in question was mined. Was the plaintiff the owner of theland 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 questionwas Mr. Dalmacio Costas, who stated that he was a member of the board of directors of the plaintiffcorporation; that the plaintiff corporation took possession of the land in question by virtue of theproclamation of the Governor-General, known as Proclamation No. 39 of the year 1917; that nodocument had been issued in favor of the plaintiff corporation; that said corporation had received nopermission from the Secretary of Agriculture and Natural Resources; that it took possession of saidlands 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 the18th day of October, 1917, and provided: "Pursuant to the provision of section 71 of Act No. 926, Ihereby withdraw from settlement, entry, sale, or other disposition, all coal-bearing public lands withinthe Province of Zamboanga, Department of Mindanao and Sulu, and the Island of Polillo, Province ofTayabas." It will be noted that said proclamation only provided that all coal-bearing public landswithin said province and island should be withdrawn from settlement, entry, sale, or otherdisposition. There is nothing in said proclamation which authorizes the plaintiff or any other person toenter upon said reversations and to mine coal, and no provision of law has been called to ourattention, by virtue of which the plaintiff was entitled to enter upon any of the lands so reserved bysaid proclamation without first obtaining permission therefor.

The plaintiff is a private corporation. The mere fact that the Government happens to the majoritystockholder 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 inconsistentwith said Act (No. 2705). No provisions of Act No. 2705 are found to be inconsistent with theprovisions of the Corporation Law. As a private corporation, it has no greater rights, powers orprivileges than any other corporation which might be organized for the same purpose under theCorporation Law, and certainly it was not the intention of the Legislature to give it a preference orright or privilege over other legitimate private corporations in the mining of coal. While it is true that

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said proclamation No. 39 withdrew "from settlement, entry, sale, or other disposition of coal-bearingpublic lands within the Province of Zamboanga . . . and the Island of Polillo," it made no provision forthe occupation and operation by the plaintiff, to the exclusion of other persons or corporations whomight, 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 thepublic domain in the Philippine Island shall not be disposed of in any manner except as provided inthis Act," thereby giving a clear indication that no "coal-bearing lands of the public domain" had beendisposed of by virtue of said proclamation.

Neither is there any provision in Act No. 2705 creating the National Coal Company, nor in theamendments thereof found in Act No. 2822, which authorizes the National Coal Company to enterupon 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 thosementioned, 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 theprovisions 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 otherdispositon 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 orcorporation 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 therecord shows, without any lease or other authority from either the Secretary of Agriculture andNatural 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 thedefendant. The plaintiff contends that it was liable only to pay the internal revenue and other feesand taxes provided for under section 15 of Act No. 2719; while the defendant contends, under thefacts of record, the plaintiff is obliged to pay the internal revenue duty provided for in section 1496 ofthe Administrative Code. That being the issue, an examination of the provisions of Act No. 2719becomes necessary.

An examination of said Act (No. 2719) discloses the following facts important for consideration here:

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First. All "coal-bearing lands of the public domain in the Philippine Islands shall not be disposed of inany 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," andthe 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 uponunreserved, 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 internalrevenue duty and tax imposed upon any person, firm, association or corporation, who may be theowner of "coal-bearing lands." A reading of said Act clearly shows that the tax imposed thereby isimposed 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 ofsaid Act, by reason of what he believed to be some difference in the interpretation of the languageused 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 section15 has reference only to persons, firms, associations or corporations which had already, prior to theexistence of said Act, become the owners of coal lands. Section 15 cannot certainty refer to "holdersor lessees of coal lands' for the reason that practically all of the other provisions of said Act hasreference to lessees or holders. If section 15 means that the persons, firms, associations, orcorporation mentioned therein are holders or lessees of coal lands only, it is difficult to understandwhy the internal revenue duty and tax in said section was made different from the obligationsmentioned 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 ownerof coal-bearing lands, and is, therefore, not subject to any other provisions of Act No. 2719. But, isthe 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 specifictaxes. Said article provides for a specific internal revenue tax upon all things manufactured orproduced in the Philippine Islands for domestic sale or consumption, and upon things imported fromthe United States or foreign countries. It having been demonstrated that the plaintiff has producedcoal in the Philippine Islands and is not a lessee or owner of the land from which the coal wasproduced, we are clearly of the opinion, and so hold, that it is subject to pay the internal revenue taxunder the provisions of section 1496 of the Administrative Code, and is not subject to the payment ofthe 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 fromall responsibility under the complaint. And, without any finding as to costs, it is so ordered.

PHILIPPINE SOCIETY FOR

THE PREVENTION OF

CRUELTY TO ANIMALS,

G.R. No. 169752

Petitioners, Members:

PUNO, C .J .

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QUISUMBING,

YNARES-SANTIAGO, SANDOVAL-GUTIERREZ, CARPIO,

AUSTRIA-MARTINEZ, CORONA,

- versus - CARPIO-MORALES, AZCUNA, TINGA, CHICO-NAZARIO,

GARCIA,

VELASCO, JR., NACHURA, and

REYES, JJ .

COMMISSION ON AUDIT, DIR. RODULFO J. ARIESGA

(in his official capacity as Director

of the Commission on Audit), MS. MERLE M. VALENTIN and MS. SUSAN GUARDIAN (in their official capacities as Team Leader and Team

Member, respectively, of the audit Team of the Commission on Audit), Promulgated: Respondents. September 25, 2007

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

- x

D E C I S I O N

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. 2005-021

[1]

dated September 14, 2005 issued by therespondents which constituted the audit team, as well as its September 23, 2005

Letter [2] informing the petitioner that respondents audit team shall conduct an audit

survey on the petitioner for a detailed audit of its accounts, operations, and financial

transactions. No temporary restraining order was issued.

http://sc.judiciary.gov.ph/jurisprudence/2007/september2007/169752.htm#_ftn1







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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 uponanimals 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 fromthe sociedad anonimasunder the Spanish Code of Commerce.

For the purpose of enhancing its powers in promoting animal welfare and enforcing

laws for the protection of animals, the petitioner was initially imbued under its

charter with the power to apprehend violators of animal welfare laws. In addition,

the petitioner was to share one-half (1/2) of the fines imposed and collected through

its efforts for violations of the laws related thereto. As originally worded, Sections 4

and 5 of Act No. 1285 provide:

SEC. 4. The said society is authorized to appoint not to exceed five

agents in the City of Manila, and not to exceed two in each of the provinces

of the Philippine Islands who shall have all the power and authority of a

police officer to make arrests for violation of the laws enacted for the

prevention of cruelty to animals and the protection of animals, and to serve

any process in connection with the execution of such laws; and in addition

thereto, all the police force of the Philippine Islands, wherever organized,

shall, as occasion requires, assist said society, its members or agents, in

the enforcement of all such laws.

SEC. 5. One-half of all the fines imposed and collected through the

efforts of said society, its members or its agents, for violations of the laws

enacted for the prevention of cruelty to animals and for their protection,

shall belong to said society and shall be used to promote its objects.

(emphasis supplied)





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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 anyviolation 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 enacteddepriving 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.

x x x x





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Whereas, the cruel treatment of animals is an offense against the State,

penalized under our statutes, which the Government is duty bound to

enforce;

Now, therefore, I, Manuel L. Quezon, President of the Philippines, pursuant to the authority conferred upon me by the Constitution, hereby

decree, order, and direct the Commissioner of Public Safety, the Provost

Marshal General as head of the Constabulary Division of the Philippine

Army, every Mayor of a chartered city, and every municipal president to

detail and organize special members of the police force, local, national,

and the Constabulary to watch, capture, and prosecute offenders against

the laws enacted to prevent cruelty to animals. (Emphasis supplied)

On December 1, 2003, an audit team from respondent Commission on Audit (COA)visited the office of the petitioner to conduct an audit survey pursuant to COA Office

Order No. 2003-051 dated November 18, 2003[5] addressed to the petitioner. The

petitioner demurred on the ground that it was a private entity not under the

jurisdiction of COA, citing Section 2(1) of Article IX of the Constitution which

specifies the general jurisdiction of the COA, viz :

Section 1. General Jurisdiction. The Commission on Audit shall have the

power, authority, and duty to examine, audit, and settle all accounts

pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to the

Government, or any of its subdivisions, agencies, or instrumentalities,

including government-owned and controlled corporations with original

charters, and on a post-audit basis: (a) constitutional bodies, commissions

and officers that have been granted fiscal autonomy under the

Constitution; (b) autonomous state colleges and universities; (c) other

government-owned or controlled corporations and their subsidiaries; and

(d) such non-governmental entities receiving subsidy or equity, directly or

indirectly, from or through the government, which are required by law or

the granting institution to submit to such audit as a condition of subsidyor 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




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vouchers and other supporting papers pertaining thereto.(Emphasis

supplied)

Petitioner explained thus:

a. Although the petitioner was created by special legislation, this necessarily

came about because in January 1905 there was as yet neither a Corporation

Law or any other general law under which it may be organized and

incorporated, nor a Securities and Exchange Commission which would

have passed upon its organization and incorporation.

b. That Executive Order No. 63, issued during the Commonwealth period,

effectively deprived the petitioner of its power to make arrests, and that the

petitioner lost its operational funding, underscore the fact that it exercises

no governmental function. In fine, the government itself, by its overt acts,

confirmed petitioners status as a private juridical entity.

