Corporation Law, the Code of Commerce is repealed in so far as it relates
[G.R. No. L-7231. March 28, 1956.]
BENGUET CONSOLIDATED MINING CO., Petitioner, vs. MARIANO PINEDA, in
his capacity as Securities and Exchange Commissioner, Respondent.
CONSOLIDATED MINES, INC., Intervenor.
DECISION
REYES, J. B. L., J.:
Appeal under Rule 43 from a decision of the Securities and Exchange
Commissioner, denying the right of a sociedad anonima to extend its
corporate existence by amendment of its original articles of association,
or alternatively, to reform and continue existing under the Corporation
Law (Act 1459) beyond the original period.
The Petitioner, the Benguet Consolidated Mining Co. (hereafter termed
“Benguet” for short), was organized on June 24,1903, as a sociedad
anonima regulated by Articles 151 et seq., of the Spanish Code of
Commerce of 1886, then in force in the Philippines. The articles of
association expressly provided that it was organized for a term of fifty (50)
years. In 1906, the governing Philippine Commission enacted Act 1459,
commonly known as the Corporation Law, establishing in the islands the
American type of juridical entities known as corporation, to take effect on
April 1, 1906. Of its enactment, this Court said in its decision in Harden vs.
Benguet Consolidated Mining Co., 58 Phil., 141, at pp. 145-146, and
147:chanroblesvirtuallawlibrary
“When the Philippine Islands passed to the sovereignty of the United
States, the attention of the Philippine Commission was early drawn to the
fact there is no entity in Spanish law exactly corresponding to the motion
of the corporation in English and American law; chan
roblesvirtualawlibraryand in the Philippine Bill, approved July 1, 1906, the
Congress of the United States inserted certain provisions, under the head
of Franchises, which were intended to control the lawmaking power in the
Philippine Islands in the matter of granting of franchises, privileges and
concessions. These provisions are found in sections 74 and 75 of the Act.
The provisions of section 74 have been superseded by section 28 of the
Act of Congress of August 29, 1916, but in section 75 there is a provision
referring to mining corporations, which still remains the law, as amended.
This provision, in its original form, reads as
follows:chanroblesvirtuallawlibrary cralaw it shall be unlawful for any
member of a corporation engaged in agriculture or mining and for any
corporation organized for any purpose except irrigation to be in any wise
interested in any other corporation engaged in agriculture or in mining.
Under the guidance of this and certain other provisions thus enacted by
Congress, the Philippine Commission entered upon the enactment of a
general law authorizing the creation of corporations in the Philippine
Islands. This rather elaborate piece of legislation is embodied in what is
called our Corporation Law (Act No. 1459 of the Philippine Commission).
The evident purpose of the commission was to introduce the American
corporation into the Philippine Islands as the standard commercial entity
and to hasten the day when the sociedad anonima of the Spanish law
would be obsolete. That statute is a sort of codification of American
corporate law.”
“As it was the intention of our lawmakers to stimulate the introduction of
the American corporation into the Philippine law in the place of the
sociedad anonima, it was necessary to make certain adjustment resulting
from the continued co-existence, for a time, of the two forms of
commercial entities. Accordingly, in section 75 of the Corporation Law, a
provision is found making the sociedad anonima subject to the provisions
of the Corporation Law ‘so far as such provisions may be applicable’ and
giving to the sociedades anonimas previously created in the Islands the
option to continue business as such or to reform and organize under the
provisions of the Corporation Law. Again, in section 191 of the
Page 1 of 106
to sociedades anonimas. The purpose of the commission in repealing this
part of the Code of Commerce was to compel commercial entities
thereafter organized to incorporate under the Corporation Law, unless
they should prefer to adopt some form or other of the partnership. To this
provision was added another to the effect that existing sociedades
anonimas, which elected to continue their business as such, instead of
reforming and reorganizing under the Corporation Law, should continue
to be governed by the laws that were in force prior to the passage of this
Act ‘in relation to their organization and method of transacting business
and to the rights of members thereof as between themselves, but their
relations to the public and public officials shall be governed by the
provisions of this Act.’“
Specifically, the two sections of Act No. 1459 referring to sociedades
anonimas then already existing, provide as
follows:chanroblesvirtuallawlibrary
“SEC. 75. Any corporation or a sociedad anonima formed, organized, and
existing under the laws of the Philippines on the date of the passage of
this Act, shall be subject to the provisions hereof so far as such provisions
may be applicable and shall be entitled at its option either to continue
business as such corporation or to reform and organize under and by
virtue of the provisions of this Act, transferring all corporate interests to
the new corporation which, if a stock corporation, is authorized to issue
its shares of stock at par to the stockholders or members of the old
corporation according to their interests.”
“SEC. 191. The Code of Commerce, in so far as it relates to corporation or
sociedades anonimas, and all other Acts or parts of Acts in conflict or
inconsistent with this Act, are hereby repealed with the exception of Act
Numbered fifty-two, entitled ‘An Act providing for examinations of
banking institutions in the Philippines, and for reports by their officers,’ as
amended, and Act Numbered Six hundred sixty-seven, entitled ‘An Act
prescribing the method of applying to governments of municipalities,
except the city of Manila and of provinces for franchises to contract and
operate street railway, electric light and power and telephone lines, the
conditions upon which the same may be granted, certain powers of the
grantee of said franchises, and of grantees of similar franchises under
special Act of the Commission, and for other purposes.’ Provided,
however, That nothing in this Act contained shall be deemed to repeal the
existing law relating to those classes of associations which are termed
sociedades colectivas, and sociedades de cuentas en participacion, as to
which association the existing law shall be deemed to be still in force; chan
roblesvirtualawlibraryAnd provided, further, That existing corporations or
sociedades anonimas, lawfully organized as such, which elect to continue
their business as such sociedades anonimas instead of reforming and
reorganizing under and by virtue of the provisions of this Act, shall
continue to be governed by the laws that were in force prior to the
passage of this Act in relation to their organization and method of
transacting business and to the rights of members thereof as between
themselves, but their relations to the public and public officials shall be
governed by the provisions of this Act.”
As the expiration of its original 50 year term of existence approached, the
Board of Directors of Benguet adopted in 1946 a resolution to extend its
life for another 50 years from July 3, 1946 and submitted it for registration
to the Respondent Securities and Exchange Commissioner. Upon advice of
the Secretary of Justice (Op. No. 45, Ser. 1917) that such extension was
contrary to law, the registration was denied. The matter was dropped,
allegedly because the stockholders of Benguet did not approve of the
Directors’ action.
Some six years later in 1953, the shareholders of Benguet adopted a
resolution empowering the Director to “effectuate the extension of the
Company’s business life for not less than 20 and not more than 50 years,
and this by either (1) an amendment to the Articles of Association or
Charter of this Company or (2) by reforming and reorganizing the
Company as a Philippine Corporation, or (3) by both or (4) by any other
means.” Accordingly, the Board of Directors on May 27, 1953, adopted a
resolution to the following effect —
“Be It
Resolved, that the Company be reformed, reorganized and organized
under the provisions of section 75 and other provisions of the Philippine
Corporation Law as a Philippine corporation with a corporate life and
corporate powers as set forth in the Articles of Incorporation attached
hereto as Schedule ‘I’ and made a part hereof by this reference; chan
roblesvirtualawlibraryand
Be It
‘FURTHER RESOLVED, that any five or more of the following shareholders
of the Company be and they hereby are authorized as instructed to act for
and in behalf of the share holders of the Company and of the Company as
Incorporators in the reformation, reorganization and organization of the
Company under and in accordance with the provisions aforesaid of said
Philippine Corporation Law, and in such capacity, they are hereby
authorized and instructed to execute the aforesaid Articles of
Incorporation attached to these Minutes as Schedule ‘I’ hereof, with such
amendments, deletion and additions thereto as any five or more of those
so acting shall deem necessary, proper, advisable or convenient to effect
prompt registration of said Articles under Philippine Law; chan
roblesvirtualawlibraryand five or more of said Incorporators are hereby
further authorized and directed to do all things necessary, proper,
advisable or convenient to effect such registration.”
In pursuance of such resolution, Benguet submitted in June, 1953, to the
Securities and Exchange Commissioner, for alternative registration, two
documents:chanroblesvirtuallawlibrary (1) Certification as to the
Modification of (the articles of association of) the Benguet Consolidated
Mining Company, extending the term of its existence to another fifty years
from June 15, 1953; chan roblesvirtualawlibraryand (2) articles of
incorporation, covering its reformation or reorganization as a corporation
in accordance with section 75 of the Philippine Corporation Law.
Relying mainly upon the adverse opinion of the Secretary of Justice (Op.
No. 180, s. 1953), the Securities and Exchange Commissioner denied the
registration and ruled:chanroblesvirtuallawlibrary
(1) That the Benguet, as sociedad anonima, had no right to extend the
original term of corporate existence stated in its Articles of Association, by
subsequent amendment thereof adopted after enactment of the
Corporation Law (Act No. 1459); chan roblesvirtualawlibraryand
(2) That Benguet, by its conduct, had chosen to continue as sociedad
anonima, under section 75 of Act No. 1459, and could no longer exercise
the option to reform into a corporation, specially since it would indirectly
produce the effect of extending its life.
This ruling is the subject of the present appeal.
Petitioner Benguet contends:chanroblesvirtuallawlibrary
(1) That the proviso of section 18 of the Corporation Law to the effect —
“that the life of said corporation shall not be extended by amendment
beyond the time fixed in the original articles.”
does not apply to sociedades anonimas already in existence at the passage
of the law, like Petitioner herein;
(2) That to apply the said restriction imposed by section 18 of the
Corporation Law to sociedades anonimas already functioning when the
said law was enacted would be in violation of constitutional inhibitions;
(3) That even assuming that said restriction was applicable to it, Benguet
could still exercise the option of reforming and reorganizing under section
Page 2 of 106
75 of the Corporation Law, thereby prolonging its corporate existence,
since the law is silent as to the time when such option may be exercised
or availed of.
The first issue arises because the Code of Commerce of 1886 under which
Benguet was organized, contains no prohibition (to extend the period of
corporate existence), equivalent to that set forth in section 18 of the
Corporation Law. Neither does it expressly authorize the extension. But
the text of Article 223, reading:chanroblesvirtuallawlibrary
“ART. 223. After the termination of the period for which commercial
associations are constituted, it shall not be understood as extended by the
implied or presumed will of the members; chan roblesvirtualawlibraryand
if the members desire to continue in association, they shall draw up new
articles, subject to all the formalities prescribed for their creation as
provided in Article 119.” (Code of Commerce.)
would seem to imply that the period of existence of the sociedad
anonimas (or of any other commercial association for that matter) may be
extended if the partners or members so agree before the expiration of the
original period.
While the Code of Commerce, in so far as sociedades anonimas are
concerned, was repealed by Act No 1459, Benguet claims that article 223
is still operative in its favor under the last proviso of section 191 of the
Corporation law (ante, p. 4 to the effect that existing sociedades anonimas
would continue to be governed by the law in force before Act 1459,
“in relation to their organization and method of transacting business and
to the rights of members among themselves, but their relations to the
public and public officials shall be governed by the provisions of this Act.”
Benguet contends that the period of corporate life relates to its
organization and the rights of its members inter se, and not to its relations
to the public or public officials.
We find this contention untenable.
The term of existence of association (partnership or sociedad anonima) is
coterminous with their possession of an independent legal personality,
distinct from that of their component members. When the period expires,
the sociedad anonima loses the power to deal and enter into further legal
relations with other persons; chan roblesvirtualawlibraryit is no longer
possible for it to acquire new rights or incur new obligations, have only as
may be required by the process of liquidating and winding up its affairs.
By the same token, its officers and agents can no longer represent it after
the expiration of the life term prescribed, save for settling its business.
Necessarily, therefore, third persons or strangers have an interest in
knowing the duration of the juridical personality of the sociedad anonima,
since the latter cannot be dealt with after that period; chan
roblesvirtualawlibrarywherefore its prolongation or cessation is a matter
directly involving the company’s relations to the public at large.
On the importance of the term of existence set in the articles of
association of commercial companies under the Spanish Code of
Commerce, D. Lorenzo Benito y Endar, professor of mercantile law in the
Universidad Central de Madrid, has this to say:chanroblesvirtuallawlibrary
“La duracion de la Sociedad. — La necesidad de consignar este requisito
en el contrato social tiene un valor analogo al que dijimos tenia el mismo
al tratar de las compañias colectivas, aun cuando respecto de las
anonimas no haya de tenerse en cuenta para nada lo que dijimos entonces
acerca de la trascendencia que ello tiene para los socios; chan
roblesvirtualawlibraryporque no existiendo en las anonimas la serie de
responsibilidades de caracter personal que afectan a los socios colectivos,
es claro que la duracion de la sociedad importa conocerla a los socios y los
terceros, porque ella marca al limite natural del desenvolvimiento de la
empresa constituida y el comienzo de la liquidacion de la sociedad.” (3
Benito, Derecho Mercantil, 292-293.)
“Interesa, pues, la fijacion de la vida de la compañia, desenvolviendose
con normalidad y regularidad, tanto a los asociados como a los terceros.
A aquellos, porque su libertad economica, en cierto modo limitada por la
existencia del contrato de compañia, se recobra despues de realizada, mas
o menos cumplidamente, la finalidad comun perseguida; chan
roblesvirtualawlibraryy a los terceros, porque les advierte el momento en
que, extinguida la compañia, no cabe y a la creacion con ella de nuevas
relaciones juridicas, de que nazcan reciprocamente derechos y
obligaciones, sino solo la liquidacion de los negocios hasta entonces
convenidos, sin otra excepcion que la que luego mas adelante habremos
de señalar”. (3 Benito, Derecho Mercantil, p. 245.)
The State and its officers also have an obvious interest in the term of life
of associations, since the conferment of juridical capacity upon them
during such period is a privilege that is derived from statute. It is obvious
that no agreement between associates can result in giving rise to a new
and distinct personality, possessing independent rights and obligations,
unless the law itself shall decree such result. And the State is naturally
interested that this privilege be enjoyed only under the conditions and not
beyond the period that it sees fit to grant; chan roblesvirtualawlibraryand,
particularly, that it be not abused in fraud and to the detriment of other
parties; chan roblesvirtualawlibraryand for this reason it has been ruled
that “the limitation (of corporate existence) to a definite period is an
exercise of control in the interest of the public” (Smith vs. Eastwood Wire
Manufacturing Co., 43 Atl. 568).
We cannot assent to the thesis of Benguet that its period of corporate
existence has relation to its “organization”. The latter term is defined in
Webster’s International Dictionary as:chanroblesvirtuallawlibrary
“The executive structure of a business; chan roblesvirtualawlibrarythe
personnel of management, with its several duties and places in
administration; chan roblesvirtualawlibrarythe various persons who
conduct a business, considered as a unit.”
The legal definitions of the term “organization” are concordant with that
given above:chanroblesvirtuallawlibrary
“Organize or ‘organization,’ as used in reference to corporations, has a
well-understood meaning, which is the election of officers, providing for
the subscription and payment of the capital stock, the adoption of by-
laws, and such other steps as are necessary to endow the legal entity with
the capacity to transact the legitimate business for which it was created.
Waltson vs. Oliver, 30 P. 172, 173, 49 Kan. 107, 33 Am. St. Rep. 355; chan
roblesvirtualawlibraryTopeka Bridge Co. vs. Cummings, 3 Kan. 55,
77; chan roblesvirtualawlibraryHunt vs. Kansas & M. Bridge Co., 11 Kan.
412, 439; chan roblesvirtualawlibraryAspen Water & Light Co., vs. City of
Aspen, 37 P. 728, 730, 6 Colo. App. 12; chan
roblesvirtualawlibraryNemaha Coal & Mining Co., vs. Settle 38 P. 483, 484,
54 Kan. 424.
Under a statute providing that, until articles of incorporation should be
recorded, the corporation should transact no business except its own
organization, it is held that the term “organization” means simply the
process of forming and arranging into suitable disposition the parties who
are to act together in, and defining the objects of, the compound body,
and that this process, even when complete in all its parts, does not confer
a franchise either valid or defective, but, on the contrary, it is only the act
of the individuals, and something else must be done to secure the
corporate franchise. Abbott vs. Omaha Smelting & Refining Co. 4 Neb.
416, 421.” (30 Words and Phrases, p. 282.)
It is apparent from the foregoing definitions that the term “organization”
relates merely to the systematization and orderly arrangement of the
internal and managerial affairs and organs of the Petitioner Benguet, and
has nothing to do with the prorogation of its corporate life.
From the double fact that the duration of its corporate life (and juridical
personality) has evident connection with the Petitioner’s relations to the
Page 3 of 106
public, and that it bears none to the Petitioner’s organization and method
of transacting business, we derive the conclusion that the prohibition
contained in section 18 of the Corporation Law (Act No. 1459) against
extension of corporate life by amendment of the original articles was
designed and intended to apply to “compañias anonimas” that,
like Petitioner Benguet, were already existing at the passage of said law.
This conclusion is reinforced by the avowed policy of the law to hasten the
day when compañias anonimas would be extinct, and replace them with
the American type of corporation (Harden vs. Benguet Consolidated
Mining Co., supra), for the indefinite prorogation of the corporation life of
sociedades anonimas would maintain the unnecessary duality of
organizational types instead of reducing them to a single one; chan
roblesvirtualawlibraryand what is more, it would confer upon these
sociedades anonimas, whose obsolescence was sought, the advantageous
privilege of perpetual existence that the new corporation could not
possess.
Of course, the retroactive application of the limitations on the terms of
corporate existence could not be made in violation of constitutional
inhibitions specially those securing equal protection of the laws and
prohibiting impairment of the obligation of contracts. It needs no
argument to show that if Act No. 1459 allowed existing compañias
anonimas to be governed by the old law in respect to their organization,
methods of transacting business and the rights of the members among
themselves, it was precisely in deference to the vested rights already
acquired by the entity and its members at the time the Corporation Law
was enacted. But we do not agree with PetitionerBenguet (and here lies
the second issue in this appeal) that the possibility to extend its corporate
life under the Code of Commerce constituted a right already vested when
Act No. 1459 was adopted. At that time, Benguet’s existence was well
within the 50 years period set in its articles of association; chan
roblesvirtualawlibraryand its members had not entered into any
agreement that such period should be extended. It is safe to say that none
of the members of Benguet anticipated in 1906 any need to reach an
agreement to increase the term of its corporate life, barely three years
after it had started. The prorogation was purely speculative; chan
roblesvirtualawlibrarya mere possibility that could not be taken for
granted. It was as yet conditional, depending upon the ultimate decision
of the members and directors. They might agree to extend Benguet’s
existence beyond the original 50 years; chan roblesvirtualawlibraryor
again they might not. It must be remembered that in 1906, the success of
Benguet in its mining ventures was by no means so certain as to warrant
continuation of its operations beyond the 50 years set in its articles. The
records of this Court show that Benguet ran into financial difficulties in the
early part of its existence, to the extent that, as late as 1913, ten years
after it was found, 301,100 shares of its capital stock (with a par value of
$1 per share) were being offered for sale at 25 centavos per share in order
to raise the sum of P75,000 that was needed to rehabilitate the company
(Hanlon vs. Hausermann and Beam, 40 Phil., 796). Certainly the
prolongation of the corporate existence of Benguet in 1906 was merely a
possibility in futuro, a contingency that did not fulfill the requirements of
a vested right entitled to constitutional protection, defined by this Court
in Balboa vs. Farrales, 51 Phil., 498, 502, as
follows:chanroblesvirtuallawlibrary
“Vested right is ‘some right or interest in the property which has become
fixed and established, and is no longer open to doubt or controversy,”
“A ‘vested’ right is defined to be an immediate fixed right of present or
future enjoyment, and rights are ‘vested’ in contradistinction to being
expectant or contingent” (Pearsall vs. Great Northern R. Co., 161 U. S. 646,
40 L. Ed. 838).
In Corpus Juris Secundum we find:chanroblesvirtuallawlibrary
“Rights are vested when the right to enjoyment, present or prospective,
has become the property of some particular person or persons as a
present interest. The right must be absolute, complete, and
unconditional, independent of a contingency, and a mere expectancy of
future benefit, or a contingent interest in property founded on anticipated
continuance of existing laws, does not constitute a vested right. So,
inchoate rights which have not been acted on are not vested.” (16 C.J.S.
214-215.)
Since there was no agreement as yet to extend the period of Benguet’s
corporate existence (beyond the original 50 years) when the Corporation
Law was adopted in 1906, neither Benguet nor its members had any actual
or vested right to such extension at that time. Therefore, when the
Corporation Law, by section 18, forbade extensions of corporate life,
neither Benguet nor its members were deprived of any actual or fixed
right constitutionally protected.
To hold, as Petitioner Benguet asks, that the legislative power could not
deprive Benguet or its members of the possibility to enter at some
indefinite future time into an agreement to extend Benguet’s corporate
life, solely because such agreements were authorized by the Code of
Commerce, would be tantamount to saying that the said Code was
irrepealable on that point. It is a well settled rule that no person has a
vested interest in any rule of law entitling him to insist that it shall remain
unchanged for his benefit. (New York C. R. Co. vs. White, 61 L. Ed (U.S.)
667; chan roblesvirtualawlibraryMondou vs. New York N. H. & H. R. Co.,
56 L. Ed. 327; chan roblesvirtualawlibraryRainey vs. U. S., 58 L. Ed.
617; chan roblesvirtualawlibraryLilly Co. vs. Saunders, 125 ALR.
1308; chan roblesvirtualawlibraryShea vs. Olson, 111 ALR. 998).
“There can be no vested right in the continued existence of a statute or
rule of the common law which precludes its change or repeal, nor in any
omission to legislate on a particular matter or subject. Any right conferred
by statute may be taken away by statute before it has become vested, but
after a right has vested, repeal of the statute or ordinance which created
the right does not and cannot affect much right.” (16 C.J. S. 222-223.)
It is a general rule of constitutional law that a person has no vested right
in statutory privileges and exemptions” (Brearly School vs. Ward, 201 NY.
358, 40 LRA NS. 1215; chan roblesvirtualawlibraryalso, Cooley,
Constitutional Limitations, 7th ed., p. 546).
It is not amiss to recall here that after Act No. 1459 the Legislature found
it advisable to impress further restrictions upon the power of corporations
to deal in public lands, or to hold real estate beyond a maximum
area; chan roblesvirtualawlibraryand to prohibit any corporation from
endeavouring to control or hold more than 15 per cent of the voting stock
of an agricultural or mining corporation (Act No. 3518). These prohibitions
are so closely integrated with our public policy that Commonwealth Act
No. 219 sought to extend such restrictions to associations of all kinds. It
would be subversive of that policy to enable Benguet to prolong its
peculiar status of sociedad anonimas, and enable it to cast doubt and
uncertainty on whether it is, or not, subject to those restrictions on
corporate power, as it once endeavoured to do in the previous case of
Harden vs. Benguet Mining Corp. 58 Phil., 149.
Stress has been laid upon the fact that the Compañia Maritima (like
Benguet, a sociedad anonima established before the enactment of the
Corporation Law) has been twice permitted to extend its corporate
existence by amendment of its articles of association, without objection
from the officers of the defunct Bureau of Commerce and Industry, then
in charge of the enforcement of the Corporation Laws, although the exact
question was never raised then. Be that as it may, it is a well established
rule in this jurisdiction that the government is never estopped by mistake
or error on the part of its agents” (Pineda vs. Court of First Instance of
Tayabas, 52 Phil., 803, 807), and that estopped cannot give validity to an
act that is prohibited by law or is against public policy (Eugenio vs. Perdido,
(97 Phil., 41, May 19, 1955; chan roblesvirtualawlibrary19 Am. Jur.
802); chan roblesvirtualawlibraryso that the Respondent, Securities and
Exchange Commissioner, was not bound by the rulings of his predecessor
Page 4 of 106
if they be inconsistent with law. Much less could erroneous decisions of
executive officers bind this Court and induce it to sanction an unwarranted
interpretation or application of legal principles.
We now turn to the third and last issue of this appeal, concerning the
exercise of the option granted by section 75 of the Corporation Law to
every sociedad anonima “formed, organized and existing under the laws
of the Philippines on the date of the passage of this Act” to either continue
business as such sociedad anonima or to reform and organize under the
provisions of the Corporation Law. Petitioner-Appellant Benguet contends
that as the law does not determine the period within which such option
may be exercised, Benguet may exercise it at any time during its corporate
existence; chan roblesvirtualawlibraryand that in fact on June 22, 1953, it
chose to reform itself into a corporation for a period of 50 years from that
date, filing the corresponding papers and by-laws with
the Respondent Commissioner of Securities and Exchange
registration; chan roblesvirtualawlibrarybut the latter refused to accept
them as belatedly made.
The Petitioner’s argument proceeds from the unexpressed assumption
that Benguet, as sociedad anonima, had not exercised the option given by
section 75 of the Corporation Law until 1953. This we find to be incorrect.
Under that section, by continuing to do business as sociedad anonima,
Benguet in fact rejected the alternative to reform as a corporation under
Act No. 1459. It will be noted from the text of section 75 (quoted earlier
in this opinion) that no special act or manifestation is required by the law
from the existing sociedades anonimas that prefer to remain and continue
as such. It is when they choose to reform and organize under the
Corporation Law that they must, in the words of the section, “transfer all
corporate interests to the new corporation”. Hence if they do not so
transfer, the sociedades anonimas affected are to be understood to have
elected the alternative “to continue business as such corporation”
(sociedad anonima) 2
The election of Benguet to remain a sociedad anonima after the
enactment of the Corporation Law is evidence, not only by its failure, from
1906 to 1953, to adopt the alternative to transfer its corporate interests
to a new corporation, as required by section 75; chan
roblesvirtualawlibraryit also appears from positive acts. Thus around
1933, Benguet claimed and defended in court its acquisition of shares of
the capital stock of the Balatoc Mining Company, on the ground that as a
sociedad anonima it (Benguet) was not a corporation within the purview
of the laws prohibiting a mining corporation from becoming interested in
another mining corporation (Harden vs. Benguet Mining Corp., 58 Phil., p.
149). Even in the present proceedings, Benguet has urged its right to
amend its original articles of association as “sociedad anonima” and
extend its life as such under the provisions of the Spanish Code of
Commerce. Such appeals to privileges as “sociedad anonima” under the
Code of 1886 necessarily imply that Benguet has rejected the alternative
of reforming under the Corporation Law. As Respondent Commissioner’s
order, now under appeal, has stated —
“A sociedad anonima could not claim the benefit of both, but must have
to choose one and discard the other. If it elected to become a corporation
it could not continue as a sociedad anonima; chan
roblesvirtualawlibraryand if it choose to remain as a sociedad anonima, it
could not become a corporation.”
Having thus made its choice, Benguet may not now go back and seek to
change its position and adopt the reformation that it had formerly
repudiated. The election of one of several alternatives is irrevocable once
made (as now expressly recognized in article 940 of the new Civil Code of
the Philippines):chanroblesvirtuallawlibrary such rule is inherent in the
nature of the choice, its purpose being to clarify and render definite the
rights of the one exercising the option, so that other persons may act in
consequence. While successive choices may be provided there is nothing
in section 75 of the Corporation Law to show or hint that a sociedad
anonima may make more than one choice thereunder, since only one Separate Opinions
option is provided for.
PARAS, C.J., dissenting:chanroblesvirtuallawlibrary
While no express period of time is fixed by the law within which
The Petitioner, Benguet Consolidated Mining Company, was organized as
sociedades anonimas may elect under section 75 of Act No. 1459 either
a sociedad anonima on June 24, 1903, under the provisions of the Code of
to reform or to retain their status quo, there are powerful reasons to
Commerce, and its term as fixed in the articles of association was fifty
conclude that the legislature intended such choice to be made within a
years. It has been a leading enterprise, long and widely reputed to have
reasonable time from the effectivity of the Act. To enable a sociedad
pioneered in and boosted the mining industry, distributed profits among
anonima to choose reformation when its stipulated period of existence is
its shareholders, and given employment to thousands. To be more
nearly ended, would be to allow it to enjoy a term of existence far longer
approximately exact, the Petitioner has kept on its payrolls over four
than that granted to corporations organized under the Corporation
thousand Filipino employees who have about twenty thousand
Law; chan roblesvirtualawlibraryin Benguet’s case, 50 years as sociedad
dependents. The taxes and other dues paid by it to the Government have
anonima, and another 50 years as an American type of corporation under
been in enormous amounts. It has always been subject to such supervision
Act 1459; chan roblesvirtualawlibrarya result incompatible with the
and control of Government officials as are prescribed by law.
avowed purpose of the Act to hasten the disappearance of the sociedades
anonimas. Moreover, such belated election, if permitted, would enable When, therefore, the Petitioner on June 3, 1953, presented all necessary
sociedades anonimas to reap the full advantage of both types of documents to the Respondent, the Securities and Exchange
organization. Finally, it would permit sociedades anonimas to prolong Commissioner, with a view to the extension of its term as a sociedad
their corporate existence indirectly by belated reformation into anonima for a period of fifty years from June 15, 1953; chan
corporations under Act No. 1459, when they could not do so directly by roblesvirtualawlibrarywhen on June 22, 1953, it filed with
amending their articles of association. said Respondent the necessary articles of incorporation and other
documents, with a view to reforming itself as a corporation under the
Much stress is laid upon allegedly improper motives on the part of the
Corporation Law for a period of fifty years from June 22, 1953, followed
intervenor, Consolidated Mines, Inc., in supporting the orders appealed
by the filing on July 22, 1953, of the corresponding by-laws; chan
from, on the ground that intervenor seeks to terminate Benguet’s
roblesvirtualawlibraryand when on October 27, 1953,
operating contract and appropriate the profits that are the result of
the Respondent issued an order denying the registration of the
Benguet’s efforts in developing the mines of the intervenor. Suffice it to
instruments as well for extension as for reformation, Petitioner’s
say that whatever such motives should be, they are wholly irrelevant to
corporate life was being snapped out with such lightning abruptness as
the issues in this appeal, that exclusively concern the legal soundness of
undoubtedly to spell damage and prejudice not so much to its
the order of the Respondent Securities and Exchange Commissioner
shareholders as to its beneficiaries — thousands of employees and their
rejecting the claims of the Benguet Consolidated Mining Company to
dependents — and even to the Government which stands to lose a good
extend its corporate life.
source of revenue.
Neither are we impressed by the prophesies of economic chaos that
The Petitioner contends (1) that the Respondent had the ministerial duty
would allegedly ensure with the cessation of Benguet’s activities. If its
of registering the documents presented either for extension
mining properties are really susceptible of profitable operation,
of Petitioner’s term as a sociedad anonima or for its reformation under
inexorable economic laws will ensure their exploitation; chan
the Corporation Law, in the absence (as in this case) of any pretense that
roblesvirtualawlibraryif, on the other hand, they can no longer be worked
said documents are formally defective or that Petitioner’s purposes are
at a profit, then catastrophe becomes inevitable, whether or
unlawful; chan roblesvirtualawlibraryand (2) that as the Petitioner had
not Petitioner Benguet retains corporate existence.
organized as a sociedad anonima under the Code of Commerce, it has
Sustaining the opinions of the Respondent Securities and Exchange acquired a vested right which cannot subsequently be affected or taken
Commissioner and of the Secretary of Justice, we rule away by the Corporation Law enacted on April 1, 1906. I would not dwell
that:chanroblesvirtuallawlibrary upon these contentions, because I hold that, even under the provisions of
the Corporation Law, the Petitioner may either extend its life as a sociedad
(1) The prohibition contained in section 18 of Act No. 1459, against
anonima or reform as a corporation.
extending the period of corporate existence by amendment of the original
articles, was intended to apply, and does apply, to sociedades anonimas Section 75 of the Corporation Law provides:chanroblesvirtuallawlibrary
already formed, organized and existing at the time of the effectivity of the
“Any corporation or sociedad anonima formed, organized and existing
Corporation Law (Act No. 1459) in 1906;
under the laws of the Philippine Islands and lawfully transacting business
(2) The statutory prohibition is valid and impairs no vested rights or in the Philippine Islands on the date of the passage of this Act, shall be
constitutional inhibition where no agreement to extend the original subject to the provisions hereof so far as such provisions may be
period of corporate life was perfected before the enactment of the applicable and shall be entitled at its option either to continue business as
Corporation Law; such corporation or to reform and organize under, and by virtue of the
provisions of this Act, transferring all corporate interests to the new
(3) A sociedad anonima, existing before the Corporation Law, that
corporation which, if a stock corporation, is authorized to issue its shares
continues to do business as such for a reasonable time after its
of stock at par to the stockholders or members of the old corporation
enactments, is deemed to have made its election and may not
according to their interests.”
subsequently claim to reform into a corporation under section 75 of Act
No. 1459. Upon the other hand, section 191 reads as
follows:chanroblesvirtuallawlibrary
In view of the foregoing, the order appealed from is affirmed. Costs
against Petitioner-AppellantBenguet Consolidated Mining Company. “The Code of Commerce, in so far as it relates to corporations or
sociedades anonimas, and all other or parts of Acts in conflict or
Padilla, Montemayor, Reyes, A. Labrador, Concepcion and Endencia, JJ.,
inconsistent with this Act, are hereby repealed cralaw And provided,
concur.
further, That existing corporations or sociedades anonimas lawfully
organized as such, which elect to continue their business as such
sociedades anonimas instead of reforming and reorganizing under and by
Page 5 of 106
virtue of the provisions of this Act, shall continue to be governed by the Section 6, subsection 4, of the Corporation Law provides that the term for
laws that were in force prior to the passage of this Act in relation to their which corporations shall exist shall not exceed fifty years; chan
organization and method of transacting business and to the rights of roblesvirtualawlibrarysection 18 provides that the life of a corporation
members thereof as between themselves, but their relations to the public shall not be extended by amendment beyond the time fixed in the original
and public officials shall be governed by the provisions of this Act.” articles; chan roblesvirtualawlibraryand section 11 provides that upon the
issuance by the Securities and Exchange Commissioner of the certificate
It is noteworthy that section 75 has not limited the optional continuance
of incorporation, the persons organizing the corporation shall constitute
of a sociedad anonima to its unexpired term, and section 191 expressly
a body politic and corporate for the term specified in the articles of
allows a sociedad anonima which has elected to continue its business as
incorporation, not exceeding fifty years. The corporations contemplated
such to be governed by the laws in force prior to the enactment of the
are those defined in section 22 — corporations organized under the
Corporation Law in relation to its organization and method of transacting
Corporation Law. They cannot be sociedades anonimas formed under the
business and to the rights of members as between themselves. It is
Code of Commerce and licensed to continue as such in virtue of sections
admitted that the Code of Commerce, while containing no express
75 and 191. Otherwise the words “or sociedad anonima” would have been
provision allowing it, does not prohibit a sociedad anonima from
added to the term “corporation” in section 18, as was done in sections 75
extending its term; chan roblesvirtualawlibraryand commentators Gay de
and 191. A similar observation was made in Harden vs. Benguet
Montella (Tratado Practico de Sociedad Marcantiles — Compañias
Consolidated Mining Co., supra:chanroblesvirtuallawlibrary“But when the
Anonimas, Tomo II, p. 285) and Cesar Vivante (Tratado de Derecho
word corporation is used in the sense of sociedad anonima and close
Mercantil, pp. 254, 258) have observed that a sociedad anonima may
discrimination is necessary, it should be associated with the Spanish
prolong its corporate duration by amendment of its articles of association
expression sociedad anonima either in parenthesis or connected by the
before the expiration of the term.
word ‘or’. This latter device was adopted in sections 75 and 191 of the
When a business or commercial association is organized, the members are Corporation Law.”
naturally interested in knowing not only their rights and obligations but
The citation from 3 Benito, Derecho Mercantil, p. 245, invoked in the
also the duration of their legal relations. While “organization” in a strict
majority decision, to the effect that the duration of a sociedad anonima is
sense may refer to formalities like election of officers, adoption of by-laws,
of interest both to its members and to third persons, is clearly an authority
and subscription and payment of capital stock, it cannot be spoken of or
for our conclusions that the extension of Petitioner’s term is in relation “to
conceived in a wider sense without necessarily involving the specification
the rights of members thereof as between themselves.” Section 191 does
of the term of the entity formed. Extension of corporation life is thus
not say that a sociedad anonima shall be governed by the provisions of
essentially an incident of “organization” and, in any event, a matter
the Corporation Law when the matter involved affects not only “the rights
directly affecting or in relation to the rights of the shareholders as
of members thereof as between themselves” but also “the public and
between themselves, within the contemplation of section 191, and should
public officials.”
accordingly be governed by the Code of Commerce. As pointed out by the
Supreme Court of Wyoming in the case of Drew vs. Beckwith, (114 P. 2d. We are also of the opinion that alternatively, under section 75,
98), extension “merely involves an additional privilege to carry out the the Petitioner may elect to reform and organize under the Corporation
business of enterprise undertaken by the corporation,” and is “but an Law, transferring all its corporate interests to the new corporation.
enlargement of the enterprise undertaken by the corporation.” It is true Contrary to the ruling of the Respondent, we are convinced that, as no
that the duration of a sociedad anonima is of some concern to the public period was fixed within which it should exercise the option either of
and public officials who ought to know the time when it will cease to exist continuing as a sociedad anonima or reforming and organizing under the
and its business will be wound up. Notice to the world is however served Corporation Law, the Petitioner was entitled to have its articles of
by the registration of Petitioner’s articles of association as a sociedad incorporation and by-laws presented respectively on June 22 and July 22,
anonima or articles of incorporation as a reformed corporation with the 1953, registered by the Respondent. Section 75 did not take
Securities and Exchange Commission. away Petitioner’s right to exhaust its term as a sociedad anonima, already
vested before the enactment of the Corporation Law, but merely granted
When section 191 mentions “relations to the public and public officials”
it the choice to organize as a regular corporation, instead of extending its
as being governed by the provisions of the Corporation Law, the idea is
life as a sociedad anonima. The only limitation imposed is that prescribed
obviously more to enable the Government to enforce its powers of
in section 191, namely, that if a sociedad anonima elects to continue its
supervision, inspection and investigation, than to restrict the freedom of
business as such, it shall be governed by the prior law in relation to its
the corporate entity as to organizational or substantive rights of members
organization and method of transacting business and to the rights of its
as between themselves. In one of the public hearings conducted by the
members as between themselves, and by the provisions of the
Philippine Commission before the enactment of the Corporation Law,
Corporation Law as to its relations to the public and public officials. If the
Commissioner Ide pertinently expressed, “Of course, whether they
intention were to fix a period for reformation, the law would have
(sociedades) come under the new law or not they would be subject to
expressly so provided, in the same way that section 19 fixes two years
inspection, regulations, and examination for the purpose of protecting the
during which a corporation should formally organize and commence the
community.” The Attorney General in turn held that sociedades anonimas,
transaction of its business, otherwise its corporate powers would
although governed by the Code of Commerce, are subject to the
cease; chan roblesvirtualawlibrarysection 77 fixes three years from the
examination provided in section 54 of the Corporation Law (5 Op. Atty.
dissolution of a corporation within which it may clear and settle its
Gen. 442). In this connection, the Petitioner has admittedly subjected
affairs; chan roblesvirtualawlibraryand section 78 fixes the same period of
itself to the provisions of the Corporation Law.
three years within which a corporation may convey its properties to a
In Harden vs. Benguet Consolidated Mining Co., 58 Phil., 141, it was trustee for the benefit of its stockholders and other interested persons.
remarked:chanroblesvirtuallawlibrary “The purpose of the commission in
It is not correct to argue that the Petitioner is not entitled to elect to
repealing this part of the Code of Commerce was to compel commercial
continue as a sociedad anonima and at the same time reform and organize
entities thereafter organized to incorporate under the Corporation Law,
as a regular corporation, because when it continued as a sociedad
unless they should prefer to adopt some form or other of the
anonima after the passage of the Corporation Law and during its full term
partnership.” This Court already indicated that the commercial entities
of fifty years, it merely exercised a right it theretofore had; chan
compelled to incorporate under the Corporation Law were those
roblesvirtualawlibraryand the Petitioner can be said properly to have
organized after its enactment.
Page 6 of 106
availed itself of the other option only when in June 1953 it filed the
necessary papers of incorporation under the Corporation Law. It is
likewise not accurate to contend that, as the Respondent ruled,
the Petitioner could reform as and be a regular corporation at most only
for the remainder of its term as a sociedad anonima. Section 75, in
allowing a sociedad anonima to reform and organize under the
Corporation Law, also authorizes the transfer of its corporate interests to
the new corporation. This “new” corporation should have the advantage
of the prescribed maximum duration, regardless of the original term of
the old or substituted entity. There is no basis for the criticism that, if
the Petitioner were allowed to exhaust its full term as a sociedad anonima,
and afterwards to reform as a regular corporation for another fifty years,
it would have a span of life twice as long as that granted to corporations
organized under the Corporation Law. The simple reason is that
the Petitioner was already a corporate entity before the enactment of the
Corporation Law, with a fixed duration under its original articles of
association. It was clearly not in parity with any corporation organized
under and coming into existence after the effectivity of the Corporation
Law which has no choice on the matter and can therefore have only the
prerogative granted by said law, — no more no less.
The Respondent has suggested that the Petitioner, if desirous of
continuing its business, may organize a new corporation — a suggestion
which need not be made because no one would probably think of denying
it that right. But we cannot see any cogent reason or practical purpose for
the suggestion. In the first place, the filing of Petitioner’s articles of
incorporation and by-laws in July, 1953, in effect amounted to the
formation of a new corporation. To require more is to give greater
importance to form than to substance. In the second place, the public and
public officials may not as a matter of fact be adversely affected by
allowing the Petitioner to reform, instead of requiring it technically to
form a new corporation. It will acquire no greater rights or obligations by
simple reformation than by newly organizing another corporation.
Conversely, the public and public officials will acquire no greater benefit
or control by requiring the Petitioner to form a new corporation, than by
allowing it to reform. And as already stated, whatever interest the public
and public officials may have in determining the duration of a sociedad
anonima or any corporation for that matter, is amply protected by
registration in the Securities and Exchange Commission.
The Respondent and the intervenor, Consolidated Mines, Inc., have tried
to show that the Petitioner holds or owns interests in eight mining
companies, in violation of section 13, subsection 5 of the Corporation Law,
in that it has operating contracts with the intervenor and seven other
mining companies, besides owning the majority shares in Balatoc Mining
Co. This matter has not merited any attention or favorable comment in
the majority decision, and rightly of course. Even so, we may observe that
the alleged violation was not the subject of any finding by the Respondent,
nor relied upon in his order of denial; chan roblesvirtualawlibrarythat
the Petitioner has denied the charge; chan roblesvirtualawlibrarythat the
holding by the Petitioner of shares of stock in Balatoc Mining Co., if really
illegal, may look into only in a quo warranto proceeding instituted by the
Government; chan roblesvirtualawlibrarythat at any rate
the Petitioner has always been ready and willing to dispose of said shares
and, in a proper proceeding, it should be given reasonable time to do so,
as this Court gave the Philippine Sugar Estates a period of six months after
final decision within which to “liquidate, dissolve and separate absolutely
in every respect and in all of its relations, complained of in the petition,
with the Tayabas Land Company” (Government vs. Philippine Sugar
Estates Co., 38 Phil., 15).
With special reference to the intervenor, it may be of some moment to
know the antecedents and nature of business relations existing between
it and the Petitioner, at least to demonstrate the righteousness of the
position of one or the other even from a factual point of view. The
Page 7 of 106
following excerpts from “Petitioner’s Reply to a portion of Intervenor’s
Brief” are in point:chanroblesvirtuallawlibrary
“What has happened in our case is that prior to the execution of the
Operating Agreement of July 9, 1934, the stockholders, directors, and
officers of the intervenor, Consolidated Mines, Inc., did not want to risk
one centavo of their own funds for the development of their chrome ore
mining claims in Zambales province, and proposed to
the Petitioner herein, Benguet Consolidated Mining Company, to explore,
develop and operate their mining claims, Benguet to furnish all the funds
that might be necessary, and to explore, develop, mine and concentrate
and market ‘all the pay are found on or within paid claims or properties’,
the intervenor, Consolidated Mines, Inc., and the Petitioner, Benguet
Consolidated Mining Company, after the latter had reimbursed itself for
all its advances, to divide half and half the excess of receipts over
disbursements. Benguet agreed to it, and advanced approximately three
million pesos, one-half thereof before the war, and the other half after the
war (the intervenor’s properties having been destroyed during the war).
Paragraph XII of the intervenor’s complaint in the civil action instituted by
it against Benguet in the Court of First Instance of Manila, No. 18938, and
to which counsel for the intervenor refer in page 5 of their brief, makes
mention of the large sums of money that Benguet advanced, as
follows:chanroblesvirtuallawlibrary
‘Initial advances amounting to approximately P1,500,000 made
by Defendant during the first phases of said Operating Agreement which
had been fully reimbursed to it before the war, end of the amounts
likewise advanced by it (Benguet) for rehabilitation amounting to close
P1,500,000.00.’
“While Benguet risked and poured approximately three million pesos
(P3,000,000) into the venture, and while Benguet was looking for, and
establishing, a market for intervenor’s chrome ore, the intervenor,
Consolidated Mines, Inc., considered the said Operating Agreement of July
9, 1934, as valid. Now that Benguet’s efforts have been crowned with
success, and Benguet has established a market for intervenor’s chrome
ore, the intervenor claims that its said operating Agreement of July 9,
1934, with the Petitioner, Benguet, is contrary to law because Benguet has
become interested in intervenor’s chrome ore mining claims (although
the agreement expressly states that Benguet has no interest therein), and
objects to the registration of the documents which Benguet filed with
the Respondent Securities and Exchange Commissioner, extending its life
as a sociedad anonima, and reforming itself s a corporation, in accordance
with the provisions of section 75 of the Corporation Law.
“Under the foregoing facts, the intervenor, Consolidated Mines, Inc.,
cannot be heard to complain against Benguet. No court can give now a
helping hand to the intervenor, which claims that Benguet no longer lives,
and wants to keep for itself all the products of Benguet’s efforts after the
latter risked into the venture approximately three million pesos
(P3,000,000).”
The foregoing considerations may not constitute a legal justification for
ruling that the Petitionershould be allowed either to extend its life as a
sociedad anonima or to reform and organize under the provisions of the
Corporation Law, but they may aid in resolving in Petitioner’s favor and
doubt as to the clarity or definiteness of sections 75 and 191 of the
Corporation Law regarding its right to exercise either option in the manner
claimed by it.
The same result may be arrived at if, in addition, we bear in mind the
possible economic harm that may be brought about by the affirmance of
the order complained of. This aspect is adequately touched in Petitioner’s
brief, as follows:chanroblesvirtuallawlibrary
“1. A loss of employment in the Baguio district by about 4,000 Filipino and
a loss of direct living from the Benguet operation supplied to 20,000, that
is, the 4,000 employed and their dependents.
“(a) This would be calamity to the district of the highest order which could
very well produce a snow balling depression which could react all over the
Philippine Islands.
“2. Losses of direct and indirect taxes to the Philippine Government in an
extremely large yearly amount.
“3. No one would be able to continue the Benguet and Balatoc mines in
operation should a liquidation of Benguet take place because the net
profits after labor and material costs and taxes in the last two years or
more from the gold mining operations have not warranted their continued
operation as independent units. The profits in 1953 certainly do not
warrant it. It is merely a case of taking gold out of the ground in order to
pay for labor, materials and taxes with very little return to the
stockholders and on the huge investment made in the reconstruction
since 1946.
“(a) The relief provided by the elimination of the 17 per cent Excise Tax,
the 7 per cent Compensating Tax and the lowering of the Extraction Tax,
when counter-balanced against consistently increasing costs from month
to month up to this very month, is now nothing but an offsetting item
against constantly increasing costs.”
For whatever persuasive effect it may have, we cannot help calling
attention to the fact that there are only about nine sociedades anonimas
in the country, foremost among them being Compañia Maritima, which
have existed for years and along with the Petitioner figured prominently
in our economic development. Compañia Maritima, in particular, has been
twice allowed to extend its life by amendment of its articles of
incorporation. It may be argued that if there was an official mistake in
acceding to the extension of the term of Compañia Maritima, the same
should not warrant the commission of another mistake. But it will go to
show that sections 75 and 191 of the Corporation Law are, on the points
herein involved, of doubtful construction; chan roblesvirtualawlibraryand
it is for this reason that we had to advert hereinabove to the somewhat
unequitable position of the intervenor and to the possible adverse effect
on Philippine economy of the abrupt termination of Petitioner’s corporate
existence.
By and large, it is my considered opinion that the Respondent’s order of
denial dated October 27, 1953, should be reversed and
the Respondent ordered to register at least the documents presented by
the Petitioner, reforming and organizing itself as a corporation under the
provisions of the Corporation Law. This would be in line with the policy of
doing away with sociedad anonimas, at the same time saving “the goose
that lays the golden egg.”
Jugo and Bautista Angelo, JJ., concur.
Endnotes:chanroblesvirtuallawlibrary
2. It must be remembered that sections 75 and 191 of the Corporation
law use the phrase “corporation or sociedad anonima” thus employing
“corporation” as the equivalent legal designation in English of the Spanish
term “sociedad anonima”, in designating the same entity. See Harden vs.
Benguet Cons. Mining Co., 58 Phil., p. 146.
G.R. No. L-23145 November 29, 1968
TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased. RENATO D.
TAYAG, ancillary administrator-appellee,
vs.
BENGUET CONSOLIDATED, INC., oppositor-appellant.
Cirilo F. Asperillo, Jr., for ancillary administrator-appellee.
Ross, Salcedo, Del Rosario, Bito and Misa for oppositor-appellant.
Page 8 of 106
FERNANDO, J.:
Confronted by an obstinate and adamant refusal of the domiciliary
administrator, the County Trust Company of New York, United States of
America, of the estate of the deceased Idonah Slade Perkins, who died in
New York City on March 27, 1960, to surrender to the ancillary
administrator in the Philippines the stock certificates owned by her in a
Philippine corporation, Benguet Consolidated, Inc., to satisfy the
legitimate claims of local creditors, the lower court, then presided by the
Honorable Arsenio Santos, now retired, issued on May 18, 1964, an order
of this tenor: "After considering the motion of the ancillary administrator,
dated February 11, 1964, as well as the opposition filed by the Benguet
Consolidated, Inc., the Court hereby (1) considers as lost for all purposes
in connection with the administration and liquidation of the Philippine
estate of Idonah Slade Perkins the stock certificates covering the 33,002
shares of stock standing in her name in the books of the Benguet
Consolidated, Inc., (2) orders said certificates cancelled, and (3) directs
said corporation to issue new certificates in lieu thereof, the same to be
delivered by said corporation to either the incumbent ancillary
administrator or to the Probate Division of this Court."1
From such an order, an appeal was taken to this Court not by the
domiciliary administrator, the County Trust Company of New York, but by
the Philippine corporation, the Benguet Consolidated, Inc. The appeal
cannot possibly prosper. The challenged order represents a response and
expresses a policy, to paraphrase Frankfurter, arising out of a specific
problem, addressed to the attainment of specific ends by the use of
specific remedies, with full and ample support from legal doctrines of
weight and significance.
The facts will explain why. As set forth in the brief of appellant Benguet
Consolidated, Inc., Idonah Slade Perkins, who died on March 27, 1960 in
New York City, left among others, two stock certificates covering 33,002
shares of appellant, the certificates being in the possession of the County
Trust Company of New York, which as noted, is the domiciliary
administrator of the estate of the deceased.2 Then came this portion of
the appellant's brief: "On August 12, 1960, Prospero Sanidad instituted
ancillary administration proceedings in the Court of First Instance of
Manila; Lazaro A. Marquez was appointed ancillary administrator, and on
January 22, 1963, he was substituted by the appellee Renato D. Tayag. A
dispute arose between the domiciary administrator in New York and the
ancillary administrator in the Philippines as to which of them was entitled
to the possession of the stock certificates in question. On January 27,
1964, the Court of First Instance of Manila ordered the domiciliary
administrator, County Trust Company, to "produce and deposit" them
with the ancillary administrator or with the Clerk of Court. The domiciliary
administrator did not comply with the order, and on February 11, 1964,
the ancillary administrator petitioned the court to "issue an order
declaring the certificate or certificates of stocks covering the 33,002
shares issued in the name of Idonah Slade Perkins by Benguet
Consolidated, Inc., be declared [or] considered as lost."3
It is to be noted further that appellant Benguet Consolidated, Inc. admits
that "it is immaterial" as far as it is concerned as to "who is entitled to the
possession of the stock certificates in question; appellant opposed the
petition of the ancillary administrator because the said stock certificates
are in existence, they are today in the possession of the domiciliary
administrator, the County Trust Company, in New York, U.S.A...."4
It is its view, therefore, that under the circumstances, the stock
certificates cannot be declared or considered as lost. Moreover, it would
allege that there was a failure to observe certain requirements of its by-
laws before new stock certificates could be issued. Hence, its appeal.