The COA General Counsel issued a Memorandum[6] dated May 6, 2004, asserting

that the petitioner was subject to its audit authority. In a letter dated May 17,

2004,[7]r espondent 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,[9] affirmed her earlier opinion that the petitioner

was a government entity that was subject to the audit jurisdiction of respondent

COA. In a letter dated September 14, 2004, the respondent COA informed the

petitioner of the result of the re-evaluation, maintaining its position that the

petitioner was subject to its audit jurisdiction, and requested an initial conference

with the respondents.

In a Memorandum dated September 16, 2004, Director Delfin Aguilar reported to

COA Assistant Commissioner Juanito Espino, Corporate Government Sector, that
















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the audit survey was not conducted due to the refusal of the petitioner because the

latter maintained that it was a private corporation.

Petitioner received on September 27, 2005 the subject COA Office Order 2005-021

dated September 14, 2005 and the COA Letter dated September 23, 2005.

Hence, herein Petition on the following grounds:

A.

RESPONDENT COMMISSION ON AUDIT COMMITTED GRAVE

ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS

OF JURISDICTION WHEN IT RULED THAT PETITIONER IS

SUBJECT TO ITS AUDIT AUTHORITY.

B.

PETITIONER IS ENTITLED TO THE RELIEF SOUGHT, THERE

BEING NO APPEAL, NOR ANY PLAIN, SPEEDY AND

ADEQUATE REMEDY IN THE ORDINARY COURSE OF LAWAVAILABLE 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





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System at the latters initiative and not through the Government Service Insurance

System, which should have been the case had the employees been considered

government employees; fifth, the petitioner does not receive any form of financial

assistance from the government, since C.A. No. 148, amending Section 5 of Act No.

1285, states that the full amount of the fines, collected for violation of the lawsagainst 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 petitionerwas created by virtue of a special charter, it is thus a government corporation subject

to respondents auditing power; second , the petitioner exercises sovereign powers,

that is, it is tasked to enforce the laws for the protection and welfare of animals which

ultimately redound to the public good and welfare, and, therefore, it is deemed to be

a government instrumentality as defined under the Administrative Code of 1987, the

purpose of which is connected with the administration of government, as purportedly

affirmed by American jurisprudence; third , by virtue of Section 23,[11] Title II, Book

III of the same Code, the Office of the President exercises supervision or controlover 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





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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 theefforts 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 CorporationCode, 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 imposedand collected from its efforts in the enforcement of animal welfare laws; such

privilege, however, was subsequently abolished by C.A. No. 148; that it continues

to exist as a private corporation since it was created by the Philippine Commission

before the effectivity of the Corporation law, Act No. 1459; and the 1935 and 1987

Constitutions.

The OSG submits that Act No. 1285 and its amendatory laws did not give petitioner

the authority to impose fines for violation of laws

[12]

relating to the prevention ofcruelty 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





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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 generalcorporation 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.









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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 interestsupon 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

















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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 oldcorporation 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 ofthe legislature, first appeared in the 1935 Constitution. However, the petitioner was

incorporated in 1905 by virtue of Act No. 1258, a law antedating the Corporation

Law (Act No. 1459) by a year, and the 1935 Constitution, by thirty years. There

being neither a general law on the formation and organization of private corporations

nor a restriction on the legislature to create private corporations by direct legislation,

the Philippine Commission at that moment in history was well within its powers in

1905 to constitute the petitioner as a private juridical entity.

Time and again the Court must caution even the most brilliant scholars of the law

and all constitutional historians on the danger of imposing legal concepts of a later

date on facts of an earlier date.[20]









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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 inthe 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 petitioners charter shows that it is not subject to control or

supervision by any agency of the State, unlike government-owned and -controlled

corporations.No government representative sits on the board of trustees of the

petitioner. Like all private corporations, the successors of its members are

determined voluntarily and solely by the petitioner in accordance with its by-laws,

and may exercise those powers generally accorded to private corporations, such as

the powers to hold property, to sue and be sued, to use a common seal, and so forth. It

may adopt by-laws for its internal operations: the petitioner shall be managed or

operated by its officers in accordance with its by-laws in force. The pertinent provisions of the charter provide:

Section 1. Anna L. Ide, Kate S. Wright, John L. Chamberlain,

William F. Tucker, Mary S. Fergusson, Amasa S. Crossfield, Spencer

Cosby, Sealy B. Rossiter, Richard P. Strong, Jose Robles Lahesa, Josefina

R. de Luzuriaga, and such other persons as may be associated with them

in conformity with this act, and their successors, are hereby constituted

and created a body politic and corporate at law, under the name and style

of The Philippines Society for the Prevention of Cruelty to Animals.

As incorporated by this Act, said society shall have the power to

add to its organization such and as many members as it desires, to provide

for and choose such officers as it may deem advisable,

and in such manner as it may wish, and to remove members as it shall

provide.

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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 purp

ose of obtaining funds, to levy dues upon itsmembers 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.

x x x x

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.

x x x x

Sec. 6. The principal office of the society shall be kept in the city

of Manila, and the society shall have full power to locate and establish

branch offices of the society wherever it may deem advisable in the

Philippine Islands, such branch offices to be under the supervision and

control of the principal office.

Third . The employees of the petitioner are registered and covered by the Social

Security System at the latters initiative, and not through the Government Service

Insurance System, which should be the case if the employees are considered

government employees. This is another indication of petitioners nature as a private

entity. Section 1 of Republic Act No. 1161, as amended by Republic Act No. 8282,

otherwise known as the Social Security Act of 1997, defines the employer:

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 theGovernment : 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.

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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 publicgood. 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 tothe public: if it performs a public service, then it becomes a quasi-public

corporation.[24]

Authorities are of the view that the purpose alone of the corporation cannot be taken

as a safe guide, for the fact is that almost all corporations are nowadays created to

promote the interest, good, or convenience of the public. A bank, for example, is a

private corporation; yet, it is created for a public benefit. Private schools and

universities are likewise private corporations; and yet, they are rendering public

service. Private hospitals and wards are charged with heavy social

responsibilities. More so with all common carriers. On the other hand, there may

exist a public corporation even if it is endowed with gifts or donations from private

individuals.

The true criterion, therefore, to determine whether a corporation is public or private

is found in the totality of the relation of the corporation to the State. If the corporation

is created by the State as the latters own agency or instrumentality to help it incarrying 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]





















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It is clear that the amendments introduced by C.A. No. 148 revoked the powers of

the petitioner to arrest offenders of animal welfare laws and the power to serve

processes in connection therewith.

Fifth. The respondents argue that since the charter of the petitioner requires the latter

to render periodic reports to the Civil Governor, whose functions have been inherited

by the President, the petitioner is, therefore, a government instrumentality.

This contention is inconclusive. By virtue of the fiction that all corporations owe

their very existence and powers to the State, the reportorial requirement is applicable

to all corporations of whatever nature, whether they are public, quasi-public, or

private corporationsas creatures of the State, there is a reserved right in thelegislature to investigate the activities of a corporation to determine whether it acted

within its powers. In other words, the reportorial requirement is the principal means

by which the State may see to it that its creature acted according to the powers and

functions conferred upon it. These principles were extensively discussed

in Bataan Shipyard & Engineering Co., Inc. v. Presidential Commission on Good

Government .[26] Here, the Court, in holding that the subject corporation could not

invoke the right against self-incrimination whenever the State demanded the

production of its corporate books and papers, extensively discussed the purpose of

reportorial requirements, viz :

x x x The corporation is a creature of the state. It is presumed to be

incorporated for the benefit of the public. It received certain special

privileges and franchises, and holds them subject to the laws of the state

and the limitations of its charter. Its powers are limited by law. It can make

no contract not authorized by its charter. Its rights to act as a corporation

are only preserved to it so long as it obeys the laws of its creation. There

is a reserve[d] right in the legislature to investigate its contracts and find

out whether it has exceeded its powers. It would be a strange anomaly to

hold that a state, having chartered a corporation to make use of certain

franchises, could not, in the exercise of sovereignty, inquire how these

franchises had been employed, and whether they had been abused, and

demand the production of the corporate books and papers for that

purpose. The defense amounts to this, that an officer of the corporation

which is charged with a criminal violation of the statute may plead the

criminality of such corporation as a refusal to produce its books. To state





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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.