As was made clear at the outset of this opinion, the appeal lacks merit.
The challenged order constitutes an emphatic affirmation of judicial
authority sought to be emasculated by the wilful conduct of the
domiciliary administrator in refusing to accord obedience to a court
decree. How, then, can this order be stigmatized as illegal?
As is true of many problems confronting the judiciary, such a response was
called for by the realities of the situation. What cannot be ignored is that
conduct bordering on wilful defiance, if it had not actually reached it,
cannot without undue loss of judicial prestige, be condoned or tolerated.
For the law is not so lacking in flexibility and resourcefulness as to preclude
such a solution, the more so as deeper reflection would make clear its
being buttressed by indisputable principles and supported by the
strongest policy considerations.
It can truly be said then that the result arrived at upheld and vindicated
the honor of the judiciary no less than that of the country. Through this
challenged order, there is thus dispelled the atmosphere of contingent
frustration brought about by the persistence of the domiciliary
administrator to hold on to the stock certificates after it had, as admitted,
voluntarily submitted itself to the jurisdiction of the lower court by
entering its appearance through counsel on June 27, 1963, and filing a
petition for relief from a previous order of March 15, 1963.
Thus did the lower court, in the order now on appeal, impart vitality and
effectiveness to what was decreed. For without it, what it had been
decided would be set at naught and nullified. Unless such a blatant
disregard by the domiciliary administrator, with residence abroad, of what
was previously ordained by a court order could be thus remedied, it would
have entailed, insofar as this matter was concerned, not a partial but a
well-nigh complete paralysis of judicial authority.
1. Appellant Benguet Consolidated, Inc. did not dispute the power of the
appellee ancillary administrator to gain control and possession of all assets
of the decedent within the jurisdiction of the Philippines. Nor could it.
Such a power is inherent in his duty to settle her estate and satisfy the
claims of local creditors.5 As Justice Tuason speaking for this Court made
clear, it is a "general rule universally recognized" that administration,
whether principal or ancillary, certainly "extends to the assets of a
decedent found within the state or country where it was granted," the
corollary being "that an administrator appointed in one state or country
has no power over property in another state or country."6
It is to be noted that the scope of the power of the ancillary administrator
was, in an earlier case, set forth by Justice Malcolm. Thus: "It is often
necessary to have more than one administration of an estate. When a
person dies intestate owning property in the country of his domicile as
well as in a foreign country, administration is had in both countries. That
which is granted in the jurisdiction of decedent's last domicile is termed
the principal administration, while any other administration is termed the
ancillary administration. The reason for the latter is because a grant of
administration does not ex proprio vigore have any effect beyond the
limits of the country in which it is granted. Hence, an administrator
appointed in a foreign state has no authority in the [Philippines]. The
ancillary administration is proper, whenever a person dies, leaving in a
country other than that of his last domicile, property to be administered
in the nature of assets of the deceased liable for his individual debts or to
be distributed among his heirs."7
It would follow then that the authority of the probate court to require that
ancillary administrator's right to "the stock certificates covering the
33,002 shares ... standing in her name in the books of [appellant] Benguet
Consolidated, Inc...." be respected is equally beyond question. For
Page 9 of 106
appellant is a Philippine corporation owing full allegiance and subject to
the unrestricted jurisdiction of local courts. Its shares of stock cannot
therefore be considered in any wise as immune from lawful court orders.
Our holding in Wells Fargo Bank and Union v. Collector of Internal
Revenue8 finds application. "In the instant case, the actual situs of the
shares of stock is in the Philippines, the corporation being domiciled
[here]." To the force of the above undeniable proposition, not even
appellant is insensible. It does not dispute it. Nor could it successfully do
so even if it were so minded.
2. In the face of such incontrovertible doctrines that argue in a rather
conclusive fashion for the legality of the challenged order, how does
appellant, Benguet Consolidated, Inc. propose to carry the extremely
heavy burden of persuasion of precisely demonstrating the contrary? It
would assign as the basic error allegedly committed by the lower court its
"considering as lost the stock certificates covering 33,002 shares of
Benguet belonging to the deceased Idonah Slade Perkins, ..."9 More
specifically, appellant would stress that the "lower court could not
"consider as lost" the stock certificates in question when, as a matter of
fact, his Honor the trial Judge knew, and does know, and it is admitted by
the appellee, that the said stock certificates are in existence and are today
in the possession of the domiciliary administrator in New York."10
There may be an element of fiction in the above view of the lower court.
That certainly does not suffice to call for the reversal of the appealed
order. Since there is a refusal, persistently adhered to by the domiciliary
administrator in New York, to deliver the shares of stocks of appellant
corporation owned by the decedent to the ancillary administrator in the
Philippines, there was nothing unreasonable or arbitrary in considering
them as lost and requiring the appellant to issue new certificates in lieu
thereof. Thereby, the task incumbent under the law on the ancillary
administrator could be discharged and his responsibility fulfilled.
Any other view would result in the compliance to a valid judicial order
being made to depend on the uncontrolled discretion of the party or
entity, in this case domiciled abroad, which thus far has shown the utmost
persistence in refusing to yield obedience. Certainly, appellant would not
be heard to contend in all seriousness that a judicial decree could be
treated as a mere scrap of paper, the court issuing it being powerless to
remedy its flagrant disregard.
It may be admitted of course that such alleged loss as found by the lower
court did not correspond exactly with the facts. To be more blunt, the
quality of truth may be lacking in such a conclusion arrived at. It is to be
remembered however, again to borrow from Frankfurter, "that fictions
which the law may rely upon in the pursuit of legitimate ends have played
an important part in its development."11
Speaking of the common law in its earlier period, Cardozo could state
fictions "were devices to advance the ends of justice, [even if] clumsy and
at times offensive."12 Some of them have persisted even to the present,
that eminent jurist, noting "the quasi contract, the adopted child, the
constructive trust, all of flourishing vitality, to attest the empire of "as if"
today."13 He likewise noted "a class of fictions of another order, the fiction
which is a working tool of thought, but which at times hides itself from
view till reflection and analysis have brought it to the light."14
What cannot be disputed, therefore, is the at times indispensable role that
fictions as such played in the law. There should be then on the part of the
appellant a further refinement in the catholicity of its condemnation of
such judicial technique. If ever an occasion did call for the employment of
a legal fiction to put an end to the anomalous situation of a valid judicial
order being disregarded with apparent impunity, this is it. What is thus
most obvious is that this particular alleged error does not carry
persuasion.
3. Appellant Benguet Consolidated, Inc. would seek to bolster the above
contention by its invoking one of the provisions of its by-laws which would
set forth the procedure to be followed in case of a lost, stolen or destroyed
stock certificate; it would stress that in the event of a contest or the
pendency of an action regarding ownership of such certificate or
certificates of stock allegedly lost, stolen or destroyed, the issuance of a
new certificate or certificates would await the "final decision by [a] court
regarding the ownership [thereof]."15
Such reliance is misplaced. In the first place, there is no such occasion to
apply such by-law. It is admitted that the foreign domiciliary administrator
did not appeal from the order now in question. Moreover, there is likewise
the express admission of appellant that as far as it is concerned, "it is
immaterial ... who is entitled to the possession of the stock certificates ..."
Even if such were not the case, it would be a legal absurdity to impart to
such a provision conclusiveness and finality. Assuming that a contrariety
exists between the above by-law and the command of a court decree, the
latter is to be followed.
It is understandable, as Cardozo pointed out, that the Constitution
overrides a statute, to which, however, the judiciary must yield deference,
when appropriately invoked and deemed applicable. It would be most
highly unorthodox, however, if a corporate by-law would be accorded
such a high estate in the jural order that a court must not only take note
of it but yield to its alleged controlling force.
The fear of appellant of a contingent liability with which it could be
saddled unless the appealed order be set aside for its inconsistency with
one of its by-laws does not impress us. Its obedience to a lawful court
order certainly constitutes a valid defense, assuming that such
apprehension of a possible court action against it could possibly
materialize. Thus far, nothing in the circumstances as they have developed
gives substance to such a fear. Gossamer possibilities of a future prejudice
to appellant do not suffice to nullify the lawful exercise of judicial
authority.
4. What is more the view adopted by appellant Benguet Consolidated, Inc.
is fraught with implications at war with the basic postulates of corporate
theory.
We start with the undeniable premise that, "a corporation is an artificial
being created by operation of law...."16 It owes its life to the state, its birth
being purely dependent on its will. As Berle so aptly stated: "Classically, a
corporation was conceived as an artificial person, owing its existence
through creation by a sovereign power."17 As a matter of fact, the
statutory language employed owes much to Chief Justice Marshall, who in
the Dartmouth College decision defined a corporation precisely as "an
artificial being, invisible, intangible, and existing only in contemplation of
law."18
The well-known authority Fletcher could summarize the matter thus: "A
corporation is not in fact and in reality a person, but the law treats it as
though it were a person by process of fiction, or by regarding it as an
artificial person distinct and separate from its individual stockholders.... It
owes its existence to law. It is an artificial person created by law for certain
specific purposes, the extent of whose existence, powers and liberties is
fixed by its charter."19Dean Pound's terse summary, a juristic person,
resulting from an association of human beings granted legal personality
by the state, puts the matter neatly.20
Page 10 of 106
There is thus a rejection of Gierke's genossenchaft theory, the basic
theme of which to quote from Friedmann, "is the reality of the group as a
social and legal entity, independent of state recognition and
concession."21 A corporation as known to Philippine jurisprudence is a
creature without any existence until it has received the imprimatur of the
state according to law. It is logically inconceivable therefore that it will
have rights and privileges of a higher priority than that of its creator. More
than that, it cannot legitimately refuse to yield obedience to acts of its
state organs, certainly not excluding the judiciary, whenever called upon
to do so.
As a matter of fact, a corporation once it comes into being, following
American law still of persuasive authority in our jurisdiction, comes more
often within the ken of the judiciary than the other two coordinate
branches. It institutes the appropriate court action to enforce its right.
Correlatively, it is not immune from judicial control in those instances,
where a duty under the law as ascertained in an appropriate legal
proceeding is cast upon it.
To assert that it can choose which court order to follow and which to
disregard is to confer upon it not autonomy which may be conceded but
license which cannot be tolerated. It is to argue that it may, when so
minded, overrule the state, the source of its very existence; it is to contend
that what any of its governmental organs may lawfully require could be
ignored at will. So extravagant a claim cannot possibly merit approval.
5. One last point. In Viloria v. Administrator of Veterans Affairs,22 it was
shown that in a guardianship proceedings then pending in a lower court,
the United States Veterans Administration filed a motion for the refund of
a certain sum of money paid to the minor under guardianship, alleging
that the lower court had previously granted its petition to consider the
deceased father as not entitled to guerilla benefits according to a
determination arrived at by its main office in the United States. The
motion was denied. In seeking a reconsideration of such order, the
Administrator relied on an American federal statute making his decisions
"final and conclusive on all questions of law or fact" precluding any other
American official to examine the matter anew, "except a judge or judges
of the United States court."23 Reconsideration was denied, and the
Administrator appealed.
In an opinion by Justice J.B.L. Reyes, we sustained the lower court. Thus:
"We are of the opinion that the appeal should be rejected. The provisions
of the U.S. Code, invoked by the appellant, make the decisions of the U.S.
Veterans' Administrator final and conclusive when made on claims
property submitted to him for resolution; but they are not applicable to
the present case, where the Administrator is not acting as a judge but as
a litigant. There is a great difference between actions against the
Administrator (which must be filed strictly in accordance with the
conditions that are imposed by the Veterans' Act, including the exclusive
review by United States courts), and those actions where the Veterans'
Administrator seeks a remedy from our courts and submits to their
jurisdiction by filing actions therein. Our attention has not been called to
any law or treaty that would make the findings of the Veterans'
Administrator, in actions where he is a party, conclusive on our courts.
That, in effect, would deprive our tribunals of judicial discretion and
render them mere subordinate instrumentalities of the Veterans'
Administrator."
It is bad enough as the Viloria decision made patent for our judiciary to
accept as final and conclusive, determinations made by foreign
governmental agencies. It is infinitely worse if through the absence of any
coercive power by our courts over juridical persons within our jurisdiction,
the force and effectivity of their orders could be made to depend on the
whim or caprice of alien entities. It is difficult to imagine of a situation
more offensive to the dignity of the bench or the honor of the country.
Yet that would be the effect, even if unintended, of the proposition to
which appellant Benguet Consolidated seems to be firmly committed as
shown by its failure to accept the validity of the order complained of; it
seeks its reversal. Certainly we must at all pains see to it that it does not
succeed. The deplorable consequences attendant on appellant prevailing
attest to the necessity of negative response from us. That is what
appellant will get.
That is all then that this case presents. It is obvious why the appeal cannot
succeed. It is always easy to conjure extreme and even oppressive
possibilities. That is not decisive. It does not settle the issue. What carries
weight and conviction is the result arrived at, the just solution obtained,
grounded in the soundest of legal doctrines and distinguished by its
correspondence with what a sense of realism requires. For through the
appealed order, the imperative requirement of justice according to law is
satisfied and national dignity and honor maintained.
WHEREFORE, the appealed order of the Honorable Arsenio Santos, the
Judge of the Court of First Instance, dated May 18, 1964, is affirmed. With
costs against oppositor-appelant Benguet Consolidated, Inc.
Makalintal, Zaldivar and Capistrano, JJ., concur.
Concepcion, C.J., Reyes, J.B.L., Dizon, Sanchez and Castro, JJ., concur in the
result.
G.R. No. 125469 October 27, 1997
PHILIPPINE STOCK EXCHANGE, INC., petitioner,
vs.
THE HONORABLE COURT OF APPEALS, SECURITIES AND EXCHANGE
COMMISSION and PUERTO AZUL LAND, INC., respondents.
TORRES, JR., J.:
The Securities and Exchange Commission is the government agency,
under the direct general supervision of the Office of the President, 1 with
the immense task of enforcing the Revised Securities Act, and all other
duties assigned to it by pertinent laws. Among its inumerable functions,
and one of the most important, is the supervision of all corporations,
partnerships or associations, who are grantees of primary franchise
and/or a license or permit issued by the government to operate in the
Philippines. 2 Just how far this regulatory authority extends, particularly,
with regard to the Petitioner Philippine Stock Exchange, Inc. is the issue in
the case at bar.
In this Petition for Review on Certiorari, petitioner assails the resolution of
the respondent Court of Appeals, dated June 27, 1996, which affirmed the
decision of the Securities and Exchange Commission ordering the
petitioner Philippine Stock Exchange, Inc. to allow the private respondent
Puerto Azul Land, Inc. to be listed in its stock market, thus paving the way
for the public offering of PALI's shares.
The facts of the case are undisputed, and are hereby restated in sum.
The Puerto Azul Land, Inc. (PALI), a domestic real estate corporation, had
sought to offer its shares to the public in order to raise funds allegedly to
develop its properties and pay its loans with several banking institutions.
Page 11 of 106
In January, 1995, PALI was issued a Permit to Sell its shares to the public
by the Securities and Exchange Commission (SEC). To facilitate the trading
of its shares among investors, PALI sought to course the trading of its
shares through the Philippine Stock Exchange, Inc. (PSE), for which
purpose it filed with the said stock exchange an application to list its
shares, with supporting documents attached.
On February 8, 1996, the Listing Committee of the PSE, upon a perusal of
PALI's application, recommended to the PSE's Board of Governors the
approval of PALI's listing application.
On February 14, 1996, before it could act upon PALI's application, the
Board of Governors of the PSE received a letter from the heirs of
Ferdinand E. Marcos, claiming that the late President Marcos was the legal
and beneficial owner of certain properties forming part of the Puerto Azul
Beach Hotel and Resort Complex which PALI claims to be among its assets
and that the Ternate Development Corporation, which is among the
stockholders of PALI, likewise appears to have been held and continue to
be held in trust by one Rebecco Panlilio for then President Marcos and
now, effectively for his estate, and requested PALI's application to be
deferred. PALI was requested to comment upon the said letter.
PALI's answer stated that the properties forming part of the Puerto Azul
Beach Hotel and Resort Complex were not claimed by PALI as its assets.
On the contrary, the resort is actually owned by Fantasia Filipina Resort,
Inc. and the Puerto Azul Country Club, entities distinct from PALI.
Furthermore, the Ternate Development Corporation owns only 1.20% of
PALI. The Marcoses responded that their claim is not confined to the
facilities forming part of the Puerto Azul Hotel and Resort Complex,
thereby implying that they are also asserting legal and beneficial
ownership of other properties titled under the name of PALI.
On February 20, 1996, the PSE wrote Chairman Magtanggol Gunigundo of
the Presidential Commission on Good Government (PCGG) requesting for
comments on the letters of the PALI and the Marcoses. On March 4, 1996,
the PSE was informed that the Marcoses received a Temporary
Restraining Order on the same date, enjoining the Marcoses from, among
others, "further impeding, obstructing, delaying or interfering in any
manner by or any means with the consideration, processing and approval
by the PSE of the initial public offering of PALI." The TRO was issued by
Judge Martin S. Villarama, Executive Judge of the RTC of Pasig City in Civil
Case No. 65561, pending in Branch 69 thereof.
In its regular meeting held on March 27, 1996, the Board of Governors of
the PSE reached its decision to reject PALI's application, citing the
existence of serious claims, issues and circumstances surrounding PALI's
ownership over its assets that adversely affect the suitability of listing
PALI's shares in the stock exchange.
On April 11, 1996, PALI wrote a letter to the SEC addressed to the then
Acting Chairman, Perfecto R. Yasay, Jr., bringing to the SEC's attention the
action taken by the PSE in the application of PALI for the listing of its shares
with the PSE, and requesting that the SEC, in the exercise of its supervisory
and regulatory powers over stock exchanges under Section 6(j) of P.D. No.
902-A, review the PSE's action on PALI's listing application and institute
such measures as are just and proper under the circumstances.
On the same date, or on April 11, 1996, the SEC wrote to the PSE,
attaching thereto the letter of PALI and directing the PSE to file its
comments thereto within five days from its receipt and for its authorized
representative to appear for an "inquiry" on the matter. On April 22, 1996,
the PSE submitted a letter to the SEC containing its comments to the April
11, 1996 letter of PALI.
On April 24, 1996, the SEC rendered its Order, reversing the PSE's decision.
The dispositive portion of the said order reads:
WHEREFORE, premises considered, and invoking the
Commissioner's authority and jurisdiction under
Section 3 of the Revised Securities Act, in conjunction
with Section 3, 6(j) and 6(m) of Presidential Decree
No. 902-A, the decision of the Board of Governors of
the Philippine Stock Exchange denying the listing of
shares of Puerto Azul Land, Inc., is hereby set aside,
and the PSE is hereby ordered to immediately cause
the listing of the PALI shares in the Exchange, without
prejudice to its authority to require PALI to disclose
such other material information it deems necessary
for the protection of the investigating public.
This Order shall take effect immediately.
SO ORDERED.
PSE filed a motion for reconsideration of the said order on April 29, 1996,
which was, however denied by the Commission in its May 9, 1996 Order
which states:
WHEREFORE, premises considered, the Commission
finds no compelling reason to reconsider its order
dated April 24, 1996, and in the light of recent
developments on the adverse claim against the PALI
properties, PSE should require PALI to submit full
disclosure of material facts and information to protect
the investing public. In this regard, PALI is hereby
ordered to amend its registration statements filed
with the Commission to incorporate the full disclosure
of these material facts and information.
Dissatisfied with this ruling, the PSE filed with the Court of Appeals on May
17, 1996 a Petition for Review (with Application for Writ of Preliminary
Injunction and Temporary Restraining Order), assailing the above
mentioned orders of the SEC, submitting the following as errors of the
SEC:
I. SEC COMMITTED SERIOUS
ERROR AND GRAVE ABUSE OF
DISCRETION IN ISSUING THE
ASSAILED ORDERS WITHOUT
POWER, JURISDICTION, OR
AUTHORITY; SEC HAS NO POWER
TO ORDER THE LISTING AND SALE
OF SHARES OF PALI WHOSE
ASSETS ARE SEQUESTERED AND
TO REVIEW AND SUBSTITUTE
DECISIONS OF PSE ON LISTING
APPLICATIONS;
II. SEC COMMITTED SERIOUS
ERROR AND GRAVE ABUSE OF
DISCRETION IN FINDING THAT
PSE ACTED IN AN ARBITRARY AND
ABUSIVE MANNER IN
DISAPPROVING PALI'S LISTING
APPLICATION;
Page 12 of 106
III. THE ASSAILED ORDERS OF SEC
ARE ILLEGAL AND VOID FOR
ALLOWING FURTHER
DISPOSITION OF PROPERTIES IN
CUSTODIA LEGIS AND WHICH
FORM PART OF NAVAL/MILITARY
RESERVATION; AND
IV. THE FULL DISCLOSURE OF THE
SEC WAS NOT PROPERLY
PROMULGATED AND ITS
IMPLEMENTATION AND
APPLICATION IN THIS CASE
VIOLATES THE DUE PROCESS
CLAUSE OF THE CONSTITUTION.
On June 4, 1996, PALI filed its Comment to the Petition for Review and
subsequently, a Comment and Motion to Dismiss. On June 10, 1996, PSE
fled its Reply to Comment and Opposition to Motion to Dismiss.
On June 27, 1996, the Court of Appeals promulgated its Resolution
dismissing the PSE's Petition for Review. Hence, this Petition by the PSE.
The appellate court had ruled that the SEC had both jurisdiction and
authority to look into the decision of the petitioner PSE, pursuant to
Section 3 3 of the Revised Securities Act in relation to Section 6(j) and
6(m) 4 of P.D. No. 902-A, and Section 38(b)5 of the Revised Securities Act,
and for the purpose of ensuring fair administration of the exchange. Both
as a corporation and as a stock exchange, the petitioner is subject to public
respondent's jurisdiction, regulation and control. Accepting the argument
that the public respondent has the authority merely to supervise or
regulate, would amount to serious consequences, considering that the
petitioner is a stock exchange whose business is impressed with public
interest. Abuse is not remote if the public respondent is left without any
system of control. If the securities act vested the public respondent with
jurisdiction and control over all corporations; the power to authorize the
establishment of stock exchanges; the right to supervise and regulate the
same; and the power to alter and supplement rules of the exchange in the
listing or delisting of securities, then the law certainly granted to the public
respondent the plenary authority over the petitioner; and the power of
review necessarily comes within its authority.
All in all, the court held that PALI complied with all the requirements for
public listing, affirming the SEC's ruling to the effect that:
. . . the Philippine Stock Exchange has acted in an
arbitrary and abusive manner in disapproving the
application of PALI for listing of its shares in the face
of the following considerations:
1. PALI has clearly and admittedly complied with the
Listing Rules and full disclosure requirements of the
Exchange;
2. In applying its clear and reasonable standards on
the suitability for listing of shares, PSE has failed to
justify why it acted differently on the application of
PALI, as compared to the IPOs of other companies
similarly situated that were allowed listing in the
Exchange;
3. It appears that the claims and issues on the title to
PALI's properties were even less serious than the
 claims against the assets of the other companies in
that, the assertions of the Marcoses that they are
owners of the disputed properties were not
substantiated enough to overcome the strength of a
title to properties issued under the Torrens System as
evidence of ownership thereof;
4. No action has been filed in any court of competent
jurisdiction seeking to nullify PALI's ownership over
the disputed properties, neither has the government
instituted recovery proceedings against these
properties. Yet the import of PSE's decision in denying
PALI's application is that it would be PALI, not the
Marcoses, that must go to court to prove the legality
of its ownership on these properties before its shares
can be listed.
In addition, the argument that the PALI properties belong to the
Military/Naval Reservation does not inspire belief. The point is, the PALI
properties are now titled. A property losses its public character the
moment it is covered by a title. As a matter of fact, the titles have long
been settled by a final judgment; and the final decree having been
registered, they can no longer be re-opened considering that the one year
period has already passed. Lastly, the determination of what standard to
apply in allowing PALI's application for listing, whether the discretion
method or the system of public disclosure adhered to by the SEC, should
be addressed to the Securities Commission, it being the government
agency that exercises both supervisory and regulatory authority over all
corporations.
On August 15, 19961 the PSE, after it was granted an extension, filed the
instant Petition for Review on Certiorari, taking exception to the rulings of
the SEC and the Court of Appeals. Respondent PALI filed its Comment to
the petition on October 17, 1996. On the same date, the PCGG filed a
Motion for Leave to file a Petition for Intervention. This was followed up
by the PCGG's Petition for Intervention on October 21, 1996. A
supplemental Comment was filed by PALI on October 25, 1997. The Office
of the Solicitor General, representing the SEC and the Court of Appeals,
likewise filed its Comment on December 26, 1996. In answer to the PCGG's
motion for leave to file petition for intervention, PALI filed its Comment
thereto on January 17, 1997, whereas the PSE filed its own Comment on
January 20, 1997.
On February 25, 1996, the PSE filed its Consolidated Reply to the
comments of respondent PALI (October 17, 1996) and the Solicitor
General (December 26, 1996). On May 16, 1997, PALI filed its Rejoinder
to the said consolidated reply of PSE.
PSE submits that the Court of Appeals erred in ruling that the SEC had
authority to order the PSE to list the shares of PALI in the stock exchange.
Under presidential decree No. 902-A, the powers of the SEC over stock
exchanges are more limited as compared to its authority over ordinary
corporations. In connection with this, the powers of the SEC over stock
exchanges under the Revised Securities Act are specifically enumerated,
and these do not include the power to reverse the decisions of the stock
exchange. Authorities are in abundance even in the United States, from
which the country's security policies are patterned, to the effect of giving
the Securities Commission less control over stock exchanges, which in turn
are given more lee-way in making the decision whether or not to allow
corporations to offer their stock to the public through the stock exchange.
This is in accord with the "business judgment rule" whereby the SEC and
the courts are barred from intruding into business judgments of
corporations, when the same are made in good faith. the said rule
precludes the reversal of the decision of the PSE to deny PALI's listing
Page 13 of 106
application, absent a showing of bad faith on the part of the PSE. Under
the listing rules of the PSE, to which PALI had previously agreed to comply,
the PSE retains the discretion to accept or reject applications for listing.
Thus, even if an issuer has complied with the PSE listing rules and
requirements, PSE retains the discretion to accept or reject the issuer's
listing application if the PSE determines that the listing shall not serve the
interests of the investing public.
Moreover, PSE argues that the SEC has no jurisdiction over sequestered
corporations, nor with corporations whose properties are under
sequestration. A reading of Republic of the Philippines vs. Sadiganbayan,
G.R. No. 105205, 240 SCRA 376, would reveal that the properties of PALI,
which were derived from the Ternate Development Corporation (TDC)
and the Monte del Sol Development Corporation (MSDC). are under
sequestration by the PCGG, and subject of forfeiture proceedings in the
Sandiganbayan. This ruling of the Court is the "law of the case" between
the Republic and TDC and MSDC. It categorically declares that the assets
of these corporations were sequestered by the PCGG on March 10, 1986
and April 4, 1988.
It is, likewise, intimated that the Court of Appeals' sanction that PALI's
ownership over its properties can no longer be questioned, since
certificates of title have been issued to PALI and more than one year has
since lapsed, is erroneous and ignores well settled jurisprudence on land
titles. That a certificate of title issued under the Torrens System is a
conclusive evidence of ownership is not an absolute rule and admits
certain exceptions. It is fundamental that forest lands or military
reservations are non-alienable. Thus, when a title covers a forest reserve
or a government reservation, such title is void.
PSE, likewise, assails the SEC's and the Court of Appeals reliance on the
alleged policy of "full disclosure" to uphold the listing of PALI's shares with
the PSE, in the absence of a clear mandate for the effectivity of such
policy. As it is, the case records reveal the truth that PALI did not comply
with the listing rules and disclosure requirements. In fact, PALI's
documents supporting its application contained misrepresentations and
misleading statements, and concealed material information. The matter
of sequestration of PALI's properties and the fact that the same form part
of military/naval/forest reservations were not reflected in PALI's
application.
It is undeniable that the petitioner PSE is not an ordinary corporation, in
that although it is clothed with the markings of a corporate entity, it
functions as the primary channel through which the vessels of capital
trade ply. The PSE's relevance to the continued operation and filtration of
the securities transactions in the country gives it a distinct color of
importance such that government intervention in its affairs becomes
justified, if not necessarily. Indeed, as the only operational stock exchange
in the country today, the PSE enjoys a monopoly of securities transactions,
and as such, it yields an immense influence upon the country's economy.
Due to this special nature of stock exchanges, the country's lawmakers has
seen it wise to give special treatment to the administration and regulation
of stock exchanges. 6
These provisions, read together with the general grant of jurisdiction, and
right of supervision and control over all corporations under Sec. 3 of P.D.
902-A, give the SEC the special mandate to be vigilant in the supervision
of the affairs of stock exchanges so that the interests of the investing
public may be fully safeguard.
Section 3 of Presidential Decree 902-A, standing alone, is enough
authority to uphold the SEC's challenged control authority over the
petitioner PSE even as it provides that "the Commission shall have
absolute jurisdiction, supervision, and control over all corporations,
partnerships or associations, who are the grantees of primary franchises
and/or a license or permit issued by the government to operate in the
Philippines. . ." The SEC's regulatory authority over private corporations
encompasses a wide margin of areas, touching nearly all of a corporation's
concerns. This authority springs from the fact that a corporation owes its
existence to the concession of its corporate franchise from the state.
The SEC's power to look into the subject ruling of the PSE, therefore, may
be implied from or be considered as necessary or incidental to the carrying
out of the SEC's express power to insure fair dealing in securities traded
upon a stock exchange or to ensure the fair administration of such
exchange. 7 It is, likewise, observed that the principal function of the SEC
is the supervision and control over corporations, partnerships and
associations with the end in view that investment in these entities may be
encouraged and protected, and their activities for the promotion of
economic development. 8
Thus, it was in the alleged exercise of this authority that the SEC reversed
the decision of the PSE to deny the application for listing in the stock
exchange of the private respondent PALI. The SEC's action was affirmed
by the Court of Appeals.
We affirm that the SEC is the entity with the primary say as to whether or
not securities, including shares of stock of a corporation, may be traded
or not in the stock exchange. This is in line with the SEC's mission to ensure
proper compliance with the laws, such as the Revised Securities Act and
to regulate the sale and disposition of securities in the country. 9 As the
appellate court explains:
Paramount policy also supports the authority of the
public respondent to review petitioner's denial of the
listing. Being a stock exchange, the petitioner
performs a function that is vital to the national
economy, as the business is affected with public
interest. As a matter of fact, it has often been said that
the economy moves on the basis of the rise and fall of
stocks being traded. By its economic power, the
petitioner certainly can dictate which and how many
users are allowed to sell securities thru the facilities of
a stock exchange, if allowed to interpret its own rules
liberally as it may please. Petitioner can either allow
or deny the entry to the market of securities. To
repeat, the monopoly, unless accompanied by
control, becomes subject to abuse; hence,
considering public interest, then it should be subject
to government regulation.
The role of the SEC in our national economy cannot be minimized. The
legislature, through the Revised Securities Act, Presidential Decree No.
902-A, and other pertinent laws, has entrusted to it the serious
responsibility of enforcing all laws affecting corporations and other forms
of associations not otherwise vested in some other government office. 10
This is not to say, however, that the PSE's management prerogatives are
under the absolute control of the SEC. The PSE is, alter all, a corporation
authorized by its corporate franchise to engage in its proposed and duly
approved business. One of the PSE's main concerns, as such, is still the
generation of profit for its stockholders. Moreover, the PSE has all the
rights pertaining to corporations, including the right to sue and be sued,
to hold property in its own name, to enter (or not to enter) into contracts
Page 14 of 106
with third persons, and to perform all other legal acts within its allocated
express or implied powers.
A corporation is but an association of individuals, allowed to transact
under an assumed corporate name, and with a distinct legal personality.
In organizing itself as a collective body, it waives no constitutional
immunities and perquisites appropriate to such a body. 11 As to its
corporate and management decisions, therefore, the state will generally
not interfere with the same. Questions of policy and of management are
left to the honest decision of the officers and directors of a corporation,
and the courts are without authority to substitute their judgment for the
judgment of the board of directors. The board is the business manager of
the corporation, and so long as it acts in good faith, its orders are not
reviewable by the courts. 12
Thus, notwithstanding the regulatory power of the SEC over the PSE, and
the resultant authority to reverse the PSE's decision in matters of
application for listing in the market, the SEC may exercise such power only
if the PSE's judgment is attended by bad faith. In Board of Liquidators
vs. Kalaw,13 it was held that bad faith does not simply connote bad
judgment or negligence. It imports a dishonest purpose or some moral
obliquity and conscious doing of wrong. It means a breach of a known duty
through some motive or interest of ill will, partaking of the nature of fraud.
In reaching its decision to deny the application for listing of PALI, the PSE
considered important facts, which, in the general scheme, brings to
serious question the qualification of PALI to sell its shares to the public
through the stock exchange. During the time for receiving objections to
the application, the PSE heard from the representative of the late
President Ferdinand E. Marcos and his family who claim the properties of
the private respondent to be part of the Marcos estate. In time, the PCGG
confirmed this claim. In fact, an order of sequestration has been issued
covering the properties of PALI, and suit for reconveyance to the state has
been filed in the Sandiganbayan Court. How the properties were
effectively transferred, despite the sequestration order, from the TDC and
MSDC to Rebecco Panlilio, and to the private respondent PALI, in only a
short span of time, are not yet explained to the Court, but it is clear that
such circumstances give rise to serious doubt as to the integrity of PALI as
a stock issuer. The petitioner was in the right when it refused application
of PALI, for a contrary ruling was not to the best interest of the general
public. The purpose of the Revised Securities Act, after all, is to give
adequate and effective protection to the investing public against
fraudulent representations, or false promises, and the imposition of
worthless ventures. 14
It is to be observed that the U.S. Securities Act emphasized its avowed
protection to acts detrimental to legitimate business, thus:
The Securities Act, often referred to as the "truth in
securities" Act, was designed not only to provide
investors with adequate information upon which to
base their decisions to buy and sell securities, but also
to protect legitimate business seeking to obtain
capital through honest presentation against
competition from crooked promoters and to prevent
fraud in the sale of securities. (Tenth Annual Report,
U.S. Securities & Exchange Commission, p. 14).
As has been pointed out, the effects of such an act are
chiefly (1) prevention of excesses and fraudulent
transactions, merely by requirement of that their
details be revealed; (2) placing the market during the
early stages of the offering of a security a body of
 information, which operating indirectly through
investment services and expert investors, will tend to
produce a more accurate appraisal of a security, . . .
Thus, the Commission may refuse to permit a
registration statement to become effective if it
appears on its face to be incomplete or inaccurate in
any material respect, and empower the Commission
to issue a stop order suspending the effectiveness of
any registration statement which is found to include
any untrue statement of a material fact or to omit to
state any material fact required to be stated therein
or necessary to make the statements therein not
misleading. (Idem).
Also, as the primary market for securities, the PSE has established its name
and goodwill, and it has the right to protect such goodwill by maintaining
a reasonable standard of propriety in the entities who choose to transact
through its facilities. It was reasonable for the PSE, therefore, to exercise
its judgment in the manner it deems appropriate for its business identity,
as long as no rights are trampled upon, and public welfare is safeguarded.
In this connection, it is proper to observe that the concept of government
absolutism is a thing of the past, and should remain so.
The observation that the title of PALI over its properties is absolute and
can no longer be assailed is of no moment. At this juncture, there is the
claim that the properties were owned by TDC and MSDC and were
transferred in violation of sequestration orders, to Rebecco Panlilio and
later on to PALI, besides the claim of the Marcoses that such properties
belong to the Marcos estate, and were held only in trust by Rebecco
Panlilio. It is also alleged by the petitioner that these properties belong to
naval and forest reserves, and therefore beyond private dominion. If any
of these claims is established to be true, the certificates of title over the
subject properties now held by PALI map be disregarded, as it is an
established rule that a registration of a certificate of title does not confer
ownership over the properties described therein to the person named as
owner. The inscription in the registry, to be effective, must be made in
good faith. The defense of indefeasibility of a Torrens Title does not
extend to a transferee who takes the certificate of title with notice of a
flaw.
In any case, for the purpose of determining whether PSE acted correctly
in refusing the application of PALI, the true ownership of the properties of
PALI need not be determined as an absolute fact. What is material is that
the uncertainty of the properties' ownership and alienability exists, and
this puts to question the qualification of PALI's public offering. In sum, the
Court finds that the SEC had acted arbitrarily in arrogating unto itself the
discretion of approving the application for listing in the PSE of the private
respondent PALI, since this is a matter addressed to the sound discretion
of the PSE, a corporation entity, whose business judgments are respected
in the absence of bad faith.
The question as to what policy is, or should be relied upon in approving
the registration and sale of securities in the SEC is not for the Court to
determine, but is left to the sound discretion of the Securities and
Exchange Commission. In mandating the SEC to administer the Revised
Securities Act, and in performing its other functions under pertinent laws,
the Revised Securities Act, under Section 3 thereof, gives the SEC the
power to promulgate such rules and regulations as it may consider
appropriate in the public interest for the enforcement of the said laws.
The second paragraph of Section 4 of the said law, on the other hand,
provides that no security, unless exempt by law, shall be issued, endorsed,
sold, transferred or in any other manner conveyed to the public, unless
registered in accordance with the rules and regulations that shall be
Page 15 of 106
promulgated in the public interest and for the protection of investors by
the Commission. Presidential Decree No. 902-A, on the other hand,
provides that the SEC, as regulatory agency, has supervision and control
over all corporations and over the securities market as a whole, and as
such, is given ample authority in determining appropriate policies.
Pursuant to this regulatory authority, the SEC has manifested that it has
adopted the policy of "full material disclosure" where all companies, listed
or applying for listing, are required to divulge truthfully and accurately, all
material information about themselves and the securities they sell, for the
protection of the investing public, and under pain of administrative,
criminal and civil sanctions. In connection with this, a fact is deemed
material if it tends to induce or otherwise effect the sale or purchase of its
securities. 15 While the employment of this policy is recognized and
sanctioned by the laws, nonetheless, the Revised Securities Act sets
substantial and procedural standards which a proposed issuer of
securities must satisfy. 16 Pertinently, Section 9 of the Revised Securities
Act sets forth the possible Grounds for the Rejection of the registration of
a security:
— The Commission may reject a registration
statement and refuse to issue a permit to sell the
securities included in such registration statement if it
finds that —
(1) The registration statement is on its face incomplete
or inaccurate in any material respect or includes any
untrue statement of a material fact or omits to state
a material fact required to be stated therein or
necessary to make the statements therein not
misleading; or
(2) The issuer or registrant —
(i) is not solvent or not in sound financial condition;
(ii) has violated or has not complied with the provisions of this
Act, or the rules promulgated pursuant thereto, or any order of
the Commission;
(iii) has failed to comply with any of the applicable requirements
and conditions that the Commission may, in the public interest
and for the protection of investors, impose before the security
can be registered;
(iv) has been engaged or is engaged or is about to engage in
fraudulent transaction;
(v) is in any way dishonest or is not of good repute; or
(vi) does not conduct its business in accordance with law or is
engaged in a business that is illegal or contrary to government
rules and regulations.
(3) The enterprise or the business of the issuer is not
shown to be sound or to be based on sound business
principles;
(4) An officer, member of the board of directors, or
principal stockholder of the issuer is disqualified to be
such officer, director or principal stockholder; or
 (5) The issuer or registrant has not shown to the
satisfaction of the Commission that the sale of its
security would not work to the prejudice of the public
interest or as a fraud upon the purchasers or investors.
(Emphasis Ours)
A reading of the foregoing grounds reveals the intention of the lawmakers
to make the registration and issuance of securities dependent, to a certain
extent, on the merits of the securities themselves, and of the issuer, to be
determined by the Securities and Exchange Commission. This measure
was meant to protect the interests of the investing public against
fraudulent and worthless securities, and the SEC is mandated by law to
safeguard these interests, following the policies and rules therefore
provided. The absolute reliance on the full disclosure method in the
registration of securities is, therefore, untenable. As it is, the Court finds
that the private respondent PALI, on at least two points (nos. 1 and 5) has
failed to support the propriety of the issue of its shares with unfailing
clarity, thereby lending support to the conclusion that the PSE acted
correctly in refusing the listing of PALI in its stock exchange. This does not
discount the effectivity of whatever method the SEC, in the exercise of its
vested authority, chooses in setting the standard for public offerings of
corporations wishing to do so. However, the SEC must recognize and
implement the mandate of the law, particularly the Revised Securities Act,
the provisions of which cannot be amended or supplanted by mere
administrative issuance.
In resume, the Court finds that the PSE has acted with justified
circumspection, discounting, therefore, any imputation of arbitrariness
and whimsical animation on its part. Its action in refusing to allow the
listing of PALI in the stock exchange is justified by the law and by the
circumstances attendant to this case.
ACCORDINGLY, in view of the foregoing considerations, the Court hereby
GRANTS the Petition for Review on Certiorari. The Decisions of the Court
of Appeals and the Securities and Exchange Commission dated July 27,
1996 and April 24, 1996 respectively, are hereby REVERSED and SET
ASIDE, and a new Judgment is hereby ENTERED, affirming the decision of
the Philippine Stock Exchange to deny the application for listing of the
private respondent Puerto Azul Land, Inc.
SO ORDERED.
G.R. No. 142936 April 17, 2002
PHILIPPINE NATIONAL BANK & NATIONAL SUGAR DEVELOPMENT
CORPORATION, petitioners,
vs.
ANDRADA ELECTRIC & ENGINEERING COMPANY, respondent.
PANGANIBAN, J.:
Basic is the rule that a corporation has a legal personality distinct and
separate from the persons and entities owning it. The corporate veil may
be lifted only if it has been used to shield fraud, defend crime, justify a
wrong, defeat public convenience, insulate bad faith or perpetuate
injustice. Thus, the mere fact that the Philippine National Bank (PNB)
acquired ownership or management of some assets of the Pampanga
Sugar Mill (PASUMIL), which had earlier been foreclosed and purchased
at the resulting public auction by the Development Bank of the Philippines
(DBP), will not make PNB liable for the PASUMIL’s contractual debts to
respondent.
Statement of the Case
Page 16 of 106
Before us is a Petition for Review assailing the April 17, 2000 Decision1 of
the Court of Appeals (CA) in CA-GR CV No. 57610. The decretal portion of
the challenged Decision reads as follows:
"WHEREFORE, the judgment appealed from is hereby
AFFIRMED."2
The Facts
The factual antecedents of the case are summarized by the Court of
Appeals as follows:
"In its complaint, the plaintiff [herein respondent] alleged that
it is a partnership duly organized, existing, and operating under
the laws of the Philippines, with office and principal place of
business at Nos. 794-812 Del Monte [A]venue, Quezon City,
while the defendant [herein petitioner] Philippine National Bank
(herein referred to as PNB), is a semi-government corporation
duly organized, existing and operating under the laws of the
Philippines, with office and principal place of business at Escolta
Street, Sta. Cruz, Manila; whereas, the other defendant, the
National Sugar Development Corporation (NASUDECO in brief),
is also a semi-government corporation and the sugar arm of the
PNB, with office and principal place of business at the 2nd Floor,
Sampaguita Building, Cubao, Quezon City; and the defendant
Pampanga Sugar Mills (PASUMIL in short), is a corporation
organized, existing and operating under the 1975 laws of the
Philippines, and had its business office before 1975 at Del
Carmen, Floridablanca, Pampanga; that the plaintiff is engaged
in the business of general construction for the repairs and/or
construction of different kinds of machineries and buildings;
that on August 26, 1975, the defendant PNB acquired the assets
of the defendant PASUMIL that were earlier foreclosed by the
Development Bank of the Philippines (DBP) under LOI No. 311;
that the defendant PNB organized the defendant NASUDECO in
September, 1975, to take ownership and possession of the
assets and ultimately to nationalize and consolidate its interest
in other PNB controlled sugar mills; that prior to October 29,
1971, the defendant PASUMIL engaged the services of plaintiff
for electrical rewinding and repair, most of which were partially
paid by the defendant PASUMIL, leaving several unpaid
accounts with the plaintiff; that finally, on October 29, 1971, the
plaintiff and the defendant PASUMIL entered into a contract for
the plaintiff to perform the following, to wit –
‘(a) Construction of one (1) power house building;
‘(b) Construction of three (3) reinforced concrete
foundation for three (3) units 350 KW diesel engine
generating set[s];
‘(c) Construction of three (3) reinforced concrete
foundation for the 5,000 KW and 1,250 KW turbo
generator sets;
‘(d) Complete overhauling and reconditioning tests
sum for three (3) 350 KW diesel engine generating
set[s];
‘(e) Installation of turbine and diesel generating sets
including transformer, switchboard, electrical wirings
and pipe provided those stated units are completely
supplied with their accessories;
 ‘(f) Relocating of 2,400 V transmission line, demolition
of all existing concrete foundation and drainage
canals, excavation, and earth fillings – all for the total
amount of P543,500.00 as evidenced by a contract,
[a] xerox copy of which is hereto attached as Annex
‘A’ and made an integral part of this complaint;’
that aside from the work contract mentioned-above, the
defendant PASUMIL required the plaintiff to perform extra
work, and provide electrical equipment and spare parts, such
as:
‘(a) Supply of electrical devices;
‘(b) Extra mechanical works;
‘(c) Extra fabrication works;
‘(d) Supply of materials and consumable items;
‘(e) Electrical shop repair;
‘(f) Supply of parts and related works for turbine
generator;
‘(g) Supply of electrical equipment for machinery;
‘(h) Supply of diesel engine parts and other related
works including fabrication of parts.’
that out of the total obligation of P777,263.80, the defendant
PASUMIL had paid only P250,000.00, leaving an unpaid balance,
as of June 27, 1973, amounting to P527,263.80, as shown in the
Certification of the chief accountant of the PNB, a machine copy
of which is appended as Annex ‘C’ of the complaint; that out of
said unpaid balance of P527,263.80, the defendant PASUMIL
made a partial payment to the plaintiff of P14,000.00, in broken
amounts, covering the period from January 5, 1974 up to May
23, 1974, leaving an unpaid balance of P513,263.80; that the
defendant PASUMIL and the defendant PNB, and now the
defendant NASUDECO, failed and refused to pay the plaintiff
their just, valid and demandable obligation; that the President
of the NASUDECO is also the Vice-President of the PNB, and this
official holds office at the 10th Floor of the PNB, Escolta, Manila,
and plaintiff besought this official to pay the outstanding
obligation of the defendant PASUMIL, inasmuch as the
defendant PNB and NASUDECO now owned and possessed the
assets of the defendant PASUMIL, and these defendants all
benefited from the works, and the electrical, as well as the
engineering and repairs, performed by the plaintiff; that
because of the failure and refusal of the defendants to pay their
just, valid, and demandable obligations, plaintiff suffered actual
damages in the total amount of P513,263.80; and that in order
to recover these sums, the plaintiff was compelled to engage
the professional services of counsel, to whom the plaintiff
agreed to pay a sum equivalent to 25% of the amount of the
obligation due by way of attorney’s fees. Accordingly, the
plaintiff prayed that judgment be rendered against the
defendants PNB, NASUDECO, and PASUMIL, jointly and
severally to wit:
Page 17 of 106
‘(1) Sentencing the defendants to pay the plaintiffs
the sum of P513,263.80, with annual interest of 14%
from the time the obligation falls due and
demandable;
‘(2) Condemning the defendants to pay attorney’s
fees amounting to 25% of the amount claim;
‘(3) Ordering the defendants to pay the costs of the
suit.’
"The defendants PNB and NASUDECO filed a joint motion to
dismiss the complaint chiefly on the ground that the complaint
failed to state sufficient allegations to establish a cause of action
against both defendants, inasmuch as there is lack or want of
privity of contract between the plaintiff and the two
defendants, the PNB and NASUDECO, said defendants citing
Article 1311 of the New Civil Code, and the case law ruling in
Salonga v. Warner Barnes & Co., 88 Phil. 125; and Manila Port
Service, et al. v. Court of Appeals, et al., 20 SCRA 1214.
"The motion to dismiss was by the court a quo denied in its
Order of November 27, 1980; in the same order, that court
directed the defendants to file their answer to the complaint
within 15 days.
"In their answer, the defendant NASUDECO reiterated the
grounds of its motion to dismiss, to wit:
‘That the complaint does not state a sufficient cause
of action against the defendant NASUDECO because:
(a) NASUDECO is not x x x privy to the various
electrical construction jobs being sued upon by the
plaintiff under the present complaint; (b) the taking
over by NASUDECO of the assets of defendant
PASUMIL was solely for the purpose of reconditioning
the sugar central of defendant PASUMIL pursuant to
martial law powers of the President under the
Constitution; (c) nothing in the LOI No. 189-A (as well
as in LOI No. 311) authorized or commanded the PNB
or its subsidiary corporation, the NASUDECO, to
assume the corporate obligations of PASUMIL as that
being involved in the present case; and, (d) all that
was mentioned by the said letter of instruction insofar
as the PASUMIL liabilities [were] concerned [was] for
the PNB, or its subsidiary corporation the NASUDECO,
to make a study of, and submit [a] recommendation
on the problems concerning the same.’
"By way of counterclaim, the NASUDECO averred that by reason
of the filing by the plaintiff of the present suit, which it [labeled]
as unfounded or baseless, the defendant NASUDECO was
constrained to litigate and incur litigation expenses in the
amount of P50,000.00, which plaintiff should be sentenced to
pay. Accordingly, NASUDECO prayed that the complaint be
dismissed and on its counterclaim, that the plaintiff be
condemned to pay P50,000.00 in concept of attorney’s fees as
well as exemplary damages.
"In its answer, the defendant PNB likewise reiterated the
grounds of its motion to dismiss, namely: (1) the complaint
states no cause of action against the defendant PNB; (2) that
PNB is not a party to the contract alleged in par. 6 of the
complaint and that the alleged services rendered by the plaintiff
to the defendant PASUMIL upon which plaintiff’s suit is erected,
was rendered long before PNB took possession of the assets of
the defendant PASUMIL under LOI No. 189-A; (3) that the PNB
take-over of the assets of the defendant PASUMIL under LOI
189-A was solely for the purpose of reconditioning the sugar
central so that PASUMIL may resume its operations in time for
the 1974-75 milling season, and that nothing in the said LOI No.
189-A, as well as in LOI No. 311, authorized or directed PNB to
assume the corporate obligation/s of PASUMIL, let alone that
for which the present action is brought; (4) that PNB’s
management and operation under LOI No. 311 did not refer to
any asset of PASUMIL which the PNB had to acquire and
thereafter [manage], but only to those which were foreclosed
by the DBP and were in turn redeemed by the PNB from the
DBP; (5) that conformably to LOI No. 311, on August 15, 1975,
the PNB and the Development Bank of the Philippines (DBP)
entered into a ‘Redemption Agreement’ whereby DBP sold,
transferred and conveyed in favor of the PNB, by way of
redemption, all its (DBP) rights and interest in and over the
foreclosed real and/or personal properties of PASUMIL, as
shown in Annex ‘C’ which is made an integral part of the answer;
(6) that again, conformably with LOI No. 311, PNB pursuant to a
Deed of Assignment dated October 21, 1975, conveyed,
transferred, and assigned for valuable consideration, in favor of
NASUDECO, a distinct and independent corporation, all its (PNB)
rights and interest in and under the above ‘Redemption
Agreement.’ This is shown in Annex ‘D’ which is also made an
integral part of the answer; [7] that as a consequence of the said
Deed of Assignment, PNB on October 21, 1975 ceased to
managed and operate the above-mentioned assets of PASUMIL,
which function was now actually transferred to NASUDECO. In
other words, so asserted PNB, the complaint as to PNB, had
become moot and academic because of the execution of the
said Deed of Assignment; [8] that moreover, LOI No. 311 did not
authorize or direct PNB to assume the corporate obligations of
PASUMIL, including the alleged obligation upon which this
present suit was brought; and [9] that, at most, what was
granted to PNB in this respect was the authority to ‘make a
study of and submit recommendation on the problems
concerning the claims of PASUMIL creditors,’ under sub-par. 5
LOI No. 311.