SO ORDERED.

DANTE V. LIBAN, REYNALDO M. BERNARDO,

and SALVADOR M. VIARI,

Petitioners,

- versus -

RICHARD J. GORDON, Respondent.

G.R. No. 175352

Present:

PUNO, C.J.,

QUISUMBING, YNARES-SANTIAGO,

CARPIO,

CORONA, CARPIO MORALES,

CHICO-NAZARIO, VELASCO, JR.,

ACHURA, LEONARDO-DE CASTRO, BRION, PERALTA, and

BERSAMIN, JJ .

Promulgated: July 15, 2009

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

D E C I S I O N





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CARPIO, J.:

The Case

This is a petition to declare Senator Richard J. Gordon (respondent) as having

forfeited his seat in the Senate.

The Facts

Petitioners Dante V. Liban, Reynaldo M. Bernardo, and Salvador M. Viari

(petitioners) filed with this Court a Petition to Declare Richard J. Gordon as Having

Forfeited His Seat in the Senate. Petitioners are officers of the Board of Directors of

the Quezon City Red Cross Chapter while respondent is Chairman of the Philippine

National Red Cross (PNRC) Board of Governors.

During respondents incumbency as a member of the Senate of the Philippines,[1] he

was elected Chairman of the PNRC during the 23 February 2006 meeting of the

PNRC Board of Governors. Petitioners allege that by accepting the chairmanship of

the PNRC Board of Governors, respondent has ceased to be a member of the Senate

as provided in Section 13, Article VI of the Constitution, which reads:

SEC. 13. No Senator or Member of the House of Representatives mayhold any other office or employment in the Government, or any

subdivision, agency, or instrumentality thereof, including government-owned or controlled corporations or their subsidiaries, during his term

without forfeiting his seat. Neither shall he be appointed to any officewhich may have been created or the emoluments thereof increased

during the term for which he was elected.

Petitioners cite Camporedondo v. NLRC ,[2]

which held that the PNRC is agovernment-owned or controlled corporation. Petitioners claim that in accepting and

holding the position of Chairman of the PNRC Board of Governors, respondent hasautomatically forfeited his seat in the Senate, pursuant to Flores v. Drilon,[3] which

held that incumbent national legislators lose their elective posts upon theirappointment to another government office.

http://sc.judiciary.gov.ph/jurisprudence/2009/july2009/175352.htm#_ftn1












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In his Comment, respondent asserts that petitioners have no standing to file this

petition which appears to be an action for quo warranto, since the petition alleges

that respondent committed an act which, by provision of law, constitutes a ground

for forfeiture of his public office. Petitioners do not claim to be entitled to the Senate

office of respondent. Under Section 5, Rule 66 of the Rules of Civil Procedure, onlya person claiming to be entitled to a public office usurped or unlawfully held by

another may bring an action for quo warranto in his own name. If the petition is one

for quo warranto, it is already barred by prescription since under Section 11, Rule

66 of the Rules of Civil Procedure, the action should be commenced within one year

after the cause of the public officers forfeiture of office. In this case, respondent has

been working as a Red Cross volunteer for the past 40 years. Respondent was already

Chairman of the PNRC Board of Governors when he was elected Senator in May

2004, having been elected Chairman in 2003 and re-elected in 2005.

Respondent contends that even if the present petition is treated as a taxpayers suit,

petitioners cannot be allowed to raise a constitutional question in the absence of any

claim that they suffered some actual damage or threatened injury as a result of the

allegedly illegal act of respondent. Furthermore, taxpayers are allowed to sue only

when there is a claim of illegal disbursement of public funds, or that public money

is being diverted to any improper purpose, or where petitioners seek to restrain

respondent from enforcing an invalid law that results in wastage of public funds.

Respondent also maintains that if the petition is treated as one for declaratory relief,

this Court would have no jurisdiction since original jurisdiction for declaratory relief

lies with the Regional Trial Court.

Respondent further insists that the PNRC is not a government-owned or controlled

corporation and that the prohibition under Section 13, Article VI of the Constitution

does not apply in the present case since volunteer service to the PNRC is neither an

office nor an employment.

In their Reply, petitioners claim that their petition is neither an action for quo

warranto nor an action for declaratory relief. Petitioners maintain that the present

petition is a taxpayers suit questioning the unlawful disbursement of funds,

considering that respondent has been drawing his salaries and other compensation

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as a Senator even if he is no longer entitled to his office. Petitioners point out that

this Court has jurisdiction over this petition since it involves a legal or constitutional

issue which is of transcendental importance.

The Issues

Petitioners raise the following issues:

1. Whether the Philippine National Red Cross (PNRC) is a

government- owned or controlled corporation;

2. Whether Section 13, Article VI of the Philippine Constitution applies to

the case of respondent who is Chairman of the PNRC and at the same

time a Member of the Senate;

3. Whether respondent should be automatically removed as a Senator

pursuant to Section 13, Article VI of the Philippine Constitution;

and

4. Whether petitioners may legally institute this petition against

respondent.[4]

The substantial issue boils down to whether the office of the PNRC Chairman is a

government office or an office in a government-owned or controlled corporation for

purposes of the prohibition in Section 13, Article VI of the Constitution.

The Courts Ruling

We find the petition without merit.

Petiti oners Have No Standing to F il e this Petiti on

A careful reading of the petition reveals that it is an action for quo warranto. Section

1, Rule 66 of the Rules of Court provides:

Section 1. Action by Government against individuals. An action for

the usurpation of a public office, position or franchise may be





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commenced by a verified petition brought in the name of the

Republic of the Philippines against: (a) A person who usurps, intrudes into, or unlawfully holds or exercises a

public office, position or franchise;

(b) A public officer who does or suffers an act which by provision of law,

constitutes a ground for the forfeiture of his office; or

(c) An association which acts as a corporation within the Philippines without being

legally incorporated or without lawful authority so to act. (Emphasis supplied)

Petitioners allege in their petition that:

4. Respondent became the Chairman of the PNRC when he was elected

as such during the First Regular Luncheon-Meeting of the Board of

Governors of the PNRC held on February 23, 2006, the minutes ofwhich is hereto attached and made integral part hereof as Annex A.

5. Respondent was elected as Chairman of the PNRC Board of Governors,during his incumbency as a Member of the House of Senate of the

Congress of the Philippines, having been elected as such during the

national elections last May 2004.

6. Since his election as Chairman of the PNRC Board of Governors, which position he

duly accepted, respondent has been exercising the powers and discharging the functions

and duties of said office, despite the fact that he is still a senator.

7. It is the respectful submission of the petitioner[s] that by accepting the

chairmanship of the Board of Governors of the PNRC, respondent has ceased to

be a Member of the House of Senate as provided in Section 13, Article VI of thePhilippine Constitution, x x x

x x x x

10. It is respectfully submitted that in accepting the position of Chairman of the

Board of Governors of the PNRC on February 23, 2006, respondent has

automatically forfeited his seat in the House of Senate and, therefore, has longceased to be a Senator, pursuant to the ruling of this Honorable Court in the case of

FLORES, ET AL. VS. DRILON AND GORDON, G.R. No. 104732, x x x

11. Despite the fact that he is no longer a senator, respondent continues to act as such

and still performs the powers, functions and duties of a senator, contrary to the

constitution, law and jurisprudence.

12. Unless restrained, therefore, respondent will continue to falsely act and represent

himself as a senator or member of the House of Senate, collecting the salaries,

emoluments and other compensations, benefits and privileges appertaining and due

only to the legitimate senators, to the damage, great and irreparable injury of the

Government and the Filipino people.[5] (Emphasis supplied)





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Thus, petitioners are alleging that by accepting the position of Chairman of the

PNRC Board of Governors, respondent has automatically forfeited his seat in the

Senate. In short, petitioners filed an action for usurpation of public office against

respondent, a public officer who allegedly committed an act which constitutes aground for the forfeiture of his public office. Clearly, such an action is for quo

warranto, specifically under Section 1(b), Rule 66 of the Rules of Court.

Quo warranto is generally commenced by the Government as the proper party

plaintiff. However, under Section 5, Rule 66 of the Rules of Court, an individual

may commence such an action if he claims to be entitled to the public officeallegedly usurped by another, in which case he can bring the action in his own name.

The person instituting quo warranto proceedings in his own behalf must claim and

be able to show that he is entitled to the office in dispute, otherwise the action may be dismissed at any stage.[6] In the present case, petitioners do not claim to be entitledto the Senate office of respondent. Clearly, petitioners have no standing to file the

present petition.