"In its counterclaim, the PNB averred that it was unnecessarily
constrained to litigate and to incur expenses in this case, hence
it is entitled to claim attorney’s fees in the amount of at least
P50,000.00. Accordingly, PNB prayed that the complaint be
dismissed; and that on its counterclaim, that the plaintiff be
sentenced to pay defendant PNB the sum of P50,000.00 as
attorney’s fees, aside from exemplary damages in such amount
that the court may seem just and equitable in the premises.
DEVELOPMENT CORPORATION (NASUDECO) and
PAMPANGA SUGAR MILLS (PASUMIL), ordering the
latter to pay jointly and severally the former the
following:
‘1. The sum of P513,623.80 plus interest
thereon at the rate of 14% per annum as
claimed from September 25, 1980 until fully
paid;
‘2. The sum of P102,724.76 as attorney’s
fees; and,
‘3. Costs.
‘SO ORDERED.
‘Manila, Philippines, September 4, 1986.
'(SGD) ERNESTO S. TENGCO
‘Judge’"3
Ruling of the Court of Appeals
Affirming the trial court, the CA held that it was offensive to the basic
tenets of justice and equity for a corporation to take over and operate the
business of another corporation, while disavowing or repudiating any
responsibility, obligation or liability arising therefrom.4
Hence, this Petition.5
Issues
In their Memorandum, petitioners raise the following errors for the
Court’s consideration:
"I
The Court of Appeals gravely erred in law in holding the herein
petitioners liable for the unpaid corporate debts of PASUMIL, a
corporation whose corporate existence has not been legally
extinguished or terminated, simply because of petitioners[’]
take-over of the management and operation of PASUMIL
pursuant to the mandates of LOI No. 189-A, as amended by LOI
No. 311.
"II

"Summons by publication was made via the Philippines Daily

The Court of Appeals gravely erred in law in not applying [to] the
Express, a newspaper with editorial office at 371 Bonifacio
case at bench the ruling enunciated in Edward J. Nell Co. v.
Drive, Port Area, Manila, against the defendant PASUMIL, which
Pacific Farms, 15 SCRA 415."6
was thereafter declared in default as shown in the August 7,
1981 Order issued by the Trial Court.
Succinctly put, the aforesaid errors boil down to the principal issue of
whether PNB is liable for the unpaid debts of PASUMIL to respondent.
"After due proceedings, the Trial Court rendered judgment, the
decretal portion of which reads:
This Court’s Ruling
‘WHEREFORE, judgment is hereby rendered in favor
of plaintiff and against the defendant Corporation, The Petition is meritorious.
Philippine National Bank (PNB) NATIONAL SUGAR

Page 18 of 106
Main Issue:
Liability for Corporate Debts
As a general rule, questions of fact may not be raised in a petition for
review under Rule 45 of the Rules of Court.7To this rule, however, there
are some exceptions enumerated in Fuentes v. Court of Appeals.8 After a
careful scrutiny of the records and the pleadings submitted by the parties,
we find that the lower courts misappreciated the evidence
presented.9 Overlooked by the CA were certain relevant facts that would
justify a conclusion different from that reached in the assailed Decision.10
Petitioners posit that they should not be held liable for the corporate
debts of PASUMIL, because their takeover of the latter’s foreclosed assets
did not make them assignees. On the other hand, respondent asserts that
petitioners and PASUMIL should be treated as one entity and, as such,
jointly and severally held liable for PASUMIL’s unpaid
obligation.1âwphi1.nêt
As a rule, a corporation that purchases the assets of another will not be
liable for the debts of the selling corporation, provided the former acted
in good faith and paid adequate consideration for such assets, except
when any of the following circumstances is present: (1) where the
purchaser expressly or impliedly agrees to assume the debts, (2) where
the transaction amounts to a consolidation or merger of the corporations,
(3) where the purchasing corporation is merely a continuation of the
selling corporation, and (4) where the transaction is fraudulently entered
into in order to escape liability for those debts.11
Piercing the Corporate
Veil Not Warranted
A corporation is an artificial being created by operation of law. It possesses
the right of succession and such powers, attributes, and properties
expressly authorized by law or incident to its existence.12 It has a
personality separate and distinct from the persons composing it, as well
as from any other legal entity to which it may be related.13 This is basic.
Equally well-settled is the principle that the corporate mask may be
removed or the corporate veil pierced when the corporation is just an
alter ego of a person or of another corporation.14 For reasons of public
policy and in the interest of justice, the corporate veil will justifiably be
impaled15 only when it becomes a shield for fraud, illegality or inequity
committed against third persons.16
Hence, any application of the doctrine of piercing the corporate veil
should be done with caution.17 A court should be mindful of the milieu
where it is to be applied.18 It must be certain that the corporate fiction was
misused to such an extent that injustice, fraud, or crime was committed
against another, in disregard of its rights.19 The wrongdoing must be
clearly and convincingly established; it cannot be presumed.20 Otherwise,
an injustice that was never unintended may result from an erroneous
application.21
This Court has pierced the corporate veil to ward off a judgment
credit,22 to avoid inclusion of corporate assets as part of the estate of the
decedent,23 to escape liability arising from a debt,24 or to perpetuate fraud
and/or confuse legitimate issues25 either to promote or to shield unfair
objectives26 or to cover up an otherwise blatant violation of the
prohibition against forum-shopping.27 Only in these and similar instances
may the veil be pierced and disregarded.28
Page 19 of 106
The question of whether a corporation is a mere alter ego is one of
fact.29 Piercing the veil of corporate fiction may be allowed only if the
following elements concur: (1) control -- not mere stock control, but
complete domination -- not only of finances, but of policy and business
practice in respect to the transaction attacked, must have been such that
the corporate entity as to this transaction had at the time no separate
mind, will or existence of its own; (2) such control must have been used
by the defendant to commit a fraud or a wrong to perpetuate the violation
of a statutory or other positive legal duty, or a dishonest and an unjust act
in contravention of plaintiff’s legal right; and (3) the said control and
breach of duty must have proximately caused the injury or unjust loss
complained of.30
We believe that the absence of the foregoing elements in the present case
precludes the piercing of the corporate veil. First, other than the fact that
petitioners acquired the assets of PASUMIL, there is no showing that their
control over it warrants the disregard of corporate personalities.31 Second,
there is no evidence that their juridical personality was used to commit a
fraud or to do a wrong; or that the separate corporate entity was farcically
used as a mere alter ego, business conduit or instrumentality of another
entity or person.32 Third, respondent was not defrauded or injured when
petitioners acquired the assets of PASUMIL.33
Being the party that asked for the piercing of the corporate veil,
respondent had the burden of presenting clear and convincing evidence
to justify the setting aside of the separate corporate personality
rule.34 However, it utterly failed to discharge this burden; 35 it failed to
establish by competent evidence that petitioner’s separate corporate veil
had been used to conceal fraud, illegality or inequity.36
While we agree with respondent’s claim that the assets of the National
Sugar Development Corporation (NASUDECO) can be easily traced to
PASUMIL,37 we are not convinced that the transfer of the latter’s assets to
petitioners was fraudulently entered into in order to escape liability for its
debt to respondent.38
A careful review of the records reveals that DBP foreclosed the mortgage
executed by PASUMIL and acquired the assets as the highest bidder at the
public auction conducted.39 The bank was justified in foreclosing the
mortgage, because the PASUMIL account had incurred arrearages of more
than 20 percent of the total outstanding obligation.40 Thus, DBP had not
only a right, but also a duty under the law to foreclose the subject
properties.41
Pursuant to LOI No. 189-A42 as amended by LOI No. 311,43 PNB acquired
PASUMIL’s assets that DBP had foreclosed and purchased in the normal
course. Petitioner bank was likewise tasked to manage temporarily the
operation of such assets either by itself or through a subsidiary
corporation.44
PNB, as the second mortgagee, redeemed from DBP the foreclosed
PASUMIL assets pursuant to Section 6 of Act No. 3135.45 These assets
were later conveyed to PNB for a consideration, the terms of which were
embodied in the Redemption Agreement.46 PNB, as successor-in-interest,
stepped into the shoes of DBP as PASUMIL’s creditor.47By way of a Deed
of Assignment,48 PNB then transferred to NASUDECO all its rights under
the Redemption Agreement.
In Development Bank of the Philippines v. Court of Appeals,49 we had the
occasion to resolve a similar issue. We ruled that PNB, DBP and their
transferees were not liable for Marinduque Mining’s unpaid obligations to
Remington Industrial Sales Corporation (Remington) after the two banks
had foreclosed the assets of Marinduque Mining. We likewise held that
Remington failed to discharge its burden of proving bad faith on the part
of Marinduque Mining to justify the piercing of the corporate veil.
In the instant case, the CA erred in affirming the trial court’s lifting of the
corporate mask.50 The CA did not point to any fact evidencing bad faith on
the part of PNB and its transferee.51 The corporate fiction was not used to
defeat public convenience, justify a wrong, protect fraud or defend
crime.52 None of the foregoing exceptions was shown to exist in the
present case.53 On the contrary, the lifting of the corporate veil would
result in manifest injustice. This we cannot allow.
No Merger or Consolidation
Respondent further claims that petitioners should be held liable for the
unpaid obligations of PASUMIL by virtue of LOI Nos. 189-A and 311, which
expressly authorized PASUMIL and PNB to merge or consolidate. On the
other hand, petitioners contend that their takeover of the operations of
PASUMIL did not involve any corporate merger or consolidation, because
the latter had never lost its separate identity as a corporation.
A consolidation is the union of two or more existing entities to form a new
entity called the consolidated corporation. A merger, on the other hand,
is a union whereby one or more existing corporations are absorbed by
another corporation that survives and continues the combined business.54
The merger, however, does not become effective upon the mere
agreement of the constituent corporations.55 Since a merger or
consolidation involves fundamental changes in the corporation, as well as
in the rights of stockholders and creditors, there must be an express
provision of law authorizing them.56 For a valid merger or consolidation,
the approval by the Securities and Exchange Commission (SEC) of the
articles of merger or consolidation is required.57These articles must
likewise be duly approved by a majority of the respective stockholders of
the constituent corporations.58
In the case at bar, we hold that there is no merger or consolidation with
respect to PASUMIL and PNB. The procedure prescribed under Title IX of
the Corporation Code59 was not followed.
In fact, PASUMIL’s corporate existence, as correctly found by the CA, had
not been legally extinguished or terminated.60 Further, prior to PNB’s
acquisition of the foreclosed assets, PASUMIL had previously made partial
payments to respondent for the former’s obligation in the amount of
P777,263.80. As of June 27, 1973, PASUMIL had paid P250,000 to
respondent and, from January 5, 1974 to May 23, 1974, another P14,000.
Neither did petitioner expressly or impliedly agree to assume the debt of
PASUMIL to respondent.61 LOI No. 11 explicitly provides that PNB shall
study and submit recommendations on the claims of PASUMIL’s
creditors.62Clearly, the corporate separateness between PASUMIL and
PNB remains, despite respondent’s insistence to the contrary.63
WHEREFORE, the Petition is hereby GRANTED and the assailed
Decision SET ASIDE. No pronouncement as to costs.
SO ORDERED.
G.R. No. L-48930 February 23, 1944
ANTONIO VAZQUEZ, petitioner,
vs.
FRANCISCO DE BORJA, respondent.
Page 20 of 106
x---------------------------------------------------------x
G.R. No. L-48931 February 23, 1944
FRANCISCO DE BORJA, petitioner,
vs.
ANTONIO VAZQUEZ, respondent.
OZAETA, J.:
This action was commenced in the Court of First Instance of Manila by
Francisco de Borja against Antonio Vazquez and Fernando Busuego to
recover from them jointly and severally the total sum of P4,702.70 upon
three alleged causes of action, to wit: First, that in or about the month of
January, 1932, the defendants jointly and severally obligated themselves
to sell to the plaintiff 4,000 cavans of palay at P2.10 per cavan, to be
delivered during the month of February, 1932, the said defendants having
subsequently received from the plaintiff in virtue of said agreement the
sum of P8,400; that the defendants delivered to the plaintiff during the
months of February, March, and April, 1932, only 2,488 cavans of palay of
the value of P5,224.80 and refused to deliver the balance of 1,512 cavans
of the value of P3,175.20 notwithstanding repeated demands. Second,
that because of defendants' refusal to deliver to the plaintiff the said 1,512
cavans of palay within the period above mentioned, the plaintiff suffered
damages in the sum of P1,000. And, third, that on account of the
agreement above mentioned the plaintiff delivered to the defendants
4,000 empty sacks, of which they returned to the plaintiff only 2,490 and
refused to deliver to the plaintiff the balance of 1,510 sacks or to pay their
value amounting to P377.50; and that on account of such refusal the
plaintiff suffered damages in the sum of P150.
The defendant Antonio Vazquez answered the complaint, denying having
entered into the contract mentioned in the first cause of action in his own
individual and personal capacity, either solely or together with his
codefendant Fernando Busuego, and alleging that the agreement for the
purchase of 4,000 cavans of palay and the payment of the price of P8,400
were made by the plaintiff with and to the Natividad-Vasquez Sabani
Development Co., Inc., a corporation organized and existing under the
laws of the Philippines, of which the defendant Antonio Vazquez was the
acting manager at the time the transaction took place. By way of
counterclaim, the said defendant alleged that he suffered damages in the
sum of P1,000 on account of the filing of this action against him by the
plaintiff with full knowledge that the said defendant had nothing to do
whatever with any and all of the transactions mentioned in the complaint
in his own individual and personal capacity.
The trial court rendered judgment ordering the defendant Antonio
Vazquez to pay to the plaintiff the sum of P3,175.20 plus the sum of
P377.50, with legal interest on both sums, and absolving the defendant
Fernando Busuego (treasurer of the corporation) from the complaint and
the plaintiff from the defendant Antonio Vazquez' counterclaim. Upon
appeal to the Court of Appeals, the latter modified that judgment by
reducing it to the total sum of P3,314.78, with legal interest thereon and
the costs. But by a subsequent resolution upon the defendant's motion
for reconsideration, the Court of Appeals set aside its judgment and
ordered that the case be remanded to the court of origin for further
proceedings. The defendant Vazquez, not being agreeable to that result,
filed the present petition for certiorari (G.R. No. 48930) to review and
reverse the judgment of the Court of Appeals; and the plaintiff Francisco
de Borja, excepting to the resolution of the Court of Appeals whereby its
original judgment was set aside and the case was ordered remanded to
the court of origin for further proceedings, filed a cross-petition for
certiorari (G.R. No. 48931) to maintain the original judgment of the Court
of Appeals.
The original decision of the Court of Appeals and its subsequent
resolutions on reconsideration read as follows:
Es hecho no controvertido que el 25 de Febrero de 1932, el
demandado-apelante vendio al demandante 4,000 cavanes de
palay al precio de P2.10 el cavan, de los cuales, dicho
demandante solamente recibio 2,583 cavanes; y que asimismo
recibio para su envase 4,000 sacos vacios. Esta provbado que de
dichos 4,000 sacos vacios solamente se entregaron, 2,583
quedando en poder del demandado el resto, y cuyo valor es el
de P0.24 cada uno. Presentada la demanda contra los
demandados Antonio Vazquez y Fernando Busuego para el pago
de la cantidad de P4,702.70, con sus intereses legales desde el
1.o de marzo de 1932 hasta su completo pago y las costas, el
Juzgado de Primera Instancia de Manila el asunto condenando
a Antonio Vazquez a pagar al demandante la cantidad de
P3,175.20, mas la cantidad de P377.50, con sus intereses
legales, absolviendo al demandado Fernando Busuego de la
demanda y al demandante de la reconvencion de los
demandados, sin especial pronunciamiento en cuanto a las
costas. De dicha decision apelo el demandado Antonio Vazquez,
apuntado como principal error el de que el habia sido
condenado personalmente, y no la corporacion por el
representada.
Segun la preponderancia de las pruebas, la venta hecha por
Antonio Vazquez a favor de Francisco de Borja de los 4,000
cavanes de palay fue en su capacidad de Presidente interino y
Manager de la corporacion Natividad-Vazquez Sabani
Development Co., Inc. Asi resulta del Exh. 1, que es la copia al
carbon del recibo otorgado por el demandado Vazquez, y cuyo
original lo habia perdido el demandante, segun el. Asi tambien
consta en los libros de la corporacion arriba mencionada,
puesto que en los mismos se ha asentado tanto la entrada de
los P8,400, precio del palay, como su envio al gobierno en pago
de los alquileres de la Hacienda Sabani. Asi mismo lo admitio
Francisco de Borja al abogado Sr. Jacinto Tomacruz, posterior
presidente de la corporacion sucesora en el arrendamiento de
la Sabani Estate, cuando el solicito sus buenos oficios para el
cobro del precio del palay no entregado. Asi igualmente lo
declaro el que hizo entrega de parte del palay a Borja, Felipe
Veneracion, cuyo testimonio no ha sido refutado. Y asi se
deduce de la misma demanda, cuando se incluyo en ella a
Fernando Busuego, tesorero de la Natividad-Vazquez Sabani
Development Co., Inc.
Siendo esto asi, la principal responsable debe ser la Natividad-
Vazquez Sabani Development Co., Inc., que quedo insolvente y
dejo de existir. El Juez sentenciador declaro, sin embargo, al
demandado Vazquez responsable del pago de la cantidad
reclamada por su negligencia al vender los referidos 4,000
cavanes de palay sin averiguar antes si o no dicha cantidad
existia en las bodegas de la corporacion.
Resulta del Exh. 8 que despues de la venta de los 4,000 cavanes
de palay a Francisco de Borja, el mismo demandado vendio a
Kwong Ah Phoy 1,500 cavanes al precio de P2.00 el cavan, y
decimos 'despues' porque esta ultima venta aparece asentada
despues de la primera. Segun esto, el apelante no solamente
obro con negligencia, sino interviniendo culpa de su parte, por
lo que de acuerdo con los arts. 1102, 1103 y 1902 del Codigo
Page 21 of 106
Civil, el debe ser responsable subsidiariamente del pago de la
cantidad objecto de la demanda.
En meritos de todo lo expuesto, se confirma la decision apelada
con la modificacion de que el apelante debe pagar al apelado la
suma de P2,295.70 como valor de los 1,417 cavanes de palay
que dejo de entregar al demandante, mas la suma de P339.08
como importe de los 1,417 sacos vacios, que dejo de devolver,
a razon de P0.24 el saco, total P3,314.78, con sus intereses
legales desde la interposicion de la demanda y las costas de
ambas instancias.
Vista la mocion de reconsideracion de nuestra decision de fecha
13 de Octubre de 1942, y alegandose en la misma que cuando
el apelante vendio los 1,500 cavanes de palay a Ah Phoy, la
corporacion todavia tenia bastante existencia de dicho grano, y
no estando dicho extremo suficientemente discutido y probado,
y pudiendo variar el resultado del asunto, dejamos sin efecto
nuestra citada decision, y ordenamos la devolucion de la causa
al Juzgado de origen para que reciba pruebas al efecto y dicte
despues la decision correspondiente.
Upon consideration of the motion of the attorney for the
plaintiff-appellee in case CA-G.R. No. 8676, Francisco de Borja
vs. Antonio Vasquez et al., praying, for the reasons therein
given, that the resolution of December 22, 1942, be
reconsidered: Considering that said resolution remanding the
case to the lower court is for the benefit of the plaintiff-appellee
to afford him opportunity to refute the contention of the
defendant-appellant Antonio Vazquez, motion denied.
The action is on a contract, and the only issue pleaded and tried is whether
the plaintiff entered into the contract with the defendant Antonio
Vazquez in his personal capacity or as manager of the Natividad-Vazquez
Sabani Development Co., Inc. The Court of Appeals found that according
to the preponderance of the evidence "the sale made by Antonio Vazquez
in favor of Francisco de Borja of 4,000 cavans of palay was in his capacity
as acting president and manager of the corporation Natividad-Vazquez
Sabani Development Co., Inc." That finding of fact is final and, it resolving
the only issue involved, should be determinative of the result.
The Court of Appeals doubly erred in ordering that the cause be remanded
to the court of origin for further trial to determine whether the
corporation had sufficient stock of palay at the time appellant sold, 1500
cavans of palay to Kwong Ah Phoy. First, if that point was material to the
issue, it should have been proven during the trial; and the statement of
the court that it had not been sufficiently discussed and proven was no
justification for ordering a new trial, which, by the way, neither party had
solicited but against which, on the contrary, both parties now vehemently
protest. Second, the point is, in any event, beside the issue, and this we
shall now discuss in connection with the original judgment of the Court of
Appeals which the plaintiff cross-petitioner seeks to maintain.
The action being on a contract, and it appearing from the preponderance
of the evidence that the party liable on the contract is the Natividad-
Vazquez Sabani Development Co., Inc. which is not a party herein, the
complaint should have been dismissed. Counsel for the plaintiff, in his
brief as respondent, argues that altho by the preponderance of the
evidence the trial court and the Court of Appeals found that Vazquez
celebrated the contract in his capacity as acting president of the
corporation and altho it was the latter, thru Vazquez, with which the
plaintiff had contracted and which, thru Vazquez, had received the sum of
P8,400 from Borja, and altho that was true from the point of view of a
legal fiction, "ello no impede que tambien sea verdad lo alegado en la
demanda de que la misma persona de Vasquez fue la que contrato con
Borja y que la misma persona de Vasquez fue quien recibio la suma de
P8,400." But such argument is invalid and insufficient to show that the
president of the corporation is personally liable on the contract duly and
lawfully entered into by him in its behalf.
It is well known that a corporation is an artificial being invested by law with
a personality of its own, separate and distinct from that of its stockholders
and from that of its officers who manage and run its affairs. The mere fact
that its personality is owing to a legal fiction and that it necessarily has to
act thru its agents, does not make the latter personally liable on a contract
duly entered into, or for an act lawfully performed, by them for an in its
behalf. The legal fiction by which the personality of a corporation is
created is a practical reality and necessity. Without it no corporate entities
may exists and no corporate business may be transacted. Such legal fiction
may be disregarded only when an attempt is made to use it as a cloak to
hide an unlawful or fraudulent purpose. No such thing has been alleged
or proven in this case. It has not been alleged nor even intimated that
Vazquez personally benefited by the contract of sale in question and that
he is merely invoking the legal fiction to avoid personal liability. Neither is
it contended that he entered into said contract for the corporation in bad
faith and with intent to defraud the plaintiff. We find no legal and factual
basis upon which to hold him liable on the contract either principally or
subsidiarily.
The trial court found him guilty of negligence in the performance of the
contract and held him personally liable on that account. On the other
hand, the Court of Appeals found that he "no solamente obro con
negligencia, sino interveniendo culpa de su parte, por lo que de acuerdo
con los arts. 1102, 1103 y 1902 del Codigo Civil, el debe ser responsable
subsidiariamente del pago de la cantidad objeto de la demanda." We think
both the trial court and the Court of Appeals erred in law in so holding.
They have manifestly failed to distinguish a contractual from an
extracontractual obligation, or an obligation arising from contract from an
obligation arising from culpa aquiliana. The fault and negligence referred
to in articles 1101-1104 of the Civil Code are those incidental to the
fulfillment or nonfullfillment of a contractual obligation; while the fault or
negligence referred to in article 1902 is the culpa aquiliana of the civil law,
homologous but not identical to tort of the common law, which gives rise
to an obligation independently of any contract. (Cf. Manila R.R. Co. vs. Cia.
Trasatlantica, 38 Phil., 875, 887-890; Cangco vs. Manila R.R. Co., 38 Phil.
768.) The fact that the corporation, acting thru Vazquez as its manager,
was guilty of negligence in the fulfillment of the contract, did not make
Vazquez principally or even subsidiarily liable for such negligence. Since it
was the corporation's contract, its nonfulfillment, whether due to
negligence or fault or to any other cause, made the corporation and not
its agent liable.
On the other hand if independently of the contract Vazquez by his fault or
negligence cause damaged to the plaintiff, he would be liable to the latter
under article 1902 of the Civil Code. But then the plaintiff's cause of action
should be based on culpa aquiliana and not on the contract alleged in his
complaint herein; and Vazquez' liability would be principal and not merely
subsidiary, as the Court of Appeals has erroneously held. No such cause of
action was alleged in the complaint or tried by express or implied consent
of the parties by virtue of section 4 of Rule 17. Hence the trial court had
no jurisdiction over the issue and could not adjudicate upon it
(Reyes vs. Diaz, G.R. No. 48754.) Consequently it was error for the Court
of Appeals to remand the case to the trial court to try and decide such
issue.
It only remains for us to consider petitioner's second assignment of error
referring to the lower courts' refusal to entertain his counterclaim for
Page 22 of 106
damages against the respondent Borja arising from the bringing of this
action. The lower courts having sustained plaintiff's action. The finding of
the Court of Appeals that according to the preponderance of the evidence
the defendant Vazquez celebrated the contract not in his personal
capacity but as acting president and manager of the corporation, does not
warrant his contention that the suit against him is malicious and tortious;
and since we have to decide defendant's counterclaim upon the facts
found by the Court of Appeals, we find no sufficient basis upon which to
sustain said counterclaim. Indeed, we feel that a a matter of moral justice
we ought to state here that the indignant attitude adopted by the
defendant towards the plaintiff for having brought this action against him
is in our estimation not wholly right. Altho from the legal point of view he
was not personally liable for the fulfillment of the contract entered into
by him on behalf of the corporation of which he was the acting president
and manager, we think it was his moral duty towards the party with whom
he contracted in said capacity to see to it that the corporation represented
by him fulfilled the contract by delivering the palay it had sold, the price
of which it had already received. Recreant to such duty as a moral person,
he has no legitimate cause for indignation. We feel that under the
circumstances he not only has no cause of action against the plaintiff for
damages but is not even entitled to costs.
The judgment of the Court of Appeals is reversed, and the complaint is
hereby dismissed, without any finding as to costs.
Yulo, C.J., Moran, Horrilleno and Bocobo, JJ., concur.
Separate Opinions
PARAS, J., dissenting:
Upon the facts of this case as expressly or impliedly admitted in the
majority opinion, the plaintiff is entitled to a judgment against the
defendant. The latter, as acting president and manager of Natividad-
Vazquez Sabani Development Co., Inc., and with full knowledge of the
then insolvent status of his company, agreed to sell to the plaintiff 4,000
cavans of palay. Notwithstanding the receipt from the plaintiff of the full
purchase price, the defendant delivered only 2,488 cavans and failed and
refused to deliver the remaining 1,512 cavans and failed and refused to
deliver the remaining 1,512 cavans and a quantity of empty sacks, or their
value. Such failure resulted, according to the Court of First Instance of
Manila and the Court of Appeals, from his fault or negligence.
It is true that the cause of action made out by the complaint is technically
based on a contract between the plaintiff and Natividad-Vazquez Sabani
Development Co., Inc. which is not a party to this case. Nevertheless,
inasmuch as it was proven at the trial that the defendant was guilty of fault
in that he prevented the performance of the plaintiff's contract and also
of negligence bordering on fraud which cause damage to the plaintiff, the
error of procedure should not be a hindrance to the rendition of a decision
in accordance with the evidence actually introduced by the parties,
especially when in such a situation we may order the necessary
amendment of the pleadings, or even consider them correspondingly
amended.
As already stated, the corporation of which the defendant was acting
president and manager was, at the time he made the sale of the plaintiff,
known to him to be insolvent. As a matter of fact, said corporation was
soon thereafter dissolved. There is admitted damage on the part of the
plaintiff, proven to have been inflicted by reason of the fault or negligence
of the defendant. In the interest of simple justice and to avoid multiplicity
of suits I am therefore impelled to consider the present action as one
based on fault or negligence and to sentence the defendant accordingly.
Otherwise, he would be allowed to profit by his own wrong under the
protective cover of the corporate existence of the company he
represented. It cannot be pretended that any advantage under the sale
inured to the benefit of Natividad-Vazquez Sabani Development Co., Inc.
and not of the defendant personally, since the latter undoubtedly owned
a considerable part of its capital.
G.R. No. 185122 August 16, 2010
WENSHA SPA CENTER, INC. and/or XU ZHI JIE, Petitioners,
vs.
LORETA T. YUNG, Respondent.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of
Court filed by an employer who was charged before the National Labor
Relations Commission (NLRC) for dismissing an employee upon the advice
of a Feng Shui master. In this action, the petitioners assail the May 28,
2008 Decision1 and October 23, 2008 Resolution2 of the Court of
Appeals (CA) in CA-G.R. SP No. 98855 entitled Loreta T. Yung v. National
Labor Relations Commission, Wensha Spa Center, Inc. and/or Xu Zhi Jie.
THE FACTS:
Wensha Spa Center, Inc. (Wensha) in Quezon City is in the business of
sauna bath and massage services. Xu Zhi Jie a.k.a. Pobby Co (Xu) is its
president,3 respondent Loreta T. Yung (Loreta) was its administrative
manager at the time of her termination from employment.
In her position paper,4 Loreta stated that she used to be employed by
Manmen Services Co., Ltd. (Manmen) where Xu was a client. Xu was
apparently impressed by Loreta’s performance. After he established
Wensha, he convinced Loreta to transfer and work at Wensha. Loreta was
initially reluctant to accept Xu’s offer because her job at Manmen was
stable and she had been with Manmen for seven years. But Xu was
persistent and offered her a higher pay. Enticed, Loreta resigned from
Manmen and transferred to Wensha. She started working on April 21,
2004 as Xu’s personal assistant and interpreter at a monthly salary of
₱12,000.00.
Loreta introduced positive changes to Wensha which resulted in increased
business. This pleased Xu so that on May 18, 2004, she was promoted to
the position of Administrative Manager.5
Loreta recounted that on August 10, 2004, she was asked to leave her
office because Xu and a Feng Shui master were exploring the premises.
Later that day, Xu asked Loreta to go on leave with pay for one month. She
did so and returned on September 10, 2004. Upon her return, Xu and his
wife asked her to resign from Wensha because, according to the Feng Shui
master, her aura did not match that of Xu. Loreta refused but was
informed that she could no longer continue working at Wensha. That
same afternoon, Loreta went to the NLRC and filed a case for illegal
dismissal against Xu and Wensha.
Wensha and Xu denied illegally terminating Loreta’s employment. They
claimed that two months after Loreta was hired, they received various
Page 23 of 106
complaints against her from the employees so that on August 10, 2004,
they advised her to take a leave of absence for one month while they
conducted an investigation on the matter. Based on the results of the
investigation, they terminated Loreta’s employment on August 31, 2004
for loss of trust and confidence.6
The Labor Arbiter (LA) Francisco Robles dismissed Loreta’s complaint for
lack of merit. He found it more probable that Loreta was dismissed from
her employment due to Wensha’s loss of trust and confidence in her. The
LA’s decision7 partly reads:
However, this office has found it dubious and hard to believe the
contentions made by the complainant that she was dismissed by the
respondents on the sole ground that she is a "mismatch" in respondents'
business as advised by an alleged Feng Shui Master. The complainant
herself alleged in her position paper that she has done several
improvements in respondents’ business such as uplifting the morale and
efficiency of its employees and increasing respondents’ clientele, and that
respondent Co was very much pleased with the improvements made by
the complainant that she was offered twice a promotion but she
nevertheless declined. It would be against human experience and contrary
to business acumen to let go of someone, who was an asset and has done
so much for the company merely on the ground that she is a "mismatch"
to the business. Absent any proof submitted by the complainant, this
office finds it more probable that the complainant was dismissed due to
loss of trust and confidence.8
This ruling was affirmed by the NLRC in its December 29, 2006
Resolution,9 citing its observation that Wensha was still considering the
proper action to take on the day Loreta left Wensha and filed her
complaint. The NLRC added that this finding was bolstered by Wensha’s
September 10, 2004 letter to Loreta asking her to come back to personally
clarify some matters, but she declined because she had already filed a
case.
Loreta moved for a reconsideration of the NLRC’s ruling but her motion
was denied. Loreta then went to the CA on a petition for certiorari. The
CA reversed the ruling of the NLRC on the ground that it gravely abused
its discretion in appreciating the factual bases that led to Loreta’s
dismissal. The CA noted that there were irregularities and inconsistencies
in Wensha’s position. The CA stated the following:
We, thus, peruse the affidavits and documentary evidence of the Private
Respondents and find the following: First,on the affidavits of their
witnesses, it must be noted that the same were mere photocopies. It was
held that [T]he purpose of the rule in requiring the production of the best
evidence is the prevention of fraud, because if a party is in possession of
such evidence and withholds it, and seeks to substitute inferior evidence in
its place, the presumption naturally arise[s] that the better evidence is
withheld for fraudulent purposes which its production would expose and
defeat. Moreover, the affidavits were not executed under oath. The rule
is that an affiant must sign the document in the presence of and take his
oath before a notary public as evidence that the affidavit was properly
made. Guided by these principles, the affidavits cannot be assigned any
weighty probative value and are mere scraps of paper the contents of
which are hearsay. Second, on the sales report and order slips, which
allegedly prove that Yung had been charging her food and drinks to
Wensha, the said pieces of evidence do not, however, bear Yung’s name
thereon or even her signature. In fact, it does not state anyone’s name,
except that of Wensha. Hence, it would simply be capricious to pinpoint,
or impute, on Yung as the author in charging such expenses to Wensha on
the basis of hearsay evidence. Third, while the affidavit of Wensha’s
Operations Manager, Princess delos Reyes (delos Reyes), may have been
duly executed under oath, she did not, however, specify the alleged
infractions that Yung committed. If at all, delos Reyes only made general
statements on the alleged complaints against Yung that were not even
substantiated by any other piece of evidence. Finally, the daily time
records (DTRs) of Yung, which supposedly prove her habitual tardiness,
were mere photocopies that are not even signed by Wensha’s authorized
representative, thus suspect, if not violative of the best evidence rule and,
therefore, incompetent evidence. x x x [Emphases appear in the original]
x x x x.
Finally, after the Private Respondents filed their position paper, they
alleged mistake on the part of their former counsel in stating that Yung
was dismissed on August 31, 2004. Thus, they subsequently moved for the
admission of their rejoinder. Notably, however, the said rejoinder was
dated October 4, 2004, earlier than the date when their position paper
was filed, which was on November 3, 2004. It is also puzzling that their
position paper was dated November 25, 2004, much later than its date of
filing. The irregularities are simply too glaring to be ignored. Nevertheless,
the Private Respondents’ admission of Yung’s termination on August 31,
2004 cannot be retracted. They cannot use the mistake of their counsel
as an excuse considering that the position paper was verified by their
Operations Manager, delos Reyes, who attested to the truth of the
contents therein.10 [Emphasis supplied]
Hence, the fallo of the CA decision reads:
WHEREFORE, the instant petition is GRANTED. Wensha Spa Center, Inc.
and Xu Zhi Jie are ORDERED to, jointly and severally, pay Loreta T. Yung
her full backwages, other privileges, and benefits, or their monetary
equivalent, corresponding to the period of her dismissal from September
1, 2004 up to the finality of this decision, and damages in the amounts of
fifty thousand pesos (Php50,000.00) as moral damages, twenty five
thousand pesos (Php25,000.00) as exemplary damages, and twenty
thousand pesos (Php20,000.00) as attorney’s fees. No costs.
SO ORDERED.11
Wensha and Xu now assail this ruling of the CA in this petition presenting
the following:
V. GROUNDS FOR THE ALLOWANCE OF THE PETITION
5.1 The following are the reasons and arguments, which are
purely questions of law and some questions of facts, which
justify the appeal by certiorari under Rule 45 of the 1997
Revised Rules of Civil Procedure, as amended, to this Honorable
SUPREME COURT of the assailed Decision and Resolution, to
wit:
5.1.1 The Honorable COURT OF APPEALS gravely erred in
reversing that factual findings of the Honorable Labor Arbiter
and the Honorable NLRC (Third Division) notwithstanding
recognized and established rule in our jurisdiction that findings
of facts of quasi-judicial agencies who have gained expertise on
their respective subject matters are given respect and finality;
5.1.2 The Honorable COURT OF APPEALS committed grave
abuse of discretion and serious errors when it ruled that findings
of facts of the Honorable Labor Arbiter and the Honorable NLRC
are not supported by substantial evidence despite the fact that
the records clearly show that petitioner therein was not
Page 24 of 106
dismissed but is under investigation, and that she is guilty of
serious infractions that warranted her termination;
5.1.3 The Honorable COURT OF APPEALS grave[ly] erred when it
ordered herein petitioner to pay herein respondent her
separation pay, in lieu of reinstatement, and full backwages, as
well as damages and attorney’s fees;
5.1.4 The Honorable COURT OF APPEALS committed grave
abuse of discretion and serious errors when it held that
petitioner XU ZHI JIE to be solidarily liable with WENSHA,
assuming that respondent was illegally dismissed;
5.2 The same need to be corrected as they would work injustice
to the herein petitioner, grave and irreparable damage will be
done to him, and would pose dangerous precedent.12
THE COURT’S RULING:
Loreta’s security of tenure is guaranteed by the Constitution and the Labor
Code. The 1987 Philippine Constitution provides in Section 18, Article II
that the State shall protect the rights of workers and promote their
welfare. Section 3, Article XIII also provides that all workers shall be
entitled to security of tenure. Along that line, Article 3 of the Labor Code
mandates that the State shall assure the rights of workers to security of
tenure.
Under the security of tenure guarantee, a worker can only be terminated
from his employment for cause and after due process. For a valid
termination by the employer: (1) the dismissal must be for a valid cause
as provided in Article 282, or for any of the authorized causes under
Articles 283 and 284 of the Labor Code; and (2) the employee must be
afforded an opportunity to be heard and to defend himself. A just and
valid cause for an employee’s dismissal must be supported by substantial
evidence, and before the employee can be dismissed, he must be given
notice and an adequate opportunity to be heard.13 In the process, the
employer bears the burden of proving that the dismissal of an employee
was for a valid cause. Its failure to discharge this burden renders the
dismissal unjustified and, therefore, illegal.14
As a rule, the factual findings of the court below are conclusive on Us in a
petition for review on certiorari where We review only errors of law. This
case, however, is an exception because the CA’s factual findings are not
congruent with those of the NLRC and the LA.
According to Wensha in its position paper,15 it dismissed Loreta on August
31, 2004 after investigating the complaints against her. Wensha asserted
that her dismissal was a valid exercise of an employer’s right to terminate
a managerial employee for loss of trust and confidence. It claimed that
she caused the resignation of an employee because of gossips initiated by
her. It was the reason she was asked to take a leave of absence with pay
for one month starting August 10, 2004.16
Wensha also alleged that Loreta was "sowing intrigues in the company"
which was inimical to Wensha. She was also accused of dishonesty, serious
breach of trust reposed in her, tardiness, and abuse of authority.17
In its Rejoinder, Wensha changed its position claiming that it did not
terminate Loreta’s employment on August 31, 2004. It even sent her a
notice requesting her to report back to work. She, however, declined
because she had already filed her complaint.18
As correctly found by the CA, the cause of Loreta’s dismissal is
questionable. Loss of trust and confidence to be a valid ground for
dismissal must have basis and must be founded on clearly established
facts.19
The Court finds the LA ruling that states, "[a]bsent any proof submitted by
the complainant, this office finds it more probable that the complainant
was dismissed due to loss of trust and confidence,"20 to be utterly
erroneous as it is contrary to the applicable rules and pertinent
jurisprudence. The onus of proving a valid dismissal rests on the employer,
not on the employee.21 It is the employer who bears the burden of proving
that its dismissal of the employee is for a valid or authorized cause
supported by substantial evidence. 22
According to the NLRC, "[p]erusal of the entire records show that
complainant left the respondents’ premises when she was confronted
with the infractions imputed against her."23 This information was taken
from the affidavit24 of Princess Delos Reyes (Delos Reyes) which was dated
March 21, 2005, not in Wensha’s earlier position paper or pleadings
submitted to the LA. The affidavits25 of employees attached to Delos
Reyes’ affidavit were all dated November 19, 2004 indicating that they
were not yet executed when the complaints against Loreta were
supposedly being investigated in August 2004.
It is also noteworthy that Wensha’s position paper related that because of
the gossips perpetrated by Loreta, a certain Oliva
Gonzalo (Gonzalo) resigned from Wensha. Because of the incident,
Gonzalo, whose father was a policeman, "reportedly got angry with
complainant and of the management telling her friends at respondent
company that she would retaliate thus creating fear among those
concerned."26 As a result, Loreta was advised to take a paid leave of
absence for one month while Wensha conducted an investigation.
According to Loreta, however, the reason for her termination was her aura
did not match that of Xu and the work environment at Wensha. Loreta
narrated:
On August 10, 2004 however, complainant was called by respondent Xu
and told her to wait at the lounge area while the latter and a Feng Shui
Master were doing some analysis of the office. After several hours of
waiting, respondent Xu then told complainant that according to the Feng
Shui master her Chinese Zodiac sign is a "mismatch" with that of the
respondents; that complainant should not enter the administrative office
for a month while an altar was to be placed on the left side where
complainant has her table to allegedly correct the "mismatch" and that it
is necessary that offerings and prayers have to be made and said for about
a month to correct the alleged "jinx." Respondent Xu instructed
complainant not to report to the office for a month with assurance of
continued and regular salary. She was ordered not to seek employment
elsewhere and was told to come back on the 10th of September 2004.27
Although she was a little confused, Loreta did as she was instructed and
did not report for work for a month. She returned to work on September
10, 2004. This is how Loreta recounted the events of that day:
On September 10, 2004, in the morning, complainant reported to the
office of respondents. As usual, she punched-in her time card and signed
in the logbook of the security guard. When she entered the administrative
office, some of its employees immediately contacted respondent Xu.
Respondent Xu then contacted complainant thru her mobile phone and
told her to leave the administrative office immediately and instead to wait
for him in the dining area.
Page 25 of 106
xxx
Complainant waited for respondent Xu in the dining area. After waiting for
about two (2) hours, respondent Xu was nowhere. Instead, it was Jiang
Xue Qin a.k.a Annie Co, the Chinese wife of respondent Xu, who arrived
and after a short conversation between them, the former frankly told
complainant that she has to resign allegedly she is a mismatch to
respondent Xu according to the Feng Shui master and therefore she does
not fit to work (sic) with the respondents. Surprised and shocked,
complainant demanded of Jiang Xue Qin to issue a letter of termination if
it were the reason therefor.
Instead of a termination letter issued, Jiang Xue Qin insisted for the
complainant's resignation. But when complainant stood her ground, Jian
Xue Qin shouted invectives at her and told to leave the office immediately.
Respondent Xu did not show up but talked to the complainant over the
mobile phone and convinced her likewise to resign from the company
since there is no way to retain her because her aura unbalanced the area
of employment according to the Feng Shui, the Chinese spiritual art of
placement. Hearing this from no lees than respondent Xu, complainant
left the office and went straight to this Office and filed the present case
on September 10, 2004. xxx28
Loreta also alleged that in the afternoon of that day, September 10, 2004,
a notice was posted on the Wensha bulletin board that reads:
TO ALL EMPLOYEES OF WENSHA SPA CENTER
WE WOULD LIKE TO INFORM YOU THAT MS. LORIE TSE YUNG, FORMER
ADMINISTRATIVE OFFICER OF WENSHA SPA CENTER IS NO
LONGER CONNECTED TO THIS COMPANY STARTING TODAY SEPTEMBER
10, 2004.
ANY TRANSACTION MADE BY HER IS NO LONGER A LIABILITY OF THE
COMPANY.
(SGD.) THE MANAGEMENT [Italics were in red letters.]29
The Court finds Loreta’s complaint credible. There is consistency in her
pleadings and evidence. In contrast, Wensha’s pleadings and evidence,
taken as a whole, suffer from inconsistency. Moreover, the affidavits of
the employees only pertain to petty matters that, to the Court’s mind, are
not sufficient to support Wensha’s alleged loss of trust and confidence. To
be a valid cause for termination of employment, the act or acts
constituting breach of trust must have been done intentionally,
knowingly, and purposely; and they must be founded on clearly
established facts.
The CA decision is supported by evidence and logically flows from a review
of the records. Loreta’s narration of the events surrounding her
termination from employment was simple and straightforward. Her claims
are more credible than the affidavits which were clearly prepared as an
afterthought.
More importantly, the records are bereft of evidence that Loreta was duly
informed of the charges against her and that she was given the
opportunity to respond to those charges prior to her dismissal. If there
were indeed charges against Loreta that Wensha had to investigate, then
it should have informed her of those charges and required her to explain
her side. Wensha should also have kept records of the investigation
conducted while Loreta was on leave.1avvphi1 The law requires that two
notices be given to an employee prior to a valid termination: the first
notice is to inform the employee of the charges against her with a warning
that she may be terminated from her employment and giving her
reasonable opportunity within which to explain her side, and the second
notice is the notice to the employee that upon due consideration of all the
circumstances, she is being terminated from her employment.30This is a
requirement of due process and clearly, Loreta did not receive any of
those required notices.
We are in accord with the pronouncement of the CA that the
reinstatement of Loreta to her former position is no longer feasible in the
light of the strained relations between the parties. Reinstatement, under
the circumstances, would no longer be practical as it would not be in the
interest of both parties. Under the law and jurisprudence, an illegally
dismissed employee is entitled to two reliefs - backwages and
reinstatement, which are separate and distinct. If reinstatement would
only exacerbate the tension and further ruin the relations of the employer
and the employee, or if their relationship has been unduly strained due to
irreconcilable differences, particularly where the illegally dismissed
employee held a managerial or key position in the company, it would be
prudent to order payment of separation pay instead of reinstatement.31 In
the case of Golden Ace Builders v. Talde,32 We wrote:
Under the doctrine of strained relations, the payment of separation pay
has been considered an acceptable alternative to reinstatement when the
latter option is no longer desirable or viable. On the one hand, such
payment liberates the employee from what could be a highly oppressive
work environment. On the other, the payment releases the employer
from the grossly unpalatable obligation of maintaining in its employ a
worker it could no longer trust.
In the case at bench, the CA, upon its own assessment, pronounced that
the relations between petitioners and the respondent have become
strained because of her dismissal anchored on dubious charges. The
respondent has not contested the finding. As she is not insisting on being
reinstated, she should be paid separation pay equivalent to one (1) month
salary for every year of service.33 The CA, however, failed to decree such
award in the dispositive portion.ten.lihpwal This should be rectified.
Nevertheless, the Court finds merit in the argument of petitioner Xu that
the CA erred in ruling that he is solidarily liable with Wensha.
Elementary is the rule that a corporation is invested by law with a
personality separate and distinct from those of the persons composing it
and from that of any other legal entity to which it may be related. "Mere
ownership by a single stockholder or by another corporation of all or
nearly all of the capital stock of a corporation is not of itself sufficient
ground for disregarding the separate corporate personality."34
In labor cases, corporate directors and officers may be held solidarily liable
with the corporation for the termination of employment only if done with
malice or in bad faith.35 Bad faith does not connote bad judgment or
negligence; it imports a dishonest purpose or some moral obliquity and
conscious doing of wrong; it means breach of a known duty through some
motive or interest or ill will; it partakes of the nature of fraud.36
In the subject decision, the CA concluded that petitioner Xu and Wensha
are jointly and severally liable to Loreta.37We have read the decision in its
entirety but simply failed to come across any finding of bad faith or malice
on the part of Xu. There is, therefore, no justification for such a ruling. To
sustain such a finding, there should be an evidence on record that an
officer or director acted maliciously or in bad faith in terminating the
services of an employee.38 Moreover, the finding or indication that the
Page 26 of 106
dismissal was effected with malice or bad faith should be stated in the
decision itself.39
WHEREFORE, the petition is PARTIALLY GRANTED. The decretal portion of
the May 28, 2008 Decision of the Court of Appeals, in CA-G.R. SP No.
98855, is hereby MODIFIED to read as follows:
WHEREFORE, the petition is GRANTED. Wensha Spa Center, Inc. is hereby
ordered to pay Loreta T. Yung her full backwages, other privileges, and
benefits, or their monetary equivalent, and separation pay reckoned from
the date of her dismissal, September 1, 2004, up to the finality of this
decision, plus damages in the amounts of Fifty Thousand (₱50,000.00)
Pesos, as moral damages; Twenty Five Thousand (₱25,000.00) Pesos as
exemplary damages; and Twenty Thousand (₱20,000.00) Pesos, as
attorney’s fees. No costs.
SO ORDERED.
G.R. No. 152542 July 8, 2004
MONFORT HERMANOS AGRICULTURAL DEVELOPMENT CORPORATION, as
represented by MA. ANTONIA M. SALVATIERRA, petitioner,
vs.
ANTONIO B. MONFORT III, MA. LUISA MONFORT ASCALON, ILDEFONSO B.
MONFORT, ALFREDO B. MONFORT, CARLOS M. RODRIGUEZ, EMILY
FRANCISCA R. DOLIQUEZ, ENCARNACION CECILIA R. PAYLADO, JOSE
MARTIN M. RODRIGUEZ and COURT OF APPEALS, respondents.
G.R. No. 155472 July 8, 2004
ANTONIO B. MONFORT III, MA. LUISA MONFORT ASCALON, ILDEFONSO B.
MONFORT, ALFREDO B. MONFORT, CARLOS M. RODRIGUEZ, EMILY
FRANCISCA R. DOLIQUEZ, ENCARNACION CECILIA R. PAYLADO, JOSE
MARTIN M. RODRIGUEZ, petitioners,
vs.
HON. COURT OF APPEALS, MONFORT HERMANOS AGRICULTURAL
DEVELOPMENT CORPORATION, as represented by MA. ANTONIA M.
SALVATIERRA, and RAMON H. MONFORT, respondents.
DECISION
YNARES-SANTIAGO, J.:
Before the Court are consolidated petitions for review of the decisions of
the Court of Appeals in the complaints for forcible entry and replevin filed
by Monfort Hermanos Agricultural Development Corporation
(Corporation) and Ramon H. Monfort against the children, nephews, and
nieces of its original incorporators (collectively known as "the group of
Antonio Monfort III").
The petition in G.R. No. 152542, assails the October 5, 2001 Decision1 of
the Special Tenth Division of the Court of Appeals in CA-G.R. SP No. 53652,
which ruled that Ma. Antonia M. Salvatierra has no legal capacity to
represent the Corporation in the forcible entry case docketed as Civil Case
No. 534-C, before the Municipal Trial Court of Cadiz City. On the other
hand, the petition in G.R. No. 155472, seeks to set aside the June 7, 2002
Decision2rendered by the Special Former Thirteenth Division of the Court
of Appeals in CA-G.R. SP No. 49251, where it refused to address, on
jurisdictional considerations, the issue of Ma. Antonia M. Salvatierra's
capacity to file a complaint for replevin on behalf of the Corporation in
Civil Case No. 506-C before the Regional Trial Court of Cadiz City, Branch
60.
Monfort Hermanos Agricultural Development Corporation, a domestic
private corporation, is the registered owner of a farm, fishpond and sugar
cane plantation known as Haciendas San Antonio II, Marapara, Pinanoag
and Tinampa-an, all situated in Cadiz City.3 It also owns one unit of motor
vehicle and two units of tractors.4 The same allowed Ramon H. Monfort,
its Executive Vice President, to breed and maintain fighting cocks in his
personal capacity at Hacienda San Antonio.5
In 1997, the group of Antonio Monfort III, through force and intimidation,
allegedly took possession of the 4 Haciendas, the produce thereon and
the motor vehicle and tractors, as well as the fighting cocks of Ramon H.
Monfort.
In G.R. No. 155472:
On April 10, 1997, the Corporation, represented by its President, Ma.
Antonia M. Salvatierra, and Ramon H. Monfort, in his personal capacity,
filed against the group of Antonio Monfort III, a complaint6 for delivery of
motor vehicle, tractors and 378 fighting cocks, with prayer for injunction
and damages, docketed as Civil Case No. 506-C, before the Regional Trial
Court of Negros Occidental, Branch 60.