Even if the Court disregards the infirmities of the petition and treats it as a taxpayers

suit, the petition would still fail on the merits.

PNRC is a Pri vate Organization Performing Public Functions

On 22 March 1947, President Manuel A. Roxas signed Republic Act No.95,[7] otherwise known as the PNRC Charter. The PNRC is a non-profit, donor-

funded, voluntary, humanitarian organization, whose mission is to bring timely,effective, and compassionate humanitarian assistance for the most vulnerable

without consideration of nationality, race, religion, gender, social status, or political

affiliation.[8] The PNRC provides six major services: Blood Services, Disaster

Management, Safety Services, Community Health and Nursing, Social Services andVoluntary Service.[9]

The Republic of the Philippines, adhering to the Geneva Conventions, established

the PNRC as a voluntary organization for the purpose contemplated in the Geneva

Convention of 27 July 1929.[10] The Whereas clauses of the PNRC Charter read:

WHEREAS, there was developed at Geneva, Switzerland, on August 22, 1864, a convention by

which the nations of the world were invited to join together in diminishing, so far lies within their

power, the evils inherent in war;





















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WHEREAS, more than sixty nations of the world have ratified or adhered to the

subsequent revision of said convention, namely the Convention of Geneva of July

29 [sic], 1929 for the Amelioration of the Condition of the Wounded and Sick ofArmies in the Field (referred to in this Charter as the Geneva Red Cross

Convention);

WHEREAS, the Geneva Red Cross Convention envisages the establishment in each countryof a voluntary organization to assist in caring for the wounded and sick of the armed

forces and to furnish supplies for that purpose;

WHEREAS, the Republic of the Philippines became an independent

nation on July 4, 1946 and proclaimed its adherence to the Geneva

Red Cross Convention on February 14, 1947, and by that action

indicated its desire to participate with the nations of the world in

mitigating the suffering caused by war and to establish in the

Philippines a voluntary organization for that purpose as

contemplated by the Geneva Red Cross Convention;

WHEREAS, there existed in the Philippines since 1917 a Charter of theAmerican National Red Cross which must be terminated in view of the

independence of the Philippines; andWHEREAS, the volunteer organizations established in the other countries which

have ratified or adhered to the Geneva Red Cross Convention assist in promoting

the health and welfare of their people in peace and in war, and through their mutual

assistance and cooperation directly and through their international organizations promote better understanding and sympathy among the peoples of the world.

(Emphasis supplied)

The PNRC is a member National Society of the International Red Cross and Red

Crescent Movement (Movement), which is composed of the International

Committee of the Red Cross (ICRC), the International Federation of Red Cross and

Red Crescent Societies (International Federation), and the National Red Cross and

Red Crescent Societies (National Societies). The Movement is united and guided by

its seven Fundamental Principles:

1. HUMANITY The International Red Cross and Red Crescent

Movement, born of a desire to bring assistance without discrimination

to the wounded on the battlefield, endeavors, in its international and

national capacity, to prevent and alleviate human suffering wherever it

may be found. Its purpose is to protect life and health and to ensure

respect for the human being. It promotes mutual understanding,

friendship, cooperation and lasting peace amongst all peoples.

2. IMPARTIALITY It makes no discrimination as to nationality, race, religious beliefs,

class or political opinions. It endeavors to relieve the suffering of individuals, being

guided solely by their needs, and to give priority to the most urgent cases of distress.

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3. NEUTRALITY In order to continue to enjoy the confidence of all,

the Movement may not take sides in hostilities or engage at any

time in controversies of a political, racial, religious or ideological

nature. 4. INDEPENDENCE The Movement is independent. The National

Societies, while auxiliaries in the humanitarian services of their

governments and subject to the laws of their respective countries,

must always maintain their autonomy so that they may be able at

all times to act in accordance with the principles of the Movement. 5. VOLUNTARY SERVICE It is a voluntary relief movement not

prompted in any manner by desire for gain.

6. UNITY There can be only one Red Cross or one Red Crescent Society in any one

country. It must be open to all. It must carry on its humanitarian work throughout its

territory.

7. UNIVERSALITY The International Red Cross and Red Crescent Movement, in

which all Societies have equal status and share equal responsibilities and duties in

helping each other, is worldwide. (Emphasis supplied)

The Fundamental Principles provide a universal standard of reference for all

members of the Movement. The PNRC, as a member National Society of the

Movement, has the duty to uphold the Fundamental Principles and ideals of the

Movement. In order to be recognized as a National Society, the PNRC has to

be autonomous and must operate in conformity with the Fundamental Principles of

the Movement.[11]

The reason for this autonomy is fundamental. To be accepted by warring belligerents

as neutral workers during international or internal armed conflicts, the PNRC

volunteers must not be seen as belonging to any side of the armed conflict. In the

Philippines where there is a communist insurgency and a Muslim separatist

rebellion, the PNRC cannot be seen as government-owned or controlled, and neither

can the PNRC volunteers be identified as government personnel or as instruments

of government policy. Otherwise, the insurgents or separatists will treat PNRC

volunteers as enemies when the volunteers tend to the wounded in the battlefield orthe displaced civilians in conflict areas.

Thus, the PNRC must not only be, but must also be seen to be, autonomous, neutral

and independent in order to conduct its activities in accordance with the

Fundamental Principles. The PNRC must not appear to be an instrument or agency

that implements government policy; otherwise, it cannot merit the trust of all and





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cannot effectively carry out its mission as a National Red Cross Society.[12] It is

imperative that the PNRC must be autonomous, neutral, and independent in relation

to the State.

To ensure and maintain its autonomy, neutrality, and independence, the PNRCcannot be owned or controlled by the government. Indeed, the Philippine

government does not own the PNRC. The PNRC does not have government assets

and does not receive any appropriation from the Philippine Congress.[13] The PNRC

is financed primarily by contributions from private individuals and private entities

obtained through solicitation campaigns organized by its Board of Governors, as

provided under Section 11 of the PNRC Charter:

SECTION 11. As a national voluntary organization, the Philippine

National Red Cross shall be financed primarily by contributions

obtained through solicitation campaigns throughout the year which

shall be organized by the Board of Governors and conducted by the

Chapters in their respective jurisdictions. These fund raisingcampaigns shall be conducted independently of other fund drives by

other organizations. (Emphasis supplied)

The government does not control the PNRC. Under the PNRC Charter, as

amended, only six of the thirty members of the PNRC Board of Governors are

appointed by the President of the Philippines. Thus, twenty-four members, or

four-fifths (4/5), of the PNRC Board of Governors are not appointed by the

President. Section 6 of the PNRC Charter, as amended, provides:

SECTION 6. The governing powers and authority shall be vested in a Board of

Governors composed of thirty members, six of whom shall be appointed by thePresident of the Philippines, eighteen shall be elected by chapter delegates in

biennial conventions and the remaining six shall be selected by the twenty-four

members of the Board already chosen. x x x.

Thus, of the twenty-four members of the PNRC Board, eighteen are elected by the

chapter delegates of the PNRC, and six are elected by the twenty-four members

already chosena select group where the private sector members have three-fourths









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majority. Clearly, an overwhelming majority of four-fifths of the PNRC Board

are elected or chosen by the private sector members of the PNRC.

The PNRC Board of Governors, which exercises all corporate powers of the PNRC,

elects the PNRC Chairman and all other officers of the PNRC. The incumbentChairman of PNRC, respondent Senator Gordon, was elected, as all PNRC

Chairmen are elected, by a private sector-controlled PNRC Board four-fifths of

whom are private sector members of the PNRC. The PNRC Chairman is not

appointed by the President or by any subordinate government official.

Under Section 16, Article VII of the Constitution,[14] the President appoints allofficials and employees in the Executive branch whose appointments are vested in

the President by the Constitution or by law. The President also appoints those whose

appointments are not otherwise provided by law. Under this Section 16, the law mayalso authorize the heads of departments, agencies, commissions, or boards to appoint

officers lower in rank than such heads of departments, agencies, commissions or

boards.[15] In Rufino v. Endriga,[16] the Court explained appointments under Section16 in this wise:

Under Section 16, Article VII of the 1987 Constitution, the President

appoints three groups of officers. The first group refers to the heads of the

Executive departments, ambassadors, other public ministers and consuls,officers of the armed forces from the rank of colonel or naval captain, and

other officers whose appointments are vested in the President by the

Constitution. The second group refers to those whom the President may

be authorized by law to appoint. The third group refers to all other officers

of the Government whose appointments are not otherwise provided by

law.