The group of Antonio Monfort III filed a motion to dismiss
contending, inter alia, that Ma. Antonia M. Salvatierra has no capacity to
sue on behalf of the Corporation because the March 31, 1997 Board
Resolution7 authorizing Ma. Antonia M. Salvatierra and/or Ramon H.
Monfort to represent the Corporation is void as the purported Members
of the Board who passed the same were not validly elected officers of the
Corporation.
On May 4, 1998, the trial court denied the motion to dismiss.8 The group
of Antonio Monfort III filed a petition for certiorari with the Court of
Appeals but the same was dismissed on June 7, 2002.9 The Special Former
Thirteenth Division of the appellate court did not resolve the validity of
the March 31, 1997 Board Resolution and the election of the officers who
signed it, ratiocinating that the determination of said question is within
the competence of the trial court.
The motion for reconsideration filed by the group of Antonio Monfort III
was denied.10 Hence, they instituted a petition for review with this Court,
docketed as G.R. No. 155472.
In G.R. No. 152542:
On April 21, 1997, Ma. Antonia M. Salvatierra filed on behalf of the
Corporation a complaint for forcible entry, preliminary mandatory
injunction with temporary restraining order and damages against the
group of Antonio Monfort III, before the Municipal Trial Court (MTC) of
Cadiz City.11 It contended that the latter through force and intimidation,
unlawfully took possession of the 4 Haciendas and deprived the
Corporation of the produce thereon.
In their answer,12 the group of Antonio Monfort III alleged that they are
possessing and controlling the Haciendas and harvesting the produce
Page 27 of 106
therein on behalf of the corporation and not for themselves. They likewise
raised the affirmative defense of lack of legal capacity of Ma. Antonia M.
Salvatierra to sue on behalf of the Corporation.
On February 18, 1998, the MTC of Cadiz City rendered a decision
dismissing the complaint.13 On appeal, the Regional Trial Court of Negros
Occidental, Branch 60, reversed the Decision of the MTCC and remanded
the case for further proceedings.14
Aggrieved, the group of Antonio Monfort III filed a petition for review with
the Court of Appeals. On October 5, 2001, the Special Tenth Division set
aside the judgment of the RTC and dismissed the complaint for forcible
entry for lack of capacity of Ma. Antonia M. Salvatierra to represent the
Corporation.15 The motion for reconsideration filed by the latter was
denied by the appellate court.16
Unfazed, the Corporation filed a petition for review with this Court,
docketed as G.R. No. 152542 which was consolidated with G.R. No.
155472 per Resolution dated January 21, 2004.17
The focal issue in these consolidated petitions is whether or not Ma.
Antonia M. Salvatierra has the legal capacity to sue on behalf of the
Corporation.
The group of Antonio Monfort III claims that the March 31, 1997 Board
Resolution authorizing Ma. Antonia M. Salvatierra and/or Ramon H.
Monfort to represent the Corporation is void because the purported
Members of the Board who passed the same were not validly elected
officers of the Corporation.
A corporation has no power except those expressly conferred on it by the
Corporation Code and those that are implied or incidental to its existence.
In turn, a corporation exercises said powers through its board of directors
and/or its duly authorized officers and agents. Thus, it has been observed
that the power of a corporation to sue and be sued in any court is lodged
with the board of directors that exercises its corporate powers. In turn,
physical acts of the corporation, like the signing of documents, can be
performed only by natural persons duly authorized for the purpose by
corporate by-laws or by a specific act of the board of directors.18
Corollary thereto, corporations are required under Section 26 of the
Corporation Code to submit to the SEC within thirty (30) days after the
election the names, nationalities and residences of the elected directors,
trustees and officers of the Corporation. In order to keep stockholders and
the public transacting business with domestic corporations properly
informed of their organizational operational status, the SEC issued the
following rules:
xxx xxx xxx
2. A General Information Sheet shall be filed with this
Commission within thirty (30) days following the date of the
annual stockholders' meeting. No extension of said period shall
be allowed, except for very justifiable reasons stated in writing
by the President, Secretary, Treasurer or other officers, upon
which the Commission may grant an extension for not more
than ten (10) days.
2.A. Should a director, trustee or officer die, resign or
in any manner, cease to hold office, the corporation
shall report such fact to the Commission with fifteen
 (15) days after such death, resignation or cessation of
office.
3. If for any justifiable reason, the annual meeting has to be
postponed, the company should notify the Commission in
writing of such postponement.
The General Information Sheet shall state, among others, the
names of the elected directors and officers, together with their
corresponding position title… (Emphasis supplied)
In the instant case, the six signatories to the March 31, 1997 Board
Resolution authorizing Ma. Antonia M. Salvatierra and/or Ramon H.
Monfort to represent the Corporation, were: Ma. Antonia M. Salvatierra,
President; Ramon H. Monfort, Executive Vice President; Directors Paul M.
Monfort, Yvete M. Benedicto and Jaqueline M. Yusay; and Ester S.
Monfort, Secretary.19 However, the names of the last four (4) signatories
to the said Board Resolution do not appear in the 1996 General
Information Sheet submitted by the Corporation with the SEC. Under said
General Information Sheet the composition of the Board is as follows:
1. Ma. Antonia M. Salvatierra (Chairman);
2. Ramon H. Monfort (Member);
3. Antonio H. Monfort, Jr., (Member);
4. Joaquin H. Monfort (Member);
5. Francisco H. Monfort (Member) and
6. Jesus Antonio H. Monfort (Member).20
There is thus a doubt as to whether Paul M. Monfort, Yvete M. Benedicto,
Jaqueline M. Yusay and Ester S. Monfort, were indeed duly elected
Members of the Board legally constituted to bring suit in behalf of the
Corporation.21
In Premium Marble Resources, Inc. v. Court of Appeals,22 the Court was
confronted with the similar issue of capacity to sue of the officers of the
corporation who filed a complaint for damages. In the said case, we
sustained the dismissal of the complaint because it was not established
that the Members of the Board who authorized the filing of the complaint
were the lawfully elected officers of the corporation. Thus –
The only issue in this case is whether or not the filing of the case
for damages against private respondent was authorized by a
duly constituted Board of Directors of the petitioner
corporation.
Petitioner, through the first set of officers, viz., Mario Zavalla,
Oscar Gan, Lionel Pengson, Jose Ma. Silva, Aderito Yujuico and
Rodolfo Millare, presented the Minutes of the meeting of its
Board of Directors held on April 1, 1982, as proof that the filing
of the case against private respondent was authorized by the
Board. On the other hand, the second set of officers, viz.,
Saturnino G. Belen, Jr., Alberto C. Nograles and Jose L.R. Reyes,
presented a Resolution dated July 30, 1986, to show that
Premium did not authorize the filing in its behalf of any suit
against the private respondent International Corporate Bank.
Page 28 of 106
Later on, petitioner submitted its Articles of Incorporation dated
November 6, 1979 with the following as Directors: Mario C.
Zavalla, Pedro C. Celso, Oscar B. Gan, Lionel Pengson, and Jose
Ma. Silva.
However, it appears from the general information sheet and the
Certification issued by the SEC on August 19, 1986 that as of
March 4, 1981, the officers and members of the board of
directors of the Premium Marble Resources, Inc. were:
Alberto C. Nograles — President/Director
Fernando D. Hilario — Vice President/Director
Augusto I. Galace — Treasurer
Jose L.R. Reyes — Secretary/Director
Pido E. Aguilar — Director
Saturnino G. Belen, Jr. — Chairman of the Board.
While the Minutes of the Meeting of the Board on April 1, 1982
states that the newly elected officers for the year 1982 were
Oscar Gan, Mario Zavalla, Aderito Yujuico and Rodolfo Millare,
petitioner failed to show proof that this election was reported
to the SEC. In fact, the last entry in their General Information
Sheet with the SEC, as of 1986 appears to be the set of officers
elected in March 1981.
We agree with the finding of public respondent Court of
Appeals, that "in the absence of any board resolution from its
board of directors the [sic] authority to act for and in behalf of
the corporation, the present action must necessarily fail. The
power of the corporation to sue and be sued in any court is
lodged with the board of directors that exercises its corporate
powers. Thus, the issue of authority and the invalidity of
plaintiff-appellant's subscription which is still pending, is a
matter that is also addressed, considering the premises, to the
sound judgment of the Securities & Exchange Commission."
By the express mandate of the Corporation Code (Section 26),
all corporations duly organized pursuant thereto are required to
submit within the period therein stated (30 days) to the
Securities and Exchange Commission the names, nationalities
and residences of the directors, trustees and officers elected.
Sec. 26 of the Corporation Code provides, thus:
"Sec. 26. Report of election of directors, trustees and
officers. — Within thirty (30) days after the election of
the directors, trustees and officers of the corporation,
the secretary, or any other officer of the corporation,
shall submit to the Securities and Exchange
Commission, the names, nationalities and residences
of the directors, trustees and officers elected. xxx"
Evidently, the objective sought to be achieved by Section 26 is
to give the public information, under sanction of oath of
responsible officers, of the nature of business, financial
condition and operational status of the company together with
 information on its key officers or managers so that those dealing
with it and those who intend to do business with it may know or
have the means of knowing facts concerning the corporation's
financial resources and business responsibility.
The claim, therefore, of petitioners as represented by Atty.
Dumadag, that Zaballa, et al., are the incumbent officers of
Premium has not been fully substantiated. In the absence of an
authority from the board of directors, no person, not even the
officers of the corporation, can validly bind the corporation.
In the case at bar, the fact that four of the six Members of the Board listed
in the 1996 General Information Sheet23are already dead24 at the time the
March 31, 1997 Board Resolution was issued, does not automatically
make the four signatories (i.e., Paul M. Monfort, Yvete M. Benedicto,
Jaqueline M. Yusay and Ester S. Monfort) to the said Board Resolution
(whose name do not appear in the 1996 General Information Sheet) as
among the incumbent Members of the Board. This is because it was not
established that they were duly elected to replace the said deceased
Board Members.
To correct the alleged error in the General Information Sheet, the retained
accountant of the Corporation informed the SEC in its November 11, 1998
letter that the non-inclusion of the lawfully elected directors in the 1996
General Information Sheet was attributable to its oversight and not the
fault of the Corporation.25 This belated attempt, however, did not erase
the doubt as to whether an election was indeed held. As previously stated,
a corporation is mandated to inform the SEC of the names and the change
in the composition of its officers and board of directors within 30 days
after election if one was held, or 15 days after the death, resignation or
cessation of office of any of its director, trustee or officer if any of them
died, resigned or in any manner, ceased to hold office. This, the
Corporation failed to do. The alleged election of the directors and officers
who signed the March 31, 1997 Board Resolution was held on October 16,
1996, but the SEC was informed thereof more than two years later, or on
November 11, 1998. The 4 Directors appearing in the 1996 General
Information Sheet died between the years 1984 – 1987,26 but the records
do not show if such demise was reported to the SEC.
What further militates against the purported election of those who signed
the March 31, 1997 Board Resolution was the belated submission of the
alleged Minutes of the October 16, 1996 meeting where the questioned
officers were elected. The issue of legal capacity of Ma. Antonia M.
Salvatierra was raised before the lower court by the group of Antonio
Monfort III as early as 1997, but the Minutes of said October 16, 1996
meeting was presented by the Corporation only in its September 29,
1999 Comment before the Court of Appeals.27 Moreover, the Corporation
failed to prove that the same October 16, 1996 Minutes was submitted to
the SEC. In fact, the 1997 General Information Sheet28 submitted by the
Corporation does not reflect the names of the 4 Directors claimed to be
elected on October 16, 1996.
Considering the foregoing, we find that Ma. Antonia M. Salvatierra failed
to prove that four of those who authorized her to represent the
Corporation were the lawfully elected Members of the Board of the
Corporation. As such, they cannot confer valid authority for her to sue on
behalf of the corporation.
The Court notes that the complaint in Civil Case No. 506-C, for replevin
before the Regional Trial Court of Negros Occidental, Branch 60, has 2
causes of action, i.e., unlawful detention of the Corporation's motor
vehicle and tractors, and the unlawful detention of the of 387 fighting
cocks of Ramon H. Monfort. Since Ramon sought redress of the latter
Page 29 of 106
cause of action in his personal capacity, the dismissal of the complaint for
lack of capacity to sue on behalf of the corporation should be limited only
to the corporation's cause of action for delivery of motor vehicle and
tractors. In view, however, of the demise of Ramon on June 25,
1999,29 substitution by his heirs is proper.
WHEREFORE, in view of all the foregoing, the petition in G.R. No. 152542
is DENIED. The October 5, 2001 Decision of the Special Tenth Division of
the Court of Appeals in CA-G.R. SP No. 53652, which set aside the August
14, 1998 Decision of the Regional Trial Court of Negros Occidental, Branch
60 in Civil Case No. 822, is AFFIRMED.
In G.R. No. 155472, the petition is GRANTED and the June 7, 2002 Decision
rendered by the Special Former Thirteenth Division of the Court of
Appeals in CA-G.R. SP No. 49251, dismissing the petition filed by the group
of Antonio Monfort III, is REVERSED and SET ASIDE.
The complaint for forcible entry docketed as Civil Case No. 822 before the
Municipal Trial Court of Cadiz City is DISMISSED. In Civil Case No. 506-C
with the Regional Trial Court of Negros Occidental, Branch 60, the action
for delivery of personal property filed by Monfort Hermanos Agricultural
Development Corporation is likewise DISMISSED. With respect to the
action filed by Ramon H. Monfort for the delivery of 387 fighting cocks,
the Regional Trial Court of Negros Occidental, Branch 60, is ordered to
effect the corresponding substitution of parties.
No costs.
SO ORDERED.
G.R. No. 84197 July 28, 1989
PIONEER INSURANCE & SURETY CORPORATION, petitioner,
vs.
THE HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT,
INC., (BORMAHECO), CONSTANCIO M. MAGLANA and JACOB S.
LIM, respondents.
G.R. No. 84157 July 28, 1989
JACOB S. LIM, petitioner,
vs.
COURT OF APPEALS, PIONEER INSURANCE AND SURETY CORPORATION,
BORDER MACHINERY and HEAVY EQUIPMENT CO., INC,, FRANCISCO and
MODESTO CERVANTES and CONSTANCIO MAGLANA, respondents.
Eriberto D. Ignacio for Pioneer Insurance & Surety Corporation.
Sycip, Salazar, Hernandez & Gatmaitan for Jacob S. Lim.
Renato J. Robles for BORMAHECO, Inc. and Cervanteses.
Leonardo B. Lucena for Constancio Maglana.
GUTIERREZ, JR., J.:
The subject matter of these consolidated petitions is the decision of the
Court of Appeals in CA-G.R. CV No. 66195 which modified the decision of
the then Court of First Instance of Manila in Civil Case No. 66135. The
plaintiffs complaint (petitioner in G.R. No. 84197) against all defendants
(respondents in G.R. No. 84197) was dismissed but in all other respects
the trial court's decision was affirmed.
The dispositive portion of the trial court's decision reads as follows:
WHEREFORE, judgment is rendered against
defendant Jacob S. Lim requiring Lim to pay plaintiff
the amount of P311,056.02, with interest at the rate
of 12% per annum compounded monthly; plus 15% of
the amount awarded to plaintiff as attorney's fees
from July 2,1966, until full payment is made; plus
P70,000.00 moral and exemplary damages.
It is found in the records that the cross party plaintiffs
incurred additional miscellaneous expenses aside
from Pl51,000.00,,making a total of P184,878.74.
Defendant Jacob S. Lim is further required to pay
cross party plaintiff, Bormaheco, the Cervanteses
one-half and Maglana the other half, the amount of
Pl84,878.74 with interest from the filing of the cross-
complaints until the amount is fully paid; plus moral
and exemplary damages in the amount of
P184,878.84 with interest from the filing of the cross-
complaints until the amount is fully paid; plus moral
and exemplary damages in the amount of P50,000.00
for each of the two Cervanteses.
Furthermore, he is required to pay P20,000.00 to
Bormaheco and the Cervanteses, and another
P20,000.00 to Constancio B. Maglana as attorney's
fees.
xxx xxx xxx
WHEREFORE, in view of all above, the complaint of
plaintiff Pioneer against defendants Bormaheco, the
Cervanteses and Constancio B. Maglana, is dismissed.
Instead, plaintiff is required to indemnify the
defendants Bormaheco and the Cervanteses the
amount of P20,000.00 as attorney's fees and the
amount of P4,379.21, per year from 1966 with legal
rate of interest up to the time it is paid.
Furthermore, the plaintiff is required to pay
Constancio B. Maglana the amount of P20,000.00 as
attorney's fees and costs.
No moral or exemplary damages is awarded against
plaintiff for this action was filed in good faith. The fact
that the properties of the Bormaheco and the
Cervanteses were attached and that they were
required to file a counterbond in order to dissolve the
attachment, is not an act of bad faith. When a man
tries to protect his rights, he should not be saddled
with moral or exemplary damages. Furthermore, the
rights exercised were provided for in the Rules of
Court, and it was the court that ordered it, in the
exercise of its discretion.
No damage is decided against Malayan Insurance
Company, Inc., the third-party defendant, for it only
secured the attachment prayed for by the plaintiff
Page 30 of 106
Pioneer. If an insurance company would be liable for
damages in performing an act which is clearly within
its power and which is the reason for its being, then
nobody would engage in the insurance business. No
further claim or counter-claim for or against anybody
is declared by this Court. (Rollo - G.R. No. 24197, pp.
15-16)
In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in the
airline business as owner-operator of Southern Air Lines (SAL) a single
proprietorship.
On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines (JDA) and Lim
entered into and executed a sales contract (Exhibit A) for the sale and
purchase of two (2) DC-3A Type aircrafts and one (1) set of necessary
spare parts for the total agreed price of US $109,000.00 to be paid in
installments. One DC-3 Aircraft with Registry No. PIC-718, arrived in
Manila on June 7,1965 while the other aircraft, arrived in Manila on July
18,1965.
On May 22, 1965, Pioneer Insurance and Surety Corporation (Pioneer,
petitioner in G.R. No. 84197) as surety executed and issued its Surety Bond
No. 6639 (Exhibit C) in favor of JDA, in behalf of its principal, Lim, for the
balance price of the aircrafts and spare parts.
It appears that Border Machinery and Heavy Equipment Company, Inc.
(Bormaheco), Francisco and Modesto Cervantes (Cervanteses) and
Constancio Maglana (respondents in both petitions) contributed some
funds used in the purchase of the above aircrafts and spare parts. The
funds were supposed to be their contributions to a new corporation
proposed by Lim to expand his airline business. They executed two (2)
separate indemnity agreements (Exhibits D-1 and D-2) in favor of Pioneer,
one signed by Maglana and the other jointly signed by Lim for SAL,
Bormaheco and the Cervanteses. The indemnity agreements stipulated
that the indemnitors principally agree and bind themselves jointly and
severally to indemnify and hold and save harmless Pioneer from and
against any/all damages, losses, costs, damages, taxes, penalties, charges
and expenses of whatever kind and nature which Pioneer may incur in
consequence of having become surety upon the bond/note and to pay,
reimburse and make good to Pioneer, its successors and assigns, all sums
and amounts of money which it or its representatives should or may pay
or cause to be paid or become liable to pay on them of whatever kind and
nature.
On June 10, 1965, Lim doing business under the name and style of SAL
executed in favor of Pioneer as deed of chattel mortgage as security for
the latter's suretyship in favor of the former. It was stipulated therein that
Lim transfer and convey to the surety the two aircrafts. The deed (Exhibit
D) was duly registered with the Office of the Register of Deeds of the City
of Manila and with the Civil Aeronautics Administration pursuant to the
Chattel Mortgage Law and the Civil Aeronautics Law (Republic Act No.
776), respectively.
Lim defaulted on his subsequent installment payments prompting JDA to
request payments from the surety. Pioneer paid a total sum of
P298,626.12.
Pioneer then filed a petition for the extrajudicial foreclosure of the said
chattel mortgage before the Sheriff of Davao City. The Cervanteses and
Maglana, however, filed a third party claim alleging that they are co-
owners of the aircrafts,
On July 19, 1966, Pioneer filed an action for judicial foreclosure with an
application for a writ of preliminary attachment against Lim and
respondents, the Cervanteses, Bormaheco and Maglana.
In their Answers, Maglana, Bormaheco and the Cervanteses filed cross-
claims against Lim alleging that they were not privies to the contracts
signed by Lim and, by way of counterclaim, sought for damages for being
exposed to litigation and for recovery of the sums of money they
advanced to Lim for the purchase of the aircrafts in question.
After trial on the merits, a decision was rendered holding Lim liable to pay
Pioneer but dismissed Pioneer's complaint against all other defendants.
As stated earlier, the appellate court modified the trial court's decision in
that the plaintiffs complaint against all the defendants was dismissed. In
all other respects the trial court's decision was affirmed.
We first resolve G.R. No. 84197.
Petitioner Pioneer Insurance and Surety Corporation avers that:
RESPONDENT COURT OF APPEALS GRIEVOUSLY
ERRED WHEN IT DISMISSED THE APPEAL OF
PETITIONER ON THE SOLE GROUND THAT PETITIONER
HAD ALREADY COLLECTED THE PROCEEDS OF THE
REINSURANCE ON ITS BOND IN FAVOR OF THE JDA
AND THAT IT CANNOT REPRESENT A REINSURER TO
RECOVER THE AMOUNT FROM HEREIN PRIVATE
RESPONDENTS AS DEFENDANTS IN THE TRIAL COURT.
(Rollo - G. R. No. 84197, p. 10)
The petitioner questions the following findings of the appellate court:
We find no merit in plaintiffs appeal. It is undisputed
that plaintiff Pioneer had reinsured its risk of liability
under the surety bond in favor of JDA and
subsequently collected the proceeds of such
reinsurance in the sum of P295,000.00. Defendants'
alleged obligation to Pioneer amounts to
P295,000.00, hence, plaintiffs instant action for the
recovery of the amount of P298,666.28 from
defendants will no longer prosper. Plaintiff Pioneer is
not the real party in interest to institute the instant
action as it does not stand to be benefited or injured
by the judgment.
Plaintiff Pioneer's contention that it is representing
the reinsurer to recover the amount from defendants,
hence, it instituted the action is utterly devoid of
merit. Plaintiff did not even present any evidence that
it is the attorney-in-fact of the reinsurance company,
authorized to institute an action for and in behalf of
the latter. To qualify a person to be a real party in
interest in whose name an action must be
prosecuted, he must appear to be the present real
owner of the right sought to be enforced (Moran, Vol.
I, Comments on the Rules of Court, 1979 ed., p. 155).
It has been held that the real party in interest is the
party who would be benefited or injured by the
judgment or the party entitled to the avails of the suit
(Salonga v. Warner Barnes & Co., Ltd., 88 Phil. 125,
131). By real party in interest is meant a present
substantial interest as distinguished from a mere
Page 31 of 106
expectancy or a future, contingent, subordinate or
consequential interest (Garcia v. David, 67 Phil. 27;
Oglleaby v. Springfield Marine Bank, 52 N.E. 2d 1600,
385 III, 414; Flowers v. Germans, 1 NW 2d 424; Weber
v. City of Cheye, 97 P. 2d 667, 669, quoting 47 C.V.
35).
Based on the foregoing premises, plaintiff Pioneer
cannot be considered as the real party in interest as it
has already been paid by the reinsurer the sum of
P295,000.00 — the bulk of defendants' alleged
obligation to Pioneer.
In addition to the said proceeds of the reinsurance
received by plaintiff Pioneer from its reinsurer, the
former was able to foreclose extra-judicially one of
the subject airplanes and its spare engine, realizing
the total amount of P37,050.00 from the sale of the
mortgaged chattels. Adding the sum of P37,050.00, to
the proceeds of the reinsurance amounting to
P295,000.00, it is patent that plaintiff has been
overpaid in the amount of P33,383.72 considering
that the total amount it had paid to JDA totals to only
P298,666.28. To allow plaintiff Pioneer to recover
from defendants the amount in excess of P298,666.28
would be tantamount to unjust enrichment as it has
already been paid by the reinsurance company of the
amount plaintiff has paid to JDA as surety of
defendant Lim vis-a-vis defendant Lim's liability to
JDA. Well settled is the rule that no person should
unjustly enrich himself at the expense of another
(Article 22, New Civil Code). (Rollo-84197, pp. 24-25).
The petitioner contends that-(1) it is at a loss where respondent court
based its finding that petitioner was paid by its reinsurer in the aforesaid
amount, as this matter has never been raised by any of the parties herein
both in their answers in the court below and in their respective briefs with
respondent court; (Rollo, p. 11) (2) even assuming hypothetically that it
was paid by its reinsurer, still none of the respondents had any interest in
the matter since the reinsurance is strictly between the petitioner and the
re-insurer pursuant to section 91 of the Insurance Code; (3) pursuant to
the indemnity agreements, the petitioner is entitled to recover from
respondents Bormaheco and Maglana; and (4) the principle of unjust
enrichment is not applicable considering that whatever amount he would
recover from the co-indemnitor will be paid to the reinsurer.
The records belie the petitioner's contention that the issue on the
reinsurance money was never raised by the parties.
A cursory reading of the trial court's lengthy decision shows that two of
the issues threshed out were:
xxx xxx xxx
1. Has Pioneer a cause of action against defendants
with respect to so much of its obligations to JDA as
has been paid with reinsurance money?
2. If the answer to the preceding question is in the
negative, has Pioneer still any claim against
defendants, considering the amount it has realized
from the sale of the mortgaged properties? (Record
on Appeal, p. 359, Annex B of G.R. No. 84157).
In resolving these issues, the trial court made the following findings:
It appearing that Pioneer reinsured its risk of liability
under the surety bond it had executed in favor of JDA,
collected the proceeds of such reinsurance in the sum
of P295,000, and paid with the said amount the bulk
of its alleged liability to JDA under the said surety
bond, it is plain that on this score it no longer has any
right to collect to the extent of the said amount.
On the question of why it is Pioneer, instead of the
reinsurance (sic), that is suing defendants for the
amount paid to it by the reinsurers, notwithstanding
that the cause of action pertains to the latter, Pioneer
says: The reinsurers opted instead that the Pioneer
Insurance & Surety Corporation shall pursue alone the
case.. . . . Pioneer Insurance & Surety Corporation is
representing the reinsurers to recover the amount.' In
other words, insofar as the amount paid to it by the
reinsurers Pioneer is suing defendants as their
attorney-in-fact.
But in the first place, there is not the slightest
indication in the complaint that Pioneer is suing as
attorney-in- fact of the reinsurers for any amount.
Lastly, and most important of all, Pioneer has no right
to institute and maintain in its own name an action for
the benefit of the reinsurers. It is well-settled that an
action brought by an attorney-in-fact in his own name
instead of that of the principal will not prosper, and
this is so even where the name of the principal is
disclosed in the complaint.
Section 2 of Rule 3 of the Old
Rules of Court provides that
'Every action must be prosecuted
in the name of the real party in
interest.' This provision is
mandatory. The real party in
interest is the party who would
be benefitted or injured by the
judgment or is the party entitled
to the avails of the suit.
This Court has held in various
cases that an attorney-in-fact is
not a real party in interest, that
there is no law permitting an
action to be brought by an
attorney-in-fact. Arroyo v.
Granada and Gentero, 18 Phil.
Rep. 484; Luchauco v. Limjuco
and Gonzalo, 19 Phil. Rep. 12;
Filipinos Industrial Corporation v.
San Diego G.R. No. L-
22347,1968, 23 SCRA 706, 710-
714.
The total amount paid by Pioneer to JDA is
P299,666.29. Since Pioneer has collected
P295,000.00 from the reinsurers, the uninsured
portion of what it paid to JDA is the difference
between the two amounts, or P3,666.28. This is the
Page 32 of 106
amount for which Pioneer may sue defendants,
assuming that the indemnity agreement is still valid
and effective. But since the amount realized from the
sale of the mortgaged chattels are P35,000.00 for one
of the airplanes and P2,050.00 for a spare engine, or
a total of P37,050.00, Pioneer is still overpaid by
P33,383.72. Therefore, Pioneer has no more claim
against defendants. (Record on Appeal, pp. 360-363).
The payment to the petitioner made by the reinsurers was not disputed
in the appellate court. Considering this admitted payment, the only issue
that cropped up was the effect of payment made by the reinsurers to the
petitioner. Therefore, the petitioner's argument that the respondents had
no interest in the reinsurance contract as this is strictly between the
petitioner as insured and the reinsuring company pursuant to Section 91
(should be Section 98) of the Insurance Code has no basis.
In general a reinsurer, on payment of a loss acquires
the same rights by subrogation as are acquired in
similar cases where the original insurer pays a loss
(Universal Ins. Co. v. Old Time Molasses Co. C.C.A. La.,
46 F 2nd 925).
The rules of practice in actions on original insurance
policies are in general applicable to actions or
contracts of reinsurance. (Delaware, Ins. Co. v.
Pennsylvania Fire Ins. Co., 55 S.E. 330,126 GA. 380, 7
Ann. Con. 1134).
Hence the applicable law is Article 2207 of the new Civil Code, to wit:
Art. 2207. If the plaintiffs property has been insured,
and he has received indemnity from the insurance
company for the injury or loss arising out of the wrong
or breach of contract complained of, the insurance
company shall be subrogated to the rights of the
insured against the wrongdoer or the person who has
violated the contract. If the amount paid by the
insurance company does not fully cover the injury or
loss, the aggrieved party shall be entitled to recover
the deficiency from the person causing the loss or
injury.
Interpreting the aforesaid provision, we ruled in the case of Phil. Air Lines,
Inc. v. Heald Lumber Co. (101 Phil. 1031 [1957]) which we subsequently
applied in Manila Mahogany Manufacturing Corporation v. Court of
Appeals (154 SCRA 650 [1987]):
Note that if a property is insured and the owner
receives the indemnity from the insurer, it is provided
in said article that the insurer is deemed subrogated
to the rights of the insured against the wrongdoer and
if the amount paid by the insurer does not fully cover
the loss, then the aggrieved party is the one entitled
to recover the deficiency. Evidently, under this legal
provision, the real party in interest with regard to the
portion of the indemnity paid is the insurer and not the
insured. (Emphasis supplied).
It is clear from the records that Pioneer sued in its own name and not as
an attorney-in-fact of the reinsurer.
Accordingly, the appellate court did not commit a reversible error in
dismissing the petitioner's complaint as against the respondents for the
reason that the petitioner was not the real party in interest in the
complaint and, therefore, has no cause of action against the respondents.
Nevertheless, the petitioner argues that the appeal as regards the counter
indemnitors should not have been dismissed on the premise that the
evidence on record shows that it is entitled to recover from the counter
indemnitors. It does not, however, cite any grounds except its allegation
that respondent "Maglanas defense and evidence are certainly incredible"
(p. 12, Rollo) to back up its contention.
On the other hand, we find the trial court's findings on the matter replete
with evidence to substantiate its finding that the counter-indemnitors are
not liable to the petitioner. The trial court stated:
Apart from the foregoing proposition, the indemnity
agreement ceased to be valid and effective after the
execution of the chattel mortgage.
Testimonies of defendants Francisco Cervantes and
Modesto Cervantes.
Pioneer Insurance, knowing the value of the aircrafts
and the spare parts involved, agreed to issue the bond
provided that the same would be mortgaged to it, but
this was not possible because the planes were still in
Japan and could not be mortgaged here in the
Philippines. As soon as the aircrafts were brought to
the Philippines, they would be mortgaged to Pioneer
Insurance to cover the bond, and this indemnity
agreement would be cancelled.
The following is averred under oath by Pioneer in the
original complaint:
The various conflicting claims
over the mortgaged properties
have impaired and rendered
insufficient the security under the
chattel mortgage and there is
thus no other sufficient security
for the claim sought to be
enforced by this action.
This is judicial admission and aside from the chattel
mortgage there is no other security for the claim
sought to be enforced by this action, which
necessarily means that the indemnity agreement had
ceased to have any force and effect at the time this
action was instituted. Sec 2, Rule 129, Revised Rules
of Court.
Prescinding from the foregoing, Pioneer, having
foreclosed the chattel mortgage on the planes and
spare parts, no longer has any further action against
the defendants as indemnitors to recover any unpaid
balance of the price. The indemnity agreement was
ipso jure extinguished upon the foreclosure of the
chattel mortgage. These defendants, as indemnitors,
would be entitled to be subrogated to the right of
Pioneer should they make payments to the latter.
Page 33 of 106
Articles 2067 and 2080 of the New Civil Code of the
Philippines.
Independently of the preceding proposition Pioneer's
election of the remedy of foreclosure precludes any
further action to recover any unpaid balance of the
price.
SAL or Lim, having failed to pay the second to the
eight and last installments to JDA and Pioneer as
surety having made of the payments to JDA, the
alternative remedies open to Pioneer were as
provided in Article 1484 of the New Civil Code, known
as the Recto Law.
Pioneer exercised the remedy of foreclosure of the
chattel mortgage both by extrajudicial foreclosure
and the instant suit. Such being the case, as provided
by the aforementioned provisions, Pioneer shall have
no further action against the purchaser to recover any
unpaid balance and any agreement to the contrary is
void.' Cruz, et al. v. Filipinas Investment & Finance
Corp. No. L- 24772, May 27,1968, 23 SCRA 791, 795-
6.
The operation of the foregoing provision cannot be
escaped from through the contention that Pioneer is
not the vendor but JDA. The reason is that Pioneer is
actually exercising the rights of JDA as vendor, having
subrogated it in such rights. Nor may the application
of the provision be validly opposed on the ground that
these defendants and defendant Maglana are not the
vendee but indemnitors. Pascual, et al. v. Universal
Motors Corporation, G.R. No. L- 27862, Nov. 20,1974,
61 SCRA 124.
The restructuring of the obligations of SAL or Lim, thru
the change of their maturity dates discharged these
defendants from any liability as alleged indemnitors.
The change of the maturity dates of the obligations of
Lim, or SAL extinguish the original obligations thru
novations thus discharging the indemnitors.
The principal hereof shall be paid
in eight equal successive three
months interval installments, the
first of which shall be due and
payable 25 August 1965, the
remainder of which ... shall be
due and payable on the 26th day
x x x of each succeeding three
months and the last of which shall
be due and payable 26th May
1967.
However, at the trial of this case, Pioneer produced a
memorandum executed by SAL or Lim and JDA,
modifying the maturity dates of the obligations, as
follows:
The principal hereof shall be paid
in eight equal successive three
month interval installments the
 first of which shall be due and
payable 4 September 1965, the
remainder of which ... shall be
due and payable on the 4th day ...
of each succeeding months and
the last of which shall be due and
payable 4th June 1967.
Not only that, Pioneer also produced eight purported
promissory notes bearing maturity dates different
from that fixed in the aforesaid memorandum; the
due date of the first installment appears as October
15, 1965, and those of the rest of the installments, the
15th of each succeeding three months, that of the last
installment being July 15, 1967.
These restructuring of the obligations with regard to
their maturity dates, effected twice, were done
without the knowledge, much less, would have it
believed that these defendants Maglana (sic).
Pioneer's official Numeriano Carbonel would have it
believed that these defendants and defendant
Maglana knew of and consented to the modification
of the obligations. But if that were so, there would
have been the corresponding documents in the form
of a written notice to as well as written conformity of
these defendants, and there are no such document.
The consequence of this was the extinguishment of
the obligations and of the surety bond secured by the
indemnity agreement which was thereby also
extinguished. Applicable by analogy are the rulings of
the Supreme Court in the case of Kabankalan Sugar
Co. v. Pacheco, 55 Phil. 553, 563, and the case of
Asiatic Petroleum Co. v. Hizon David, 45 Phil. 532, 538.
Art. 2079. An extension granted
to the debtor by the creditor
without the consent of the
guarantor extinguishes the
guaranty The mere failure on the
part of the creditor to demand
payment after the debt has
become due does not of itself
constitute any extension time
referred to herein, (New Civil
Code).'
Manresa, 4th ed., Vol. 12, pp. 316-317, Vol. VI, pp.
562-563, M.F. Stevenson & Co., Ltd., v. Climacom et
al. (C.A.) 36 O.G. 1571.
Pioneer's liability as surety to JDA had already
prescribed when Pioneer paid the same.
Consequently, Pioneer has no more cause of action to
recover from these defendants, as supposed
indemnitors, what it has paid to JDA. By virtue of an
express stipulation in the surety bond, the failure of
JDA to present its claim to Pioneer within ten days
from default of Lim or SAL on every installment,
released Pioneer from liability from the claim.
Page 34 of 106
Therefore, Pioneer is not entitled to exact
reimbursement from these defendants thru the
indemnity.
Art. 1318. Payment by a solidary
debtor shall not entitle him to
reimbursement from his co-
debtors if such payment is made
after the obligation has
prescribed or became illegal.
These defendants are entitled to recover damages
and attorney's fees from Pioneer and its surety by
reason of the filing of the instant case against them
and the attachment and garnishment of their
properties. The instant action is clearly unfounded
insofar as plaintiff drags these defendants and
defendant Maglana.' (Record on Appeal, pp. 363-369,
Rollo of G.R. No. 84157).
We find no cogent reason to reverse or modify these findings.
Hence, it is our conclusion that the petition in G.R. No. 84197 is not
meritorious.
We now discuss the merits of G.R. No. 84157.
Petitioner Jacob S. Lim poses the following issues:
l. What legal rules govern the relationship among co-
investors whose agreement was to do business
through the corporate vehicle but who failed to
incorporate the entity in which they had chosen to
invest? How are the losses to be treated in situations
where their contributions to the intended
'corporation' were invested not through the
corporate form? This Petition presents these
fundamental questions which we believe were
resolved erroneously by the Court of Appeals ('CA').
(Rollo, p. 6).
These questions are premised on the petitioner's theory that as a result
of the failure of respondents Bormaheco, Spouses Cervantes, Constancio
Maglana and petitioner Lim to incorporate, a de facto partnership among
them was created, and that as a consequence of such relationship all must
share in the losses and/or gains of the venture in proportion to their
contribution. The petitioner, therefore, questions the appellate court's
findings ordering him to reimburse certain amounts given by the
respondents to the petitioner as their contributions to the intended
corporation, to wit:
However, defendant Lim should be held liable to pay
his co-defendants' cross-claims in the total amount of
P184,878.74 as correctly found by the trial court, with
interest from the filing of the cross-complaints until
the amount is fully paid. Defendant Lim should pay
one-half of the said amount to Bormaheco and the
Cervanteses and the other one-half to defendant
Maglana. It is established in the records that
defendant Lim had duly received the amount of
Pl51,000.00 from defendants Bormaheco and
Maglana representing the latter's participation in the
ownership of the subject airplanes and spare parts
 (Exhibit 58). In addition, the cross-party plaintiffs
incurred additional expenses, hence, the total sum of
P 184,878.74.
We first state the principles.
While it has been held that as between themselves
the rights of the stockholders in a defectively
incorporated association should be governed by the
supposed charter and the laws of the state relating
thereto and not by the rules governing partners
(Cannon v. Brush Electric Co., 54 A. 121, 96 Md. 446,
94 Am. S.R. 584), it is ordinarily held that persons who
attempt, but fail, to form a corporation and who carry
on business under the corporate name occupy the
position of partners inter se (Lynch v. Perryman, 119
P. 229, 29 Okl. 615, Ann. Cas. 1913A 1065). Thus,
where persons associate themselves together under
articles to purchase property to carry on a business,
and their organization is so defective as to come short
of creating a corporation within the statute, they
become in legal effect partners inter se, and their
rights as members of the company to the property
acquired by the company will be recognized (Smith v.
Schoodoc Pond Packing Co., 84 A. 268,109 Me. 555;
Whipple v. Parker, 29 Mich. 369). So, where certain
persons associated themselves as a corporation for
the development of land for irrigation purposes, and
each conveyed land to the corporation, and two of
them contracted to pay a third the difference in the
proportionate value of the land conveyed by him, and
no stock was ever issued in the corporation, it was
treated as a trustee for the associates in an action
between them for an accounting, and its capital stock
was treated as partnership assets, sold, and the
proceeds distributed among them in proportion to
the value of the property contributed by each (Shorb
v. Beaudry, 56 Cal. 446). However, such a relation
does not necessarily exist, for ordinarily persons
cannot be made to assume the relation of partners, as
between themselves, when their purpose is that no
partnership shall exist (London Assur. Corp. v.
Drennen, Minn., 6 S.Ct. 442, 116 U.S. 461, 472, 29
L.Ed. 688), and it should be implied only when
necessary to do justice between the parties; thus, one
who takes no part except to subscribe for stock in a
proposed corporation which is never legally formed
does not become a partner with other subscribers who
engage in business under the name of the pretended
corporation, so as to be liable as such in an action for
settlement of the alleged partnership and
contribution (Ward v. Brigham, 127 Mass. 24). A
partnership relation between certain stockholders
and other stockholders, who were also directors, will
not be implied in the absence of an agreement, so as
to make the former liable to contribute for payment
of debts illegally contracted by the latter (Heald v.
Owen, 44 N.W. 210, 79 Iowa 23). (Corpus Juris
Secundum, Vol. 68, p. 464). (Italics supplied).
In the instant case, it is to be noted that the petitioner was declared non-
suited for his failure to appear during the pretrial despite notification. In
his answer, the petitioner denied having received any amount from
respondents Bormaheco, the Cervanteses and Maglana. The trial court
Page 35 of 106
and the appellate court, however, found through Exhibit 58, that the
petitioner received the amount of P151,000.00 representing the
participation of Bormaheco and Atty. Constancio B. Maglana in the
ownership of the subject airplanes and spare parts. The record shows that
defendant Maglana gave P75,000.00 to petitioner Jacob Lim thru the
Cervanteses.
It is therefore clear that the petitioner never had the intention to form a
corporation with the respondents despite his representations to them.
This gives credence to the cross-claims of the respondents to the effect
that they were induced and lured by the petitioner to make contributions
to a proposed corporation which was never formed because the
petitioner reneged on their agreement. Maglana alleged in his cross-
claim:
... that sometime in early 1965, Jacob Lim proposed to
Francisco Cervantes and Maglana to expand his airline
business. Lim was to procure two DC-3's from Japan
and secure the necessary certificates of public
convenience and necessity as well as the required
permits for the operation thereof. Maglana sometime
in May 1965, gave Cervantes his share of P75,000.00
for delivery to Lim which Cervantes did and Lim
acknowledged receipt thereof. Cervantes, likewise,
delivered his share of the undertaking. Lim in an
undertaking sometime on or about August 9,1965,
promised to incorporate his airline in accordance with
their agreement and proceeded to acquire the planes
on his own account. Since then up to the filing of this
answer, Lim has refused, failed and still refuses to set
up the corporation or return the money of Maglana.
(Record on Appeal, pp. 337-338).
while respondents Bormaheco and the Cervanteses alleged in their
answer, counterclaim, cross-claim and third party complaint:
Sometime in April 1965, defendant Lim lured and
induced the answering defendants to purchase two
airplanes and spare parts from Japan which the latter
considered as their lawful contribution and
participation in the proposed corporation to be
known as SAL. Arrangements and negotiations were
undertaken by defendant Lim. Down payments were
advanced by defendants Bormaheco and the
Cervanteses and Constancio Maglana (Exh. E- 1).
Contrary to the agreement among the defendants,
defendant Lim in connivance with the plaintiff, signed
and executed the alleged chattel mortgage and surety
bond agreement in his personal capacity as the
alleged proprietor of the SAL. The answering
defendants learned for the first time of this trickery
and misrepresentation of the other, Jacob Lim, when
the herein plaintiff chattel mortgage (sic) allegedly
executed by defendant Lim, thereby forcing them to
file an adverse claim in the form of third party claim.
Notwithstanding repeated oral demands made by
defendants Bormaheco and Cervanteses, to
defendant Lim, to surrender the possession of the
two planes and their accessories and or return the
amount advanced by the former amounting to an
aggregate sum of P 178,997.14 as evidenced by a
statement of accounts, the latter ignored, omitted
and refused to comply with them. (Record on Appeal,
pp. 341-342).
Applying therefore the principles of law earlier cited to the facts of the representing the unpaid price of
case, necessarily, no de facto partnership was created among the parties the floats not covered by said
which would entitle the petitioner to a reimbursement of the supposed Agreement;
losses of the proposed corporation. The record shows that the petitioner
was acting on his own and not in behalf of his other would-be b. 12% interest per
incorporators in transacting the sale of the airplanes and spare parts. annum counted from date of
plaintiff's invoices and computed
WHEREFORE, the instant petitions are DISMISSED. The questioned on their respective amounts as
decision of the Court of Appeals is AFFIRMED. follows:

SO ORDERED. i. Accrued
interest of
G.R. No. 136448 November 3, 1999 P73,221.00
on Invoice
No. 14407
LIM TONG LIM, petitioner,
for
vs.
P385,377.80
PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent.
dated
February 9,
1990;

PANGANIBAN, J.: ii. Accrued

interest for
A partnership may be deemed to exist among parties who agree to borrow P27,904.02
money to pursue a business and to divide the profits or losses that may on Invoice
arise therefrom, even if it is shown that they have not contributed any No. 14413
capital of their own to a "common fund." Their contribution may be in the for
form of credit or industry, not necessarily cash or fixed assets. Being P146,868.00
partner, they are all liable for debts incurred by or on behalf of the dated
partnership. The liability for a contract entered into on behalf of an February 13,
unincorporated association or ostensible corporation may lie in a person 1990;
who may not have directly transacted on its behalf, but reaped benefits
from that contract. iii. Accrued
interest of
The Case P12,920.00
on Invoice
In the Petition for Review on Certiorari before us, Lim Tong Lim assails the No. 14426
November 26, 1998 Decision of the Court of Appeals in CA-GR CV for
41477, 1 which disposed as follows: P68,000.00
dated
February 19,
WHEREFORE, [there being] no reversible error in the 1990;
appealed decision, the same is hereby affirmed. 2
c. P50,000.00 as and for
The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, attorney's fees, plus P8,500.00
which was affirmed by the CA, reads as follows: representing P500.00 per
appearance in court;
WHEREFORE, the Court rules:
d. P65,000.00 representing
1. That plaintiff is entitled to the writ of preliminary P5,000.00 monthly rental for
attachment issued by this Court on September 20, storage charges on the nets
1990; counted from September 20,
1990 (date of attachment) to
2. That defendants are jointly liable to plaintiff for the September 12, 1991 (date of
following amounts, subject to the modifications as auction sale);
hereinafter made by reason of the special and unique
facts and circumstances and the proceedings that e. Cost of suit.
transpired during the trial of this case;
With respect to the joint liability of
a. P532,045.00 representing [the] defendants for the principal obligation or
unpaid purchase price of the for the unpaid price of nets and floats in the
fishing nets covered by the amount of P532,045.00 and P68,000.00,
Agreement plus P68,000.00 respectively, or for the total amount
Page 36 of 106
 P600,045.00, this Court noted that these
items were attached to guarantee any
judgment that may be rendered in favor of
the plaintiff but, upon agreement of the
parties, and, to avoid further deterioration
of the nets during the pendency of this
case, it was ordered sold at public auction
for not less than P900,000.00 for which the
plaintiff was the sole and winning bidder.
The proceeds of the sale paid for by plaintiff
was deposited in court. In effect, the
amount of P900,000.00 replaced the
attached property as a guaranty for any
judgment that plaintiff may be able to
secure in this case with the ownership and
possession of the nets and floats awarded
and delivered by the sheriff to plaintiff as
the highest bidder in the public auction
sale. It has also been noted that ownership
of the nets [was] retained by the plaintiff
until full payment [was] made as stipulated
in the invoices; hence, in effect, the plaintiff
attached its own properties. It [was] for this
reason also that this Court earlier ordered
the attachment bond filed by plaintiff to
guaranty damages to defendants to be
cancelled and for the P900,000.00 cash
bidded and paid for by plaintiff to serve as
its bond in favor of defendants.
From the foregoing, it would appear
therefore that whatever judgment the
plaintiff may be entitled to in this case will
have to be satisfied from the amount of
P900,000.00 as this amount replaced the
attached nets and floats. Considering,
however, that the total judgment obligation
as computed above would amount to only
P840,216.92, it would be inequitable, unfair
and unjust to award the excess to the
defendants who are not entitled to
damages and who did not put up a single
centavo to raise the amount of P900,000.00
aside from the fact that they are not the
owners of the nets and floats. For this
reason, the defendants are hereby relieved
from any and all liabilities arising from the
monetary judgment obligation enumerated
above and for plaintiff to retain possession
and ownership of the nets and floats and for
the reimbursement of the P900,000.00
deposited by it with the Clerk of Court.
SO ORDERED. 3
The Facts
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter
Yao entered into a Contract dated February 7, 1990, for the purchase of
fishing nets of various sizes from the Philippine Fishing Gear Industries,
Inc. (herein respondent). They claimed that they were engaged in a
business venture with Petitioner Lim Tong Lim, who however was not a
signatory to the agreement. The total price of the nets amounted to
Page 37 of 106
P532,045. Four hundred pieces of floats worth P68,000 were also sold to
the Corporation. 4
The buyers, however, failed to pay for the fishing nets and the floats;
hence, private respondents filed a collection suit against Chua, Yao and
Petitioner Lim Tong Lim with a prayer for a writ of preliminary attachment.
The suit was brought against the three in their capacities as general
partners, on the allegation that "Ocean Quest Fishing Corporation" was a
nonexistent corporation as shown by a Certification from the Securities
and Exchange Commission. 5 On September 20, 1990, the lower court
issued a Writ of Preliminary Attachment, which the sheriff enforced by
attaching the fishing nets on board F/B Lourdes which was then docked at
the Fisheries Port, Navotas, Metro Manila.
Instead of answering the Complaint, Chua filed a Manifestation admitting
his liability and requesting a reasonable time within which to pay. He also
turned over to respondent some of the nets which were in his possession.
Peter Yao filed an Answer, after which he was deemed to have waived his
right to cross-examine witnesses and to present evidence on his behalf,
because of his failure to appear in subsequent hearings. Lim Tong Lim, on
the other hand, filed an Answer with Counterclaim and Crossclaim and
moved for the lifting of the Writ of Attachment. 6 The trial court
maintained the Writ, and upon motion of private respondent, ordered the
sale of the fishing nets at a public auction. Philippine Fishing Gear
Industries won the bidding and deposited with the said court the sales
proceeds of P900,000. 7
On November 18, 1992, the trial court rendered its Decision, ruling that
Philippine Fishing Gear Industries was entitled to the Writ of Attachment
and that Chua, Yao and Lim, as general partners, were jointly liable to pay
respondent. 8
The trial court ruled that a partnership among Lim, Chua and Yao existed
based (1) on the testimonies of the witnesses presented and (2) on a
Compromise Agreement executed by the three 9 in Civil Case No. 1492-
MN which Chua and Yao had brought against Lim in the RTC of Malabon,
Branch 72, for (a) a declaration of nullity of commercial documents; (b) a
reformation of contracts; (c) a declaration of ownership of fishing boats;
(d) an injunction and (e) damages. 10 The Compromise Agreement
provided:
a) That the parties plaintiffs & Lim
Tong Lim agree to have the four
(4) vessels sold in the amount of
P5,750,000.00 including the
fishing net. This P5,750,000.00
shall be applied as full payment
for P3,250,000.00 in favor of JL
Holdings Corporation and/or Lim
Tong Lim;
b) If the four (4) vessel[s] and the
fishing net will be sold at a higher
price than P5,750,000.00
whatever will be the excess will
be divided into 3: 1/3 Lim Tong
Lim; 1/3 Antonio Chua; 1/3 Peter
Yao;
c) If the proceeds of the sale the
vessels will be less than
P5,750,000.00 whatever the
deficiency shall be shouldered
 and paid to JL Holding
Corporation by 1/3 Lim Tong Lim;
1/3 Antonio Chua; 1/3 Peter
Yao. 11
The trial court noted that the Compromise Agreement was silent as to the
nature of their obligations, but that joint liability could be presumed from
the equal distribution of the profit and loss. 21
Lim appealed to the Court of Appeals (CA) which, as already stated,
affirmed the RTC.
Ruling of the Court of Appeals
In affirming the trial court, the CA held that petitioner was a partner of
Chua and Yao in a fishing business and may thus be held liable as a such
for the fishing nets and floats purchased by and for the use of the
partnership. The appellate court ruled:
The evidence establishes that all the defendants
including herein appellant Lim Tong Lim undertook a
partnership for a specific undertaking, that is for
commercial fishing . . . . Oviously, the ultimate
undertaking of the defendants was to divide the
profits among themselves which is what a partnership
essentially is . . . . By a contract of partnership, two or
more persons bind themselves to contribute money,
property or industry to a common fund with the
intention of dividing the profits among themselves
(Article 1767, New Civil Code). 13
Hence, petitioner brought this recourse before this Court. 14
The Issues
In his Petition and Memorandum, Lim asks this Court to reverse the
assailed Decision on the following grounds:
I THE COURT OF APPEALS ERRED IN HOLDING, BASED
ON A COMPROMISE AGREEMENT THAT CHUA, YAO
AND PETITIONER LIM ENTERED INTO IN A SEPARATE
CASE, THAT A PARTNERSHIP AGREEMENT EXISTED
AMONG THEM.
II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT
HE WAS ACTING FOR OCEAN QUEST FISHING
CORPORATION WHEN HE BOUGHT THE NETS FROM
PHILIPPINE FISHING, THE COURT OF APPEALS WAS
UNJUSTIFIED IN IMPUTING LIABILITY TO PETITIONER
LIM AS WELL.
III THE TRIAL COURT IMPROPERLY ORDERED THE
SEIZURE AND ATTACHMENT OF PETITIONER LIM'S
GOODS.
In determining whether petitioner may be held liable for the fishing nets
and floats from respondent, the Court must resolve this key issue:
whether by their acts, Lim, Chua and Yao could be deemed to have
entered into a partnership.
This Court's Ruling
Page 38 of 106
The Petition is devoid of merit.
First and Second Issues:
Existence of a Partnership
and Petitioner's Liability
In arguing that he should not be held liable for the equipment purchased
from respondent, petitioner controverts the CA finding that a partnership
existed between him, Peter Yao and Antonio Chua. He asserts that the CA
based its finding on the Compromise Agreement alone. Furthermore, he
disclaims any direct participation in the purchase of the nets, alleging that
the negotiations were conducted by Chua and Yao only, and that he has
not even met the representatives of the respondent company. Petitioner
further argues that he was a lessor, not a partner, of Chua and Yao, for the
"Contract of Lease " dated February 1, 1990, showed that he had merely
leased to the two the main asset of the purported partnership — the
fishing boat F/B Lourdes. The lease was for six months, with a monthly
rental of P37,500 plus 25 percent of the gross catch of the boat.
We are not persuaded by the arguments of petitioner. The facts as found
by the two lower courts clearly showed that there existed a partnership
among Chua, Yao and him, pursuant to Article 1767 of the Civil Code which
provides:
Art. 1767 — By the contract of partnership, two or
more persons bind themselves to contribute money,
property, or industry to a common fund, with the
intention of dividing the profits among themselves.
Specifically, both lower courts ruled that a partnership among the three
existed based on the following factual findings: 15
(1) That Petitioner Lim Tong Lim requested Peter Yao
who was engaged in commercial fishing to join him,
while Antonio Chua was already Yao's partner;
(2) That after convening for a few times, Lim, Chua,
and Yao verbally agreed to acquire two fishing boats,
the FB Lourdes and the FB Nelson for the sum of
P3.35 million;
(3) That they borrowed P3.25 million from Jesus Lim,
brother of Petitioner Lim Tong Lim, to finance the
venture.
(4) That they bought the boats from CMF Fishing
Corporation, which executed a Deed of Sale over
these two (2) boats in favor of Petitioner Lim Tong Lim
only to serve as security for the loan extended by
Jesus Lim;
(5) That Lim, Chua and Yao agreed that the
refurbishing, re-equipping, repairing, dry docking and
other expenses for the boats would be shouldered by
Chua and Yao;
(6) That because of the "unavailability of funds," Jesus
Lim again extended a loan to the partnership in the
amount of P1 million secured by a check, because of
 which, Yao and Chua entrusted the ownership papers
of two other boats, Chua's FB Lady Anne
Mel and Yao's FB Tracy to Lim Tong Lim.
(7) That in pursuance of the business agreement,
Peter Yao and Antonio Chua bought nets from
Respondent Philippine Fishing Gear, in behalf of
"Ocean Quest Fishing Corporation," their purported
business name.
(8) That subsequently, Civil Case No. 1492-MN was
filed in the Malabon RTC, Branch 72 by Antonio Chua
and Peter Yao against Lim Tong Lim for (a) declaration
of nullity of commercial documents; (b) reformation
of contracts; (c) declaration of ownership of fishing
boats; (4) injunction; and (e) damages.
(9) That the case was amicably settled through a
Compromise Agreement executed between the
parties-litigants the terms of which are already
enumerated above.
From the factual findings of both lower courts, it is clear that Chua, Yao
and Lim had decided to engage in a fishing business, which they started
by buying boats worth P3.35 million, financed by a loan secured from
Jesus Lim who was petitioner's brother. In their Compromise Agreement,
they subsequently revealed their intention to pay the loan with the
proceeds of the sale of the boats, and to divide equally among them the
excess or loss. These boats, the purchase and the repair of which were
financed with borrowed money, fell under the term "common fund"
under Article 1767. The contribution to such fund need not be cash or
fixed assets; it could be an intangible like credit or industry. That the
parties agreed that any loss or profit from the sale and operation of the
boats would be divided equally among them also shows that they had
indeed formed a partnership.
Moreover, it is clear that the partnership extended not only to the
purchase of the boat, but also to that of the nets and the floats. The fishing
nets and the floats, both essential to fishing, were obviously acquired in
furtherance of their business. It would have been inconceivable for Lim to
involve himself so much in buying the boat but not in the acquisition of
the aforesaid equipment, without which the business could not have
proceeded.
Given the preceding facts, it is clear that there was, among petitioner,
Chua and Yao, a partnership engaged in the fishing business. They
purchased the boats, which constituted the main assets of the
partnership, and they agreed that the proceeds from the sales and
operations thereof would be divided among them.
We stress that under Rule 45, a petition for review like the present case
should involve only questions of law. Thus, the foregoing factual findings
of the RTC and the CA are binding on this Court, absent any cogent proof
that the present action is embraced by one of the exceptions to the
rule. 16 In assailing the factual findings of the two lower courts, petitioner
effectively goes beyond the bounds of a petition for review under Rule 45.
Compromise Agreement
Not the Sole Basis of Partnership
Page 39 of 106
Petitioner argues that the appellate court's sole basis for assuming the
existence of a partnership was the Compromise Agreement. He also
claims that the settlement was entered into only to end the dispute
among them, but not to adjudicate their preexisting rights and obligations.
His arguments are baseless. The Agreement was but an embodiment of
the relationship extant among the parties prior to its execution.
A proper adjudication of claimants' rights mandates that courts must
review and thoroughly appraise all relevant facts. Both lower courts have
done so and have found, correctly, a preexisting partnership among the
parties. In implying that the lower courts have decided on the basis of one
piece of document alone, petitioner fails to appreciate that the CA and the
RTC delved into the history of the document and explored all the possible
consequential combinations in harmony with law, logic and fairness.
Verily, the two lower courts' factual findings mentioned above nullified
petitioner's argument that the existence of a partnership was based only
on the Compromise Agreement.
Petitioner Was a Partner,
Not a Lessor
We are not convinced by petitioner's argument that he was merely the
lessor of the boats to Chua and Yao, not a partner in the fishing venture.
His argument allegedly finds support in the Contract of Lease and the
registration papers showing that he was the owner of the boats,
including F/B Lourdes where the nets were found.
His allegation defies logic. In effect, he would like this Court to believe that
he consented to the sale of his own boats to pay a debt of Chua and Yao,
with the excess of the proceeds to be divided among the three of them.
No lessor would do what petitioner did. Indeed, his consent to the sale
proved that there was a preexisting partnership among all three.
Verily, as found by the lower courts, petitioner entered into a business
agreement with Chua and Yao, in which debts were undertaken in order
to finance the acquisition and the upgrading of the vessels which would
be used in their fishing business. The sale of the boats, as well as the
division among the three of the balance remaining after the payment of
their loans, proves beyond cavil that F/B Lourdes, though registered in his
name, was not his own property but an asset of the partnership. It is not
uncommon to register the properties acquired from a loan in the name of
the person the lender trusts, who in this case is the petitioner himself.
After all, he is the brother of the creditor, Jesus Lim.
We stress that it is unreasonable — indeed, it is absurd — for petitioner
to sell his property to pay a debt he did not incur, if the relationship among
the three of them was merely that of lessor-lessee, instead of partners.
Corporation by Estoppel
Petitioner argues that under the doctrine of corporation by estoppel,
liability can be imputed only to Chua and Yao, and not to him. Again, we
disagree.
Sec. 21 of the Corporation Code of the Philippines provides:
Sec. 21. Corporation by estoppel. — All persons who
assume to act as a corporation knowing it to be
without authority to do so shall be liable as general
partners for all debts, liabilities and damages incurred
or arising as a result thereof: Provided however, That
 when any such ostensible corporation is sued on any
transaction entered by it as a corporation or on any
tort committed by it as such, it shall not be allowed to
use as a defense its lack of corporate personality.
One who assumes an obligation to an ostensible
corporation as such, cannot resist performance
thereof on the ground that there was in fact no
corporation.
Thus, even if the ostensible corporate entity is proven to be legally
nonexistent, a party may be estopped from denying its corporate
existence. "The reason behind this doctrine is obvious — an
unincorporated association has no personality and would be incompetent
to act and appropriate for itself the power and attributes of a corporation
as provided by law; it cannot create agents or confer authority on another
to act in its behalf; thus, those who act or purport to act as its
representatives or agents do so without authority and at their own risk.
And as it is an elementary principle of law that a person who acts as an
agent without authority or without a principal is himself regarded as the
principal, possessed of all the right and subject to all the liabilities of a
principal, a person acting or purporting to act on behalf of a corporation
which has no valid existence assumes such privileges and obligations and
becomes personally liable for contracts entered into or for other acts
performed as such agent. 17
The doctrine of corporation by estoppel may apply to the alleged
corporation and to a third party. In the first instance, an unincorporated
association, which represented itself to be a corporation, will be estopped
from denying its corporate capacity in a suit against it by a third person
who relied in good faith on such representation. It cannot allege lack of
personality to be sued to evade its responsibility for a contract it entered
into and by virtue of which it received advantages and benefits.
On the other hand, a third party who, knowing an association to be
unincorporated, nonetheless treated it as a corporation and received
benefits from it, may be barred from denying its corporate existence in a
suit brought against the alleged corporation. In such case, all those who
benefited from the transaction made by the ostensible corporation,
despite knowledge of its legal defects, may be held liable for contracts
they impliedly assented to or took advantage of.
There is no dispute that the respondent, Philippine Fishing Gear
Industries, is entitled to be paid for the nets it sold. The only question here
is whether petitioner should be held jointly 18 liable with Chua and Yao.
Petitioner contests such liability, insisting that only those who dealt in the
name of the ostensible corporation should be held liable. Since his name
does not appear on any of the contracts and since he never directly
transacted with the respondent corporation, ergo, he cannot be held
liable.
Unquestionably, petitioner benefited from the use of the nets found
inside F/B Lourdes, the boat which has earlier been proven to be an asset
of the partnership. He in fact questions the attachment of the nets,
because the Writ has effectively stopped his use of the fishing vessel.
It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao
decided to form a corporation. Although it was never legally formed for
unknown reasons, this fact alone does not preclude the liabilities of the
three as contracting parties in representation of it. Clearly, under the law
on estoppel, those acting on behalf of a corporation and those benefited
by it, knowing it to be without valid existence, are held liable as general
partners.
Page 40 of 106
Technically, it is true that petitioner did not directly act on behalf of the
corporation. However, having reaped the benefits of the contract entered
into by persons with whom he previously had an existing relationship, he
is deemed to be part of said association and is covered by the scope of the
doctrine of corporation by estoppel. We reiterate the ruling of the Court
in Alonso v. Villamor: 19
A litigation is not a game of technicalities in which
one, more deeply schooled and skilled in the subtle
art of movement and position, entraps and destroys
the other. It is, rather, a contest in which each
contending party fully and fairly lays before the court
the facts in issue and then, brushing aside as wholly
trivial and indecisive all imperfections of form and
technicalities of procedure, asks that justice be done
upon the merits. Lawsuits, unlike duels, are not to be
won by a rapier's thrust. Technicality, when it deserts
its proper office as an aid to justice and becomes its
great hindrance and chief enemy, deserves scant
consideration from courts. There should be no vested
rights in technicalities.
Third Issue:
Validity of Attachment
Finally, petitioner claims that the Writ of Attachment was improperly
issued against the nets. We agree with the Court of Appeals that this issue
is now moot and academic. As previously discussed, F/B Lourdes was an
asset of the partnership and that it was placed in the name of petitioner,
only to assure payment of the debt he and his partners owed. The nets
and the floats were specifically manufactured and tailor-made according
to their own design, and were bought and used in the fishing venture they
agreed upon. Hence, the issuance of the Writ to assure the payment of
the price stipulated in the invoices is proper. Besides, by specific
agreement, ownership of the nets remained with Respondent Philippine
Fishing Gear, until full payment thereof.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED.
Costs against petitioner.
SO ORDERED.
Melo, Purisima and Gonzaga-Reyes, JJ., concur.
Vitug, J., pls. see concurring opinion.
Separate Opinions
VITUG, J., concurring opinion;
I share the views expressed in the ponencia of an esteemed colleague, Mr.
Justice Artemio V. Panganiban, particularly the finding that Antonio Chua,
Peter Yao and petitioner Lim Tong Lim have incurred the liabilities of
general partners. I merely would wish to elucidate a bit, albeit briefly, the
liability of partners in a general partnership.
When a person by his act or deed represents himself as a partner in an
existing partnership or with one or more persons not actual partners, he
is deemed an agent of such persons consenting to such representation
and in the same manner, if he were a partner, with respect to persons
who rely upon the representation. 1 The association formed by Chua, Yao
and Lim, should be, as it has been deemed, a de facto partnership with all
the consequent obligations for the purpose of enforcing the rights of third
persons. The liability of general partners (in a general partnership as so
opposed to a limited partnership) is laid down in Article 1816 2 which
posits that all partners shall be liable pro rata beyond the partnership
assets for all the contracts which may have been entered into in its name,
under its signature, and by a person authorized to act for the partnership.
This rule is to be construed along with other provisions of the Civil Code
which postulate that the partners can be held solidarily liable with the
partnership specifically in these instances — (1) where, by any wrongful
act or omission of any partner acting in the ordinary course of the business
of the partnership or with the authority of his co-partners, loss or injury is
caused to any person, not being a partner in the partnership, or any
penalty is incurred, the partnership is liable therefor to the same extent
as the partner so acting or omitting to act; (2) where one partner acting
within the scope of his apparent authority receives money or property of
a third person and misapplies it; and (3) where the partnership in the
course of its business receives money or property of a third person and
the money or property so received is misapplied by any partner while it is
in the custody of the partnership 3 — consistently with the rules on the
nature of civil liability in delicts and quasi-delicts.
G.R. No. 15574 September 17, 1919
SMITH, BELL & COMPANY (LTD.), petitioner,
vs.
JOAQUIN NATIVIDAD, Collector of Customs of the port
Cebu, respondent.
Ross and Lawrence for petitioner.
Attorney-General Paredes for respondent.
MALCOLM, J.:
A writ of mandamus is prayed for by Smith, Bell & Co. (Ltd.), against
Joaquin Natividad, Collector of Customs of the port of Cebu, Philippine
Islands, to compel him to issue a certificate of Philippine registry to the
petitioner for its motor vessel Bato. The Attorney-General, acting as
counsel for respondent, demurs to the petition on the general ground that
it does not state facts sufficient to constitute a cause of action. While the
facts are thus admitted, and while, moreover, the pertinent provisions of
law are clear and understandable, and interpretative American
jurisprudence is found in abundance, yet the issue submitted is not lightly
to be resolved. The question, flatly presented, is, whether Act. No. 2761
of the Philippine Legislature is valid — or, more directly stated, whether
the Government of the Philippine Islands, through its Legislature, can deny
the registry of vessels in its coastwise trade to corporations having alien
stockholders.
FACTS.
Smith, Bell & Co., (Ltd.), is a corporation organized and existing under the
laws of the Philippine Islands. A majority of its stockholders are British
subjects. It is the owner of a motor vessel known as the Bato built for it in
the Philippine Islands in 1916, of more than fifteen tons gross
The Bato was brought to Cebu in the present year for the purpose of
transporting plaintiff's merchandise between ports in the Islands.
Application was made at Cebu, the home port of the vessel, to the
Collector of Customs for a certificate of Philippine registry. The Collector
refused to issue the certificate, giving as his reason that all the
stockholders of Smith, Bell & Co., Ltd., were not citizens either of the
United States or of the Philippine Islands. The instant action is the result.
Page 41 of 106
LAW.
The Act of Congress of April 29, 1908, repealing the Shipping Act of April
30, 1906 but reenacting a portion of section 3 of this Law, and still in force,
provides in its section 1:
That until Congress shall have authorized the registry as vessels
of the United States of vessels owned in the Philippine Islands,
the Government of the Philippine Islands is hereby authorized
to adopt, from time to time, and enforce regulations governing
the transportation of merchandise and passengers between
ports or places in the Philippine Archipelago. (35 Stat. at L., 70;
Section 3912, U. S. Comp Stat. [1916]; 7 Pub. Laws, 364.)
The Act of Congress of August 29, 1916, commonly known as the Jones
Law, still in force, provides in section 3, (first paragraph, first sentence), 6,
7, 8, 10, and 31, as follows.
SEC. 3. That no law shall be enacted in said Islands which shall
deprive any person of life, liberty, or property without due
process of law, or deny to any person therein the equal
protection of the laws. . . .
SEC. 6. That the laws now in force in the Philippines shall
continue in force and effect, except as altered, amended, or
of modified herein, until altered, amended, or repealed by the
legislative authority herein provided or by Act of Congress of the
United States.
SEC. 7. That the legislative authority herein provided shall have
power, when not inconsistent with this Act, by due enactment
to amend, alter modify, or repeal any law, civil or criminal,
continued in force by this Act as it may from time to time see fit
This power shall specifically extend with the limitation herein
provided as to the tariff to all laws relating to revenue provided
as to the tariff to all laws relating to revenue and taxation in
effect in the Philippines.
SEC. 8. That general legislative power, except as otherwise
herein provided, is hereby granted to the Philippine Legislature,
authorized by this Act.
SEC. 10. That while this Act provides that the Philippine
government shall have the authority to enact a tariff law the
trade relations between the islands and the United States shall
continue to be governed exclusively by laws of the Congress of
the United States: Provided, That tariff acts or acts amendatory
to the tariff of the Philippine Islands shall not become law until
they shall receive the approval of the President of the United
States, nor shall any act of the Philippine Legislature affecting
immigration or the currency or coinage laws of the Philippines
become a law until it has been approved by the President of the
United States: Provided further, That the President shall
approve or disapprove any act mentioned in the foregoing
proviso within six months from and after its enactment and
submission for his approval, and if not disapproved within such
time it shall become a law the same as if it had been specifically
approved.
 SEC. 31. That all laws or parts of laws applicable to the
Philippines not in conflict with any of the provisions of this Act
are hereby continued in force and effect." (39 Stat at L., 546.)
On February 23, 1918, the Philippine Legislature enacted Act No. 2761.
The first section of this law amended section 1172 of the Administrative
Code to read as follows:
SEC. 1172. Certificate of Philippine register. — Upon registration
of a vessel of domestic ownership, and of more than fifteen tons
gross, a certificate of Philippine register shall be issued for it. If
the vessel is of domestic ownership and of fifteen tons gross or
less, the taking of the certificate of Philippine register shall be
optional with the owner.
"Domestic ownership," as used in this section, means ownership
vested in some one or more of the following classes of persons:
(a) Citizens or native inhabitants of the Philippine Islands; (b)
citizens of the United States residing in the Philippine Islands;
(c) any corporation or company composed wholly of citizens of
the Philippine Islands or of the United States or of both, created
under the laws of the United States, or of any State thereof, or
of thereof, or the managing agent or master of the vessel
resides in the Philippine Islands
Any vessel of more than fifteen gross tons which on February
eighth, nineteen hundred and eighteen, had a certificate of
Philippine register under existing law, shall likewise be deemed
a vessel of domestic ownership so long as there shall not be any
change in the ownership thereof nor any transfer of stock of the
companies or corporations owning such vessel to person not
included under the last preceding paragraph.
Sections 2 and 3 of Act No. 2761 amended sections 1176 and 1202 of the
Administrative Code to read as follows:
SEC. 1176. Investigation into character of vessel. — No
application for a certificate of Philippine register shall be
approved until the collector of customs is satisfied from an
inspection of the vessel that it is engaged or destined to be
engaged in legitimate trade and that it is of domestic ownership
as such ownership is defined in section eleven hundred and
seventy-two of this Code.
The collector of customs may at any time inspect a vessel or
examine its owner, master, crew, or passengers in order to
ascertain whether the vessel is engaged in legitimate trade and
is entitled to have or retain the certificate of Philippine register.
SEC. 1202. Limiting number of foreign officers and engineers on
board vessels. — No Philippine vessel operating in the coastwise
trade or on the high seas shall be permitted to have on board
more than one master or one mate and one engineer who are
not citizens of the United States or of the Philippine Islands,
even if they hold licenses under section one thousand one
hundred and ninety-nine hereof. No other person who is not a
citizen of the United States or of the Philippine Islands shall be
an officer or a member of the crew of such vessel. Any such
vessel which fails to comply with the terms of this section shall
be required to pay an additional tonnage tax of fifty centavos
per net ton per month during the continuance of said failure.
ISSUES.
Page 42 of 106
Predicated on these facts and provisions of law, the issues as above stated
recur, namely, whether Act No 2761 of the Philippine Legislature is valid
in whole or in part — whether the Government of the Philippine Islands,
through its Legislature, can deny the registry of vessel in its coastwise
trade to corporations having alien stockholders .
OPINION.
1. Considered from a positive standpoint, there can exist no measure of
doubt as to the power of the Philippine Legislature to enact Act No. 2761.
The Act of Congress of April 29, 1908, with its specific delegation of
authority to the Government of the Philippine Islands to regulate the
transportation of merchandise and passengers between ports or places
therein, the liberal construction given to the provisions of the Philippine
Bill, the Act of Congress of July 1, 1902, by the courts, and the grant by the
Act of Congress of August 29, 1916, of general legislative power to the
Philippine Legislature, are certainly superabundant authority for such a
law. While the Act of the local legislature may in a way be inconsistent
with the Act of Congress regulating the coasting trade of the Continental
United States, yet the general rule that only such laws of the United States
have force in the Philippines as are expressly extended thereto, and the
abnegation of power by Congress in favor of the Philippine Islands would
leave no starting point for convincing argument. As a matter of fact,
counsel for petitioner does not assail legislative action from this direction
(See U. S. vs. Bull [1910], 15 Phil., 7; Sinnot vs. Davenport [1859] 22 How.,
227.)
2. It is from the negative, prohibitory standpoint that counsel argues
against the constitutionality of Act No. 2761. The first paragraph of the
Philippine Bill of Rights of the Philippine Bill, repeated again in the first
paragraph of the Philippine Bill of Rights as set forth in the Jones Law,
provides "That no law shall be enacted in said Islands which shall deprive
any person of life, liberty, or property without due process of law, or deny
to any person therein the equal protection of the laws." Counsel says that
Act No. 2761 denies to Smith, Bell & Co., Ltd., the equal protection of the
laws because it, in effect, prohibits the corporation from owning vessels,
and because classification of corporations based on the citizenship of one
or more of their stockholders is capricious, and that Act No. 2761 deprives
the corporation of its properly without due process of law because by the
passage of the law company was automatically deprived of every
beneficial attribute of ownership in the Bato and left with the naked title
to a boat it could not use .
The guaranties extended by the Congress of the United States to the
Philippine Islands have been used in the same sense as like provisions
found in the United States Constitution. While the "due process of law and
equal protection of the laws" clause of the Philippine Bill of Rights is
couched in slightly different words than the corresponding clause of the
Fourteenth Amendment to the United States Constitution, the first should
be interpreted and given the same force and effect as the latter.
(Kepner vs. U.S. [1904], 195 U. S., 100; Sierra vs. Mortiga [1907], 204 U.
S.,.470; U. S. vs. Bull [1910], 15 Phil., 7.) The meaning of the Fourteenth
Amendment has been announced in classic decisions of the United States
Supreme Court. Even at the expense of restating what is so well known,
these basic principles must again be set down in order to serve as the basis
of this decision.
The guaranties of the Fourteenth Amendment and so of the first
paragraph of the Philippine Bill of Rights, are universal in their application
to all person within the territorial jurisdiction, without regard to any
differences of race, color, or nationality. The word "person" includes
aliens. (Yick Wo vs. Hopkins [1886], 118 U. S., 356; Truax vs. Raich [1915],
239 U. S., 33.) Private corporations, likewise, are "persons" within the
scope of the guaranties in so far as their property is concerned. (Santa
Clara County vs. Southern Pac. R. R. Co. [1886], 118.U. S., 394; Pembina
Mining Co. vs. Pennsylvania [1888],.125 U. S., 181 Covington & L. Turnpike
Road Co. vs. Sandford [1896], 164 U. S., 578.) Classification with the end
in view of providing diversity of treatment may be made among
corporations, but must be based upon some reasonable ground and not
be a mere arbitrary selection (Gulf, Colorado & Santa Fe Railway
Co. vs. Ellis [1897],.165 U. S., 150.) Examples of laws held unconstitutional
because of unlawful discrimination against aliens could be cited.
Generally, these decisions relate to statutes which had attempted
arbitrarily to forbid aliens to engage in ordinary kinds of business to earn
their living. (State vs. Montgomery [1900], 94 Maine, 192, peddling — but
see. Commonwealth vs. Hana [1907], 195 Mass., 262; Templar vs. Board
of Examiners of Barbers [1902], 131 Mich., 254, barbers; Yick
Wo vs. Hopkins [1886], 118 U. S.,.356, discrimination against Chinese;
Truax vs. Raich [1915], 239 U. S., 33; In re Parrott [1880], 1 Fed , 481;
Fraser vs. McConway & Torley Co. [1897], 82 Fed , 257; Juniata Limestone
Co. vs. Fagley [1898], 187 Penn., 193, all relating to the employment of
aliens by private corporations.)
A literal application of general principles to the facts before us would, of
course, cause the inevitable deduction that Act No. 2761 is
unconstitutional by reason of its denial to a corporation, some of whole
members are foreigners, of the equal protection of the laws. Like all
beneficient propositions, deeper research discloses provisos. Examples of
a denial of rights to aliens notwithstanding the provisions of the
Fourteenth Amendment could be cited. (Tragesser vs.Gray [1890], 73
Md., 250, licenses to sell spirituous liquors denied to persons not citizens
of the United States; Commonwealth vs. Hana [1907], 195 Mass , 262,
excluding aliens from the right to peddle; Patsone vs.Commonwealth of
Pennsylvania [1914], 232 U. S. , 138, prohibiting the killing of any wild bird
or animal by any unnaturalized foreign-born resident; Ex parte Gilleti
[1915], 70 Fla., 442, discriminating in favor of citizens with reference to
the taking for private use of the common property in fish and oysters
found in the public waters of the State; Heim vs. McCall [1915], 239 U.
S.,.175, and Crane vs. New York [1915], 239 U. S., 195, limiting
employment on public works by, or for, the State or a municipality to
citizens of the United States.)
One of the exceptions to the general rule, most persistent and far reaching
in influence is, that neither the Fourteenth Amendment to the United
States Constitution, broad and comprehensive as it is, nor any other
amendment, "was designed to interfere with the power of the State,
sometimes termed its `police power,' to prescribe regulations to promote
the health, peace, morals, education, and good order of the people, and
legislate so as to increase the industries of the State, develop its resources
and add to its wealth and prosperity. From the very necessities of society,
legislation of a special character, having these objects in view, must often
be had in certain districts." (Barbier vs. Connolly [1884], 113 U.S., 27; New
Orleans Gas Co. vs. Lousiana Light Co. [1885], 115 U.S., 650.) This is the
same police power which the United States Supreme Court say "extends
to so dealing with the conditions which exist in the state as to bring out of
them the greatest welfare in of its people." (Bacon vs.Walker [1907], 204
U.S., 311.) For quite similar reasons, none of the provision of the Philippine
Organic Law could could have had the effect of denying to the
Government of the Philippine Islands, acting through its Legislature, the
right to exercise that most essential, insistent, and illimitable of powers,
the sovereign police power, in the promotion of the general welfare and
the public interest. (U. S. vs. Toribio [1910], 15 Phil., 85; Churchill and
Tait vs. Rafferty [1915], 32 Phil., 580; Rubi vs. Provincial Board of Mindoro
[1919], 39 Phil., 660.) Another notable exception permits of the regulation
or distribution of the public domain or the common property or resources
of the people of the State, so that use may be limited to its citizens. (Ex
parte Gilleti [1915], 70 Fla., 442; McCready vs. Virginia [1876], 94 U. S.,
391; Patsone vs. Commonwealth of Pennsylvania [1914], 232U. S., 138.)
Page 43 of 106
Still another exception permits of the limitation of employment in the
construction of public works by, or for, the State or a municipality to
citizens of the United States or of the State. (Atkin vs. Kansas [1903],191
U. S., 207; Heim vs. McCall [1915], 239 U.S., 175; Crane vs. New York
[1915], 239 U. S., 195.) Even as to classification, it is admitted that a State
may classify with reference to the evil to be prevented; the question is a
practical one, dependent upon experience. (Patsone vs.Commonwealth
of Pennsylvania [1914], 232 U. S., 138.)
To justify that portion of Act no. 2761 which permits corporations or
companies to obtain a certificate of Philippine registry only on condition
that they be composed wholly of citizens of the Philippine Islands or of the
United States or both, as not infringing Philippine Organic Law, it must be
done under some one of the exceptions here mentioned This must be
done, moreover, having particularly in mind what is so often of controlling
effect in this jurisdiction — our local experience and our peculiar local
conditions.
To recall a few facts in geography, within the confines of Philippine
jurisdictional limits are found more than three thousand islands. Literally,
and absolutely, steamship lines are, for an Insular territory thus situated,
the arteries of commerce. If one be severed, the life-blood of the nation
is lost. If on the other hand these arteries are protected, then the security
of the country and the promotion of the general welfare is sustained. Time
and again, with such conditions confronting it, has the executive branch
of the Government of the Philippine Islands, always later with the sanction
of the judicial branch, taken a firm stand with reference to the presence
of undesirable foreigners. The Government has thus assumed to act for
the all-sufficient and primitive reason of the benefit and protection of its
own citizens and of the self-preservation and integrity of its dominion. (In
re Patterson [1902], 1 Phil., 93; Forbes vs.Chuoco, Tiaco and Crossfield
[1910], 16 Phil., 534;.228 U.S., 549; In re McCulloch Dick [1918], 38 Phil.,
41.) Boats owned by foreigners, particularly by such solid and reputable
firms as the instant claimant, might indeed traverse the waters of the
Philippines for ages without doing any particular harm. Again, some
evilminded foreigner might very easily take advantage of such lavish
hospitality to chart Philippine waters, to obtain valuable information for
unfriendly foreign powers, to stir up insurrection, or to prejudice Filipino
or American commerce. Moreover, under the Spanish portion of
Philippine law, the waters within the domestic jurisdiction are deemed
part of the national domain, open to public use. (Book II, Tit. IV, Ch. I, Civil
Code; Spanish Law of Waters of August 3, 1866, arts 1, 2, 3.) Common
carriers which in the Philippines as in the United States and other
countries are, as Lord Hale said, "affected with a public interest," can only
be permitted to use these public waters as a privilege and under such
conditions as to the representatives of the people may seem wise. (See De
Villata vs. Stanley [1915], 32 Phil., 541.)
In Patsone vs. Commonwealth of Pennsylvania ([1913], 232 U.S., 138), a
case herein before mentioned, Justice Holmes delivering the opinion of
the United States Supreme Court said:
This statute makes it unlawful for any unnaturalized foreign-
born resident to kill any wild bird or animal except in defense of
person or property, and `to that end' makes it unlawful for such
foreign-born person to own or be possessed of a shotgun or
rifle; with a penalty of $25 and a forfeiture of the gun or guns.
The plaintiff in error was found guilty and was sentenced to pay
the abovementioned fine. The judgment was affirmed on
successive appeals. (231 Pa., 46; 79 Atl., 928.) He brings the case
to this court on the ground that the statute is contrary to the
14th Amendment and also is in contravention of the treaty
between the United States and Italy, to which latter country the
plaintiff in error belongs .
 Under the 14th Amendment the objection is twofold;
unjustifiably depriving the alien of property, and discrimination
against such aliens as a class. But the former really depends
upon the latter, since it hardly can be disputed that if the lawful
object, the protection of wild life (Geer vs. Connecticut, 161
U.S., 519; 40 L. ed., 793; 16 Sup. Ct. Rep., 600), warrants the
discrimination, the, means adopted for making it effective also
might be adopted. . . .
The discrimination undoubtedly presents a more difficult
question. But we start with reference to the evil to be
prevented, and that if the class discriminated against is or
reasonably might be considered to define those from whom the
evil mainly is to be feared, it properly may be picked out. A lack
of abstract symmetry does not matter. The question is a
practical one, dependent upon experience. . . .
The question therefore narrows itself to whether this court can
say that the legislature of Pennsylvania was not warranted in
assuming as its premise for the law that resident unnaturalized
aliens were the peculiar source of the evil that it desired to
prevent. (Barrett vs. Indiana,. 229 U.S., 26, 29; 57 L. ed., 1050,
1052; 33 Sup. Ct. Rep., 692.)
Obviously the question, so stated, is one of local experience, on
which this court ought to be very slow to declare that the state
legislature was wrong in its facts (Adams vs. Milwaukee, 228
U.S., 572, 583; 57 L. ed., 971,.977; 33 Sup. Ct. Rep., 610.) If we
might trust popular speech in some states it was right; but it is
enough that this court has no such knowledge of local
conditions as to be able to say that it was manifestly wrong. . . .
Judgment affirmed.
We are inclined to the view that while Smith, Bell & Co. Ltd., a corporation
having alien stockholders, is entitled to the protection afforded by the
due-process of law and equal protection of the laws clause of the
Philippine Bill of Rights, nevertheless, Act No. 2761 of the Philippine
Legislature, in denying to corporations such as Smith, Bell &. Co. Ltd., the
right to register vessels in the Philippines coastwise trade, does not belong
to that vicious species of class legislation which must always be
condemned, but does fall within authorized exceptions, notably, within
the purview of the police power, and so does not offend against the
constitutional provision.
This opinion might well be brought to a close at this point. It occurs to us,
however, that the legislative history of the United States and the
Philippine Islands, and, probably, the legislative history of other countries,
if we were to take the time to search it out, might disclose similar attempts
at restriction on the right to enter the coastwise trade, and might thus
furnish valuable aid by which to ascertain and, if possible, effectuate
legislative intention.
3. The power to regulate commerce, expressly delegated to the
Congress by the Constitution, includes the power to nationalize
ships built and owned in the United States by registries and
enrollments, and the recording of the muniments of title of
American vessels. The Congress "may encourage or it may
entirely prohibit such commerce, and it may regulate in any way
it may see fit between these two extremes." (U.S. vs.Craig
[1886], 28 Fed., 795; Gibbons vs. Ogden [1824], 9 Wheat., 1;
The Passenger Cases [1849], 7 How., 283.)
Page 44 of 106
Acting within the purview of such power, the first Congress of the United
States had not been long convened before it enacted on September 1,
1789, "An Act for Registering and Clearing Vessels, Regulating the Coasting
Trade, and for other purposes." Section 1 of this law provided that for any
ship or vessel to obtain the benefits of American registry, it must belong
wholly to a citizen or citizens of the United States "and no other." (1 Stat.
at L., 55.) That Act was shortly after repealed, but the same idea was
carried into the Acts of Congress of December 31, 1792 and February 18,
1793. (1 Stat. at L., 287, 305.).Section 4 of the Act of 1792 provided that
in order to obtain the registry of any vessel, an oath shall be taken and
subscribed by the owner, or by one of the owners thereof, before the
officer authorized to make such registry, declaring, "that there is no
subject or citizen of any foreign prince or state, directly or indirectly, by
way of trust, confidence, or otherwise, interested in such vessel, or in the
profits or issues thereof." Section 32 of the Act of 1793 even went so far
as to say "that if any licensed ship or vessel shall be transferred to any
person who is not at the time of such transfer a citizen of and resident
within the United States, ... every such vessel with her tackle, apparel, and
furniture, and the cargo found on board her, shall be forefeited." In case
of alienation to a foreigner, Chief Justice Marshall said that all the
privileges of an American bottom were ipso
facto forfeited. (U.S. vs. Willings and Francis [1807], 4 Cranch, 48.) Even as
late as 1873, the Attorney-General of the United States was of the opinion
that under the provisions of the Act of December 31, 1792, no vessel in
which a foreigner is directly or indirectly interested can lawfully be
registered as a vessel of the United. States. (14 Op. Atty.-Gen. [U.S.], 340.)
These laws continued in force without contest, although possibly the Act
of March 3, 1825, may have affected them, until amended by the Act of
May 28, 1896 (29 Stat. at L., 188) which extended the privileges of registry
from vessels wholly owned by a citizen or citizens of the United States to
corporations created under the laws of any of the states thereof. The law,
as amended, made possible the deduction that a vessel belonging to a
domestic corporation was entitled to registry or enrollment even though
some stock of the company be owned by aliens. The right of ownership of
stock in a corporation was thereafter distinct from the right to hold the
property by the corporation (Humphreys vs. McKissock [1890], 140 U.S.,
304; Queen vs. Arnaud [1846], 9 Q. B., 806; 29 Op. Atty.-Gen. [U.S.],188.)
On American occupation of the Philippines, the new government found a
substantive law in operation in the Islands with a civil law history which it
wisely continued in force Article fifteen of the Spanish Code of Commerce
permitted any foreigner to engage in Philippine trade if he had legal
capacity to do so under the laws of his nation. When the Philippine
Commission came to enact the Customs Administrative Act (No. 355) in
1902, it returned to the old American policy of limiting the protection and
flag of the United States to vessels owned by citizens of the United States
or by native inhabitants of the Philippine Islands (Sec. 117.) Two years
later, the same body reverted to the existing Congressional law by
permitting certification to be issued to a citizen of the United States or to
a corporation or company created under the laws of the United States or
of any state thereof or of the Philippine Islands (Act No. 1235, sec. 3.) The
two administration codes repeated the same provisions with the
necessary amplification of inclusion of citizens or native inhabitants of the
Philippine Islands (Adm. Code of 1916, sec. 1345; Adm. Code of 1917, sec.
1172). And now Act No. 2761 has returned to the restrictive idea of the
original Customs Administrative Act which in turn was merely a reflection
of the statutory language of the first American Congress.
Provisions such as those in Act No. 2761, which deny to foreigners the
right to a certificate of Philippine registry, are thus found not to be as
radical as a first reading would make them appear.
Without any subterfuge, the apparent purpose of the Philippine
Legislature is seen to be to enact an anti-alien shipping act. The ultimate
purpose of the Legislature is to encourage Philippine ship-building. This,
without doubt, has, likewise, been the intention of the United States
Congress in passing navigation or tariff laws on different occasions. The
object of such a law, the United States Supreme Court once said, was to
encourage American trade, navigation, and ship-building by giving
American ship-owners exclusive privileges. (Old Dominion Steamship
Co. vs.Virginia [1905], 198 U.S., 299; Kent's Commentaries, Vol. 3, p. 139.)
In the concurring opinion of Justice Johnson in Gibbons vs. Ogden ([1824],
9 Wheat., 1) is found the following:
Licensing acts, in fact, in legislation, are universally restraining
acts; as, for example, acts licensing gaming houses, retailers of
spirituous liquors, etc. The act, in this instance, is distinctly of
that character, and forms part of an extensive system, the
object of which is to encourage American shipping, and place
them on an equal footing with the shipping of other nations.
Almost every commercial nation reserves to its own subjects a
monopoly of its coasting trade; and a countervailing privilege in
favor of American shipping is contemplated, in the whole
legislation of the United States on this subject. It is not to give
the vessel an American character, that the license is granted;
that effect has been correctly attributed to the act of her
enrollment. But it is to confer on her American privileges, as
contradistinguished from foreign; and to preserve the.
Government from fraud by foreigners, in surreptitiously
intruding themselves into the American commercial marine, as
well as frauds upon the revenue in the trade coastwise, that this
whole system is projected.
The United States Congress in assuming its grave responsibility of
legislating wisely for a new country did so imbued with a spirit of
Americanism. Domestic navigation and trade, it decreed, could only be
carried on by citizens of the United States. If the representatives of the
American people acted in this patriotic manner to advance the national
policy, and if their action was accepted without protest in the courts, who
can say that they did not enact such beneficial laws under the all-
pervading police power, with the prime motive of safeguarding the
country and of promoting its prosperity? Quite similarly, the Philippine
Legislature made up entirely of Filipinos, representing the mandate of the
Filipino people and the guardian of their rights, acting under practically
autonomous powers, and imbued with a strong sense of Philippinism, has
desired for these Islands safety from foreign interlopers, the use of the
common property exclusively by its citizens and the citizens of the United
States, and protection for the common good of the people. Who can say,
therefore, especially can a court, that with all the facts and circumstances
affecting the Filipino people before it, the Philippine Legislature has erred
in the enactment of Act No. 2761?
Surely, the members of the judiciary are not expected to live apart from
active life, in monastic seclusion amidst dusty tomes and ancient records,
but, as keen spectators of passing events and alive to the dictates of the
general — the national — welfare, can incline the scales of their decisions
in favor of that solution which will most effectively promote the public
policy. All the presumption is in favor of the constitutionally of the law and
without good and strong reasons, courts should not attempt to nullify the
action of the Legislature. "In construing a statute enacted by the Philippine
Commission (Legislature), we deem it our duty not to give it a construction
which would be repugnant to an Act of Congress, if the language of the
statute is fairly susceptible of another construction not in conflict with the
higher law." (In re Guariña [1913], 24. Phil., 36; U.S. vs. Ten Yu [1912], 24
Page 45 of 106
Phil., 1.) That is the true construction which will best carry legislative
intention into effect.
With full consciousness of the importance of the question, we
nevertheless are clearly of the opinion that the limitation of domestic
ownership for purposes of obtaining a certificate of Philippine registry in
the coastwise trade to citizens of the Philippine Islands, and to citizens of
the United States, does not violate the provisions of paragraph 1 of section
3 of the Act of Congress of August 29, 1916 No treaty right relied upon Act
No. 2761 of the Philippine Legislature is held valid and constitutional .
The petition for a writ of mandamus is denied, with costs against the
petitioner. So ordered.
G.R. No. L-19550 June 19, 1967
HARRY S. STONEHILL, ROBERT P. BROOKS, JOHN J. BROOKS and KARL
BECK, petitioners,
vs.
HON. JOSE W. DIOKNO, in his capacity as SECRETARY OF JUSTICE; JOSE
LUKBAN, in his capacity as Acting Director, National Bureau of Investigation;
SPECIAL PROSECUTORS PEDRO D. CENZON, EFREN I. PLANA and MANUEL
VILLAREAL, JR. and ASST. FISCAL MANASES G. REYES; JUDGE AMADO ROAN,
Municipal Court of Manila; JUDGE ROMAN CANSINO, Municipal Court of
Manila; JUDGE HERMOGENES CALUAG, Court of First Instance of Rizal-
Quezon City Branch, and JUDGE DAMIAN JIMENEZ, Municipal Court of
Quezon City, respondents.
Paredes, Poblador, Cruz and Nazareno and Meer, Meer and Meer and Juan
T. David for petitioners.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General
Pacifico P. de Castro, Assistant Solicitor General Frine C. Zaballero, Solicitor
Camilo D. Quiason and Solicitor C. Padua for respondents.
CONCEPCION, C.J.:
Upon application of the officers of the government named on the
margin1 — hereinafter referred to as Respondents-Prosecutors — several
judges2 — hereinafter referred to as Respondents-Judges — issued, on
different dates,3 a total of 42 search warrants against petitioners
herein4 and/or the corporations of which they were officers,5 directed to
the any peace officer, to search the persons above-named and/or the
premises of their offices, warehouses and/or residences, and to seize and
take possession of the following personal property to wit:
Books of accounts, financial records, vouchers, correspondence,
receipts, ledgers, journals, portfolios, credit journals,
typewriters, and other documents and/or papers showing all
business transactions including disbursements receipts, balance
sheets and profit and loss statements and Bobbins (cigarette
wrappers).
as "the subject of the offense; stolen or embezzled and proceeds or fruits
of the offense," or "used or intended to be used as the means of
committing the offense," which is described in the applications adverted
to above as "violation of Central Bank Laws, Tariff and Customs Laws,
Internal Revenue (Code) and the Revised Penal Code."
Alleging that the aforementioned search warrants are null and void, as
contravening the Constitution and the Rules of Court — because, inter
alia: (1) they do not describe with particularity the documents, books and
things to be seized; (2) cash money, not mentioned in the warrants, were
actually seized; (3) the warrants were issued to fish evidence against the
aforementioned petitioners in deportation cases filed against them; (4)
the searches and seizures were made in an illegal manner; and (5) the
documents, papers and cash money seized were not delivered to the
courts that issued the warrants, to be disposed of in accordance with law
— on March 20, 1962, said petitioners filed with the Supreme Court this
original action for certiorari, prohibition, mandamus and injunction, and
prayed that, pending final disposition of the present case, a writ of
preliminary injunction be issued restraining Respondents-Prosecutors,
their agents and /or representatives from using the effects seized as
aforementioned or any copies thereof, in the deportation cases already
adverted to, and that, in due course, thereafter, decision be rendered
quashing the contested search warrants and declaring the same null and
void, and commanding the respondents, their agents or representatives
to return to petitioners herein, in accordance with Section 3, Rule 67, of
the Rules of Court, the documents, papers, things and cash moneys seized
or confiscated under the search warrants in question.
In their answer, respondents-prosecutors alleged, 6 (1) that the contested
search warrants are valid and have been issued in accordance with law;
(2) that the defects of said warrants, if any, were cured by petitioners'
consent; and (3) that, in any event, the effects seized are admissible in
evidence against herein petitioners, regardless of the alleged illegality of
the aforementioned searches and seizures.
On March 22, 1962, this Court issued the writ of preliminary injunction
prayed for in the petition. However, by resolution dated June 29, 1962,
the writ was partially lifted or dissolved, insofar as the papers, documents
and things seized from the offices of the corporations above mentioned
are concerned; but, the injunction was maintained as regards the papers,
documents and things found and seized in the residences of petitioners
herein.7
Thus, the documents, papers, and things seized under the alleged
authority of the warrants in question may be split into two (2) major
groups, namely: (a) those found and seized in the offices of the
aforementioned corporations, and (b) those found and seized in the
residences of petitioners herein.
As regards the first group, we hold that petitioners herein have no cause
of action to assail the legality of the contested warrants and of the seizures
made in pursuance thereof, for the simple reason that said corporations
have their respective personalities, separate and distinct from the
personality of herein petitioners, regardless of the amount of shares of
stock or of the interest of each of them in said corporations, and whatever
the offices they hold therein may be.8 Indeed, it is well settled that the
legality of a seizure can be contested only by the party whose rights have
been impaired thereby,9 and that the objection to an unlawful search and
seizure is purely personal and cannot be availed of by third
parties. 10 Consequently, petitioners herein may not validly object to the
use in evidence against them of the documents, papers and things seized
from the offices and premises of the corporations adverted to above,
since the right to object to the admission of said papers in evidence
belongs exclusively to the corporations, to whom the seized effects
belong, and may not be invoked by the corporate officers in proceedings
against them in their individual capacity. 11 Indeed, it has been held:
. . . that the Government's action in gaining possession of papers
belonging to the corporation did not relate to nor did it affect
the personal defendants. If these papers were unlawfully seized
and thereby the constitutional rights of or any one were
invaded, they were the rights of the corporation and not the
rights of the other defendants. Next, it is clear that a question of
the lawfulness of a seizure can be raised only by one whose
Page 46 of 106
rights have been invaded. Certainly, such a seizure, if unlawful,
could not affect the constitutional rights of defendants whose
property had not been seized or the privacy of whose homes had
not been disturbed; nor could they claim for themselves the
benefits of the Fourth Amendment, when its violation, if any,
was with reference to the rights of another. Remus vs. United
States (C.C.A.)291 F. 501, 511. It follows, therefore, that the
question of the admissibility of the evidence based on an alleged
unlawful search and seizure does not extend to the personal
defendants but embraces only the corporation whose property
was taken. . . . (A Guckenheimer & Bros. Co. vs. United States,
[1925] 3 F. 2d. 786, 789, Emphasis supplied.)
With respect to the documents, papers and things seized in the residences
of petitioners herein, the aforementioned resolution of June 29, 1962,
lifted the writ of preliminary injunction previously issued by this
Court, 12 thereby, in effect, restraining herein Respondents-Prosecutors
from using them in evidence against petitioners herein.
In connection with said documents, papers and things, two (2) important
questions need be settled, namely: (1) whether the search warrants in
question, and the searches and seizures made under the authority
thereof, are valid or not, and (2) if the answer to the preceding question
is in the negative, whether said documents, papers and things may be
used in evidence against petitioners herein.1äwphï1.ñët
Petitioners maintain that the aforementioned search warrants are in the
nature of general warrants and that accordingly, the seizures effected
upon the authority there of are null and void. In this connection, the
Constitution 13provides:
The right of the people to be secure in their persons, houses,
papers, and effects against unreasonable searches and seizures
shall not be violated, and no warrants shall issue but upon
probable cause, to be determined by the judge after
examination under oath or affirmation of the complainant and
the witnesses he may produce, and particularly describing the
place to be searched, and the persons or things to be seized.
Two points must be stressed in connection with this constitutional
mandate, namely: (1) that no warrant shall issue but upon probable cause,
to be determined by the judge in the manner set forth in said provision;
and (2) that the warrant shall particularly describe the things to be seized.
None of these requirements has been complied with in the contested
warrants. Indeed, the same were issued upon applications stating that the
natural and juridical person therein named had committed a "violation of
Central Ban Laws, Tariff and Customs Laws, Internal Revenue (Code) and
Revised Penal Code." In other words, no specific offense had been alleged
in said applications. The averments thereof with respect to the offense
committed were abstract. As a consequence, it was impossible for the
judges who issued the warrants to have found the existence of probable
cause, for the same presupposes the introduction of competent proof
that the party against whom it is sought has performed particular acts, or
committed specific omissions, violating a given provision of our criminal
laws. As a matter of fact, the applications involved in this case do not
allege any specific acts performed by herein petitioners. It would be the
legal heresy, of the highest order, to convict anybody of a "violation of
Central Bank Laws, Tariff and Customs Laws, Internal Revenue (Code) and
Revised Penal Code," — as alleged in the aforementioned applications —
without reference to any determinate provision of said laws or
To uphold the validity of the warrants in question would be to wipe out
completely one of the most fundamental rights guaranteed in our
Constitution, for it would place the sanctity of the domicile and the privacy
of communication and correspondence at the mercy of the whims caprice
or passion of peace officers. This is precisely the evil sought to be
remedied by the constitutional provision above quoted — to outlaw the
so-called general warrants. It is not difficult to imagine what would
happen, in times of keen political strife, when the party in power feels that
the minority is likely to wrest it, even though by legal means.
Such is the seriousness of the irregularities committed in connection with
the disputed search warrants, that this Court deemed it fit to amend
Section 3 of Rule 122 of the former Rules of Court 14 by providing in its
counterpart, under the Revised Rules of Court 15 that "a search warrant
shall not issue but upon probable cause in connection with one specific
offense." Not satisfied with this qualification, the Court added thereto a
paragraph, directing that "no search warrant shall issue for more than one
specific offense."
The grave violation of the Constitution made in the application for the
contested search warrants was compounded by the description therein
made of the effects to be searched for and seized, to wit:
Books of accounts, financial records, vouchers, journals,
correspondence, receipts, ledgers, portfolios, credit journals,
typewriters, and other documents and/or papers showing all
business transactions including disbursement receipts, balance
sheets and related profit and loss statements.