Under the same Section 16, there is a fourth group of lower-ranked officers whose

appointments Congress may by law vest in the heads of departments, agencies,

commissions, or boards. x x x

x x x

In a department in the Executive branch, the head is the Secretary. The law may not

authorize the Undersecretary, acting as such Undersecretary, to appoint lower-ranked

officers in the Executive department. In an agency, the power is vested in the head of













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the agency for it would be preposterous to vest it in the agency itself. In a commission,

the head is the chairperson of the commission. In a board, the head is also the

chairperson of the board. In the last three situations, the law may not also authorize

officers other than the heads of the agency, commission, or board to appoint lower-

ranked officers.

x x x

The Constitution authorizes Congress to vest the power to appoint lower-ranked officers

specifically in the heads of the specified offices, and in no other person. The word heads

refers to the chairpersons of the commissions or boards and not to their members, for

several reasons.

The President does not appoint the Chairman of the PNRC. Neither does the head ofany department, agency, commission or board appoint the PNRC Chairman. Thus,

the PNRC Chairman is not an official or employee of the Executive branch since his

appointment does not fall under Section 16, Article VII of the

Constitution. Certainly, the PNRC Chairman is not an official or employee of the

Judiciary or Legislature. This leads us to the obvious conclusion that the PNRC

Chairman is not an official or employee of the Philippine Government. Not being a

government official or employee, the PNRC Chairman, as such, does not hold

a government office or employment.

Under Section 17, Article VII of the Constitution,[17] the President exercises controlover all government offices in the Executive branch. If an office is legally not

under the control of the President, then such office is not part of the Executivebranch. In Rufino v. Endriga,[18] the Court explained the Presidents power of control

over all government offices as follows:

Every government office, entity, or agency must fall under the Executive,

Legislative, or Judicial branches, or must belong to one of the independent

constitutional bodies, or must be a quasi-judicial body or local governmentunit. Otherwise, such government office, entity, or agency has no legal

and constitutional basis for its existence.

The CCP does not fall under the Legislative or Judicial branches of government. The

CCP is also not one of the independent constitutional bodies. Neither is the CCP a quasi-

judicial body nor a local government unit. Thus, the CCP must fall under the Executive









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branch. Under the Revised Administrative Code of 1987, any agency not placed by law

or order creating them under any specific department falls under the Office of the

President.

Since the President exercises control over all the executive departments, bureaus, and

offices, the President necessarily exercises control over the CCP which is an office inthe Executive branch. In mandating that the President shall have control of all executive

. . . offices, Section 17, Article VII of the 1987 Constitution does not exempt any

executive office one performing executive functions outside of the independent

constitutional bodies from the Presidents power of control. There is no dispute that the

CCP performs executive, and not legislative, judicial, or quasi-judicial functions.

The Presidents power of control applies to the acts or decisions of all officers in

the Executive branch. This is true whether such officers are appointed by the

President or by heads of departments, agencies, commissions, or boards. The

power of control means the power to revise or reverse the acts or decisions of a

subordinate officer involving the exercise of discretion.

In short, the President sits at the apex of the Executive branch, and exercises control of

all the executive departments, bureaus, and offices. There can be no instance under the

Constitution where an officer of the Executive branch is outside the control of the

President. The Executive branch is unitary since there is only one President vested with

executive power exercising control over the entire Executive branch.Any office in the

Executive branch that is not under the control of the President is a lost command whose

existence is without any legal or constitutional basis. (Emphasis supplied)

An overwhelming four-fifths majority of the PNRC Board are private sector

individuals elected to the PNRC Board by the private sector members of the

PNRC. The PNRC Board exercises all corporate powers of the PNRC. The PNRC

is controlled by private sector individuals. Decisions or actions of the PNRC Board

are not reviewable by the President. The President cannot reverse or modify the

decisions or actions of the PNRC Board. Neither can the President reverse or

modify the decisions or actions of the PNRC Chairman . It is the PNRC Boardthat can review, reverse or modify the decisions or actions of the PNRC Chairman.

This proves again that the office of the PNRC Chairman is a private office, not a

government office.

Although the State is often represented in the governing bodies of a National Society,

this can be justified by the need for proper coordination with the public authorities,

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and the government representatives may take part in decision-making within a

National Society. However, the freely-elected representatives of a National Societysactive members must remain in a large majority in a National Societys governing

bodies.[19]

The PNRC is not government-owned but privately owned. The vast majority of the

thousands of PNRC members are private individuals, including students. Under

the PNRC Charter, those who contribute to the annual fund campaign of the PNRC

are entitled to membership in the PNRC for one year. Thus, any one between 6 and

65 years of age can be a PNRC member for one year upon

contributing P35, P100, P300, P500 or P1,000 for the year .[20] Even foreigners,

whether residents or not, can be members of the PNRC. Section 5 of the PNRC

Charter, as amended by Presidential Decree No. 1264,[21] reads:

SEC. 5. Membership in the Philippine National Red Cross shall be open

to the entire population in the Philippines regardless of citizenship. Any

contribution to the Philippine National Red Cross Annual Fund Campaign

shall entitle the contributor to membership for one year and said

contribution shall be deductible in full for taxation purposes.

Thus, the PNRC is a privately owned, privately funded, and privately run charitable

organization. The PNRC is not a government-owned or controlled corporation.

Petitioners anchor their petition on the 1999 case of Camporedondo v.

NLRC ,[22] which ruled that the PNRC is a government-owned or controlled

corporation. In ruling that the PNRC is a government-owned or controlled

corporation, the simple test used was whether the corporation was created by its own

special charter for the exercise of a public function or by incorporation under the

general corporation law. Since the PNRC was created under a special charter, the

Court then ruled that it is a government corporation. However,

the Camporedondo ruling failed to consider the definition of a government-owned

or controlled corporation as provided under Section 2(13) of the Introductory

Provisions of the Administrative Code of 1987:

SEC. 2. General Terms Defined . x x x

















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(13) Government-owned or controlled corporation refers to any

agency organized as a stock or non-stock corporation, vested with

functions relating to public needs whether governmental or

proprietary in nature, and owned by the Government directly or

through its instrumentalities either wholly, or where applicable as

in the case of stock corporations, to the extent of at least fifty-one

(51) percent of its capital stock : Provided , That government-owned orcontrolled corporations may be further categorized by the Department

of the Budget, the Civil Service Commission, and the Commission onAudit for purposes of the exercise and discharge of their respective

powers, functions and responsibilities with respect to such

corporations.(Boldfacing and underscoring supplied)

A government-owned or controlled corporation must be owned by the government,

and in the case of a stock corporation, at least a majority of its capital stock must be

owned by the government. In the case of a non-stock corporation, by analogy at least

a majority of the members must be government officials holding such membership

by appointment or designation by the government. Under this criterion, and as

discussed earlier, the government does not own or control PNRC.

The PNRC Charter is Violative of the Constitutional Proscription against the

Creation of Pri vate Corporations by Special Law

The 1935 Constitution, as amended, was in force when the PNRC was created by

special charter on 22 March 1947. Section 7, Article XIV of the 1935 Constitution,as amended,reads:

SEC. 7. The Congress shall not, except by general law, provide for the

formation, organization, or regulation of private corporations, unless suchcorporations are owned or controlled by the Government or any subdivision or

instrumentality thereof.

The subsequent 1973 and 1987 Constitutions contain similar provisions prohibiting

Congress from creating private corporations except by general law. Section 1 ofthe PNRC Charter, as amended, creates the PNRC as a body corporate and politic,

thus:

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SECTION 1. There is hereby created in the Republic of the Philippines a body

corporate and politic to be the voluntary organization officially designated to

assist the Republic of the Philippines in discharging the obligations set forth

in the Geneva Conventions and to perform such other duties as are inherent

upon a National Red Cross Society. The national headquarters of this Corporation

shall be located in Metropolitan Manila. (Emphasis supplied)

In Feliciano v. Commission on Audit ,[23] the Court explained the constitutional provision prohibiting Congress from creating private corporations in this wise:

We begin by explaining the general framework under the fundamental

law. The Constitution recognizes two classes of corporations. The firstrefers to private corporations created under a general law. The second

refers to government-owned or controlled corporations created by

special charters. Section 16, Article XII of the Constitution provides:

Sec. 16. The Congress shall not, except by general law,

provide for the formation, organization, or regulation of private corporations. Government-owned or controlled

corporations may be created or established by specialcharters in the interest of the common good and subject to

the test of economic viability.

The Constitution emphatically prohibits the creation of private corporations except

by general law applicable to all citizens. The purpose of this constitutional provision is to ban private corporations created by special charters, which

historically gave certain individuals, families or groups special privileges denied to

other citizens.

In short, Congress cannot enact a law creating a private corporation

with a special charter. Such legislation would be unconstitutional.