Thus, the warrants authorized the search for and seizure of records
pertaining to all business transactions of petitioners herein, regardless of
whether the transactions were legal or illegal. The warrants sanctioned
the seizure of all records of the petitioners and the aforementioned
corporations, whatever their nature, thus openly contravening the explicit
command of our Bill of Rights — that the things to be seized
be particularly described — as well as tending to defeat its major
objective: the elimination of general warrants.
Relying upon Moncado vs. People's Court (80 Phil. 1), Respondents-
Prosecutors maintain that, even if the searches and seizures under
consideration were unconstitutional, the documents, papers and things
thus seized are admissible in evidence against petitioners herein. Upon
mature deliberation, however, we are unanimously of the opinion that the
position taken in the Moncado case must be abandoned. Said position was
in line with the American common law rule, that the criminal should not
be allowed to go free merely "because the constable has
blundered," 16 upon the theory that the constitutional prohibition against
unreasonable searches and seizures is protected by means other than the
exclusion of evidence unlawfully obtained, 17 such as the common-law
action for damages against the searching officer, against the party who
procured the issuance of the search warrant and against those assisting in
the execution of an illegal search, their criminal punishment, resistance,
without liability to an unlawful seizure, and such other legal remedies as
may be provided by other laws.
However, most common law jurisdictions have already given up this
approach and eventually adopted the exclusionary rule, realizing that this
is the only practical means of enforcing the constitutional
injunction against unreasonable searches and seizures. In the language of
Judge Learned Hand:
As we understand it, the reason for the exclusion of evidence
competent as such, which has been unlawfully acquired, is that
Page 47 of 106
exclusion is the only practical way of enforcing the
constitutional privilege. In earlier times the action of trespass
against the offending official may have been protection enough;
but that is true no longer. Only in case the prosecution which
itself controls the seizing officials, knows that it cannot profit by
their wrong will that wrong be repressed.18
In fact, over thirty (30) years before, the Federal Supreme Court had
already declared:
If letters and private documents can thus be seized and held and
used in evidence against a citizen accused of an offense, the
protection of the 4th Amendment, declaring his rights to be
secure against such searches and seizures, is of no value, and,
so far as those thus placed are concerned, might as well be
stricken from the Constitution. The efforts of the courts and
their officials to bring the guilty to punishment, praiseworthy as
they are, are not to be aided by the sacrifice of those great
principles established by years of endeavor and suffering which
have resulted in their embodiment in the fundamental law of the
land.19
This view was, not only reiterated, but, also, broadened in subsequent
decisions on the same Federal Court. 20After reviewing previous decisions
thereon, said Court held, in Mapp vs. Ohio (supra.):
. . . Today we once again examine the Wolf's constitutional
documentation of the right of privacy free from unreasonable
state intrusion, and after its dozen years on our books, are led
by it to close the only courtroom door remaining open to
evidence secured by official lawlessness in flagrant abuse of that
basic right, reserved to all persons as a specific guarantee
against that very same unlawful conduct. We hold that all
evidence obtained by searches and seizures in violation of the
Constitution is, by that same authority, inadmissible in a State.
Since the Fourth Amendment's right of privacy has been
declared enforceable against the States through the Due
Process Clause of the Fourteenth, it is enforceable against them
by the same sanction of exclusion as it used against the Federal
Government. Were it otherwise, then just as without the Weeks
rule the assurance against unreasonable federal searches and
seizures would be "a form of words," valueless and underserving
of mention in a perpetual charter of inestimable human
liberties, so too, without that rule the freedom from state
invasions of privacy would be so ephemeral and so neatly
severed from its conceptual nexus with the freedom from all
brutish means of coercing evidence as not to permit this Court's
high regard as a freedom "implicit in the concept of ordered
liberty." At the time that the Court held in Wolf that the
amendment was applicable to the States through the Due
Process Clause, the cases of this Court as we have seen, had
steadfastly held that as to federal officers the Fourth
Amendment included the exclusion of the evidence seized in
violation of its provisions. Even Wolf "stoutly adhered" to that
proposition. The right to when conceded operatively
enforceable against the States, was not susceptible of
destruction by avulsion of the sanction upon which its
protection and enjoyment had always been deemed dependent
under the Boyd, Weeks and Silverthorne Cases. Therefore, in
extending the substantive protections of due process to all
constitutionally unreasonable searches — state or federal — it
was logically and constitutionally necessarily that the exclusion
doctrine — an essential part of the right to privacy — be also
 insisted upon as an essential ingredient of the right newly
recognized by the Wolf Case. In short, the admission of the new
constitutional Right by Wolf could not tolerate denial of its most
important constitutional privilege, namely, the exclusion of the
evidence which an accused had been forced to give by reason of
the unlawful seizure. To hold otherwise is to grant the right but
in reality to withhold its privilege and enjoyment. Only last year
the Court itself recognized that the purpose of the exclusionary
rule to "is to deter — to compel respect for the constitutional
guaranty in the only effectively available way — by removing the
incentive to disregard it" . . . .
The ignoble shortcut to conviction left open to the State tends
to destroy the entire system of constitutional restraints on
which the liberties of the people rest. Having once recognized
that the right to privacy embodied in the Fourth Amendment is
enforceable against the States, and that the right to be secure
against rude invasions of privacy by state officers is, therefore
constitutional in origin, we can no longer permit that right to
remain an empty promise. Because it is enforceable in the same
manner and to like effect as other basic rights secured by its Due
Process Clause, we can no longer permit it to be revocable at the
whim of any police officer who, in the name of law enforcement
itself, chooses to suspend its enjoyment. Our decision, founded
on reason and truth, gives to the individual no more than that
which the Constitution guarantees him to the police officer no
less than that to which honest law enforcement is entitled, and,
to the courts, that judicial integrity so necessary in the true
administration of justice. (emphasis ours.)
Indeed, the non-exclusionary rule is contrary, not only to the letter, but
also, to the spirit of the constitutional injunction against unreasonable
searches and seizures. To be sure, if the applicant for a search warrant has
competent evidence to establish probable cause of the commission of a
given crime by the party against whom the warrant is intended, then there
is no reason why the applicant should not comply with the requirements
of the fundamental law. Upon the other hand, if he has no such competent
evidence, then it is not possible for the Judge to find that there is probable
cause, and, hence, no justification for the issuance of the warrant. The
only possible explanation (not justification) for its issuance is the necessity
of fishing evidence of the commission of a crime. But, then, this fishing
expedition is indicative of the absence of evidence to establish a probable
cause.
Moreover, the theory that the criminal prosecution of those who secure
an illegal search warrant and/or make unreasonable searches or seizures
would suffice to protect the constitutional guarantee under
consideration, overlooks the fact that violations thereof are, in general,
committed By agents of the party in power, for, certainly, those belonging
to the minority could not possibly abuse a power they do not have.
Regardless of the handicap under which the minority usually — but,
understandably — finds itself in prosecuting agents of the majority, one
must not lose sight of the fact that the psychological and moral effect of
the possibility 21 of securing their conviction, is watered down by the
pardoning power of the party for whose benefit the illegality had been
committed.
In their Motion for Reconsideration and Amendment of the Resolution of
this Court dated June 29, 1962, petitioners allege that Rooms Nos. 81 and
91 of Carmen Apartments, House No. 2008, Dewey Boulevard, House No.
1436, Colorado Street, and Room No. 304 of the Army-Navy Club, should
be included among the premises considered in said Resolution as
residences of herein petitioners, Harry S. Stonehill, Robert P. Brook, John
J. Brooks and Karl Beck, respectively, and that, furthermore, the records,
Page 48 of 106
papers and other effects seized in the offices of the corporations above
referred to include personal belongings of said petitioners and other
effects under their exclusive possession and control, for the exclusion of
which they have a standing under the latest rulings of the federal courts
of federal courts of the United States. 22
We note, however, that petitioners' theory, regarding their alleged
possession of and control over the aforementioned records, papers and
effects, and the alleged "personal" nature thereof, has Been
Advanced, not in their petition or amended petition herein, but in the
Motion for Reconsideration and Amendment of the Resolution of June 29,
1962. In other words, said theory would appear to be readjustment of that
followed in said petitions, to suit the approach intimated in the Resolution
sought to be reconsidered and amended. Then, too, some of the affidavits
or copies of alleged affidavits attached to said motion for reconsideration,
or submitted in support thereof, contain either inconsistent allegations,
or allegations inconsistent with the theory now advanced by petitioners
herein.
Upon the other hand, we are not satisfied that the allegations of said
petitions said motion for reconsideration, and the contents of the
aforementioned affidavits and other papers submitted in support of said
motion, have sufficiently established the facts or conditions contemplated
in the cases relied upon by the petitioners; to warrant application of the
views therein expressed, should we agree thereto. At any rate, we do not
deem it necessary to express our opinion thereon, it being best to leave
the matter open for determination in appropriate cases in the future.
We hold, therefore, that the doctrine adopted in the Moncado case must
be, as it is hereby, abandoned; that the warrants for the search of three
(3) residences of herein petitioners, as specified in the Resolution of June
29, 1962, are null and void; that the searches and seizures therein made
are illegal; that the writ of preliminary injunction heretofore issued, in
connection with the documents, papers and other effects thus seized in
said residences of herein petitioners is hereby made permanent; that the
writs prayed for are granted, insofar as the documents, papers and other
effects so seized in the aforementioned residences are concerned; that
the aforementioned motion for Reconsideration and Amendment should
be, as it is hereby, denied; and that the petition herein is dismissed and
the writs prayed for denied, as regards the documents, papers and other
effects seized in the twenty-nine (29) places, offices and other premises
enumerated in the same Resolution, without special pronouncement as
to costs.
It is so ordered.
Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar and Sanchez, JJ.,
concur.
CASTRO, J., concurring and dissenting:
From my analysis of the opinion written by Chief Justice Roberto
Concepcion and from the import of the deliberations of the Court on this
case, I gather the following distinct conclusions:
1. All the search warrants served by the National Bureau of
Investigation in this case are general warrants and are therefore
proscribed by, and in violation of, paragraph 3 of section 1 of
Article III (Bill of Rights) of the Constitution;
2. All the searches and seizures conducted under the authority
of the said search warrants were consequently illegal;
 3. The non-exclusionary rule enunciated in Moncado vs. People,
80 Phil. 1, should be, and is declared, abandoned;
4. The search warrants served at the three residences of the
petitioners are expressly declared null and void the searches
and seizures therein made are expressly declared illegal; and
the writ of preliminary injunction heretofore issued against the
use of the documents, papers and effect seized in the said
residences is made permanent; and
5. Reasoning that the petitioners have not in their pleadings
satisfactorily demonstrated that they have legal standing to
move for the suppression of the documents, papers and effects
seized in the places other than the three residences adverted to
above, the opinion written by the Chief
Justice refrains from expressly declaring as null and void the
such warrants served at such other places and as illegal the
searches and seizures made therein, and leaves "the matter
open for determination in appropriate cases in the future."
It is precisely the position taken by the Chief Justice summarized in the
immediately preceding paragraph (numbered 5) with which I am not in
accord.
I do not share his reluctance or unwillingness to expressly declare, at this
time, the nullity of the search warrants served at places other than the
three residences, and the illegibility of the searches and seizures
conducted under the authority thereof. In my view even the exacerbating
passions and prejudices inordinately generated by the environmental
political and moral developments of this case should not deter this Court
from forthrightly laying down the law not only for this case but as well for
future cases and future generations. All the search warrants, without
exception, in this case are admittedly general, blanket and roving warrants
and are therefore admittedly and indisputably outlawed by the
Constitution; and the searches and seizures made were therefore
unlawful. That the petitioners, let us assume in gratia argumente, have no
legal standing to ask for the suppression of the papers, things and effects
seized from places other than their residences, to my mind, cannot in any
manner affect, alter or otherwise modify the intrinsic nullity of the search
warrants and the intrinsic illegality of the searches and seizures made
thereunder. Whether or not the petitioners possess legal standing the said
warrants are void and remain void, and the searches and seizures were
illegal and remain illegal. No inference can be drawn from the words of
the Constitution that "legal standing" or the lack of it is a determinant of
the nullity or validity of a search warrant or of the lawfulness or illegality
of a search or seizure.
On the question of legal standing, I am of the conviction that, upon the
pleadings submitted to this Court the petitioners have the requisite legal
standing to move for the suppression and return of the documents,
papers and effects that were seized from places other than their family
residences.
Our constitutional provision on searches and seizures was derived
almost verbatim from the Fourth Amendment to the United States
Constitution. In the many years of judicial construction and interpretation
of the said constitutional provision, our courts have invariably regarded as
doctrinal the pronouncement made on the Fourth Amendment by federal
courts, especially the Federal Supreme Court and the Federal Circuit
Courts of Appeals.
The U.S. doctrines and pertinent cases on standing to move for the
suppression or return of documents, papers and effects which are the
Page 49 of 106
fruits of an unlawful search and seizure, may be summarized as follows;
(a) ownership of documents, papers and effects gives "standing;" (b)
ownership and/or control or possession — actual or constructive — of
premises searched gives "standing"; and (c) the "aggrieved person"
doctrine where the search warrant and the sworn application for search
warrant are "primarily" directed solely and exclusively against the
"aggrieved person," gives "standing."
An examination of the search warrants in this case will readily show that,
excepting three, all were directed against the petitioners personally. In
some of them, the petitioners were named personally, followed by the
designation, "the President and/or General Manager" of the particular
corporation. The three warrants excepted named three corporate
defendants. But the "office/house/warehouse/premises" mentioned in
the said three warrants were also the same
"office/house/warehouse/premises" declared to be owned by or under
the control of the petitioners in all the other search warrants directed
against the petitioners and/or "the President and/or General Manager" of
the particular corporation. (see pages 5-24 of Petitioners' Reply of April 2,
1962). The searches and seizures were to be made, and were actually
made, in the "office/house/warehouse/premises" owned by or under the
control of the petitioners.
Ownership of matters seized gives "standing."
Ownership of the properties seized alone entitles the petitioners to bring
a motion to return and suppress, and gives them standing as persons
aggrieved by an unlawful search and seizure regardless of their location at
the time of seizure. Jones vs. United States, 362 U.S. 257, 261 (1960)
(narcotics stored in the apartment of a friend of the defendant); Henzel
vs. United States, 296 F. 2d. 650, 652-53 (5th Cir. 1961), (personal and
corporate papers of corporation of which the defendant was
president), United States vs. Jeffers, 342 U.S. 48 (1951) (narcotics seized
in an apartment not belonging to the defendant); Pielow vs. United States,
8 F. 2d 492, 493 (9th Cir. 1925) (books seized from the defendant's sister
but belonging to the defendant); Cf. Villano vs. United States, 310 F. 2d
680, 683 (10th Cir. 1962) (papers seized in desk neither owned by nor in
exclusive possession of the defendant).
In a very recent case (decided by the U.S. Supreme Court on December
12, 1966), it was held that under the constitutional provision against
unlawful searches and seizures, a person places himself or his property
within a constitutionally protected area, be it his home or his office, his
hotel room or his automobile:
Where the argument falls is in its misapprehension of the
fundamental nature and scope of Fourth Amendment
protection. What the Fourth Amendment protects is the
security a man relies upon when he places himself or his
property within a constitutionally protected area, be it his home
or his office, his hotel room or his automobile. There he is
protected from unwarranted governmental intrusion. And
when he puts some thing in his filing cabinet, in his desk drawer,
or in his pocket, he has the right to know it will be secure from
an unreasonable search or an unreasonable seizure. So it was
that the Fourth Amendment could not tolerate the warrantless
search of the hotel room in Jeffers, the purloining of the
petitioner's private papers in Gouled, or the surreptitious
electronic surveilance in Silverman. Countless other cases which
have come to this Court over the years have involved a myriad
of differing factual contexts in which the protections of the
Fourth Amendment have been appropriately invoked. No
doubt, the future will bring countless others. By nothing we say
here do we either foresee or foreclose factual situations to
 which the Fourth Amendment may be applicable. (Hoffa vs.
U.S., 87 S. Ct. 408 (December 12, 1966). See also U.S. vs. Jeffers,
342 U.S. 48, 72 S. Ct. 93 (November 13, 1951). (Emphasis
supplied).
Control of premises searched gives "standing."
Independent of ownership or other personal interest in the records and
documents seized, the petitioners have standing to move for return and
suppression by virtue of their proprietary or leasehold interest in many of
the premises searched. These proprietary and leasehold interests have
been sufficiently set forth in their motion for reconsideration and need
not be recounted here, except to emphasize that the petitioners paid rent,
directly or indirectly, for practically all the premises searched (Room 91,
84 Carmen Apts; Room 304, Army & Navy Club; Premises 2008, Dewey
Boulevard; 1436 Colorado Street); maintained personal offices within the
corporate offices (IBMC, USTC); had made improvements or furnished
such offices; or had paid for the filing cabinets in which the papers were
stored (Room 204, Army & Navy Club); and individually, or through their
respective spouses, owned the controlling stock of the corporations
involved. The petitioners' proprietary interest in most, if not all, of the
premises searched therefore independently gives them standing to move
for the return and suppression of the books, papers and affects seized
therefrom.
In Jones vs. United States, supra, the U.S. Supreme Court delineated the
nature and extent of the interest in the searched premises necessary to
maintain a motion to suppress. After reviewing what it considered to be
the unduly technical standard of the then prevailing circuit court
decisions, the Supreme Court said (362 U.S. 266):
We do not lightly depart from this course of decisions by the
lower courts. We are persuaded, however, that it is
unnecessarily and ill-advised to import into the law surrounding
the constitutional right to be free from unreasonable searches
and seizures subtle distinctions, developed and refined by the
common law in evolving the body of private property law which,
more than almost any other branch of law, has been shaped by
distinctions whose validity is largely historical. Even in the area
from which they derive, due consideration has led to the
discarding of those distinctions in the homeland of the common
law. See Occupiers' Liability Act, 1957, 5 and 6 Eliz. 2, c. 31,
carrying out Law Reform Committee, Third Report, Cmd. 9305.
Distinctions such as those between "lessee", "licensee,"
"invitee," "guest," often only of gossamer strength, ought not
be determinative in fashioning procedures ultimately referable
to constitutional safeguards. See also Chapman vs. United
States, 354 U.S. 610, 616-17 (1961).
It has never been held that a person with requisite interest in the premises
searched must own the property seized in order to have standing in a
motion to return and suppress. In Alioto vs. United States, 216 F. Supp. 48
(1963), a Bookkeeper for several corporations from whose apartment the
corporate records were seized successfully moved for their return.
In United States vs. Antonelli, Fireworks Co., 53 F. Supp. 870, 873 (W D. N.
Y. 1943), the corporation's president successfully moved for the return
and suppression is to him of both personal and corporate documents
seized from his home during the course of an illegal search:
The lawful possession by Antonelli of documents and property,
"either his own or the corporation's was entitled to protection
against unreasonable search and seizure. Under the
circumstances in the case at bar, the search and seizure were
Page 50 of 106
unreasonable and unlawful. The motion for the return of seized
article and the suppression of the evidence so obtained should
be granted. (Emphasis supplied).
Time was when only a person who had property in interest in either the
place searched or the articles seize had the necessary standing to invoke
the protection of the exclusionary rule. But in MacDonald vs. Unite States,
335 U.S. 461 (1948), Justice Robert Jackson joined by Justice Felix
Frankfurter, advanced the view that "even a guest may expect the shelter
of the rooftree he is under against criminal intrusion." This view finally
became the official view of the U.S. Supreme Court and was articulated
in United States vs. Jeffers, 432 U.S 48 (1951). Nine years later, in 1960,
in Jones vs. Unite States, 362 U.S. 257, 267, the U.S. Supreme Court went
a step further. Jones was a mere guest in the apartment unlawfully
searched but the Court nonetheless declared that the exclusionary rule
protected him as well. The concept of "person aggrieved by an unlawful
search and seizure" was enlarged to include "anyone legitimately on
premise where the search occurs."
Shortly after the U.S. Supreme Court's Jones decision the U.S. Court of
Appeals for the Fifth Circuit held that the defendant organizer, sole
stockholder and president of a corporation had standing in a mail fraud
prosecution against him to demand the return and suppression of
corporate property. Henzel vs. United States, 296 F 2d 650, 652 (5th Cir.
1961), supra. The court conclude that the defendant had standing on two
independent grounds: First —he had a sufficient interest in the property
seized, and second — he had an adequate interest in the premises
searched (just like in the case at bar). A postal inspector had unlawfully
searched the corporation' premises and had seized most of the
corporation's book and records. Looking to Jones, the court observed:
Jones clearly tells us, therefore, what is not required qualify one
as a "person aggrieved by an unlawful search and seizure." It
tells us that appellant should not have been precluded from
objecting to the Postal Inspector's search and seizure of the
corporation's books and records merely because the appellant
did not show ownership or possession of the books and records
or a substantial possessory interest in the invade premises . . .
(Henzel vs. United States, 296 F. 2d at 651). .
Henzel was soon followed by Villano vs. United States, 310 F. 2d 680, 683,
(10th Cir. 1962). In Villano, police officers seized two notebooks from a
desk in the defendant's place of employment; the defendant did not claim
ownership of either; he asserted that several employees (including
himself) used the notebooks. The Court held that the employee had a
protected interest and that there also was an invasion of privacy.
Both Henzel and Villano considered also the fact that the search and
seizure were "directed at" the moving defendant. Henzel vs. United States,
296 F. 2d at 682; Villano vs. United States, 310 F. 2d at 683.
In a case in which an attorney closed his law office, placed his files in
storage and went to Puerto Rico, the Court of Appeals for the Eighth
Circuit recognized his standing to move to quash as unreasonable search
and seizure under the Fourth Amendment of the U.S. Constitution a grand
jury subpoena duces tecum directed to the custodian of his files. The
Government contended that the petitioner had no standing because the
books and papers were physically in the possession of the custodian, and
because the subpoena was directed against the custodian. The court
rejected the contention, holding that
Schwimmer legally had such possession, control and
unrelinquished personal rights in the books and papers as not
to enable the question of unreasonable search and seizure to
 be escaped through the mere procedural device of compelling
a third-party naked possessor to produce and deliver
them. Schwimmer vs. United States, 232 F. 2d 855, 861 (8th Cir.
1956).
Aggrieved person doctrine where the search warrant s primarily directed
against said person gives "standing."
The latest United States decision squarely in point is United States vs.
Birrell, 242 F. Supp. 191 (1965, U.S.D.C. S.D.N.Y.). The defendant had
stored with an attorney certain files and papers, which attorney, by the
name of Dunn, was not, at the time of the seizing of the records, Birrell's
attorney. * Dunn, in turn, had stored most of the records at his home in
the country and on a farm which, according to Dunn's affidavit, was under
his (Dunn's) "control and management." The papers turned out to be
private, personal and business papers together with corporate books and
records of certain unnamed corporations in which Birrell did not even
claim ownership. (All of these type records were seized in the case at bar).
Nevertheless, the search in Birrell was held invalid by the court which held
that even though Birrell did not own the premises where the records were
stored, he had "standing" to move for the return ofall the papers and
properties seized. The court, relying on Jones vs. U.S., supra; U.S. vs.
Antonelli Fireworks Co., 53 F. Supp. 870, Aff'd 155 F. 2d 631: Henzel vs.
U.S., supra; and Schwimmer vs. U.S., supra, pointed out that
It is overwhelmingly established that the searches here in
question were directed solely and exclusively against Birrell. The
only person suggested in the papers as having violated the law
was Birrell. The first search warrant described the records as
having been used "in committing a violation of Title 18, United
States Code, Section 1341, by the use of the mails by one Lowell
M. Birrell, . . ." The second search warrant was captioned:
"United States of America vs. Lowell M. Birrell. (p. 198)
Possession (actual or constructive), no less than ownership,
gives standing to move to suppress. Such was the rule even
before Jones. (p. 199)
If, as thus indicated Birrell had at least constructive possession
of the records stored with Dunn, it matters not whether he had
any interest in the premises searched. See also Jeffers v. United
States, 88 U.S. Appl. D.C. 58, 187 F. 2d 498 (1950), affirmed 432
U.S. 48, 72 S. Ct. 93, 96 L. Ed. 459 (1951).
The ruling in the Birrell case was reaffirmed on motion for reargument;
the United States did not appeal from this decision. The factual situation
in Birrell is strikingly similar to the case of the present petitioners; as
in Birrell, many personal and corporate papers were seized from premises
not petitioners' family residences; as in Birrell, the searches were
"PRIMARILY DIRECTED SOLETY AND EXCLUSIVELY" against the petitioners.
Still both types of documents were suppressed in Birrell because of the
illegal search. In the case at bar, the petitioners connection with the
premises raided is much closer than in Birrell.
Thus, the petitioners have full standing to move for the quashing of all the
warrants regardless whether these were directed against residences in
the narrow sense of the word, as long as the documents were personal
papers of the petitioners or (to the extent that they were corporate
papers) were held by them in a personal capacity or under their personal
control.
Prescinding a from the foregoing, this Court, at all events, should order
the return to the petitioners all personal and private papers and effects
Page 51 of 106
seized, no matter where these were seized, whether from their residences
or corporate offices or any other place or places.
The uncontradicted sworn statements of the petitioners in their, various
pleadings submitted to this Court indisputably show that amongst the
things seized from the corporate offices and other places
were personal and private papers and effects belonging to the
petitioners.
If there should be any categorization of the documents, papers and things
which where the objects of the unlawful searches and seizures, I submit
that the grouping should be: (a) personal or private papers of the
petitioners were they were unlawfully seized, be it their family residences
offices, warehouses and/or premises owned and/or possessed (actually or
constructively) by them as shown in all the search and in the sworn
applications filed in securing the void search warrants and (b)
purely corporate papers belonging to corporations. Under such
categorization or grouping, the determination of which unlawfully seized
papers, documents and things are personal/private of the petitioners
or purely corporate papers will have to be left to the lower courts which
issued the void search warrants in ultimately effecting the suppression
and/or return of the said documents.
And as unequivocally indicated by the authorities above cited, the
petitioners likewise have clear legal standing to move for the suppression
of purely corporate papers as "President and/or General Manager" of the
corporations involved as specifically mentioned in the void search
warrants.
Finally, I must articulate my persuasion that although the cases cited in my
disquisition were criminal prosecutions, the great clauses of the
constitutional proscription on illegal searches and seizures do not
withhold the mantle of their protection from cases not criminal in origin
or nature.
[G.R. No. L-32409. February 27, 1971.]
BACHE & CO. (PHIL.), INC. and FREDERICK E. SEGGERMAN, Petitioners, v.
HON. JUDGE VIVENCIO M. RUIZ, MISAEL P. VERA, in his capacity as
Commissioner of Internal Revenue, ARTURO LOGRONIO, RODOLFO DE
LEON, GAVINO VELASQUEZ, MIMIR DELLOSA, NICANOR ALCORDO, JOHN
DOE, JOHN DOE, JOHN DOE, and JOHN DOE, Respondents.
San Juan, Africa, Gonzales & San Agustin, for Petitioners.
Solicitor General Felix Q. Antonio, Assistant Solicitor General Crispin V .
Bautista, Solicitor Pedro A. Ramirez and Special Attorney Jaime M. Maza
for Respondents.
DECISION
VILLAMOR, J.:
This is an original action of certiorari, prohibition and mandamus, with
prayer for a writ of preliminary mandatory and prohibitory injunction. In
their petition Bache & Co. (Phil.), Inc., a corporation duly organized and
existing under the laws of the Philippines, and its President, Frederick E.
Seggerman, pray this Court to declare null and void Search Warrant No. 2-
M-70 issued by respondent Judge on February 25, 1970; to order
respondents to desist from enforcing the same and/or keeping the
documents, papers and effects seized by virtue thereof, as well as from
enforcing the tax assessments on petitioner corporation alleged by
petitioners to have been made on the basis of the said documents, papers
and effects, and to order the return of the latter to petitioners. We gave
due course to the petition but did not issue the writ of preliminary
injunction prayed for therein.
The pertinent facts of this case, as gathered from record, are as
follows:chanrob1es virtual 1aw library
On February 24, 1970, respondent Misael P. Vera, Commissioner of
Internal Revenue, wrote a letter addressed to respondent Judge Vivencio
M. Ruiz requesting the issuance of a search warrant against petitioners for
violation of Section 46(a) of the National Internal Revenue Code, in
relation to all other pertinent provisions thereof, particularly Sections 53,
72, 73, 208 and 209, and authorizing Revenue Examiner Rodolfo de Leon,
one of herein 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’ lawyers protested
the search on the ground that no formal complaint or transcript of
testimony was attached to the warrant. The agents nevertheless
proceeded with their search which yielded six boxes of documents.
On March 3, 1970, petitioners filed a petition with the Court of First
Instance of Rizal praying that the search warrant be quashed, dissolved or
recalled, that preliminary prohibitory and mandatory writs of injunction
be issued, that the search warrant be declared null and void, and that the
respondents be ordered to pay petitioners, jointly and severally, damages
and attorney’s fees. On March 18, 1970, the respondents, thru the
Solicitor General, filed an answer to the petition. After hearing, the court,
presided over by respondent Judge, issued on July 29, 1970, an order
dismissing the petition for dissolution of the search warrant. In the
meantime, or on April 16, 1970, the Bureau of Internal Revenue made tax
assessments on petitioner corporation in the total sum of P2,594,729.97,
partly, if not entirely, based on the documents thus seized. Petitioners
came to this Court.
The petition should be granted for the following reasons:chanrob1es
virtual 1aw library
1. Respondent Judge failed to personally examine the complainant and his
Page 52 of 106
witness.
The pertinent provisions of the Constitution of the Philippines and of the
Revised Rules of Court are:jgc:chanrobles.com.ph
"(3) The right of the people to be secure in their persons, houses, papers
and effects against unreasonable searches and seizures shall not be
violated, and no warrants shall issue but upon probable cause, to be
determined by the judge after examination under oath or affirmation of
the complainant and the witnesses he may produce, and particularly
describing the place to be searched, and the persons or things to be
seized." (Art. III, Sec. 1, Constitution.)
"SEC. 3. Requisites for issuing search warrant. — A search warrant shall
not issue but upon probable cause in connection with one specific offense
to be determined by the judge or justice of the peace after examination
under oath or affirmation of the complainant and the witnesses he may
produce, and particularly describing the place to be searched and the
persons or things to be seized.
"No search warrant shall issue for more than one specific offense.
"SEC. 4. Examination of the applicant. — The judge or justice of the peace
must, before issuing the warrant, personally examine on oath or
affirmation the complainant and any witnesses he may produce and take
their depositions in writing, and attach them to the record, in addition to
any affidavits presented to him." (Rule 126, Revised Rules of Court.)
The examination of the complainant and the witnesses he may produce,
required by Art. III, Sec. 1, par. 3, of the Constitution, and by Secs. 3 and
4, Rule 126 of the Revised Rules of Court, should be conducted by the
judge himself and not by others. The phrase "which shall be determined
by the judge after examination under oath or affirmation of the
complainant and the witnesses he may produce," appearing in the said
constitutional provision, was introduced by Delegate Francisco as an
amendment to the draft submitted by the Sub-Committee of Seven. The
following discussion in the Constitutional Convention (Laurel, Proceedings
of the Philippine Constitutional Convention, Vol. III, pp. 755-757) is
enlightening:jgc:chanrobles.com.ph
"SR. ORENSE. Vamos a dejar compañero los piropos y vamos al grano.
En los casos de una necesidad de actuar inmediatamente para que no se
frusten los fines de la justicia mediante el registro inmediato y la
incautacion del cuerpo del delito, no cree Su Señoria que causaria cierta
demora el procedimiento apuntado en su enmienda en tal forma que
podria frustrar los fines de la justicia o si Su Señoria encuentra un remedio
para esto casos con el fin de compaginar los fines de la justicia con los
derechos del individuo en su persona, bienes etcetera, etcetera.
"SR. FRANCISCO. No puedo ver en la practica el caso hipottico que Su
Señoria pregunta por la siguiente razon: el que solicita un mandamiento
de registro tiene que hacerlo por escrito y ese escrito no aparecer en la
Mesa del Juez sin que alguien vaya el juez a presentar ese escrito o
peticion de sucuestro. Esa persona que presenta el registro puede ser el
mismo denunciante o alguna persona que solicita dicho mandamiento de
registro. Ahora toda la enmienda en esos casos consiste en que haya
peticion de registro y el juez no se atendra solamente a sea peticion sino
que el juez examiner a ese denunciante y si tiene testigos tambin examiner
a los testigos.
"SR. ORENSE. No cree Su Señoria que el tomar le declaracion de ese
denunciante por escrito siempre requeriria algun tiempo?.
"SR. FRANCISCO. Seria cuestio de un par de horas, pero por otro lado
minimizamos en todo lo posible las vejaciones injustas con la expedicion
arbitraria de los mandamientos de registro. Creo que entre dos males
debemos escoger. el menor.
x x x "A
"MR. LAUREL. . . . The reason why we are in favor of this amendment is
because we are incorporating in our constitution something of a
fundamental character. Now, before a judge could issue a search warrant,
he must be under the obligation to examine personally under oath the
complainant and if he has any witness, the witnesses that he may produce
. . ."cralaw virtua1aw library
The implementing rule in the Revised Rules of Court, Sec. 4, Rule 126, is
more emphatic and candid, for it requires the judge, before issuing a
search warrant, to "personally examine on oath or affirmation the
complainant and any witnesses he may produce . . ."cralaw virtua1aw
library
Personal examination by the judge of the complainant and his witnesses
is necessary to enable him to determine the existence or non-existence of
a probable cause, pursuant to Art. III, Sec. 1, par. 3, of the Constitution,
and Sec. 3, Rule 126 of the Revised Rules of Court, both of which prohibit
the issuance of warrants except "upon probable cause." The
determination of whether or not a probable cause exists calls for the
exercise of judgment after a judicial appraisal of facts and should not be
allowed to be delegated in the absence of any rule to the contrary.
In the case at bar, no personal examination at all was conducted by
respondent Judge of the complainant (respondent De Leon) and his
witness (respondent Logronio). While it is true that the complainant’s
application for search warrant and the witness’ printed-form deposition
were subscribed and sworn to before respondent Judge, the latter did not
ask either of the two any question the answer to which could possibly be
the basis for determining whether or not there was probable cause
against herein petitioners. Indeed, the participants seem to have attached
so little significance to the matter that notes of the proceedings before
respondent Judge were not even taken. At this juncture it may be well to
recall the salient facts. The transcript of stenographic notes (pp. 61-76,
April 1, 1970, Annex J-2 of the Petition) taken at the hearing of this case
in the court below shows that per instruction of respondent Judge, Mr.
Eleodoro V. Gonzales, Special Deputy Clerk of Court, took the depositions
of the complainant and his witness, and that stenographic notes thereof
were taken by Mrs. Gaspar. At that time respondent Judge was at the sala
hearing a case. After respondent Judge was through with the hearing,
Deputy Clerk Gonzales, stenographer Gaspar, complainant De Leon and
witness Logronio went to respondent Judge’s chamber and informed the
Judge that they had finished the depositions. Respondent Judge then
requested the stenographer to read to him her stenographic notes.
Special Deputy Clerk Gonzales testified as follows:jgc:chanrobles.com.ph
"A And after finishing reading the stenographic notes, the Honorable
Judge requested or instructed them, requested Mr. Logronio to raise his
hand and warned him if his deposition will be found to be false and
without legal basis, he can be charged criminally for perjury. The
Honorable Court told Mr. Logronio whether he affirms the facts contained
in his deposition and the affidavit executed before Mr. Rodolfo de Leon.
"Q And thereafter?
"A And thereafter, he signed the deposition of Mr. Logronio.
"Q Who is this he?
Page 53 of 106
"A The Honorable Judge.
"Q The deposition or the affidavit?
The affidavit, Your Honor."cralaw virtua1aw library
Thereafter, respondent Judge signed the search warrant.
The participation of respondent Judge in the proceedings which led to the
issuance of Search Warrant No. 2-M-70 was thus limited to listening to the
stenographer’s readings of her notes, to a few words of warning against
the commission of perjury, and to administering the oath to the
complainant and his witness. This cannot be consider a personal
examination. If there was an examination at all of the complainant and his
witness, it was the one conducted by the Deputy Clerk of Court. But, as
stated, the Constitution and the rules require a personal examination by
the judge. It was precisely on account of the intention of the delegates to
the Constitutional Convention to make it a duty of the issuing judge to
personally examine the complainant and his witnesses that the question
of how much time would be consumed by the judge in examining them
came up before the Convention, as can be seen from the record of the
proceedings quoted above. The reading of the stenographic notes to
respondent Judge did not constitute sufficient compliance with the
constitutional mandate and the rule; for by that manner respondent Judge
did not have the opportunity to observe the demeanor of the complainant
and his witness, and to propound initial and follow-up questions which the
judicial mind, on account of its training, was in the best position to
conceive. These were important in arriving at a sound inference on the all-
important question of whether or not there was probable cause.
2. The search warrant was issued for more than one specific offense.
Search Warrant No. 2-M-70 was issued for" [v]iolation of Sec. 46(a) of the
National Internal Revenue Code in relation to all other pertinent
provisions thereof particularly Secs. 53, 72, 73, 208 and 209." The
question is: Was the said search warrant issued "in connection with one
specific offense," as required by Sec. 3, Rule 126?
To arrive at the correct answer it is essential to examine closely the
provisions of the Tax Code referred to above. Thus we find the
following:chanrob1es virtual 1aw library
Sec. 46(a) requires the filing of income tax returns by corporations.
Sec. 53 requires the withholding of income taxes at source.
Sec. 72 imposes surcharges for failure to render income tax returns and
for rendering false and fraudulent returns.
Sec. 73 provides the penalty for failure to pay the income tax, to make a
return or to supply the information required under the Tax Code.
Sec. 208 penalizes" [a]ny person who distills, rectifies, repacks,
compounds, or manufactures any article subject to a specific tax, without
having paid the privilege tax therefore, or who aids or abets in the conduct
of illicit distilling, rectifying, compounding, or illicit manufacture of any
article subject to specific tax . . .," and provides that in the case of a
corporation, partnership, or association, the official and/or employee who
caused the violation shall be responsible.
Sec. 209 penalizes the failure to make a return of receipts, sales, business,
or gross value of output removed, or to pay the tax due thereon.
The search warrant in question was issued for at least four distinct
offenses under the Tax Code. The first is the violation of Sec. 46(a), Sec.
72 and Sec. 73 (the filing of income tax returns), which are interrelated.
The second is the violation of Sec. 53 (withholding of income taxes at
source). The third is the violation of Sec. 208 (unlawful pursuit of business
or occupation); and the fourth is the violation of Sec. 209 (failure to make
a return of receipts, sales, business or gross value of output actually
removed or to pay the tax due thereon). Even in their classification the six
above-mentioned provisions are embraced in two different titles: Secs.
46(a), 53, 72 and 73 are under Title II (Income Tax); while Secs. 208 and
209 are under Title V (Privilege Tax on Business and Occupation).
Respondents argue that Stonehill, Et. Al. v. Diokno, Et Al., L-19550, June
19, 1967 (20 SCRA 383), is not applicable, because there the search
warrants were issued for "violation of Central Bank Laws, Internal Revenue
(Code) and Revised Penal Code;" whereas, here Search Warrant No 2-M-
70 was issued for violation of only one code, i.e., the National Internal
Revenue Code. The distinction more apparent than real, because it was
precisely on account of the Stonehill incident, which occurred sometime
before the present Rules of Court took effect on January 1, 1964, that this
Court amended the former rule by inserting therein the phrase "in
connection with one specific offense," and adding the sentence "No
search warrant shall issue for more than one specific offense," in what is
now Sec. 3, Rule 126. Thus we said in Stonehill:jgc:chanrobles.com.ph
"Such is the seriousness of the irregularities committed in connection with
the disputed search warrants, that this Court deemed it fit to amend
Section 3 of Rule 122 of the former Rules of Court that ‘a search warrant
shall not issue but upon probable cause in connection with one specific
offense.’ Not satisfied with this qualification, the Court added thereto a
paragraph, directing that ‘no search warrant shall issue for more than one
specific offense.’"
3. The search warrant does not particularly describe the things to be
seized.
The documents, papers and effects sought to be seized are described in
Search Warrant No. 2-M-70 in this manner:jgc:chanrobles.com.ph
"Unregistered and private books of accounts (ledgers, journals,
columnars, receipts and disbursements books, customers ledgers);
receipts for payments received; certificates of stocks and securities;
contracts, promissory notes and deeds of sale; telex and coded messages;
business communications, accounting and business records; checks and
check stubs; records of bank deposits and withdrawals; and records of
foreign remittances, covering the years 1966 to 1970."cralaw virtua1aw
library
The description does not meet the requirement in Art III, Sec. 1, of the
Constitution, and of Sec. 3, Rule 126 of the Revised Rules of Court, that
the warrant should particularly describe the things to be seized.
In Stonehill, this Court, speaking thru Mr. Chief Justice Roberto
Concepcion, said:jgc:chanrobles.com.ph
"The grave violation of the Constitution made in the application for the
contested search warrants was compounded by the description therein
made of the effects to be searched for and seized, to wit:chanrob1es
virtual 1aw library
‘Books of accounts, financial records, vouchers, journals, correspondence,
receipts, ledgers, portfolios, credit journals, typewriters, and other
documents and/or paper showing all business transactions including
disbursement receipts, balance sheets and related profit and loss
statements.’
"Thus, the warrants authorized the search for and seizure of records
Page 54 of 106
pertaining to all business transactions of petitioners herein, regardless of
whether the transactions were legal or illegal. The warrants sanctioned
the seizure of all records of the petitioners and the aforementioned
corporations, whatever their nature, thus openly contravening the explicit
command of our Bill of Rights — that the things to be seized be particularly
described — as well as tending to defeat its major objective: the
elimination of general warrants."cralaw virtua1aw library
While the term "all business transactions" does not appear in Search
Warrant No. 2-M-70, the said warrant nevertheless tends to defeat the
major objective of the Bill of Rights, i.e., the elimination of general
warrants, for the language used therein is so all-embracing as to include
all conceivable records of petitioner corporation, which, if seized, could
possibly render its business inoperative.
In Uy Kheytin, Et. Al. v. Villareal, etc., Et Al., 42 Phil. 886, 896, this Court
had occasion to explain the purpose of the requirement that the warrant
should particularly describe the place to be searched and the things to be
seized, to wit:jgc:chanrobles.com.ph
". . . Both the Jones Law (sec. 3) and General Orders No. 58 (sec. 97)
specifically require that a search warrant should particularly describe the
place to be searched and the things to be seized. The evident purpose and
intent of this requirement is to limit the things to be seized to those, and
only those, particularly described in the search warrant — to leave the
officers of the law with no discretion regarding what articles they shall
seize, to the end that ‘unreasonable searches and seizures’ may not be
made, — that abuses may not be committed. That this is the correct
interpretation of this constitutional provision is borne out by American
authorities."cralaw virtua1aw library
The purpose as thus explained could, surely and effectively, be defeated
under the search warrant issued in this case.
A search warrant may be said to particularly describe the things to be
seized when the description therein is as specific as the circumstances will
ordinarily allow (People v. Rubio; 57 Phil. 384); or when the description
expresses a conclusion of fact — not of law — by which the warrant officer
may be guided in making the search and seizure (idem., dissent of Abad
Santos, J.,); or when the things described are limited to those which bear
direct relation to the offense for which the warrant is being issued (Sec. 2,
Rule 126, Revised Rules of Court). The herein search warrant does not
conform to any of the foregoing tests. If the articles desired to be seized
have any direct relation to an offense committed, the applicant must
necessarily have some evidence, other than those articles, to prove the
said offense; and the articles subject of search and seizure should come in
handy merely to strengthen such evidence. In this event, the description
contained in the herein disputed warrant should have mentioned, at least,
the dates, amounts, persons, and other pertinent data regarding the
receipts of payments, certificates of stocks and securities, contracts,
promissory notes, deeds of sale, messages and communications, checks,
bank deposits and withdrawals, records of foreign remittances, among
others, enumerated in the warrant.
Respondents contend that certiorari does not lie because petitioners
failed to file a motion for reconsideration of respondent Judge’s order of
July 29, 1970. The contention is without merit. In the first place, when the
questions raised before this Court are the same as those which were
squarely raised in and passed upon by the court below, the filing of a
motion for reconsideration in said court before certiorari can be instituted
in this Court is no longer a prerequisite. (Pajo, etc., Et. Al. v. Ago, Et Al.,
108 Phil., 905). In the second place, the rule requiring the filing of a motion
for reconsideration before an application for a writ of certiorari can be
entertained was never intended to be applied without considering the
circumstances. (Matutina v. Buslon, Et Al., 109 Phil., 140.) In the case at
bar time is of the essence in view of the tax assessments sought to be
enforced by respondent officers of the Bureau of Internal Revenue against
petitioner corporation, On account of which immediate and more direct
action becomes necessary. (Matute v. Court of Appeals, Et Al., 26 SCRA
768.) Lastly, the rule does not apply where, as in this case, the deprivation
of petitioners’ fundamental right to due process taints the proceeding
against them in the court below not only with irregularity but also with
nullity. (Matute v. Court of Appeals, Et Al., supra.)
It is next contended by respondents that a corporation is not entitled to
protection against unreasonable search and seizures. Again, we find no
merit in the contention.
"Although, for the reasons above stated, we are of the opinion that an
officer of a corporation which is charged with a violation of a statute of
the state of its creation, or of an act of Congress passed in the exercise of
its constitutional powers, cannot refuse to produce the books and papers
of such corporation, we do not wish to be understood as holding that a
corporation is not entitled to immunity, under the 4th Amendment,
against unreasonable searches and seizures. A corporation is, after all, but
an association of individuals under an assumed name and with a distinct
legal entity. In organizing itself as a collective body it waives no
constitutional immunities appropriate to such body. Its property cannot
be taken without compensation. It can only be proceeded against by due
process of law, and is protected, under the 14th Amendment, against
unlawful discrimination . . ." (Hale v. Henkel, 201 U.S. 43, 50 L. ed. 652.)
"In Linn v. United States, 163 C.C.A. 470, 251 Fed. 476, 480, it was thought
that a different rule applied to a corporation, the ground that it was not
privileged from producing its books and papers. But the rights of a
corporation against unlawful search and seizure are to be protected even
if the same result might have been achieved in a lawful way." (Silverthorne
Lumber Company, Et. Al. v. United States of America, 251 U.S. 385, 64 L.
ed. 319.)
In Stonehill, Et. Al. v. Diokno, Et Al., supra, this Court impliedly recognized
the right of a corporation to object against unreasonable searches and
seizures, thus:jgc:chanrobles.com.ph
"As regards the first group, we hold that petitioners herein have no cause
of action to assail the legality of the contested warrants and of the seizures
made in pursuance thereof, for the simple reason that said corporations
have their respective personalities, separate and distinct from the
personality of herein petitioners, regardless of the amount of shares of
stock or the interest of each of them in said corporations, whatever, the
offices they hold therein may be. Indeed, it is well settled that the legality
of a seizure can be contested only by the party whose rights have been
impaired thereby, and that the objection to an unlawful search and
seizure is purely personal and cannot be availed of by third parties.
Consequently, petitioners herein may not validly object to the use in
evidence against them of the documents, papers and things seized from
the offices and premises of the corporations adverted to above, since the
right to object to the admission of said papers in evidence belongs
exclusively to the corporations, to whom the seized effects belong, and
may not be invoked by the corporate officers in proceedings against them
in their individual capacity . . ."cralaw virtua1aw library
In the Stonehill case only the officers of the various corporations in whose
offices documents, papers and effects were searched and seized were the
petitioners. In the case at bar, the corporation to whom the seized
documents belong, and whose rights have thereby been impaired, is itself
a petitioner. On that score, petitioner corporation here stands on a
different footing from the corporations in Stonehill.
The tax assessments referred to earlier in this opinion were, if not entirely
Page 55 of 106
— as claimed by petitioners — at least partly — as in effect admitted by
respondents — based on the documents seized by virtue of Search
Warrant No. 2-M-70. Furthermore, the fact that the assessments were
made some one and one-half months after the search and seizure on
February 25, 1970, is a strong indication that the documents thus seized
served as basis for the assessments. Those assessments should therefore
not be enforced.
PREMISES CONSIDERED, the petition is granted. Accordingly, Search
Warrant No. 2-M-70 issued by respondent Judge is declared null and void;
respondents are permanently enjoined from enforcing the said search
warrant; the documents, papers and effects seized thereunder are
ordered to be returned to petitioners; and respondent officials the Bureau
of Internal Revenue and their representatives are permanently enjoined
from enforcing the assessments mentioned in Annex "G" of the present
petition, as well as other assessments based on the documents, papers
and effects seized under the search warrant herein nullified, and from
using the same against petitioners in any criminal or other proceeding. No
pronouncement as to costs.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Fernando, Teehankee and
Makasiar, JJ., concur.
Reyes, J.B.L., J., concurs with Mr. Justice Barredo.
Castro, J., concurs in the result.
Separate Opinions
BARREDO, J., concurring:chanrob1es virtual 1aw library
I concur.
I agree with the ruling that the search warrants in question violates the
specific injunction of Section 3, Rule 126 that "No search warrant shall
issue for more than one specific offense." There is no question in my mind
that, as very clearly pointed out by Mr. Justice Villamor, the phrase "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" refers to more than one specific offense, considering
that the violation of Section 53 which refers to withholding of income
taxes at the sources, Section 208 which punishes pursuit of business or
occupation without payment of the corresponding specific or privilege
taxes, and Section 209 which penalizes failure to make a return of receipts
sales, business or gross value output actually removed or to pay the taxes
thereon in connection with Title V on Privilege Taxes on Business and
Occupation can hardly be absorbed in a charge of alleged violation of
Section 46(a), which merely requires the filing of income tax returns by
corporations, so as to constitute with it a single offense. I perceive here
the danger that the result of the search applied for may be used as basis
not only for a charge of violating Section 46(a) but also and separately of
Section 53, 208 and 209. Of course, it is to be admitted that Sections 72
and 73, also mentioned in the application, are really directly related to
Section 46(a) because Section 72 provides for surcharges for failure to
render, returns and for rendering false and fraudulent returns and Section
73 refers to the penalty for failure to file returns or to pay the
corresponding tax. Taken together, they constitute one single offense
penalized under Section 73. I am not and cannot be in favor of any scheme
which amounts to an indirect means of achieving that which not allowed
to be done directly. By merely saying that a party is being charged with
violation of one section of the code in relation to a number of other
sections thereof which in truth have no clear or direct bearing with the
first is to me condemnable because it is no less than a shotgun device
which trenches on the basic liberties intended to be protected by the
unequivocal limitations imposed by the Constitution and the Rules of
Court on the privilege to secure a search warrant with the aggravating
circumstance of being coupled with an attempt to mislead the judge
before whom the application for its issuance is presented.
I cannot close this brief concurrence without expressing my vehement
disapproval of the action taken by respondent internal revenue
authorities in using the documents and papers secured during the search,
the legality of which was pending resolution by the court, as basis of an
assessment, no matter how highly motivated such action might have
been. This smacks of lack of respect, if not contempt for the court and is
certainly intolerable. At the very least, it appears as an attempt to render
the court proceedings moot and academic, and dealing as this case does
with constitutionally protected rights which are part and parcel of the
basic concepts of individual liberty and democracy, the government
agents should have been the first ones to refrain from trying to make a
farce of these court proceedings. Indeed, it is to be regretted that the
government agents and the court have acted irregularly, for it is highly
doubtful if it would be consistent with the sacredness of the rights herein
found to have been violated to permit the filing of another application
which complies with the constitutional requirements above discussed and
the making of another search upon the return of the papers and
documents now in their illegal possession. This could be an instance
wherein taxes properly due the State will probably remain unassessed and
unpaid only because the ones in charge of the execution of the laws did
not know how to respect basic constitutional rights and liberties.
G.R. No. L-27155 May 18, 1978
PHILIPPINE NATIONAL BANK, petitioner,
vs.
THE COURT OF APPEALS, RITA GUECO TAPNIO, CECILIO GUECO and THE
PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY,
INC., respondents.
Medina, Locsin, Coruña, & Sumbillo for petitioner.
Manuel Lim & Associates for private respondents.
ANTONIO, J.:
Certiorari to review the decision of the Court of Appeals which affirmed
the judgment of the Court of First Instance of Manila in Civil Case No.