Private corporations may exist only under a general law. If the

corporation is private, it must necessarily exist under a general

law. Stated differently, only corporations created under a general law

can qualify as private corporations. Under existing laws, the generallaw is the Corporation Code, except that the Cooperative Code governs

the incorporation of cooperatives.

The Constitution authorizes Congress to create government-owned orcontrolled corporations through special charters. Since





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private corporations cannot have special charters, it follows that

Congress can create corporations with special charters only if suchcorporations are government-owned or controlled.[24] (Emphasis

supplied)

In Feliciano, the Court held that the Local Water Districts are government-owned orcontrolled corporations since they exist by virtue of Presidential Decree No. 198,

which constitutes their special charter. The seed capital assets of the Local WaterDistricts, such as waterworks and sewerage facilities, were public property which

were managed, operated by or under the control of the city, municipality or province before the assets were transferred to the Local Water Districts. The Local Water

Districts also receive subsidies and loans from the Local Water UtilitiesAdministration (LWUA). In fact, under the 2009 General Appropriations Act,[25] the

LWUA has a budget amounting toP400,000,000 for its subsidyrequirements.[26] There is no private capital invested in the Local Water

Districts. The capital assets and operating funds of the Local Water Districts allcome from the government, either through transfer of assets, loans, subsidies or the

income from such assets or funds.

The government also controls the Local Water Districts because the municipal or

city mayor, or the provincial governor, appoints all the board directors of the LocalWater Districts. Furthermore, the board directors and other personnel of the Local

Water Districts are government employees subject to civil service laws and anti-graft laws. Clearly, the Local Water Districts are considered government-owned or

controlled corporations not only because of their creation by special charter but also because the government in fact owns and controls the Local Water Districts.

Just like the Local Water Districts, the PNRC was created through a special

charter. However, unlike the Local Water Districts, the elements of government

ownership and control are clearly lacking in the PNRC. Thus, although thePNRC is created by a special charter, it cannot be considered a government-owned

or controlled corporation in the absence of the essential elements of ownership andcontrol by the government. In creating the PNRC as a corporate entity, Congress

was in fact creating a private corporation. However, the constitutional prohibitionagainst the creation of private corporations by special charters provides no exception

even for non-profit or charitable corporations. Consequently, the PNRC Charter,insofar as it creates the PNRC as a private corporation and grants it corporate

powers,[27] is void for being unconstitutional. Thus, Sections1,[28] 2,[29] 3,[30] 4(a),[31] 5,[32] 6,[33] 7,[34] 8,[35] 9,[36] 10,[37] 11,[38] 12,[39] and 13[40] of the

PNRC Charter, as amended, are void.




































































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The other provisions[41] of the PNRC Charter remain valid as they can be considered

as a recognition by the State that the unincorporated PNRC is the local National

Society of the International Red Cross and Red Crescent Movement, and thus

entitled to the benefits, exemptions and privileges set forth in the PNRC Charter.

The other provisions of the PNRC Charter implement the Philippine Governments

treaty obligations under Article 4(5) of the Statutes of the International Red Cross

and Red Crescent Movement, which provides that to be recognized as a National

Society, the Society must be duly recognized by the legal government of its countryon the basis of the Geneva Conventions and of the national legislation as a voluntary

aid society, auxiliary to the public authorities in the humanitarian field.

In sum, we hold that the office of the PNRC Chairman is not a government office or

an office in a government-owned or controlled corporation for purposes of the

prohibition in Section 13, Article VI of the 1987 Constitution. However, since the

PNRC Charter is void insofar as it creates the PNRC as a private corporation, the

PNRC should incorporate under the Corporation Code and register with the

Securities and Exchange Commission if it wants to be a private corporation.

WHEREFORE, we declare that the office of the Chairman of the Philippine

National Red Cross is not a government office or an office in a government-owned

or controlled corporation for purposes of the prohibition in Section 13, Article VI of

the 1987 Constitution. We also declare that Sections 1, 2, 3, 4(a), 5, 6, 7, 8, 9, 10,

11, 12, and 13 of the Charter of the Philippine National Red Cross, or Republic Act

No. 95, as amended by Presidential Decree Nos. 1264 and 1643, are VOID because

they create the PNRC as a private corporation or grant it corporate powers.

SO ORDERED.




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DANTE V. LIBAN, REYNALDO

M. BERNARDO and SALVADOR

M. VIARI,

Petitioners,

- versus -

RICHARD J. GORDON,

Respondent.

PHILIPPINE NATIONAL RED

CROSS,

Intervenor.

G. R. No. 175352

Present:

CORONA, C.J ., CARPIO,

CARPIO MORALES, VELASCO, JR.,

NACHURA, LEONARDO-DE CASTRO,

BRION,

PERALTA,

BERSAMIN,

DEL CASTILLO,

ABAD, VILLARAMA, JR.,

PEREZ,

MENDOZA, and

SERENO, JJ .

Promulgated:

January 18, 2011

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

R E S O L U T I O N

LEONARDO-DE CASTRO, J.:

This resolves the Motion for Clarification and/or for Reconsideration[1] filed on

August 10, 2009 by respondent Richard J. Gordon (respondent) of

the Decision promulgated by this Court on July 15, 2009 (the Decision), the Motion

for Partial Reconsideration[2] filed on August 27, 2009 by movant-

intervenor Philippine National Red Cross (PNRC), and the latters Manifestation

and Motion to Admit Attached Position Paper[3] filed on December 23, 2009.

http://sc.judiciary.gov.ph/jurisprudence/2011/january2011/175352.htm#_ftn1









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In the Decision,[4] the Court held that respondent did not forfeit his seat in the

Senate when he accepted the chairmanship of the PNRC Board of Governors, as the

office of the PNRC Chairman is not a government office or an office in a

government-owned or controlled corporation for purposes of the prohibition in

Section 13, Article VI of the 1987 Constitution.[5] The Decision, however, furtherdeclared void the PNRC Charter insofar as it creates the PNRC as a private

corporation and consequently ruled that the PNRC should incorporate under the

Corporation Code and register with the Securities and Exchange Commission if it

wants to be a private corporation.[6] The dispositive portion of the Decision reads as

follows:

WHEREFORE, we declare that the office of the Chairman of the

Philippine National Red Cross is not a government office or an office in a

government-owned or controlled corporation for purposes of the prohibition in Section 13, Article VI of the 1987 Constitution. We also

declare that Sections 1, 2, 3, 4(a), 5, 6, 7, 8, 9, 10, 11, 12, and 13 of the

Charter of the Philippine National Red Cross, or Republic Act No. 95, as

amended by Presidential Decree Nos. 1264 and 1643, are VOID because

they create the PNRC as a private corporation or grant it corporate

powers.[7]

In his Motion for Clarification and/or for Reconsideration, respondent raises the

following grounds: (1) as the issue of constitutionality of Republic Act (R.A.) No.

95 was not raised by the parties, the Court went beyond the case in deciding suchissue; and (2) as the Court decided that Petitioners did not have standing to file the

instant Petition, the pronouncement of the Court on the validity of R.A. No. 95

should be considered obiter .[8]

Respondent argues that the validity of R.A. No. 95 was a non-issue; therefore,

it was unnecessary for the Court to decide on that question. Respondent cites Laurel

v. Garcia,[9] wherein the Court said that it will not pass upon a constitutional

question although properly presented by the record if the case can be disposed of on

some other ground and goes on to claim that since this Court, in the Decision,

disposed of the petition on some other ground, i.e., lack of standing of petitioners,

there was no need for it to delve into the validity of R.A. No. 95, and the rest of the

judgment should be deemed obiter .

























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In its Motion for Partial Reconsideration, PNRC prays that the Court

sustain the constitutionality of its Charter on the following grounds:

A. THE ASSAILED DECISION DECLARING

UNCONSTITUTIONAL REPUBLIC ACT NO. 95 ASAMENDED DEPRIVED INTERVENOR PNRC OF ITS

CONSTITUTIONAL RIGHT TO DUE PROCESS.

1. INTERVENOR PNRC WAS NEVER A PARTY TO THE

INSTANT CONTROVERSY.

2. THE CONSTITUTIONALITY OF REPUBLIC ACT NO. 95, AS

AMENDED WAS NEVER AN ISSUE IN THIS CASE.

B. THE CURRENT CHARTER OF PNRC IS PRESIDENTIALDECREE NO. 1264 AND NOT REPUBLIC ACT NO. 95.

PRESIDENTIAL DECREE NO. 1264 WAS NOT A CREATION OF

CONGRESS.

C. PNRCS STRUCTURE IS SUI GENERIS ; IT IS A CLASS OF ITS

OWN. WHILE IT IS PERFORMING HUMANITARIAN

FUNCTIONS AS AN AUXILIARY TO GOVERNMENT, IT IS A

NEUTRAL ENTITY SEPARATE AND INDEPENDENT OF

GOVERNMENT CONTROL, YET IT DOES NOT QUALIFY AS

STRICTLY PRIVATE IN CHARACTER.

In his Comment and Manifestation[10] filed on November 9, 2009,

respondent manifests: (1) that he agrees with the position taken by the PNRC in its

Motion for Partial Reconsideration dated August 27, 2009; and (2) as of the writing

of said Comment and Manifestation, there was pending before the Congress of the

Philippines a proposed bill entitled An Act Recognizing the PNRC as an

Independent, Autonomous, Non-Governmental Organization Auxiliary to the

Authorities of the Republic of the Philippines in the Humanitarian Field, to be

Known as The Philippine Red Cross.[11]

After a thorough study of the arguments and points raised by the respondent as well

as those of movant-intervenor in their respective motions, we have reconsidered our

pronouncements in our Decision dated July 15, 2009 with regard to the nature of the








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PNRC and the constitutionality of some provisions of the PNRC Charter, R.A. No.

95, as amended.

As correctly pointed out in respondents Motion, the issue of constitutionality

of R.A. No. 95 was not raised by the parties, and was not among the issues definedin the body of the Decision; thus, it was not the very lis mota of the case. We have

reiterated the rule as to when the Court will consider the issue of constitutionality

in Alvarez v. PICOP Resources, Inc.,[12] thus:

This Court will not touch the issue of unconstitutionality unless it is

the very li s mota . It is a well-established rule that a court should not

pass upon a constitutional question and decide a law to be

unconstitutional or invalid, unless such question is raised by the

parties and that when it is raised, if the record also presents some otherground upon which the court may [rest] its judgment, that course will be

adopted and the constitutional question will be left for consideration until

such question will be unavoidable.[13]

Under the rule quoted above, therefore, this Court should not have declared void

certain sections of R.A. No. 95, as amended by Presidential Decree (P.D.) Nos. 1264

and 1643, the PNRC Charter. Instead, the Court should have exercised judicial

restraint on this matter, especially since there was some other ground upon whichthe Court could have based its judgment. Furthermore, the PNRC, the entity most

adversely affected by this declaration of unconstitutionality, which was not even

originally a party to this case, was being compelled, as a consequence of the

Decision, to suddenly reorganize and incorporate under the Corporation Code, after

more than sixty (60) years of existence in this country.

Its existence as a chartered corporation remained unchallenged on ground of

unconstitutionality notwithstanding that R.A. No. 95 was enacted on March 22,

1947 during the effectivity of the 1935 Constitution, which provided for a

proscription against the creation of private corporations by special law, to wit:

SEC. 7. The Congress shall not, except by general law, provide for

the formation, organization, or regulation of private corporations, unless









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such corporations are owned and controlled by the Government or any

subdivision or instrumentality thereof. (Art. XIV, 1935 Constitution.)

Similar provisions are found in Article XIV, Section 4 of the 1973 Constitution and

Article XII, Section 16 of the 1987 Constitution. The latter reads:

SECTION 16. The Congress shall not, except by general law,

provide for the formation, organization, or regulation of private

corporations. Government-owned or controlled corporations may be

created or established by special charters in the interest of the common

good and subject to the test of economic viability.

Since its enactment, the PNRC Charter was amended several times, particularly on

June 11, 1953, August 16, 1971, December 15, 1977, and October 1, 1979, by virtue

of R.A. No. 855, R.A. No. 6373, P.D. No. 1264, and P.D. No. 1643,

respectively. The passage of several laws relating to the PNRCs corporate existence

notwithstanding the effectivity of the constitutional proscription on the creation of

private corporations by law, is a recognition that the PNRC is not strictly in the

nature of a private corporation contemplated by the aforesaid constitutional ban.

A closer look at the nature of the PNRC would show that there is none like it

not just in terms of structure, but also in terms of history, public service and officialstatus accorded to it by the State and the international community. There is merit in

PNRCs contention that its structure is sui generis .

The PNRC succeeded the chapter of the American Red Cross which was in

existence in the Philippines since 1917. It was created by an Act of Congress after

the Republic of the Philippines became an independent nation on July 6, 1946 and

proclaimed on February 14, 1947 its adherence to the Convention of Geneva of July

29, 1929 for the Amelioration of the Condition of the Wounded and Sick of Armies

in the Field (the Geneva Red Cross Convention). By that action the Philippines

indicated its desire to participate with the nations of the world in mitigating the

suffering caused by war and to establish in the Philippines a voluntary organization

for that purpose and like other volunteer organizations established in other countries

which have ratified the Geneva Conventions, to promote the health and welfare of

the people in peace and in war .[14]





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The provisions of R.A. No. 95, as amended by R.A. Nos. 855 and 6373, and

further amended by P.D. Nos. 1264 and 1643, show the historical background and

legal basis of the creation of the PNRC by legislative fiat, as a voluntary organization

impressed with public interest. Pertinently R.A. No. 95, as amended by P.D.1264, provides:

WHEREAS, during the meeting in Geneva, Switzerland, on 22

August 1894, the nations of the world unanimously agreed to diminish

within their power the evils inherent in war;

WHEREAS, more than one hundred forty nations of the world have

ratified or adhered to the Geneva Conventions of August 12, 1949 for the

Amelioration of the Condition of the Wounded and Sick of Armed Forcesin the Field and at Sea, The Prisoners of War, and The Civilian Population

in Time of War referred to in this Charter as the Geneva Conventions;

WHEREAS, the Republic of the Philippines became an

independent nation on July 4, 1946, and proclaimed on February 14,

1947 its adherence to the Geneva Conventions of 1929, and by the

action, indicated its desire to participate with the nations of the world

in mitigating the suffering caused by war and to establish in the

Philippines a voluntary organization for that purpose as

contemplated by the Geneva Conventions;

WHEREAS, there existed in the Philippines since 1917 a chapter

of the American National Red Cross which was terminated in view of the

independence of the Philippines; and

WHEREAS, the volunteer organizations established in other

countries which have ratified or adhered to the Geneva Conventions assist

in promoting the health and welfare of their people in peace and inwar, and through their mutual assistance and cooperation directly and

through their international organizations promote better understandingand sympathy among the people of the world;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of

the Philippines, by virtue of the powers vested in me by the Constitution

as Commander-in-Chief of all the Armed Forces of the Philippines and

pursuant to Proclamation No. 1081 dated September 21, 1972, and

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General Order No. 1 dated September 22, 1972, do hereby decree and

order that Republic Act No. 95, Charter of the Philippine National Red

Cross (PNRC) as amended by Republic Acts No. 855 and 6373, be further

amended as follows:

Section 1. There is hereby created in the Republic of the

Philippines a body corporate and politic to be the voluntary

organization officially designated to assist the Republic of the

Philippines in discharging the obligations set forth in the Geneva

Conventions and to perform such other duties as are inherent upon a

national Red Cross Society. The national headquarters of thisCorporation shall be located in Metropolitan Manila. (Emphasis

supplied.)

The significant public service rendered by the PNRC can be gleaned from

Section 3 of its Charter, which provides:

Section 3. That the purposes of this Corporation shall be as follows:

(a) To provide volunteer aid to the sick and wounded of armed

forces in time of war, in accordance with the spirit of and under the

conditions prescribed by the Geneva Conventions to which the Republic

of the Philippines proclaimed its adherence;

(b) For the purposes mentioned in the preceding sub-section, to

perform all duties devolving upon the Corporation as a result of the

adherence of the Republic of the Philippines to the said Convention;

(c) To act in matters of voluntary relief and in accordance with the

authorities of the armed forces as a medium of communication between

people of the Republic of the Philippines and their Armed Forces, in time

of peace and in time of war, and to act in such matters between similar

national societies of other governments and the Governments and people

and the Armed Forces of the Republic of the Philippines;

(d) To establish and maintain a system of national and international

relief in time of peace and in time of war and apply the same in meeting

and emergency needs caused by typhoons, flood, fires, earthquakes, and

other natural disasters and to devise and carry on measures for minimizing

the suffering caused by such disasters;

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(e) To devise and promote such other services in time of peace and

in time of war as may be found desirable in improving the health, safety

and welfare of the Filipino people;

(f) To devise such means as to make every citizen and/or residentof the Philippines a member of the Red Cross.