34185, ordering petitioner, as third-party defendant, to pay respondent
Rita Gueco Tapnio, as third-party plaintiff, the sum of P2,379.71, plus 12%
interest per annum from September 19, 1957 until the same is fully paid,
P200.00 attorney's fees and costs, the same amounts which Rita Gueco
Tapnio was ordered to pay the Philippine American General Insurance Co.,
Inc., to be paid directly to the Philippine American General Insurance Co.,
Inc. in full satisfaction of the judgment rendered against Rita Gueco Tapnio
in favor of the former; plus P500.00 attorney's fees for Rita Gueco Tapnio
and costs. The basic action is the complaint filed by Philamgen (Philippine
American General Insurance Co., Inc.) as surety against Rita Gueco Tapnio
and Cecilio Gueco, for the recovery of the sum of P2,379.71 paid by
Philamgen to the Philippine National Bank on behalf of respondents
Tapnio and Gueco, pursuant to an indemnity agreement. Petitioner Bank
was made third-party defendant by Tapnio and Gueco on the theory that
their failure to pay the debt was due to the fault or negligence of
petitioner.
Page 56 of 106
The facts as found by the respondent Court of Appeals, in affirming the
decision of the Court of First Instance of Manila, are quoted hereunder:
Plaintiff executed its Bond, Exh. A, with defendant Rita
Gueco Tapnio as principal, in favor of the Philippine
National Bank Branch at San Fernando, Pampanga, to
guarantee the payment of defendant Rita Gueco
Tapnio's account with said Bank. In turn, to guarantee
the payment of whatever amount the bonding
company would pay to the Philippine National Bank,
both defendants executed the indemnity agreement,
Exh. B. Under the terms and conditions of this
indemnity agreement, whatever amount the plaintiff
would pay would earn interest at the rate of 12% per
annum, plus attorney's fees in the amount of 15 % of
the whole amount due in case of court litigation.
The original amount of the bond was for P4,000.00;
but the amount was later reduced to P2,000.00.
It is not disputed that defendant Rita Gueco Tapnio
was indebted to the bank in the sum of P2,000.00,
plus accumulated interests unpaid, which she failed to
pay despite demands. The Bank wrote a letter of
demand to plaintiff, as per Exh. C; whereupon,
plaintiff paid the bank on September 18, 1957, the full
amount due and owing in the sum of P2,379.91, for
and on account of defendant Rita Gueco's obligation
(Exhs. D and D-1).
Plaintiff, in turn, made several demands, both verbal
and written, upon defendants (Exhs. E and F), but to
no avail.
Defendant Rita Gueco Tapnio admitted all the
foregoing facts. She claims, however, when demand
was made upon her by plaintiff for her to pay her debt
to the Bank, that she told the Plaintiff that she did not
consider herself to be indebted to the Bank at all
because she had an agreement with one Jacobo-
Nazon whereby she had leased to the latter her
unused export sugar quota for the 1956-1957
agricultural year, consisting of 1,000 piculs at the rate
of P2.80 per picul, or for a total of P2,800.00, which
was already in excess of her obligation guaranteed by
plaintiff's bond, Exh. A. This lease agreement,
according to her, was with the knowledge of the bank.
But the Bank has placed obstacles to the
consummation of the lease, and the delay caused by
said obstacles forced 'Nazon to rescind the lease
contract. Thus, Rita Gueco Tapnio filed her third-party
complaint against the Bank to recover from the latter
any and all sums of money which may be adjudged
against her and in favor of the plaitiff plus moral
damages, attorney's fees and costs.
Insofar as the contentions of the parties herein are
concerned, we quote with approval the following
findings of the lower court based on the evidence
presented at the trial of the case:
It has been established during the
trial that Mrs. Tapnio had an
export sugar quota of 1,000
piculs for the agricultural year
1956-1957 which she did not
need. She agreed to allow Mr.
Jacobo C. Tuazon to use said
quota for the consideration of
P2,500.00 (Exh. "4"-Gueco). This
agreement was called a contract
of lease of sugar allotment.
At the time of the agreement,
Mrs. Tapnio was indebted to the
Philippine National Bank at San
Fernando, Pampanga. Her
indebtedness was known as a
crop loan and was secured by a
mortgage on her standing crop
including her sugar quota
allocation for the agricultural
year corresponding to said
standing crop. This arrangement
was necessary in order that when
Mrs. Tapnio harvests, the P.N.B.,
having a lien on the crop, may
effectively enforce collection
against her. Her sugar cannot be
exported without sugar quota
allotment Sometimes, however, a
planter harvest less sugar than
her quota, so her excess quota is
utilized by another who pays her
for its use. This is the
arrangement entered into
between Mrs. Tapnio and Mr.
Tuazon regarding the former's
excess quota for 1956-1957 (Exh.
"4"-Gueco).
Since the quota was mortgaged
to the P.N.B., the contract of
lease had to be approved by said
Bank, The same was submitted to
the branch manager at San
Fernando, Pampanga. The latter
required the parties to raise the
consideration of P2.80 per picul
or a total of P2,800.00 (Exh. "2-
Gueco") informing them that "the
minimum lease rental acceptable
to the Bank, is P2.80 per picul." In
a letter addressed to the branch
manager on August 10, 1956, Mr.
Tuazon informed the manager
that he was agreeable to raising
the consideration to P2.80 per
picul. He further informed the
manager that he was ready to pay
said amount as the funds were in
his folder which was kept in the
bank.
Explaining the meaning of
Tuazon's statement as to the
funds, it was stated by him that
Page 57 of 106
he had an approved loan from the
bank but he had not yet utilized it
as he was intending to use it to
pay for the quota. Hence, when
he said the amount needed to
pay Mrs. Tapnio was in his folder
which was in the bank, he meant
and the manager understood and
knew he had an approved loan
available to be used in payment
of the quota. In said Exh. "6-
Gueco", Tuazon also informed
the manager that he would want
for a notice from the manager as
to the time when the bank
needed the money so that
Tuazon could sign the
corresponding promissory note.
Further Consideration of the evidence discloses that
when the branch manager of the Philippine National
Bank at San Fernando recommended the approval of
the contract of lease at the price of P2.80 per picul
(Exh. 1 1-Bank), whose recommendation was
concurred in by the Vice-president of said Bank, J. V.
Buenaventura, the board of directors required that
the amount be raised to 13.00 per picul. This act of
the board of directors was communicated to Tuazon,
who in turn asked for a reconsideration thereof. On
November 19, 1956, the branch manager submitted
Tuazon's request for reconsideration to the board of
directors with another recommendation for the
approval of the lease at P2.80 per picul, but the board
returned the recommendation unacted upon,
considering that the current price prevailing at the
time was P3.00 per picul (Exh. 9-Bank).
The parties were notified of the refusal on the part of
the board of directors of the Bank to grant the motion
for reconsideration. The matter stood as it was until
February 22, 1957, when Tuazon wrote a letter (Exh.
10-Bank informing the Bank that he was no longer
interested to continue the deal, referring to the lease
of sugar quota allotment in favor of defendant Rita
Gueco Tapnio. The result is that the latter lost the sum
of P2,800.00 which she should have received from
Tuazon and which she could have paid the Bank to
cancel off her indebtedness,
The court below held, and in this holding we concur
that failure of the negotiation for the lease of the
sugar quota allocation of Rita Gueco Tapnio to Tuazon
was due to the fault of the directors of the Philippine
National Bank, The refusal on the part of the bank to
approve the lease at the rate of P2.80 per picul which,
as stated above, would have enabled Rita Gueco
Tapnio to realize the amount of P2,800.00 which was
more than sufficient to pay off her indebtedness to
the Bank, and its insistence on the rental price of
P3.00 per picul thus unnecessarily increasing the
value by only a difference of P200.00. inevitably
brought about the rescission of the lease contract to
the damage and prejudice of Rita Gueco Tapnio in the
aforesaid sum of P2,800.00. The unreasonableness of
 the position adopted by the board of directors of the
Philippine National Bank in refusing to approve the
lease at the rate of P2.80 per picul and insisting on the
rate of P3.00 per picul, if only to increase the retail
value by only P200.00 is shown by the fact that all the
accounts of Rita Gueco Tapnio with the Bank were
secured by chattel mortgage on standing crops,
assignment of leasehold rights and interests on her
properties, and surety bonds, aside from the fact that
from Exh. 8-Bank, it appears that she was offering to
execute a real estate mortgage in favor of the Bank to
replace the surety bond This statement is further
bolstered by the fact that Rita Gueco Tapnio
apparently had the means to pay her obligation fact
that she has been granted several value of almost
P80,000.00 for the agricultural years from 1952 to
56. 1
Its motion for the reconsideration of the decision of the Court of Appeals
having been denied, petitioner filed the present petition.
The petitioner contends that the Court of Appeals erred:
(1) In finding that the rescission of the lease contract of the 1,000 piculs
of sugar quota allocation of respondent Rita Gueco Tapnio by Jacobo C.
Tuazon was due to the unjustified refusal of petitioner to approve said
lease contract, and its unreasonable insistence on the rental price of P3.00
instead of P2.80 per picul; and
(2) In not holding that based on the statistics of sugar price and prices of
sugar quota in the possession of the petitioner, the latter's Board of
Directors correctly fixed the rental of price per picul of 1,000 piculs of
sugar quota leased by respondent Rita Gueco Tapnio to Jacobo C. Tuazon
at P3.00 per picul.
Petitioner argued that as an assignee of the sugar quota of Tapnio, it has
the right, both under its own Charter and under the Corporation Law, to
safeguard and protect its rights and interests under the deed of
assignment, which include the right to approve or disapprove the said
lease of sugar quota and in the exercise of that authority, its
Board of Directors necessarily had authority to determine and fix the
rental price per picul of the sugar quota subject of the lease between
private respondents and Jacobo C. Tuazon. It argued further that both
under its Charter and the Corporation Law, petitioner, acting thru its
Board of Directors, has the perfect right to adopt a policy with respect to
fixing of rental prices of export sugar quota allocations, and in fixing the
rentals at P3.00 per picul, it did not act arbitrarily since the said Board was
guided by statistics of sugar price and prices of sugar quotas prevailing at
the time. Since the fixing of the rental of the sugar quota is a function
lodged with petitioner's Board of Directors and is a matter of policy, the
respondent Court of Appeals could not substitute its own judgment for
that of said Board of Directors, which acted in good faith, making as its
basis therefore the prevailing market price as shown by statistics which
were then in their possession.
Finally, petitioner emphasized that under the appealed judgment, it shall
suffer a great injustice because as a creditor, it shall be deprived of a just
claim against its debtor (respondent Rita Gueco Tapnio) as it would be
required to return to respondent Philamgen the sum of P2,379.71, plus
interest, which amount had been previously paid to petitioner by said
insurance company in behalf of the principal debtor, herein respondent
Page 58 of 106
Rita Gueco Tapnio, and without recourse against respondent Rita Gueco
Tapnio.
We must advert to the rule that this Court's appellate jurisdiction in
proceedings of this nature is limited to reviewing only errors of law,
accepting as conclusive the factual fin dings of the Court of Appeals upon
its own assessment of the evidence. 2
The contract of lease of sugar quota allotment at P2.50 per picul between
Rita Gueco Tapnio and Jacobo C. Tuazon was executed on April 17, 1956.
This contract was submitted to the Branch Manager of the Philippine
National Bank at San Fernando, Pampanga. This arrangement was
necessary because Tapnio's indebtedness to petitioner was secured by a
mortgage on her standing crop including her sugar quota allocation for
the agricultural year corresponding to said standing crop. The latter
required the parties to raise the consideration to P2.80 per picul, the
minimum lease rental acceptable to the Bank, or a total of P2,800.00.
Tuazon informed the Branch Manager, thru a letter dated August 10,
1956, that he was agreeable to raising the consideration to P2.80 per
picul. He further informed the manager that he was ready to pay the said
sum of P2,800.00 as the funds were in his folder which was kept in the
said Bank. This referred to the approved loan of Tuazon from the Bank
which he intended to use in paying for the use of the sugar quota. The
Branch Manager submitted the contract of lease of sugar quota allocation
to the Head Office on September 7, 1956, with a recommendation for
approval, which recommendation was concurred in by the Vice-President
of the Bank, Mr. J. V. Buenaventura. This notwithstanding, the Board of
Directors of petitioner required that the consideration be raised to P3.00
per picul.
Tuazon, after being informed of the action of the Board of Directors, asked
for a reconsideration thereof. On November 19, 1956, the Branch
Manager submitted the request for reconsideration and again
recommended the approval of the lease at P2.80 per picul, but the Board
returned the recommendation unacted, stating that the current price
prevailing at that time was P3.00 per picul.
On February 22, 1957, Tuazon wrote a letter, informing the Bank that he
was no longer interested in continuing the lease of sugar quota allotment.
The crop year 1956-1957 ended and Mrs. Tapnio failed to utilize her sugar
quota, resulting in her loss in the sum of P2,800.00 which she should have
received had the lease in favor of Tuazon been implemented.
It has been clearly shown that when the Branch Manager of petitioner
required the parties to raise the consideration of the lease from P2.50 to
P2.80 per picul, or a total of P2,800-00, they readily agreed. Hence, in his
letter to the Branch Manager of the Bank on August 10, 1956, Tuazon
informed him that the minimum lease rental of P2.80 per picul was
acceptable to him and that he even offered to use the loan secured by him
from petitioner to pay in full the sum of P2,800.00 which was the total
consideration of the lease. This arrangement was not only satisfactory to
the Branch Manager but it was also approves by Vice-President J. V.
Buenaventura of the PNB. Under that arrangement, Rita Gueco Tapnio
could have realized the amount of P2,800.00, which was more than
enough to pay the balance of her indebtedness to the Bank which was
secured by the bond of Philamgen.
There is no question that Tapnio's failure to utilize her sugar quota for the
crop year 1956-1957 was due to the disapproval of the lease by the Board
of Directors of petitioner. The issue, therefore, is whether or not
petitioner is liable for the damage caused.
As observed by the trial court, time is of the essence in the approval of the
lease of sugar quota allotments, since the same must be utilized during
the milling season, because any allotment which is not filled during such Separate Opinions
milling season may be reallocated by the Sugar Quota Administration to
other holders of allotments. 3 There was no proof that there was any other
person at that time willing to lease the sugar quota allotment of private
respondents for a price higher than P2.80 per picul. "The fact that there
were isolated transactions wherein the consideration for the lease was BARREDO, J., concurring:
P3.00 a picul", according to the trial court, "does not necessarily mean that
there are always ready takers of said price. " The unreasonableness of the concurs on the basis of Article 19 of the Civil Code, or at least, of equity.
position adopted by the petitioner's Board of Directors is shown by the He reserves his opinion on the matter of torts relied upon in the main
fact that the difference between the amount of P2.80 per picul offered by opinion.
Tuazon and the P3.00 per picul demanded by the Board amounted only to
a total sum of P200.00. Considering that all the accounts of Rita Gueco
Tapnio with the Bank were secured by chattel mortgage on standing
crops, assignment of leasehold rights and interests on her properties, and
surety bonds and that she had apparently "the means to pay her
obligation to the Bank, as shown by the fact that she has been granted
several sugar crop loans of the total value of almost P80,000.00 for the Separate Opinions
agricultural years from 1952 to 1956", there was no reasonable basis for
the Board of Directors of petitioner to have rejected the lease agreement BARREDO, J., concurring:
because of a measly sum of P200.00.
concurs on the basis of Article 19 of the Civil Code, or at least, of equity.
While petitioner had the ultimate authority of approving or disapproving He reserves his opinion on the matter of torts relied upon in the main
the proposed lease since the quota was mortgaged to the Bank, the latter opinion.
certainly cannot escape its responsibility of observing, for the protection
of the interest of private respondents, that degree of care, precaution and
G.R. No. L-35262 March 15, 1930
vigilance which the circumstances justly demand in approving or
disapproving the lease of said sugar quota. The law makes it imperative
that every person "must in the exercise of his rights and in the THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellant,
performance of his duties, act with justice, give everyone his due, and vs.
observe honesty and good faith, 4 This petitioner failed to do. Certainly, it TAN BOON KONG, defendant-appellee.
knew that the agricultural year was about to expire, that by its disapproval
of the lease private respondents would be unable to utilize the sugar Attorney-General Jaranilla for appellant.
quota in question. In failing to observe the reasonable degree of care and Alejandro de Aboitiz Pinaga for appellee.
vigilance which the surrounding circumstances reasonably impose,
petitioner is consequently liable for the damages caused on private OSTRAND, J.:
respondents. Under Article 21 of the New Civil Code, "any person who
wilfully causes loss or injury to another in a manner that is contrary to
This is an appeal from an order of the Judge of the Twenty-third Judicial
morals, good customs or public policy shall compensate the latter for the
District sustaining to demurrer to an information charging the defendant
damage." The afore-cited provisions on human relations were intended to
Tan Boon Kong with the violation of section 1458 of Act No. 2711 as
expand the concept of torts in this jurisdiction by granting adequate legal
amended. The information reads as follows:
remedy for the untold number of moral wrongs which is impossible for
human foresight to specifically provide in the statutes. 5
That on and during the four quarters of the year 1924, in the
municipality of Iloilo, Province of Iloilo, Philippine Islands, the
A corporation is civilly liable in the same manner as natural persons for
said accused, as corporation organized under the laws of the
torts, because "generally speaking, the rules governing the liability of a
Philippine Islands and engaged in the purchase and the sale of
principal or master for a tort committed by an agent or servant are the
sugar, "bayon," coprax, and other native products and as such
same whether the principal or master be a natural person or a
object to the payment of internal-revenue taxes upon its sales,
corporation, and whether the servant or agent be a natural or artificial
did then and there voluntarily, illegally, and criminally declare in
person. All of the authorities agree that a principal or master is liable for
1924 for the purpose of taxation only the sum of P2,352,761.94,
every tort which he expressly directs or authorizes, and this is just as true
when in truth and in fact, and the accused well knew that the
of a corporation as of a natural person, A corporation is liable, therefore,
total gross sales of said corporation during that year amounted
whenever a tortious act is committed by an officer or agent under express
to P2543,303.44, thereby failing to declare for the purpose of
direction or authority from the stockholders or members acting as a body,
taxation the amount of P190,541.50, and voluntarily and
or, generally, from the directors as the governing body." 6
illegally not paying the Government as internal-revenue
percentage taxes the sum of P2,960.12, corresponding to 1½
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals per cent of said undeclared sales.
is hereby AFFIRMED.
The question to be decided is whether the information sets forth facts
Fernando, Aquino, Concepcion, Jr., and Santos, JJ., concur. rendering the defendant, as manager of the corporation liable criminally
under section 2723 of Act No. 2711 for violation of section 1458 of the
same act for the benefit of said corporation. Section 1458 and 2723 read
as follows:
Page 59 of 106
 SEC. 1458. Payment of percentage taxes — Quarterly reports of
earnings. — The percentage taxes on business shall be payable
at the end of each calendar quarter in the amount lawfully due
on the business transacted during each quarter; and it shall be
on the duty of every person conducting a business subject to
such tax, within the same period as is allowed for the payment
of the quarterly installments of the fixed taxes without penalty,
to make a true and complete return of the amount of the
receipts or earnings of his business during the preceeding
quarter and pay the tax due thereon. . . . (Act No. 2711.)
SEC. 2723. Failure to make true return of receipts and sales. —
Any person who, being required by law to make a return of the
amount of his receipts, sales, or business, shall fail or neglect to
make such return within the time required, shall be punished by
a fine not exceeding two thousand pesos or by imprisonment
for a term not exceeding one year, or both.
And any such person who shall make a false or fraudulent return
shall be punished by a fine not exceeding ten thousand pesos or
by imprisonment for a term not exceeding two years, or both.
(Act No. 2711.)
Apparently, the court below based the appealed ruling on the ground that
the offense charged must be regarded as committed by the corporation
and not by its officials or agents. This view is in direct conflict with the
great weight of authority. a corporation can act only through its officers
and agent s, and where the business itself involves a violation of the law,
the correct rule is that all who participate in it are liable (Grall and
Ostrand's Case, 103 Va., 855, and authorities there cited.)
In case of State vs. Burnam (17 Wash., 199), the court went so far as to
hold that the manager of a diary corporation was criminally liable for the
violation of a statute by the corporation through he was not present when
the offense was committed.
In the present case the information or complaint alleges that he defendant
was the manager of a corporation which was engaged in business as a
merchant, and as such manager, he made a false return, for purposes of
taxation, of the total amount of sale made by said false return constitutes
a violation of law, the defendant, as the author of the illegal act, must
necessarily answer for its consequences, provided that the allegation are
proven.
The ruling of the court below sustaining the demurrer to the complaint is
therefore reversed, and the case will be returned to said court for further
proceedings not inconsistent with our view as hereinafter stated. Without
costs. So ordered.
G.R. No. 170891 November 24, 2009
MANUEL C. ESPIRITU, JR., AUDIE LLONA, FREIDA F. ESPIRITU, CARLO F.
ESPIRITU, RAFAEL F. ESPIRITU, ROLANDO M. MIRABUNA, HERMILYN A.
MIRABUNA, KIM ROLAND A. MIRABUNA, KAYE ANN A. MIRABUNA, KEN
RYAN A. MIRABUNA, JUANITO P. DE CASTRO, GERONIMA A. ALMONITE and
MANUEL C. DEE, who are the officers and directors of BICOL GAS REFILLING
PLANT CORPORATION, Petitioners,
vs.
PETRON CORPORATION and CARMEN J. DOLOIRAS, doing business under
the name "KRISTINA PATRICIA ENTERPRISES," Respondents.
DECISION
Page 60 of 106
ABAD, J.:
This case is about the offense or offenses that arise from the reloading of
the liquefied petroleum gas cylinder container of one brand with the
liquefied petroleum gas of another brand.
The Facts and the Case
Respondent Petron Corporation (Petron) sold and distributed liquefied
petroleum gas (LPG) in cylinder tanks that carried its trademark
"Gasul."1 Respondent Carmen J. Doloiras owned and operated Kristina
Patricia Enterprises (KPE), the exclusive distributor of Gasul LPGs in the
whole of Sorsogon.2 Jose Nelson Doloiras (Jose) served as KPE’s manager.
Bicol Gas Refilling Plant Corporation (Bicol Gas) was also in the business of
selling and distributing LPGs in Sorsogon but theirs carried the trademark
"Bicol Savers Gas." Petitioner Audie Llona managed Bicol Gas.
In the course of trade and competition, any given distributor of LPGs at
times acquired possession of LPG cylinder tanks belonging to other
distributors operating in the same area. They called these "captured
cylinders." According to Jose, KPE’s manager, in April 2001 Bicol Gas
agreed with KPE for the swapping of "captured cylinders" since one
distributor could not refill captured cylinders with its own brand of LPG.
At one time, in the course of implementing this arrangement, KPE’s Jose
visited the Bicol Gas refilling plant. While there, he noticed several Gasul
tanks in Bicol Gas’ possession. He requested a swap but Audie Llona of
Bicol Gas replied that he first needed to ask the permission of the Bicol
Gas owners. That permission was given and they had a swap involving
around 30 Gasul tanks held by Bicol Gas in exchange for assorted tanks
held by KPE.
KPE’s Jose noticed, however, that Bicol Gas still had a number of Gasul
tanks in its yard. He offered to make a swap for these but Llona declined,
saying the Bicol Gas owners wanted to send those tanks to Batangas. Later
Bicol Gas told Jose that it had no more Gasul tanks left in its possession.
Jose observed on almost a daily basis, however, that Bicol Gas’ trucks
which plied the streets of the province carried a load of Gasul tanks. He
noted that KPE’s volume of sales dropped significantly from June to July
2001.
On August 4, 2001 KPE’s Jose saw a particular Bicol Gas truck on the
Maharlika Highway. While the truck carried mostly Bicol Savers LPG tanks,
it had on it one unsealed 50-kg Gasul tank and one 50-kg Shellane tank.
Jose followed the truck and when it stopped at a store, he asked the
driver, Jun Leorena, and the Bicol Gas sales representative, Jerome Misal,
about the Gasul tank in their truck. They said it was empty but, when Jose
turned open its valve, he noted that it was not. Misal and Leorena then
admitted that the Gasul and Shellane tanks on their truck belonged to a
customer who had them filled up by Bicol Gas. Misal then mentioned that
his manager was a certain Rolly Mirabena.
Because of the above incident, KPE filed a complaint3 for violations of
Republic Act (R.A.) 623 (illegally filling up registered cylinder tanks), as
amended, and Sections 155 (infringement of trade marks) and 169.1
(unfair competition) of the Intellectual Property Code (R.A. 8293). The
complaint charged the following: Jerome Misal, Jun Leorena, Rolly
Mirabena, Audie Llona, and several John and Jane Does, described as the
directors, officers, and stockholders of Bicol Gas. These directors, officers,
and stockholders were eventually identified during the preliminary
investigation.
Subsequently, the provincial prosecutor ruled that there was probable
cause only for violation of R.A. 623 (unlawfully filling up registered tanks)
and that only the four Bicol Gas employees, Mirabena, Misal, Leorena, and
petitioner Llona, could be charged. The charge against the other
petitioners who were the stockholders and directors of the company was
dismissed.
Dissatisfied, Petron and KPE filed a petition for review with the Office of
the Regional State Prosecutor, Region V, which initially denied the petition
but partially granted it on motion for reconsideration. The Office of the
Regional State Prosecutor ordered the filing of additional informations
against the four employees of Bicol Gas for unfair competition. It ruled,
however, that no case for trademark infringement was present. The
Secretary of Justice denied the appeal of Petron and KPE and their motion
for reconsideration.
Undaunted, Petron and KPE filed a special civil action for certiorari with
the Court of Appeals4 but the Bicol Gas employees and stockholders
concerned opposed it, assailing the inadequacy in its certificate of non-
forum shopping, given that only Atty. Joel Angelo C. Cruz signed it on
behalf of Petron. In its Decision5 dated October 17, 2005, the Court of
Appeals ruled, however, that Atty. Cruz’s certification constituted
sufficient compliance. As to the substantive aspect of the case, the Court
of Appeals reversed the Secretary of Justice’s ruling. It held that unfair
competition does not necessarily absorb trademark infringement.
Consequently, the court ordered the filing of additional charges of
trademark infringement against the concerned Bicol Gas employees as
well.
Since the Bicol Gas employees presumably acted under the direct order
and control of its owners, the Court of Appeals also ordered the inclusion
of the stockholders of Bicol Gas in the various charges, bringing to 16 the
number of persons to be charged, now including petitioners Manuel C.
Espiritu, Jr., Freida F. Espiritu, Carlo F. Espiritu, Rafael F. Espiritu, Rolando
M. Mirabuna, Hermilyn A. Mirabuna, Kim Roland A. Mirabuna, Kaye Ann
A. Mirabuna, Ken Ryan A. Mirabuna, Juanito P. de Castro, Geronima A.
Almonite, and Manuel C. Dee (together with Audie Llona), collectively,
petitioners Espiritu, et al. The court denied the motion for reconsideration
of these employees and stockholders in its Resolution dated January 6,
2006, hence, the present petition for review6 before this Court.
The Issues Presented
The petition presents the following issues:
1. Whether or not the certificate of non-forum shopping that
accompanied the petition filed with the Court of Appeals, signed
only by Atty. Cruz on behalf of Petron, complied with what the
rules require;
2. Whether or not the facts of the case warranted the filing of
charges against the Bicol Gas people for:
a) Filling up the LPG tanks registered to another
manufacturer without the latter’s consent in violation
of R.A. 623, as amended;
b) Trademark infringement consisting in Bicol Gas’ use
of a trademark that is confusingly similar to Petron’s
registered "Gasul" trademark in violation of section
155 also of R.A. 8293; and
Page 61 of 106
c) Unfair competition consisting in passing off Bicol
Gas-produced LPGs for Petron-produced Gasul LPG in
violation of Section 168.3 of R.A. 8293.
The Court’s Rulings
First. Petitioners Espiritu, et al. point out that the certificate of non-forum
shopping that respondents KPE and Petron attached to the petition they
filed with the Court of Appeals was inadequate, having been signed only
by Petron, through Atty. Cruz.
But, while procedural requirements such as that of submittal of a
certificate of non-forum shopping cannot be totally disregarded, they may
be deemed substantially complied with under justifiable
circumstances.7 One of these circumstances is where the petitioners filed
a collective action in which they share a common interest in its subject
matter or raise a common cause of action. In such a case, the certification
by one of the petitioners may be deemed sufficient.8
Here, KPE and Petron shared a common cause of action against
petitioners Espiritu, et al., namely, the violation of their proprietary rights
with respect to the use of Gasul tanks and trademark. Furthermore, Atty.
Cruz said in his certification that he was executing it "for and on behalf of
the Corporation, and co-petitioner Carmen J. Doloiras."9Thus, the object
of the requirement – to ensure that a party takes no recourse to multiple
forums – was substantially achieved. Besides, the failure of KPE to sign the
certificate of non-forum shopping does not render the petition defective
with respect to Petron which signed it through Atty. Cruz.10 The Court of
Appeals, therefore, acted correctly in giving due course to the petition
before it.
Second. The Court of Appeals held that under the facts of the case, there
is probable cause that petitioners Espiritu, et al. committed all three
crimes: (a) illegally filling up an LPG tank registered to Petron without the
latter’s consent in violation of R.A. 623, as amended; (b) trademark
infringement which consists in Bicol Gas’ use of a trademark that is
confusingly similar to Petron’s registered "Gasul" trademark in violation of
Section 155 of R.A. 8293; and (c) unfair competition which consists in
petitioners Espiritu, et al. passing off Bicol Gas-produced LPGs for Petron-
produced Gasul LPG in violation of Section 168.3 of R.A. 8293.
Here, the complaint adduced at the preliminary investigation shows that
the one 50-kg Petron Gasul LPG tank found on the Bicol Gas’ truck
"belonged to [a Bicol Gas] customer who had the same filled up by BICOL
GAS."11 In other words, the customer had that one Gasul LPG tank brought
to Bicol Gas for refilling and the latter obliged.
R.A. 623, as amended,12 punishes any person who, without the written
consent of the manufacturer or seller of gases contained in duly registered
steel cylinders or tanks, fills the steel cylinder or tank, for the purpose of
sale, disposal or trafficking, other than the purpose for which the
manufacturer or seller registered the same. This was what happened in
this case, assuming the allegations of KPE’s manager to be true. Bicol Gas
employees filled up with their firm’s gas the tank registered to Petron and
bearing its mark without the latter’s written authority. Consequently, they
may be prosecuted for that offense.
But, as for the crime of trademark infringement, Section 155 of R.A. 8293
(in relation to Section 17013 ) provides that it is committed by any person
who shall, without the consent of the owner of the registered mark:
1. Use in commerce any reproduction, counterfeit, copy or
colorable imitation of a registered mark or the same container
 or a dominant feature thereof in connection with the sale,
offering for sale, distribution, advertising of any goods or
services including other preparatory steps necessary to carry
out the sale of any goods or services on or in connection with
which such use is likely to cause confusion, or to cause mistake,
or to deceive; or
2. Reproduce, counterfeit, copy or colorably imitate a registered
mark or a dominant feature thereof and apply such
reproduction, counterfeit, copy or colorable imitation to labels,
signs, prints, packages, wrappers, receptacles or
advertisements intended to be used in commerce upon or in
connection with the sale, offering for sale, distribution, or
advertising of goods or services on or in connection with which
such use is likely to cause confusion, or to cause mistake, or to
deceive.
KPE and Petron have to show that the alleged infringer, the responsible
officers and staff of Bicol Gas, used Petron’s Gasul trademark or a
confusingly similar trademark on Bicol Gas tanks with intent to deceive the
public and defraud its competitor as to what it is selling.14 Examples of this
would be the acts of an underground shoe manufacturer in Malabon
producing "Nike" branded rubber shoes or the acts of a local shirt
company with no connection to La Coste, producing and selling shirts that
bear the stitched logos of an open-jawed alligator.
Here, however, the allegations in the complaint do not show that Bicol
Gas painted on its own tanks Petron’s Gasul trademark or a confusingly
similar version of the same to deceive its customers and cheat Petron.
Indeed, in this case, the one tank bearing the mark of Petron Gasul found
in a truck full of Bicol Gas tanks was a genuine Petron Gasul tank, more of
a captured cylinder belonging to competition. No proof has been shown
that Bicol Gas has gone into the business of distributing imitation Petron
Gasul LPGs.
As to the charge of unfair competition, Section 168.3 (a) of R.A. 8293 (also
in relation to Section 170) describes the acts constituting the offense as
follows:
168.3. In particular, and without in any way limiting the scope of
protection against unfair competition, the following shall be deemed
guilty of unfair competition:
(a) Any person, who is selling his goods and gives them the general
appearance of goods of another manufacturer or dealer, either as to the
goods themselves or in the wrapping of the packages in which they are
contained, or the devices or words thereon, or in any other feature of their
appearance, which would be likely to influence purchasers to believe that
the goods offered are those of a manufacturer or dealer, other than the
actual manufacturer or dealer, or who otherwise clothes the goods with
such appearance as shall deceive the public and defraud another of his
legitimate trade, or any subsequent vendor of such goods or any agent of
any vendor engaged in selling such goods with a like purpose;
Essentially, what the law punishes is the act of giving one’s goods the
general appearance of the goods of another, which would likely mislead
the buyer into believing that such goods belong to the latter. Examples of
this would be the act of manufacturing or selling shirts bearing the logo of
an alligator, similar in design to the open-jawed alligator in La Coste shirts,
except that the jaw of the alligator in the former is closed, or the act of a
producer or seller of tea bags with red tags showing the shadow of a black
dog when his competitor is producing or selling popular tea bags with red
tags showing the shadow of a black cat.
Page 62 of 106
Here, there is no showing that Bicol Gas has been giving its LPG tanks the
general appearance of the tanks of Petron’s Gasul. As already stated, the
truckfull of Bicol Gas tanks that the KPE manager arrested on a road in
Sorsogon just happened to have mixed up with them one authentic Gasul
tank that belonged to Petron.
The only point left is the question of the liability of the stockholders and
members of the board of directors of Bicol Gas with respect to the charge
of unlawfully filling up a steel cylinder or tank that belonged to Petron.
The Court of Appeals ruled that they should be charged along with the
Bicol Gas employees who were pointed to as directly involved in overt acts
constituting the offense.1avvphi1
Bicol Gas is a corporation. As such, it is an entity separate and distinct from
the persons of its officers, directors, and stockholders. It has been held,
however, that corporate officers or employees, through whose act,
default or omission the corporation commits a crime, may themselves be
individually held answerable for the crime.15
Jose claimed in his affidavit that, when he negotiated the swapping of
captured cylinders with Bicol Gas, its manager, petitioner Audie Llona,
claimed that he would be consulting with the owners of Bicol Gas about
it. Subsequently, Bicol Gas declined the offer to swap cylinders for the
reason that the owners wanted to send their captured cylinders to
Batangas. The Court of Appeals seized on this as evidence that the
employees of Bicol Gas acted under the direct orders of its owners and
that "the owners of Bicol Gas have full control of the operations of the
business."16
The "owners" of a corporate organization are its stockholders and they are
to be distinguished from its directors and officers. The petitioners here,
with the exception of Audie Llona, are being charged in their capacities as
stockholders of Bicol Gas. But the Court of Appeals forgets that in a
corporation, the management of its business is generally vested in its
board of directors, not its stockholders.17 Stockholders are basically
investors in a corporation. They do not have a hand in running the day-to-
day business operations of the corporation unless they are at the same
time directors or officers of the corporation. Before a stockholder may be
held criminally liable for acts committed by the corporation, therefore, it
must be shown that he had knowledge of the criminal act committed in
the name of the corporation and that he took part in the same or gave his
consent to its commission, whether by action or inaction.
The finding of the Court of Appeals that the employees "could not have
committed the crimes without the consent, [abetment], permission, or
participation of the owners of Bicol Gas"18 is a sweeping speculation
especially since, as demonstrated above, what was involved was just one
Petron Gasul tank found in a truck filled with Bicol Gas tanks. Although the
KPE manager heard petitioner Llona say that he was going to consult the
owners of Bicol Gas regarding the offer to swap additional captured
cylinders, no indication was given as to which Bicol Gas stockholders Llona
consulted. It would be unfair to charge all the stockholders involved, some
of whom were proved to be minors.19 No evidence was presented
establishing the names of the stockholders who were charged with
running the operations of Bicol Gas. The complaint even failed to allege
who among the stockholders sat in the board of directors of the company
or served as its officers.
The Court of Appeals of course specifically mentioned petitioner
stockholder Manuel C. Espiritu, Jr. as the registered owner of the truck
that the KPE manager brought to the police for investigation because that
truck carried a tank of Petron Gasul. But the act that R.A. 623 punishes is
the unlawful filling up of registered tanks of another. It does not punish
the act of transporting such tanks. And the complaint did not allege that
the truck owner connived with those responsible for filling up that Gasul
tank with Bicol Gas LPG.
WHEREFORE, the Court REVERSES and SETS ASIDE the Decision of the
Court of Appeals in CA-G.R. SP 87711 dated October 17, 2005 as well as
its Resolution dated January 6, 2006, the Resolutions of the Secretary of
Justice dated March 11, 2004 and August 31, 2004, and the Order of the
Office of the Regional State Prosecutor, Region V, dated February 19,
2003. The Court REINSTATES the Resolution of the Office of the Provincial
Prosecutor of Sorsogon in I.S. 2001-9231 (inadvertently referred in the
Resolution itself as I.S. 2001-9234), dated February 26, 2002. The names
of petitioners Manuel C. Espiritu, Jr., Freida F. Espititu, Carlo F. Espiritu,
Rafael F. Espiritu, Rolando M. Mirabuna, Hermilyn A. Mirabuna, Kim
Roland A. Mirabuna, Kaye Ann A. Mirabuna, Ken Ryan A. Mirabuna,
Juanito P. De Castro, Geronima A. Almonite and Manuel C. Dee are
ORDERED excluded from the charge.
SO ORDERED.
G.R. No. 128690 January 21, 1999
ABS-CBN BROADCASTING CORPORATION, petitioner,
vs.
HONORABLE COURT OF APPEALS, REPUBLIC BROADCASTING CORP, VIVA
PRODUCTION, INC., and VICENTE DEL ROSARIO, respondents.
DAVIDE, JR., CJ.:
In this petition for review on certiorari, petitioner ABS-CBN Broadcasting
Corp. (hereafter ABS-CBN) seeks to reverse and set aside the decision 1 of
31 October 1996 and the resolution 2 of 10 March 1997 of the Court of
Appeals in CA-G.R. CV No. 44125. The former affirmed with modification
the decision 3 of 28 April 1993 of the Regional Trial Court (RTC) of Quezon
City, Branch 80, in Civil Case No. Q-92-12309. The latter denied the motion
to reconsider the decision of 31 October 1996.
The antecedents, as found by the RTC and adopted by the Court of
Appeals, are as follows:
In 1990, ABS-CBN and Viva executed a Film Exhibition
Agreement (Exh. "A") whereby Viva gave ABS-CBN an
exclusive right to exhibit some Viva films. Sometime
in December 1991, in accordance with paragraph 2.4
[sic] of said agreement stating that —.
1.4 ABS-CBN shall have the right of first refusal to the
next twenty-four (24) Viva films for TV telecast under
such terms as may be agreed upon by the parties
hereto, provided, however, that such right shall be
exercised by ABS-CBN from the actual offer in writing.
Viva, through defendant Del Rosario, offered ABS-
CBN, through its vice-president Charo Santos-Concio,
a list of three(3) film packages (36 title) from which
ABS-CBN may exercise its right of first refusal under
the afore-said agreement (Exhs. "1" par, 2, "2," "2-A''
and "2-B"-Viva). ABS-CBN, however through Mrs.
Concio, "can tick off only ten (10) titles" (from the list)
"we can purchase" (Exh. "3" - Viva) and therefore did
Page 63 of 106
not accept said list (TSN, June 8, 1992, pp. 9-10). The
titles ticked off by Mrs. Concio are not the subject of
the case at bar except the film ''Maging Sino Ka Man."
For further enlightenment, this rejection letter dated
January 06, 1992 (Exh "3" - Viva) is hereby quoted:
6 January 1992
Dear Vic,
This is not a very formal business letter I am writing to
you as I would like to express my difficulty in
recommending the purchase of the three film
packages you are offering ABS-CBN.
From among the three packages I can only tick off 10
titles we can purchase. Please see attached. I hope
you will understand my position. Most of the action
pictures in the list do not have big action stars in the
cast. They are not for primetime. In line with this I
wish to mention that I have not scheduled for telecast
several action pictures in out very first contract
because of the cheap production value of these
movies as well as the lack of big action stars. As a film
producer, I am sure you understand what I am trying
to say as Viva produces only big action pictures.
In fact, I would like to request two (2) additional runs
for these movies as I can only schedule them in our
non-primetime slots. We have to cover the amount
that was paid for these movies because as you very
well know that non-primetime advertising rates are
very low. These are the unaired titles in the first
contract.
1. Kontra Persa [sic].
2. Raider Platoon.
3. Underground guerillas
4. Tiger Command
5. Boy de Sabog
6. Lady Commando
7. Batang Matadero
8. Rebelyon
I hope you will consider this request of mine.
The other dramatic films have been offered to us
before and have been rejected because of the ruling
of MTRCB to have them aired at 9:00 p.m. due to their
very adult themes.
As for the 10 titles I have choosen [sic] from the 3
packages please consider including all the other Viva
movies produced last year. I have quite an attractive
offer to make.
Thanking you and with my warmest regards.
On February 27, 1992, defendant Del Rosario
approached ABS-CBN's Ms. Concio, with a list
consisting of 52 original movie titles (i.e. not yet aired
on television) including the 14 titles subject of the
present case, as well as 104 re-runs (previously aired
on television) from which ABS-CBN may choose
another 52 titles, as a total of 156 titles, proposing to
sell to ABS-CBN airing rights over this package of 52
originals and 52 re-runs for P60,000,000.00 of which
P30,000,000.00 will be in cash and P30,000,000.00
worth of television spots (Exh. "4" to "4-C" Viva; "9" -
Viva).
On April 2, 1992, defendant Del Rosario and ABS-CBN
general manager, Eugenio Lopez III, met at the
Tamarind Grill Restaurant in Quezon City to discuss
the package proposal of Viva. What transpired in that
lunch meeting is the subject of conflicting versions.
Mr. Lopez testified that he and Mr. Del Rosario
allegedly agreed that ABS-CRN was granted exclusive
film rights to fourteen (14) films for a total
consideration of P36 million; that he allegedly put this
agreement as to the price and number of films in a
"napkin'' and signed it and gave it to Mr. Del Rosario
(Exh. D; TSN, pp. 24-26, 77-78, June 8, 1992). On the
other hand, Del Rosario denied having made any
agreement with Lopez regarding the 14 Viva films;
denied the existence of a napkin in which Lopez wrote
something; and insisted that what he and Lopez
Page 64 of 106
discussed at the lunch meeting was Viva's film
package offer of 104 films (52 originals and 52 re-
runs) for a total price of P60 million. Mr. Lopez
promising [sic]to make a counter proposal which
came in the form of a proposal contract Annex "C" of
the complaint (Exh. "1"·- Viva; Exh. "C" - ABS-CBN).
On April 06, 1992, Del ( Rosario and Mr. Graciano
Gozon of RBS SeniorS vice-president for Finance
discussed the terms andi conditions of Viva's offer to
sell the 104 films, after
g the rejection of the same
package by ABS-CBN. n
e
On April 07, 1992, defendant
d Del Rosario received
through his secretary, )a handwritten note from Ms.
Concio, (Exh. "5" - Viva), which reads: "Here's the draft
of the contract. I hope Cyou find everything in order,"
to which was attachedha draft exhibition agreement
(Exh. "C''- ABS-CBN; Exh.a "9" - Viva, p. 3) a counter-
proposal covering 53 films,
r 52 of which came from the
list sent by defendant oDel Rosario and one film was
added by Ms. Concio,S for a consideration of P35
million. Exhibit "C" provides
a that ABS-CBN is granted
films right to 53 filmsnand contains a right of first
refusal to "1992 Vivat Films." The said counter
proposal was howevero rejected by Viva's Board of
Directors [in the] evening
s of the same day, April 7,
1992, as Viva would not - sell anything less than the
package of 104 films for C P60 million pesos (Exh. "9" -
Viva), and such rejectiono was relayed to Ms. Concio.
n
On April 29, 1992, aftercthe rejection of ABS-CBN and
following several negotiations
i and meetings
defendant Del Rosario oand Viva's President Teresita
Cruz, in consideration of P60 million, signed a letter of
agreement dated April 24, 1992. granting RBS the
exclusive right to air 104 Viva-produced and/or
acquired films (Exh. "7-A" - RBS; Exh. "4" - RBS)
including the fourteen (14) films subject of the
present case. 4
On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific
performance with a prayer for a writ of preliminary injunction and/or
temporary restraining order against private respondents Republic
Broadcasting Corporation 5 (hereafter RBS ), Viva Production (hereafter
VIVA), and Vicente Del Rosario. The complaint was docketed as Civil Case
No. Q-92-12309.
On 27 May 1992, RTC issued a temporary restraining order 6 enjoining
private respondents from proceeding with the airing, broadcasting, and
televising of the fourteen VIVA films subject of the controversy, starting
with the film Maging Sino Ka Man, which was scheduled to be shown on
private respondents RBS' channel 7 at seven o'clock in the evening of said
date.
On 17 June 1992, after appropriate proceedings, the RTC issued an
order 7 directing the issuance of a writ of preliminary injunction upon ABS-
CBN's posting of P35 million bond. ABS-CBN moved for the reduction of
the bond, 8 while private respondents moved for reconsideration of the
order and offered to put up a counterbound. 9
In the meantime, private respondents filed separate answers with
counterclaim. 10 RBS also set up a cross-claim against VIVA..
On 3 August 1992, the RTC issued an order 11 dissolving the writ of lift the
preliminary injunction upon the posting by RBS of a P30 million injunction;
counterbond to answer for whatever damages ABS-CBN might suffer by
virtue of such dissolution. However, it reduced petitioner's injunction b)
bond to P15 million as a condition precedent for the reinstatement of the P191,843.00
writ of preliminary injunction should private respondents be unable to for the
post a counterbond. amount of
print
At the pre-trial 12 on 6 August 1992, the parties, upon suggestion of the advertiseme
court, agreed to explore the possibility of an amicable settlement. In the nt for
meantime, RBS prayed for and was granted reasonable time within which "Maging Sino
to put up a P30 million counterbond in the event that no settlement would Ka Man" in
be reached. various
newspapers;
As the parties failed to enter into an amicable settlement RBS posted on
1 October 1992 a counterbond, which the RTC approved in its Order of 15 c) Attorney's
October 1992.13 fees in the
amount of P1
On 19 October 1992, ABS-CBN filed a motion for reconsideration 14 of the million;
3 August and 15 October 1992 Orders, which RBS opposed. 15
d) P5 million
On 29 October 1992, the RTC conducted a pre-trial. 16 as and by
way of moral
damages;
Pending resolution of its motion for reconsideration, ABS-CBN filed with
the Court of Appeals a petition17challenging the RTC's Orders of 3 August
and 15 October 1992 and praying for the issuance of a writ of preliminary e) P5 million
injunction to enjoin the RTC from enforcing said orders. The case was as and by
docketed as CA-G.R. SP No. 29300. way of
exemplary
damages;
On 3 November 1992, the Court of Appeals issued a temporary restraining
order18 to enjoin the airing, broadcasting, and televising of any or all of
the films involved in the controversy. (3) For defendant VIVA, plaintiff
ABS-CBN is ordered to pay
P212,000.00 by way of
On 18 December 1992, the Court of Appeals promulgated a
reasonable attorney's fees.
decision 19 dismissing the petition in CA -G.R. No. 29300 for being
premature. ABS-CBN challenged the dismissal in a petition for review filed
with this Court on 19 January 1993, which was docketed as G.R. No. (4) The cross-claim of defendant
108363. RBS against defendant VIVA is
dismissed.
In the meantime the RTC received the evidence for the parties in Civil Case
No. Q-192-1209. Thereafter, on 28 April 1993, it rendered a decision 20 in (5) Plaintiff to pay the costs.
favor of RBS and VIVA and against ABS-CBN disposing as follows:
According to the RTC, there was no meeting of minds on the price and
WHEREFORE, under cool reflection and prescinding terms of the offer. The alleged agreement between Lopez III and Del
from the foregoing, judgments is rendered in favor of Rosario was subject to the approval of the VIVA Board of Directors, and
defendants and against the plaintiff. said agreement was disapproved during the meeting of the Board on 7
April 1992. Hence, there was no basis for ABS-CBN's demand that VIVA
signed the 1992 Film Exhibition Agreement. Furthermore, the right of first
(1) The complaint is hereby
refusal under the 1990 Film Exhibition Agreement had previously been
dismissed;
exercised per Ms. Concio's letter to Del Rosario ticking off ten titles
acceptable to them, which would have made the 1992 agreement an
(2) Plaintiff ABS-CBN is ordered to entirely new contract.
pay defendant RBS the following:
On 21 June 1993, this Court denied21 ABS-CBN's petition for review in G.R.
a) No. 108363, as no reversible error was committed by the Court of Appeals
P107,727.00, in its challenged decision and the case had "become moot and academic
the amount in view of the dismissal of the main action by the court a quo in its
of premium decision" of 28 April 1993.
paid by RBS
to the surety
Aggrieved by the RTC's decision, ABS-CBN appealed to the Court of
which issued
Appeals claiming that there was a perfected contract between ABS-CBN
defendant
and VIVA granting ABS-CBN the exclusive right to exhibit the subject films.
RBS's bond to
Page 65 of 106
Private respondents VIVA and Del Rosario also appealed seeking moral
and exemplary damages and additional attorney's fees.
In its decision of 31 October 1996, the Court of Appeals agreed with the
RTC that the contract between ABS-CBN and VIVA had not been perfected,
absent the approval by the VIVA Board of Directors of whatever Del
Rosario, it's agent, might have agreed with Lopez III. The appellate court
did not even believe ABS-CBN's evidence that Lopez III actually wrote
down such an agreement on a "napkin," as the same was never produced
in court. It likewise rejected ABS-CBN's insistence on its right of first refusal
and ratiocinated as follows:
As regards the matter of right of first refusal, it may
be true that a Film Exhibition Agreement was entered
into between Appellant ABS-CBN and appellant VIVA
under Exhibit "A" in 1990, and that parag. 1.4 thereof
provides:
1.4 ABS-CBN shall have the right
of first refusal to the next twenty-
four (24) VIVA films for TV
telecast under such terms as may
be agreed upon by the parties
hereto, provided, however, that
such right shall be exercised by
ABS-CBN within a period of
fifteen (15) days from the actual
offer in writing (Records, p. 14).
[H]owever, it is very clear that said right of first refusal
in favor of ABS-CBN shall still be subject to such terms
as may be agreed upon by the parties thereto, and
that the said right shall be exercised by ABS-CBN
within fifteen (15) days from the actual offer in
writing.
Said parag. 1.4 of the agreement Exhibit "A" on the
right of first refusal did not fix the price of the film
right to the twenty-four (24) films, nor did it specify
the terms thereof. The same are still left to be agreed
upon by the parties.
In the instant case, ABS-CBN's letter of rejection
Exhibit 3 (Records, p. 89) stated that it can only tick
off ten (10) films, and the draft contract Exhibit "C"
accepted only fourteen (14) films, while parag. 1.4 of
Exhibit "A'' speaks of the next twenty-four (24) films.
The offer of V1VA was sometime in December 1991
(Exhibits 2, 2-A. 2-B; Records, pp. 86-88; Decision, p.
11, Records, p. 1150), when the first list of VIVA films
was sent by Mr. Del Rosario to ABS-CBN. The Vice
President of ABS-CBN, Ms. Charo Santos-Concio, sent
a letter dated January 6, 1992 (Exhibit 3, Records, p.