The PNRC is one of the National Red Cross and Red Crescent Societies,

which, together with the International Committee of the Red Cross (ICRC) and the

IFRC and RCS, make up the International Red Cross and Red Crescent Movement

(the Movement). They constitute a worldwide humanitarian movement, whose

mission is:

[T]o prevent and alleviate human suffering wherever it may be found, to

protect life and health and ensure respect for the human being, in particular

in times of armed conflict and other emergencies, to work for the

prevention of disease and for the promotion of health and social welfare,

to encourage voluntary service and a constant readiness to give help by

the members of the Movement, and a universal sense of solidarity towards

all those in need of its protection and assistance.[15]

The PNRC works closely with the ICRC and has been involved inhumanitarian activities in the Philippines since 1982. Among others, these activities

in the country include:

1. Giving protection and assistance to civilians displaced or otherwise

affected by armed clashes between the government and armed opposition

groups, primarily in Mindanao;

2. Working to minimize the effects of armed hostilities and violence on the

population;

3. Visiting detainees; and

4. Promoting awareness of international humanitarian law in the public and

private sectors.[16]









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National Societies such as the PNRC act as auxiliaries to the public

authorities of their own countries in the humanitarian field and provide a range of

services including disaster relief and health and social programmes.

The International Federation of Red Cross (IFRC) and Red Crescent Societies(RCS) Position Paper ,[17] submitted by the PNRC, is instructive with regard to the

elements of the specific nature of the National Societies such as the PNRC, to wit:

National Societies, such as the Philippine National Red Cross and

its sister Red Cross and Red Crescent Societies, have certain specificities

deriving from the 1949 Geneva Convention and the Statutes of the

International Red Cross and Red Crescent Movement (the

Movement). They are also guided by the seven Fundamental Principles of

the Red Cross and Red Crescent Movement: Humanity, Impartiality,Neutrality, Independence, Voluntary Service, Unity and Universality.

A National Society partakes of a sui generi s character. It is a

protected component of the Red Cross movement under Articles 24 and

26 of the First Geneva Convention, especially in times of armed

conflict. These provisions require that the staff of a National Society shall

be respected and protected in all circumstances. Such protection is not

ordinarily afforded by an international treaty to ordinary private entities

or even non-governmental organisations (NGOs). This sui

generis character is also emphasized by the Fourth Geneva Conventionwhich holds that an Occupying Power cannot require any change in the

personnel or structure of a National Society. National societies are

therefore organizations that are directly regulated by international

humanitarian law, in contrast to other ordinary private entities,including NGOs.

x x x x

In addition, National Societies are not only officially recognized by

their public authorities as voluntary aid societies, auxiliary to the publicauthorities in the humanitarian field, but also benefit from recognition at

the International level. This is considered to be an element distinguishing

National Societies from other organisations (mainly NGOs) and other

forms of humanitarian response.





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x x x. No other organisation belongs to a world-wide Movement in

which all Societies have equal status and share equal responsibilities and

duties in helping each other. This is considered to be the essence of the

Fundamental Principle of Universality.

Furthermore, the National Societies are considered to be auxiliaries to the public authorities in the humanitarian field. x x x.

The auxiliary status of [a] Red Cross Society means that it is at

one and the same time a private institution and a public service

organization because the very nature of its work implies cooperationwith the authorities, a link with the State. In carrying out their major

functions, Red Cross Societies give their humanitarian support to official

bodies, in general having larger resources than the Societies, working

towards comparable ends in a given sector.

x x x No other organization has a duty to be its governments

humanitarian partner while remaining independent.[18] (Emphases

ours.)

It is in recognition of this sui generis character of the PNRC that R.A. No. 95 has

remained valid and effective from the time of its enactment in March 22, 1947 under

the 1935 Constitution and during the effectivity of the 1973 Constitution and the

1987 Constitution.

The PNRC Charter and its amendatory laws have not been questioned or

challenged on constitutional grounds, not even in this case before the Court now.

In the Decision, the Court, citing Feliciano v. Commission on Audit ,[19] explained

that the purpose of the constitutional provision prohibiting Congress from creating

private corporations was to prevent the granting of special privileges to certainindividuals, families, or groups, which were denied to other groups. Based on the

above discussion, it can be seen that the PNRC Charter does not come within the

spirit of this constitutional provision, as it does not grant special privileges to a

particular individual, family, or group, but creates an entity that strives to serve the

common good.









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Furthermore, a strict and mechanical interpretation of Article XII, Section 16 of the

1987 Constitution will hinder the State in adopting measures that will serve the

public good or national interest. It should be noted that a special law, R.A. No. 9520,

the Philippine Cooperative Code of 2008, and not the general corporation code, vestscorporate power and capacities upon cooperatives which are private corporations, in

order to implement the States avowed policy.

In the Decision of July 15, 2009, the Court recognized the public service

rendered by the PNRC as the governments partner in the observance of its

international commitments, to wit:

The PNRC is a non-profit, donor-funded, voluntary, humanitarian

organization, whose mission is to bring timely, effective, andcompassionate humanitarian assistance for the most vulnerable without

consideration of nationality, race, religion, gender, social status, or

political affiliation. The PNRC provides six major services: Blood

Services, Disaster Management, Safety Services, Community Health and

Nursing, Social Services and Voluntary Service.

The Republic of the Philippines, adhering to the Geneva

Conventions, established the PNRC as a voluntary organization for the

purpose contemplated in the Geneva Convention of 27 July 1929. x x

x.[20] (Citations omitted.)

So must this Court recognize too the countrys adherence to the Geneva

Convention and respect the unique status of the PNRC in consonance with its

treaty obligations. The Geneva Convention has the force and effect of

law.[21] Under the Constitution, the Philippines adopts the generally accepted

principles of international law as part of the law of the land.[22] This constitutional

provision must be reconciled and harmonized with Article XII, Section 16 of the

Constitution, instead of using the latter to negate the former.

By requiring the PNRC to organize under the Corporation Code just like any

other private corporation, the Decision of July 15, 2009 lost sight of the PNRCs

special status under international humanitarian law and as an auxiliary of the State,

designated to assist it in discharging its obligations under the Geneva













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Conventions. Although the PNRC is called to be independent under its Fundamental

Principles, it interprets such independence as inclusive of its duty to be the

governments humanitarian partner. To be recognized in the International

Committee, the PNRC must have an autonomous status, and carry out its

humanitarian mission in a neutral and impartial manner.

However, in accordance with the Fundamental Principle of Voluntary Service

of National Societies of the Movement, the PNRC must be distinguished from

private and profit-making entities. It is the main characteristic of National Societies

that they are not inspired by the desire for financial gain but by individual

commitment and devotion to a humanitarian purpose freely chosen or accepted as

part of the service that National Societies through its volunteers and/or members

render to the Community.

[23]

The PNRC, as a National Society of the International Red Cross and Red

Crescent Movement, can neither be classified as an instrumentality of the State, so

as not to lose its character of neutrality as well as its independence, nor strictly as a

private corporation since it is regulated by international humanitarian law and is

treated as an auxiliary of the State.[24]

Based on the above, the sui generis status of the PNRC is now sufficiently

established. Although it is neither a subdivision, agency, or instrumentality of thegovernment, nor a government-owned or -controlled corporation or a subsidiary

thereof, as succinctly explained in the Decision of July 15, 2009, so much so that

respondent, under the Decision, was correctly allowed to hold his position as

Chairman thereof concurrently while he served as a Senator, such a conclusion

does not ipso facto imply that the PNRC is a private corporation within the

contemplation of the provision of the Constitution, that must be organized under the

Corporation Code. As correctly mentioned by Justice Roberto A. Abad, the sui

generis character of PNRC requires us to approach controversies involving thePNRC on a case-to-case basis.

In sum, the PNRC enjoys a special status as an important ally and auxiliary of

the government in the humanitarian field in accordance with its commitments under

international law. This Court cannot all of a sudden refuse to recognize its existence,

especially since the issue of the constitutionality of the PNRC Charter was never









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raised by the parties. It bears emphasizing that the PNRC has responded to almost

all national disasters since 1947, and is widely known to provide a substantial portion

of the countrys blood requirements. Its humanitarian work is unparalleled. The

Court should not shake its existence to the core in an untimely and drastic manner

that would not only have negative consequences to those who depend on it in timesof disaster and armed hostilities but also have adverse effects on the image of the

Philippines in the international community. The sections of the PNRC Charter

that were declared void must therefore stay.

WHEREFORE, premises considered, respondent Richard J.

Gordons Motion for Clarification and/or for Reconsideration and movant-

intervenor PNRCs Motion for Partial Reconsideration of the Decision in G.R.

No. 175352 dated July 15, 2009 are GRANTED. The constitutionality of R.A. No.95, as amended, the charter of the Philippine National Red Cross, was not raised by

the parties as an issue and should not have been passed upon by this Court. The

structure of the PNRC is sui generis being neither strictly private nor public in

nature R A No 95 remains valid and constitutional in its entirety The dispositive