89) where ABS-CBN exercised its right of refusal by
rejecting the offer of VIVA.. As aptly observed by the
trial court, with the said letter of Mrs. Concio of
January 6, 1992, ABS-CBN had lost its right of first
refusal. And even if We reckon the fifteen (15) day
period from February 27, 1992 (Exhibit 4 to 4-C) when
another list was sent to ABS-CBN after the letter of
Mrs. Concio, still the fifteen (15) day period within
Page 66 of 106
which ABS-CBN shall exercise its right of first refusal
has already expired.22
Accordingly, respondent court sustained the award of actual damages
consisting in the cost of print advertisements and the premium payments
for the counterbond, there being adequate proof of the pecuniary loss
which RBS had suffered as a result of the filing of the complaint by ABS-
CBN. As to the award of moral damages, the Court of Appeals found
reasonable basis therefor, holding that RBS's reputation was debased by
the filing of the complaint in Civil Case No. Q-92-12309 and by the non-
showing of the film "Maging Sino Ka Man." Respondent court also held
that exemplary damages were correctly imposed by way of example or
correction for the public good in view of the filing of the complaint despite
petitioner's knowledge that the contract with VIVA had not been
perfected, It also upheld the award of attorney's fees, reasoning that with
ABS-CBN's act of instituting Civil Case No, Q-92-1209, RBS was
"unnecessarily forced to litigate." The appellate court, however, reduced
the awards of moral damages to P2 million, exemplary damages to P2
million, and attorney's fees to P500, 000.00.
On the other hand, respondent Court of Appeals denied VIVA and Del
Rosario's appeal because it was "RBS and not VIVA which was actually
prejudiced when the complaint was filed by ABS-CBN."
Its motion for reconsideration having been denied, ABS-CBN filed the
petition in this case, contending that the Court of Appeals gravely erred in
I
. . . RULING THAT THERE WAS NO PERFECTED
CONTRACT BETWEEN PETITIONER AND PRIVATE
RESPONDENT VIVA NOTWITHSTANDING
PREPONDERANCE OF EVIDENCE ADDUCED BY
PETITIONER TO THE CONTRARY.
II
. . . IN AWARDING ACTUAL AND COMPENSATORY
DAMAGES IN FAVOR OF PRIVATE RESPONDENT RBS.
III
. . . IN AWARDING MORAL AND EXEMPLARY
DAMAGES IN FAVOR OF PRIVATE RESPONDENT RBS.
IV
. . . IN AWARDING ATTORNEY'S FEES IN FAVOR OF RBS.
ABS-CBN claims that it had yet to fully exercise its right of first refusal over
twenty-four titles under the 1990 Film Exhibition Agreement, as it had
chosen only ten titles from the first list. It insists that we give credence to
Lopez's testimony that he and Del Rosario met at the Tamarind Grill
Restaurant, discussed the terms and conditions of the second list (the
1992 Film Exhibition Agreement) and upon agreement thereon, wrote the
same on a paper napkin. It also asserts that the contract has already been
effective, as the elements thereof, namely, consent, object, and
consideration were established. It then concludes that the Court of
Appeals' pronouncements were not supported by law and jurisprudence,
as per our decision of 1 December 1995 in Limketkai Sons Milling, Inc. v.
Court of Appeals, 23 which cited Toyota Shaw, Inc. v. Court of
Appeals, 24 Ang Yu Asuncion v. Court of Appeals, 25 and Villonco Realty
Company v. Bormaheco. Inc.26
Anent the actual damages awarded to RBS, ABS-CBN disavows liability
therefor. RBS spent for the premium on the counterbond of its own
volition in order to negate the injunction issued by the trial court after the
parties had ventilated their respective positions during the hearings for
the purpose. The filing of the counterbond was an option available to RBS,
but it can hardly be argued that ABS-CBN compelled RBS to incur such
expense. Besides, RBS had another available option, i.e., move for the
dissolution or the injunction; or if it was determined to put up a
counterbond, it could have presented a cash bond. Furthermore under
Article 2203 of the Civil Code, the party suffering loss or injury is also
required to exercise the diligence of a good father of a family to minimize
the damages resulting from the act or omission. As regards the cost of
print advertisements, RBS had not convincingly established that this was
a loss attributable to the non showing "Maging Sino Ka Man"; on the
contrary, it was brought out during trial that with or without the case or
the injunction, RBS would have spent such an amount to generate interest
in the film.
ABS-CBN further contends that there was no clear basis for the awards of
moral and exemplary damages. The controversy involving ABS-CBN and
RBS did not in any way originate from business transaction between them.
The claims for such damages did not arise from any contractual dealings
or from specific acts committed by ABS-CBN against RBS that may be
characterized as wanton, fraudulent, or reckless; they arose by virtue only
of the filing of the complaint, An award of moral and exemplary damages
is not warranted where the record is bereft of any proof that a party acted
maliciously or in bad faith in filing an action. 27 In any case, free resort to
courts for redress of wrongs is a matter of public policy. The law
recognizes the right of every one to sue for that which he honestly
believes to be his right without fear of standing trial for damages where
by lack of sufficient evidence, legal technicalities, or a different
interpretation of the laws on the matter, the case would lose
ground. 28 One who makes use of his own legal right does no injury. 29 If
damage results front the filing of the complaint, it is damnum absque
injuria. 30 Besides, moral damages are generally not awarded in favor of a
juridical person, unless it enjoys a good reputation that was debased by
the offending party resulting in social humiliation.31
As regards the award of attorney's fees, ABS-CBN maintains that the same
had no factual, legal, or equitable justification. In sustaining the trial
court's award, the Court of Appeals acted in clear disregard of the
doctrines laid down in Buan v. Camaganacan 32 that the text of the
decision should state the reason why attorney's fees are being awarded;
otherwise, the award should be disallowed. Besides, no bad faith has been
imputed on, much less proved as having been committed by, ABS-CBN. It
has been held that "where no sufficient showing of bad faith would be
reflected in a party' s persistence in a case other than an erroneous
conviction of the righteousness of his cause, attorney's fees shall not be
recovered as cost." 33
On the other hand, RBS asserts that there was no perfected contract
between ABS-CBN and VIVA absent any meeting of minds between them
regarding the object and consideration of the alleged contract. It affirms
that the ABS-CBN's claim of a right of first refusal was correctly rejected
by the trial court. RBS insist the premium it had paid for the counterbond
constituted a pecuniary loss upon which it may recover. It was obliged to
put up the counterbound due to the injunction procured by ABS-CBN.
Since the trial court found that ABS-CBN had no cause of action or valid
claim against RBS and, therefore not entitled to the writ of injunction, RBS
could recover from ABS-CBN the premium paid on the counterbond.
Contrary to the claim of ABS-CBN, the cash bond would prove to be more
Page 67 of 106
expensive, as the loss would be equivalent to the cost of money RBS would
forego in case the P30 million came from its funds or was borrowed from
banks.
RBS likewise asserts that it was entitled to the cost of advertisements for
the cancelled showing of the film "Maging Sino Ka Man" because the print
advertisements were put out to announce the showing on a particular day
and hour on Channel 7, i.e., in its entirety at one time, not a series to be
shown on a periodic basis. Hence, the print advertisement were good and
relevant for the particular date showing, and since the film could not be
shown on that particular date and hour because of the injunction, the
expenses for the advertisements had gone to waste.
As regards moral and exemplary damages, RBS asserts that ABS-CBN filed
the case and secured injunctions purely for the purpose of harassing and
prejudicing RBS. Pursuant then to Article 19 and 21 of the Civil Code, ABS-
CBN must be held liable for such damages. Citing Tolentino,34 damages
may be awarded in cases of abuse of rights even if the act done is not illicit
and there is abuse of rights were plaintiff institutes and action purely for
the purpose of harassing or prejudicing the defendant.
In support of its stand that a juridical entity can recover moral and
exemplary damages, private respondents RBS cited People
v. Manero,35 where it was stated that such entity may recover moral and
exemplary damages if it has a good reputation that is debased resulting in
social humiliation. it then ratiocinates; thus:
There can be no doubt that RBS' reputation has been
debased by ABS-CBN's acts in this case. When RBS was
not able to fulfill its commitment to the viewing public
to show the film "Maging Sino Ka Man" on the
scheduled dates and times (and on two occasions that
RBS advertised), it suffered serious embarrassment
and social humiliation. When the showing was
canceled, late viewers called up RBS' offices and
subjected RBS to verbal abuse ("Announce kayo nang
announce, hindi ninyo naman ilalabas," "nanloloko
yata kayo") (Exh. 3-RBS, par. 3). This alone was not
something RBS brought upon itself. it was exactly
what ABS-CBN had planned to happen.
The amount of moral and exemplary damages cannot
be said to be excessive. Two reasons justify the
amount of the award.
The first is that the humiliation suffered by RBS is
national extent. RBS operations as a broadcasting
company is [sic] nationwide. Its clientele, like that of
ABS-CBN, consists of those who own and watch
television. It is not an exaggeration to state, and it is a
matter of judicial notice that almost every other
person in the country watches television. The
humiliation suffered by RBS is multiplied by the
number of televiewers who had anticipated the
showing of the film "Maging Sino Ka Man" on May 28
and November 3, 1992 but did not see it owing to the
cancellation. Added to this are the advertisers who
had placed commercial spots for the telecast and to
whom RBS had a commitment in consideration of the
placement to show the film in the dates and times
specified.
 The second is that it is a competitor that caused RBS
to suffer the humiliation. The humiliation and injury
are far greater in degree when caused by an entity
whose ultimate business objective is to lure
customers (viewers in this case) away from the
competition. 36
For their part, VIVA and Vicente del Rosario contend that the findings of
fact of the trial court and the Court of Appeals do not support ABS-CBN's
claim that there was a perfected contract. Such factual findings can no
longer be disturbed in this petition for review under Rule 45, as only
questions of law can be raised, not questions of fact. On the issue of
damages and attorneys fees, they adopted the arguments of RBS.
The key issues for our consideration are (1) whether there was a perfected
contract between VIVA and ABS-CBN, and (2) whether RBS is entitled to
damages and attorney's fees. It may be noted that the award of attorney's
fees of P212,000 in favor of VIVA is not assigned as another error.
I.
The first issue should be resolved against ABS-CBN. A contract is a meeting
of minds between two persons whereby one binds himself to give
something or to render some service to another 37 for a consideration.
there is no contract unless the following requisites concur: (1) consent of
the contracting parties; (2) object certain which is the subject of the
contract; and (3) cause of the obligation, which is established.38 A contract
undergoes three stages:
(a) preparation, conception, or generation, which is
the period of negotiation and bargaining, ending at
the moment of agreement of the parties;
(b) perfection or birth of the contract, which is the
moment when the parties come to agree on the terms
of the contract; and
(c) consummation or death, which is the fulfillment or
performance of the terms agreed upon in the
contract. 39
Contracts that are consensual in nature are perfected upon mere meeting
of the minds, Once there is concurrence between the offer and the
acceptance upon the subject matter, consideration, and terms of payment
a contract is produced. The offer must be certain. To convert the offer into
a contract, the acceptance must be absolute and must not qualify the
terms of the offer; it must be plain, unequivocal, unconditional, and
without variance of any sort from the proposal. A qualified acceptance, or
one that involves a new proposal, constitutes a counter-offer and is a
rejection of the original offer. Consequently, when something is desired
which is not exactly what is proposed in the offer, such acceptance is not
sufficient to generate consent because any modification or variation from
the terms of the offer annuls the offer.40
When Mr. Del Rosario of VIVA met with Mr. Lopez of ABS-CBN at the
Tamarind Grill on 2 April 1992 to discuss the package of films, said package
of 104 VIVA films was VIVA's offer to ABS-CBN to enter into a new Film
Exhibition Agreement. But ABS-CBN, sent, through Ms. Concio, a counter-
proposal in the form of a draft contract proposing exhibition of 53 films
for a consideration of P35 million. This counter-proposal could be nothing
less than the counter-offer of Mr. Lopez during his conference with Del
Rosario at Tamarind Grill Restaurant. Clearly, there was no acceptance of
Page 68 of 106
VIVA's offer, for it was met by a counter-offer which substantially varied
the terms of the offer.
ABS-CBN's reliance in Limketkai Sons Milling, Inc. v. Court of
Appeals 41 and Villonco Realty Company v. Bormaheco, Inc., 42 is
misplaced. In these cases, it was held that an acceptance may contain a
request for certain changes in the terms of the offer and yet be a binding
acceptance as long as "it is clear that the meaning of the acceptance is
positively and unequivocally to accept the offer, whether such request is
granted or not." This ruling was, however, reversed in the resolution of 29
March 1996, 43 which ruled that the acceptance of all offer must be
unqualified and absolute, i.e., it "must be identical in all respects with that
of the offer so as to produce consent or meeting of the minds."
On the other hand, in Villonco, cited in Limketkai, the alleged changes in
the revised counter-offer were not material but merely clarificatory of
what had previously been agreed upon. It cited the statement in Stuart
v. Franklin Life Insurance Co.44 that "a vendor's change in a phrase of the
offer to purchase, which change does not essentially change the terms of
the offer, does not amount to a rejection of the offer and the tender of a
counter-offer." 45However, when any of the elements of the contract is
modified upon acceptance, such alteration amounts to a counter-offer.
In the case at bar, ABS-CBN made no unqualified acceptance of VIVA's
offer. Hence, they underwent a period of bargaining. ABS-CBN then
formalized its counter-proposals or counter-offer in a draft contract, VIVA
through its Board of Directors, rejected such counter-offer, Even if it be
conceded arguendo that Del Rosario had accepted the counter-offer, the
acceptance did not bind VIVA, as there was no proof whatsoever that Del
Rosario had the specific authority to do so.
Under Corporation Code,46 unless otherwise provided by said Code,
corporate powers, such as the power; to enter into contracts; are
exercised by the Board of Directors. However, the Board may delegate
such powers to either an executive committee or officials or contracted
managers. The delegation, except for the executive committee, must be
for specific purposes, 47 Delegation to officers makes the latter agents of
the corporation; accordingly, the general rules of agency as to the
bindings effects of their acts would
apply. 48 For such officers to be deemed fully clothed by the corporation
to exercise a power of the Board, the latter must specially authorize them
to do so. That Del Rosario did not have the authority to accept ABS-CBN's
counter-offer was best evidenced by his submission of the draft contract
to VIVA's Board of Directors for the latter's approval. In any event, there
was between Del Rosario and Lopez III no meeting of minds. The following
findings of the trial court are instructive:
A number of considerations militate against ABS-
CBN's claim that a contract was perfected at that
lunch meeting on April 02, 1992 at the Tamarind Grill.
FIRST, Mr. Lopez claimed that what was agreed upon
at the Tamarind Grill referred to the price and the
number of films, which he wrote on a napkin.
However, Exhibit "C" contains numerous provisions
which, were not discussed at the Tamarind Grill, if
Lopez testimony was to be believed nor could they
have been physically written on a napkin. There was
even doubt as to whether it was a paper napkin or a
cloth napkin. In short what were written in Exhibit "C''
were not discussed, and therefore could not have
been agreed upon, by the parties. How then could this
 court compel the parties to sign Exhibit "C" when the As the parties had not yet discussed the proposed terms and conditions in
provisions thereof were not previously agreed upon?
SECOND, Mr. Lopez claimed that what was agreed
upon as the subject matter of the contract was 14
films. The complaint in fact prays for delivery of 14
films. But Exhibit "C" mentions 53 films as its subject
matter. Which is which If Exhibits "C" reflected the
true intent of the parties, then ABS-CBN's claim for 14
films in its complaint is false or if what it alleged in the FIFTH. Mr. Lopez understand [sic] that what he and Mr. Del Rosario agreed
complaint is true, then Exhibit "C" did not reflect what
was agreed upon by the parties. This underscores the
fact that there was no meeting of the minds as to the
subject matter of the contracts, so as to preclude
perfection thereof. For settled is the rule that there
can be no contract where there is no object which is
its subject matter (Art. 1318, NCC).
THIRD, Mr. Lopez [sic] answer to question 29 of his
affidavit testimony (Exh. "D") states:
We were able to reach an agreement. VIVA gave us the exclusive
license to show these fourteen (14) films, and we agreed to pay
Viva the amount of P16,050,000.00 as well as grant Viva
commercial slots worth P19,950,000.00. We had already
earmarked this P16, 050,000.00.
which gives a total consideration of P36 million
(P19,950,000.00 plus P16,050,000.00. equals
P36,000,000.00).
On cross-examination Mr. Lopez testified:
Q. What was written in this napkin?
A. The total price, the breakdown the known Viva
movies, the 7 blockbuster movies and the other 7
Viva movies because the price was broken down
accordingly. The none [sic] Viva and the seven
other Viva movies and the sharing between the
cash portion and the concerned spot portion in
the total amount of P35 million pesos.
Now, which is which? P36 million or P35 million? This weakens ABS-CBN's
claim.
FOURTH. Mrs. Concio, testifying for ABS-CBN stated that she transmitted
Exhibit "C" to Mr. Del Rosario with a handwritten
note, describing said Exhibit "C" as a "draft." (Exh. "5"
- Viva; tsn pp. 23-24 June 08, 1992). The said draft has
a well defined meaning.
Since Exhibit "C" is only a draft, or a tentative, provisional or preparatory
writing prepared for discussion, the terms and
conditions thereof could not have been previously
agreed upon by ABS-CBN and Viva Exhibit "C'' could
not therefore legally bind Viva, not having agreed
thereto. In fact, Ms. Concio admitted that the terms
and conditions embodied in Exhibit "C" were
prepared by ABS-CBN's lawyers and there was no
discussion on said terms and conditions. . . .
Page 69 of 106
Exhibit "C," and there was no evidence whatsoever
that Viva agreed to the terms and conditions thereof,
said document cannot be a binding contract. The fact
that Viva refused to sign Exhibit "C" reveals only two
[sic] well that it did not agree on its terms and
conditions, and this court has no authority to compel
Viva to agree thereto.
upon at the Tamarind Grill was only provisional, in the
sense that it was subject to approval by the Board of
Directors of Viva. He testified:
Q. Now, Mr. Witness, and after that Tamarind meeting
... the second meeting wherein
you claimed that you have the
meeting of the minds between
you and Mr. Vic del Rosario, what
happened?
A. Vic Del Rosario was supposed to call us up and tell us
specifically the result of the
discussion with the Board of
Directors.
Q. And you are referring to the so-called agreement
which you wrote in [sic] a piece of
paper?
A. Yes, sir.
Q. So, he was going to forward that to the board of
Directors for approval?
A. Yes, sir. (Tsn, pp. 42-43, June 8, 1992)
Q. Did Mr. Del Rosario tell you that he will submit it to
his Board for approval?
A. Yes, sir. (Tsn, p. 69, June 8, 1992).
The above testimony of Mr. Lopez shows beyond
doubt that he knew Mr. Del Rosario had no authority
to bind Viva to a contract with ABS-CBN until and
unless its Board of Directors approved it. The
complaint, in fact, alleges that Mr. Del Rosario "is the
Executive Producer of defendant Viva" which "is a
corporation." (par. 2, complaint). As a mere agent of
Viva, Del Rosario could not bind Viva unless what he
did is ratified by its Board of Directors. (Vicente
vs. Geraldez, 52 SCRA 210; Arnold vs. Willetsand
Paterson, 44 Phil. 634). As a mere agent, recognized
as such by plaintiff, Del Rosario could not be held
liable jointly and severally with Viva and his inclusion
as party defendant has no legal basis. (Salonga
vs. Warner Barner [sic] , COLTA , 88 Phil. 125; Salmon
vs. Tan, 36 Phil. 556).
The testimony of Mr. Lopez and the allegations in the
complaint are clear admissions that what was
supposed to have been agreed upon at the Tamarind
 Grill between Mr. Lopez and Del Rosario was not a
binding agreement. It is as it should be because
corporate power to enter into a contract is lodged in
the Board of Directors. (Sec. 23, Corporation Code).
Without such board approval by the Viva board,
whatever agreement Lopez and Del Rosario arrived at
could not ripen into a valid contract binding upon Viva
(Yao Ka Sin Trading vs. Court of Appeals, 209 SCRA
763). The evidence adduced shows that the Board of
Directors of Viva rejected Exhibit "C" and insisted that
the film package for 140 films be maintained (Exh. "7-
1" - Viva ). 49
The contention that ABS-CBN had yet to fully exercise its right of first
refusal over twenty-four films under the 1990 Film Exhibition Agreement
and that the meeting between Lopez and Del Rosario was a continuation
of said previous contract is untenable. As observed by the trial court, ABS-
CBN right of first refusal had already been exercised when Ms. Concio
wrote to VIVA ticking off ten films, Thus:
[T]he subsequent negotiation with ABS-CBN two (2)
months after this letter was sent, was for an entirely
different package. Ms. Concio herself admitted on
cross-examination to having used or exercised the
right of first refusal. She stated that the list was not
acceptable and was indeed not accepted by ABS-CBN,
(TSN, June 8, 1992, pp. 8-10). Even Mr. Lopez himself
admitted that the right of the first refusal may have
been already exercised by Ms. Concio (as she had).
(TSN, June 8, 1992, pp. 71-75). Del Rosario himself
knew and understand [sic] that ABS-CBN has lost its
rights of the first refusal when his list of 36 titles were
rejected (Tsn, June 9, 1992, pp. 10-11) 50
II
However, we find for ABS-CBN on the issue of damages. We shall first take
up actual damages. Chapter 2, Title XVIII, Book IV of the Civil Code is the
specific law on actual or compensatory damages. Except as provided by
law or by stipulation, one is entitled to compensation for actual damages
only for such pecuniary loss suffered by him as he has duly proved. 51 The
indemnification shall comprehend not only the value of the loss suffered,
but also that of the profits that the obligee failed to obtain. 52 In contracts
and quasi-contracts the damages which may be awarded are dependent
on whether the obligor acted with good faith or otherwise, It case of good
faith, the damages recoverable are those which are the natural and
probable consequences of the breach of the obligation and which the
parties have foreseen or could have reasonably foreseen at the time of
the constitution of the obligation. If the obligor acted with fraud, bad faith,
malice, or wanton attitude, he shall be responsible for all damages which
may be reasonably attributed to the non-performance of the
obligation. 53 In crimes and quasi-delicts, the defendant shall be liable for
all damages which are the natural and probable consequences of the act
or omission complained of, whether or not such damages has been
foreseen or could have reasonably been foreseen by the defendant.54
Actual damages may likewise be recovered for loss or impairment of
earning capacity in cases of temporary or permanent personal injury, or
for injury to the plaintiff's business standing or commercial credit.55
The claim of RBS for actual damages did not arise from contract, quasi-
contract, delict, or quasi-delict. It arose from the fact of filing of the
complaint despite ABS-CBN's alleged knowledge of lack of cause of action.
Page 70 of 106
Thus paragraph 12 of RBS's Answer with Counterclaim and Cross-claim
under the heading COUNTERCLAIM specifically alleges:
12. ABS-CBN filed the complaint knowing fully well
that it has no cause of action RBS. As a result thereof,
RBS suffered actual damages in the amount of
P6,621,195.32. 56
Needless to state the award of actual damages cannot be comprehended
under the above law on actual damages. RBS could only probably take
refuge under Articles 19, 20, and 21 of the Civil Code, which read as
follows:
Art. 19. Every person must, in the exercise of his rights
and in the performance of his duties, act with justice,
give everyone his due, and observe honesty and good
faith.
Art. 20. Every person who, contrary to law, wilfully or
negligently causes damage to another, shall
indemnify the latter for tile same.
Art. 21. Any person who wilfully causes loss or injury
to another in a manner that is contrary to morals,
good customs or public policy shall compensate the
latter for the damage.
It may further be observed that in cases where a writ of preliminary
injunction is issued, the damages which the defendant may suffer by
reason of the writ are recoverable from the injunctive bond. 57 In this case,
ABS-CBN had not yet filed the required bond; as a matter of fact, it asked
for reduction of the bond and even went to the Court of Appeals to
challenge the order on the matter, Clearly then, it was not necessary for
RBS to file a counterbond. Hence, ABS-CBN cannot be held responsible for
the premium RBS paid for the counterbond.
Neither could ABS-CBN be liable for the print advertisements for "Maging
Sino Ka Man" for lack of sufficient legal basis. The RTC issued a temporary
restraining order and later, a writ of preliminary injunction on the basis of
its determination that there existed sufficient ground for the issuance
thereof. Notably, the RTC did not dissolve the injunction on the ground of
lack of legal and factual basis, but because of the plea of RBS that it be
allowed to put up a counterbond.
As regards attorney's fees, the law is clear that in the absence of
stipulation, attorney's fees may be recovered as actual or compensatory
damages under any of the circumstances provided for in Article 2208 of
the Civil Code. 58
The general rule is that attorney's fees cannot be recovered as part of
damages because of the policy that no premium should be placed on the
right to litigate.59 They are not to be awarded every time a party wins a
suit. The power of the court to award attorney's fees under Article 2208
demands factual, legal, and equitable justification.60Even when claimant
is compelled to litigate with third persons or to incur expenses to protect
his rights, still attorney's fees may not be awarded where no sufficient
showing of bad faith could be reflected in a party's persistence in a case
other than erroneous conviction of the righteousness of his cause. 61
As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of
the Civil Code. Article 2217 thereof defines what are included in moral
damages, while Article 2219 enumerates the cases where they may be
recovered, Article 2220 provides that moral damages may be recovered
in breaches of contract where the defendant acted fraudulently or in bad
faith. RBS's claim for moral damages could possibly fall only under item
(10) of Article 2219, thereof which reads:
(10) Acts and actions referred to in Articles 21, 26, 27,
28, 29, 30, 32, 34, and 35.
Moral damages are in the category of an award designed to compensate
the claimant for actual injury suffered. and not to impose a penalty on the
wrongdoer.62 The award is not meant to enrich the complainant at the
expense of the defendant, but to enable the injured party to obtain
means, diversion, or amusements that will serve to obviate then moral
suffering he has undergone. It is aimed at the restoration, within the limits
of the possible, of the spiritual status quo ante, and should be
proportionate to the suffering inflicted.63 Trial courts must then guard
against the award of exorbitant damages; they should exercise balanced
restrained and measured objectivity to avoid suspicion that it was due to
passion, prejudice, or corruption on the part of the trial court. 64
The award of moral damages cannot be granted in favor of a corporation
because, being an artificial person and having existence only in legal
contemplation, it has no feelings, no emotions, no senses, It cannot,
therefore, experience physical suffering and mental anguish, which call be
experienced only by one having a nervous system. 65 The statement
in People v. Manero 66 and Mambulao Lumber Co. v. PNB 67 that a
corporation may recover moral damages if it "has a good reputation that
is debased, resulting in social humiliation" is an obiter dictum. On this
score alone the award for damages must be set aside, since RBS is a
corporation.
The basic law on exemplary damages is Section 5, Chapter 3, Title XVIII,
Book IV of the Civil Code. These are imposed by way of example or
correction for the public good, in addition to moral, temperate, liquidated
or compensatory damages. 68 They are recoverable in criminal cases as
part of the civil liability when the crime was committed with one or more
aggravating circumstances; 69 in quasi-contracts, if the defendant acted
with gross negligence; 70 and in contracts and quasi-contracts, if the
defendant acted in a wanton, fraudulent, reckless, oppressive, or
malevolent manner.71
It may be reiterated that the claim of RBS against ABS-CBN is not based on
contract, quasi-contract, delict, or quasi-delict, Hence, the claims for
moral and exemplary damages can only be based on Articles 19, 20, and
21 of the Civil Code.
The elements of abuse of right under Article 19 are the following: (1) the
existence of a legal right or duty, (2) which is exercised in bad faith, and
(3) for the sole intent of prejudicing or injuring another. Article 20 speaks
of the general sanction for all other provisions of law which do not
especially provide for their own sanction; while Article 21 deals with
acts contra bonus mores, and has the following elements; (1) there is an
act which is legal, (2) but which is contrary to morals, good custom, public
order, or public policy, and (3) and it is done with intent to injure. 72
Verily then, malice or bad faith is at the core of Articles 19, 20, and 21.
Malice or bad faith implies a conscious and intentional design to do a
wrongful act for a dishonest purpose or moral obliquity. 73 Such must be
substantiated by evidence. 74
There is no adequate proof that ABS-CBN was inspired by malice or bad
faith. It was honestly convinced of the merits of its cause after it had
undergone serious negotiations culminating in its formal submission of a
Page 71 of 106
draft contract. Settled is the rule that the adverse result of an action does
not per se make the action wrongful and subject the actor to damages, for
the law could not have meant to impose a penalty on the right to litigate.
If damages result from a person's exercise of a right, it is damnum absque
injuria.75
WHEREFORE, the instant petition is GRANTED. The challenged decision of
the Court of Appeals in CA-G.R. CV No, 44125 is hereby REVERSED except
as to unappealed award of attorney's fees in favor of VIVA Productions,
Inc.1âwphi1.nêt
No pronouncement as to costs.
SO ORDERED.
G.R. No. L-6776 May 21, 1955
THE REGISTER OF DEEDS OF RIZAL, petitioner-appellee,
vs.
UNG SIU SI TEMPLE, respondent-appellant.
Alejo F. Candido for appellant.
Office of the Solicitor General Querube C. Makalintal and Solicitor Felix V.
Makasiar for appellee.
REYES, J.B.L., J.:
The Register of Deeds for the province of Rizal refused to accept for record
a deed of donation executed in due form on January 22, 1953, by Jesus
Dy, a Filipino citizen, conveying a parcel of residential land, in Caloocan,
Rizal, known as lot No. 2, block 48-D, PSD-4212, G.L.R.O. Record No.
11267, in favor of the unregistered religious organization "Ung Siu Si
Temple", operating through three trustees all of Chinese nationality. The
donation was duly accepted by Yu Juan, of Chinese nationality, founder
and deaconess of the Temple, acting in representation and in behalf of the
latter and its trustees.
The refusal of the Registrar was elevated en Consultato the IVth Branch of
the Court of First Instance of Manila. On March 14, 1953, the Court upheld
the action of the Rizal Register of Deeds, saying:
The question raised by the Register of Deeds in the above
transcribed consulta is whether a deed of donation of a parcel
of land executed in favor of a religious organization whose
founder, trustees and administrator are Chinese citizens should
be registered or not.
It appearing from the record of the Consulta that UNG SIU SI
TEMPLE is a religious organization whose deaconess, founder,
trustees and administrator are all Chinese citizens, this Court is
of the opinion and so hold that in view of the provisions of the
sections 1 and 5 of Article XIII of the Constitution of the
Philippines limiting the acquisition of land in the Philippines to
its citizens, or to corporations or associations at least sixty per
centum of the capital stock of which is owned by such citizens
adopted after the enactment of said Act No. 271, and the
decision of the Supreme Court in the case of Krivenko vs. the
Register of Deeds of Manila, the deed of donation in question
should not be admitted for admitted for registration. (Printed
Rec. App. pp 17-18).
Not satisfied with the ruling of the Court of First Instance, counsel for the
donee Uy Siu Si Temple has appealed to this Court, claiming: (1) that the
acquisition of the land in question, for religious purposes, is authorized
and permitted by Act No. 271 of the old Philippine Commission, providing
as follows:
SECTION 1. It shall be lawful for all religious associations, of
whatever sort or denomination, whether incorporated in the
Philippine Islands or in the name of other country, or not
incorporated at all, to hold land in the Philippine Islands upon
which to build churches, parsonages, or educational or
charitable institutions.
SEC. 2. Such religious institutions, if not incorporated, shall hold
the land in the name of three Trustees for the use of such
associations; . . .. (Printed Rec. App. p. 5.)
and (2) that the refusal of the Register of Deeds violates the freedom of
religion clause of our Constitution [Art. III, Sec. 1(7)].
We are of the opinion that the Court below has correctly held that in view
of the absolute terms of section 5, Title XIII, of the Constitution, the
provisions of Act No. 271 of the old Philippine Commission must be
deemed repealed since the Constitution was enacted, in so far as
incompatible therewith. In providing that, —
Save in cases of hereditary succession, no private agricultural
land shall be transferred or assigned except to individuals,
corporations or associations qualified to acquire or hold lands
of the public domain in the Philippines,
the Constitution makes no exception in favor of religious associations.
Neither is there any such saving found in sections 1 and 2 of Article XIII,
restricting the acquisition of public agricultural lands and other natural
resources to "corporations or associations at least sixty per centum of the
capital of which is owned by such citizens" (of the Philippines).
The fact that the appellant religious organization has no capital stock does
not suffice to escape the Constitutional inhibition, since it is admitted that
its members are of foreign nationality. The purpose of the sixty per
centum requirement is obviously to ensure that corporations or
associations allowed to acquire agricultural land or to exploit natural
resources shall be controlled by Filipinos; and the spirit of the Constitution
demands that in the absence of capital stock, the controlling membership
should be composed of Filipino citizens.
To permit religious associations controlled by non-Filipinos to acquire
agricultural lands would be to drive the opening wedge to revive alien
religious land holdings in this country. We can not ignore the historical fact
that complaints against land holdings of that kind were among the factors
that sparked the revolution of 1896.
As to the complaint that the disqualification under article XIII is violative
of the freedom of religion guaranteed by Article III of the Constitution, we
are by no means convinced (nor has it been shown) that land tenure is
indispensable to the free exercise and enjoyment of religious profession
or worship; or that one may not worship the Deity according to the
dictates of his own conscience unless upon land held in fee simple.
The resolution appealed from is affirmed, with costs against appellant.
G.R. No. L-8451 December 20, 1957
Page 72 of 106
THE ROMAN CATHOLIC APOSTOLIC ADMINISTRATOR OF DAVAO,
INC., petitioner,
vs.
THE LAND REGISTRATION COMMISSION and THE REGISTER OF DEEDS OF
DAVAO CITY, respondents.
Teodoro Padilla, for petitioner.
Office of the Solicitor General Ambrosio Padilla, Assistant Solicitor General
Jose G. Bautista and Troadio T. Quianzon, Jr., for respondents.
FELIX, J.:
This is a petition for mandamus filed by the Roman Catholic Apostolic
Administrator of Davao seeking the reversal of a resolution by the Land
Registration Commissioner in L.R.C. Consulta No. 14. The facts of the case
are as follows:
On October 4, 1954, Mateo L. Rodis, a Filipino citizen and resident of the
City of Davao, executed a deed of sale of a parcel of land located in the
same city covered by Transfer Certificate No. 2263, in favor of the Roman
Catholic Apostolic Administrator of Davao Inc., s corporation sole
organized and existing in accordance with Philippine Laws, with Msgr.
Clovis Thibault, a Canadian citizen, as actual incumbent. When the deed
of sale was presented to Register of Deeds of Davao for registration, the
latter.
having in mind a previous resolution of the Fourth Branch of the
Court of First Instance of Manila wherein the Carmelite Nuns of
Davao were made to prepare an affidavit to the effect that 60
per cent of the members of their corporation were Filipino
citizens when they sought to register in favor of their
congregation of deed of donation of a parcel of land—
required said corporation sole to submit a similar affidavit declaring that
60 per cent of the members thereof were Filipino citizens.
The vendee in the letter dated June 28, 1954, expressed willingness to
submit an affidavit, both not in the same tenor as that made the Progress
of the Carmelite Nuns because the two cases were not similar, for whereas
the congregation of the Carmelite Nuns had five incorporators, the
corporation sole has only one; that according to their articles of
incorporation, the organization of the Carmelite Nuns became the owner
of properties donated to it, whereas the case at bar, the totality of the
Catholic population of Davao would become the owner of the property
bought to be registered.
As the Register of Deeds entertained some doubts as to the registerability
if the document, the matter was referred to the Land Registration
Commissioner en consulta for resolution in accordance with section 4 of
Republic Act No. 1151. Proper hearing on the matter was conducted by
the Commissioner and after the petitioner corporation had filed its
memorandum, a resolution was rendered on September 21, 1954, holding
that in view of the provisions of Section 1 and 5 of Article XIII of the
Philippine Constitution, the vendee was not qualified to acquire private
lands in the Philippines in the absence of proof that at least 60 per centum
of the capital, property, or assets of the Roman Catholic Apostolic
Administrator of Davao, Inc., was actually owned or controlled by Filipino
citizens, there being no question that the present incumbent of the
corporation sole was a Canadian citizen. It was also the opinion of the Land
Registration Commissioner that section 159 of the corporation Law relied
upon by the vendee was rendered operative by the aforementioned
provisions of the Constitution with respect to real estate, unless the
precise condition set therein — that at least 60 per cent of its capital is
owned by Filipino citizens — be present, and, therefore, ordered the
Registered Deeds of Davao to deny registration of the deed of sale in the
absence of proof of compliance with such condition.
After the motion to reconsider said resolution was denied, an action
for mandamus was instituted with this Court by said corporation sole,
alleging that under the Corporation Law as well as the settled
jurisprudence on the matter, the deed of sale executed by Mateo L. Rodis
in favor of petitioner is actually a deed of sale in favor of the Catholic
Church which is qualified to acquire private agricultural lands for the
establishment and maintenance of places of worship, and prayed that
judgment be rendered reserving and setting aside the resolution of the
Land Registration Commissioner in question. In its resolution of November
15, 1954, this Court gave due course to this petition providing that the
procedure prescribed for appeals from the Public Service Commission of
the Securities and Exchange Commissions (Rule 43), be followed.
Section 5 of Article XIII of the Philippine Constitution reads as follows:
SEC. 5. Save in cases of hereditary succession, no private
agricultural land shall be transferred or assigned except to
individuals, corporations, or associations qualified to acquire or
hold lands of the public domain in the Philippines.
Section 1 of the same Article also provides the following:
SECTION 1. All agricultural, timber, and mineral lands of the public domain,
water, minerals, coal, petroleum, and other mineral oils, all forces of
potential energy, and other natural resources of the Philippines belong to
the State, and their disposition, exploitation, development, or utilization
shall be limited to cititzens of the Philippines, or to corporations or
associations at least sixty per centum of the capital of which is owned by
such citizens, SUBJECT TO ANY EXISTING RIGHT, grant, lease, or concession
AT THE TIME OF THE INAUGURATION OF THE GOVERNMENT ESTABLISHED
UNDER CONSTITUTION. Natural resources, with the exception of public
agricultural land, shall not be alienated, and no license, concession, or
leases for the exploitation, development, or utilization of any of the
natural resources shall be granted for a period exceeding twenty-five
years, renewable for another twenty-five years, except as to water rights
for irrigation, water supply, fisheries, or industrial uses other than the
development of water power, in which cases other than the development
and limit of the grant.
In virtue of the foregoing mandates of the Constitution, who are
considered "qualified" to acquire and hold agricultural lands in the
Philippines? What is the effect of these constitutional prohibition of the
right of a religious corporation recognized by our Corporation Law and
registered as a corporation sole, to possess, acquire and register real
estates in its name when the Head, Manager, Administrator or actual
incumbent is an alien?
Petitioner consistently maintained that a corporation sole, irrespective of
the citizenship of its incumbent, is not prohibited or disqualified to acquire
and hold real properties. The Corporation Law and the Canon Law are
explicit in their provisions that a corporation sole or "ordinary" is not the
owner of the of the properties that he may acquire but merely the
administrator thereof. The Canon Law also specified that church
temporalities are owned by the Catholic Church as a "moral person" or by
the diocess as minor "moral persons" with the ordinary or bishop as
administrator.
Page 73 of 106
And elaborating on the composition of the Catholic Church in the
Philippines, petitioner explained that as a religious society or organization,
it is made up of 2 elements or divisions — the clergy or religious members
and the faithful or lay members. The 1948 figures of the Bureau of Census
showed that there were 277,551 Catholics in Davao and aliens residing
therein numbered 3,465. Ever granting that all these foreigners are
Catholics, petitioner contends that Filipino citizens form more than 80 per
cent of the entire Catholics population of that area. As to its clergy and
religious composition, counsel for petitioner presented the Catholic
Directory of the Philippines for 1954 (Annex A) which revealed that as of
that year, Filipino clergy and women novices comprise already 60.5 per
cent of the group. It was, therefore, allowed that the constitutional
requirement was fully met and satisfied.
Respondents, on the other hand, averred that although it might be true
that petitioner is not the owner of the land purchased, yet he has control
over the same, with full power to administer, take possession of, alienate,
transfer, encumber, sell or dispose of any or all lands and their
improvements registered in the name of the corporation sole and can
collect, receive, demand or sue for all money or values of any kind that
may be kind that may become due or owing to said corporation, and
vested with authority to enter into agreements with any persons,
concerns or entities in connection with said real properties, or in other
words, actually exercising all rights of ownership over the properties. It
was their stand that the theory that properties registered in the name of
the corporation sole are held in true for the benefit of the Catholic
population of a place, as of Davao in the case at bar should be sustained
because a conglomeration of persons cannot just be pointed out as the
cestui que trust or recipient of the benefits from the property allegedly
administered in their behalf. Neither can it be said that the mass of people
referred to as such beneficiary exercise ant right of ownership over the
same. This set-up, respondents argued, falls short of a trust. The
respondents instead tried to prove that in reality, the beneficiary of
ecclesiastical properties are not members or faithful of the church but
someone else, by quoting a portion a portion of the ought of fidelity
subscribed by a bishop upon his elevation to the episcopacy wherein he
promises to render to the Pontificial Father or his successors an account
of his pastoral office and of all things appertaining to the state of this
church.
Respondents likewise advanced the opinion that in construing the
constitutional provision calling for 60 per cent of Filipino citizenship, the
criterion of the properties or assets thereof.
In solving the problem thus submitted to our consideration, We can say
the following: A corporation sole is a special form of corporation usually
associated with the clergy. Conceived and introduced into the common
law by sheer necessity, this legal creation which was referred to as "that
unhappy freak of English law" was designed to facilitate the exercise of
the functions of ownership carried on by the clerics for and on behalf of
the church which was regarded as the property owner (See I Couvier's Law
Dictionary, p. 682-683).
A corporation sole consists of one person only, and his successors (who
will always be one at a time), in some particular station, who are
incorporated by law in order to give them some legal capacities and
advantages, particularly that of perpetuity, which in their natural persons
they could not have had. In this sense, the king is a sole corporation; so is
a bishop, or dens, distinct from their several chapters (Reid vs. Barry, 93
Fla. 849, 112 So. 846).
The provisions of our Corporation law on religious corporations are
illuminating and sustain the stand of petitioner. Section 154 thereof
provides:
 SEC. 154. — For the administration of the temporalities of any
religious denomination, society or church and the management
of the estates and the properties thereof, it shall be lawful for
the bishop, chief priest, or presiding either of any such religious
denomination, society or church to become a corporation sole,
unless inconsistent wit the rules, regulations or discipline of his
religious denomination, society or church or forbidden by
competent authority thereof.
See also the pertinent provisions of the succeeding sections of the same
Corporation Law copied hereunder:
SEC. 155. In order to become a corporation sole the bishop,
chief priest, or presiding elder of any religious denomination,
society or church must file with the Securities and Exchange
Commissioner articles of incorporation setting forth the
following facts:
xxx xxx xxx.
(3) That as such bishop, chief priest, or presiding elder he
is charged with the administration of the temporalities and the
management of the estates and properties of his religious
denomination, society, or church within its territorial
jurisdiction, describing it;
xxx xxx xxx.
(As amended by Commonwealth Act No. 287).
SEC. 157. From and after the filing with the Securities and
Exchange Commissioner of the said articles of incorporation,
which verified by affidavit or affirmation as aforesaid and
accompanied by the copy of the commission, certificate of
election, or letters of appointment of the bishop, chief priest, or
presiding elder, duly certified as prescribed in the section
immediately preceding such the bishop, chief priest, or
presiding elder, as the case may be, shall become a corporation
sole and all temporalities, estates, and properties the religious
denomination, society, or church therefore administered or
managed by him as such bishop, chief priest, or presiding elder,
shall be held in trust by him as a corporation sole, for the use,
purpose, behalf, and sole benefit of his religious denomination,
society, or church, including hospitals, schools, colleges, orphan,
asylums, parsonages, and cemeteries thereof. For the filing of
such articles of incorporation, the Securities and Exchange
Commissioner shall collect twenty-five pesos. (As amended by
Commonwealth Act. No. 287); and.
SEC. 163. The right to administer all temporalities and all
property held or owned by a religious order or society, or by the
diocese, synod, or district organization of any religious
denomination or church shall, on its incorporation, pass to the
corporation and shall be held in trust for the use, purpose
behalf, and benefit of the religious society, or order so
incorporated or of the church of which the diocese, or district
organization is an organized and constituent part.
The Cannon Law contains similar provisions regarding the duties of the
corporation sole or ordinary as administrator of the church properties, as
follows:
Page 74 of 106
Al Ordinario local pertenence vigilar diligentemente sobre
la administracion de todos los bienes eclesiasticos que se hallan
en su territorio y no estuvieren sustraidos de su jurisdiccion,
salvs las prescriciones legitimas que le concedan mas aamplios
derechos.
Teniendo en cuenta los derechos y las legitimas costumbres y
circunstancias, procuraran los Ordinarios regular todo lo
concerniente a la administracion de los bienes eclesciasticos,
dando las oportunas instucciones particularles dentro del narco
del derecho comun. (Title XXVIII, Codigo de Derecho Canonico,
Lib. III, Canon 1519).1
That leaves no room for doubt that the bishops or archbishops, as the case
may be, as corporation's sole are merely administrators of the church
properties that come to their possession, in which they hold in trust for
the church. It can also be said that while it is true that church properties
could be administered by a natural persons, problems regarding
succession to said properties can not be avoided to rise upon his death.
Through this legal fiction, however, church properties acquired by the
incumbent of a corporation sole pass, by operation of law, upon his death
not his personal heirs but to his successor in office. It could be seen,
therefore, that a corporation sole is created not only to administer the
temporalities of the church or religious society where he belongs but also
to hold and transmit the same to his successor in said office. If the
ownership or title to the properties do not pass to the administrators, who
are the owners of church properties?.
Bouscaren and Elis, S.J., authorities on cannon law, on their treatise
comment:
In matters regarding property belonging to the Universal Church
and to the Apostolic See, the Supreme Pontiff exercises his
office of supreme administrator through the Roman Curia; in
matters regarding other church property, through the
administrators of the individual moral persons in the Church
according to that norms, laid down in the Code of Cannon
Law. This does not mean, however, that the Roman Pontiff is the
owner of all the church property; but merely that he is the
supreme guardian (Bouscaren and Ellis, Cannon Law, A Text and
Commentary, p. 764).
and this Court, citing Campes y Pulido, Legislacion y Jurisprudencia
Canonica, ruled in the case of Trinidad vs. Roman Catholic Archbishop of
Manila, 63 Phil. 881, that:
The second question to be decided is in whom the ownership of
the properties constituting the endowment of the ecclesiastical
or collative chaplaincies is vested.
Canonists entertain different opinions as to the persons in
whom the ownership of the ecclesiastical properties is vested,
with respect to which we shall, for our purpose, confine
ourselves to stating with Donoso that, while many doctors cited
by Fagnano believe that it resides in the Roman Pontiff as Head
of the Universal Church, it is more probable that ownership,
strictly speaking, does not reside in the latter, and,
consequently, ecclesiastical properties are owned by the
churches, institutions and canonically established private
corporations to which said properties have been donated.
Considering that nowhere can We find any provision conferring ownership
of church properties on the Pope although he appears to be the supreme
administrator or guardian of his flock, nor on the corporation sole or heads
of dioceses as they are admittedly mere administrators of said properties,
ownership of these temporalities logically fall and develop upon the
church, diocese or congregation acquiring the same. Although this
question of ownership of ecclesiastical properties has off and on been
mentioned in several decisions of the Court yet in no instance was the
subject of citizenship of this religious society been passed upon.
We are not unaware of the opinion expressed by the late Justice Perfecto
in his dissent in the case of Agustines vs. Court of First Instance of Bulacan,
80 Phil. 565, to the effect that "the Roman Catholic Archbishop of Manila
is only a branch of a universal church by the Pope, with permanent
residence in Rome, Italy". There is no question that the Roman Catholic
Church existing in the Philippines is a tributary and part of the
international religious organization, for the word "Roman" clearly
expresses its unity with and recognizes the authority of the Pope in Rome.
However, lest We become hasty in drawing conclusions, We have to
analyze and take note of the nature of the government established in the
Vatican City, of which it was said:
GOVERNMENT. In the Roman Catholic Church supreme
authority and jurisdiction over clergy and laity alike as held by
the pope who (since the Middle Ages) is elected by the cardinals
assembled in conclave, and holds office until his death or
legitimate abdication. . . While the pope is obviously
independent of the laws made, and the officials appointed, by
himself or his predecessors, he usually exercises his
administrative authority according to the code of canon law and
through the congregations, tribunals and offices of the Curia
Romana. In their respective territories (called generally
dioceses) and over their respective subjects, the patriarchs,
metropolitans or archbishops and bishops exercise a jurisdiction
which is called ordinary (as attached by law to an office given to
a person. . . (Collier's Encyclopedia, Vol. 17, p. 93).
While it is true and We have to concede that in the profession of their
faith, the Roman Pontiff is the supreme head; that in the religious matters,
in the exercise of their belief, the Catholic congregation of the faithful
throughout the world seeks the guidance and direction of their Spiritual
Father in the Vatican, yet it cannot be said that there is a merger of
personalities resultant therein. Neither can it be said that the political and
civil rights of the faithful, inherent or acquired under the laws of their
country, are affected by that relationship with the Pope. The fact that the
Roman Catholic Church in almost every country springs from that society
that saw its beginning in Europe and the fact that the clergy of this faith
derive their authorities and receive orders from the Holy See do not give
or bestow the citizenship of the Pope upon these branches. Citizenship is
a political right which cannot be acquired by a sort of "radiation". We have
to realize that although there is a fraternity among all the catholic
countries and the dioceses therein all over the globe, the universality that
the word "catholic" implies, merely characterize their faith, a uniformity
in the practice and the interpretation of their dogma and in the exercise
of their belief, but certainly they are separate and independent from one
another in jurisdiction, governed by different laws under which they are
incorporated, and entirely independent on the others in the management
and ownership of their temporalities. To allow theory that the Roman
Catholic Churches all over the world follow the citizenship of their
Supreme Head, the Pontifical Father, would lead to the absurdity of
finding the citizens of a country who embrace the Catholic faith and
become members of that religious society, likewise citizens of the Vatican
or of Italy. And this is more so if We consider that the Pope himself may
be an Italian or national of any other country of the world. The same thing
be said with regard to the nationality or citizenship of the corporation sole
created under the laws of the Philippines, which is not altered by the
Page 75 of 106
change of citizenship of the incumbent bishops or head of said
corporation sole.
We must therefore, declare that although a branch of the Universal
Roman Catholic Apostolic Church, every Roman Catholic Church in
different countries, if it exercises its mission and is lawfully incorporated
in accordance with the laws of the country where it is located, is
considered an entity or person with all the rights and privileges granted to
such artificial being under the laws of that country, separate and distinct
from the personality of the Roman Pontiff or the Holy See, without
prejudice to its religious relations with the latter which are governed by
the Canon Law or their rules and regulations.
We certainly are conscious of the fact that whatever conclusion We may
draw on this matter will have a far reaching influence, nor can We
overlook the pages of history that arouse indignation and criticisms
against church landholdings. This nurtured feeling that snowbailed into a
strong nationalistic sentiment manifested itself when the provisions on
natural to be embodied in the Philippine Constitution were framed, but all
that has been said on this regard referred more particularly to
landholdings of religious corporations known as "Friar Estates" which have
already bee acquired by our government, and not to properties held by
corporations sole which, We repeat, are properties held in trust for the
benefit of the faithful residing within its territorial jurisdiction. Though
that same feeling probably precipitated and influenced to a large extent
the doctrine laid down in the celebrated Krivenco decision, We have to
take this matter in the light of legal provisions and jurisprudence actually
obtaining, irrespective of sentiments.
The question now left for our determination is whether the Universal
Roman Catholic Apostolic Church in the Philippines, or better still, the
corporation sole named the Roman Catholic Apostolic Administrator of
Davao, Inc., is qualified to acquire private agricultural lands in the
Philippines pursuant to the provisions of Article XIII of the Constitution.
We see from sections 1 and 5 of said Article quoted before, that only
persons or corporations qualified to acquire hold lands of the public
domain in the Philippines may acquire or be assigned and hold private
agricultural lands. Consequently, the decisive factor in the present
controversy hinges on the proposition or whether or not the petitioner in
this case can acquire agricultural lands of the public domain.
From the data secured from the Securities and Exchange Commission, We
find that the Roman Catholic Bishop of Zamboanga was incorporated (as
a corporation sole) in September, 1912, principally to administer its
temporalities and manage its properties. Probably due to the ravages of
the last war, its articles of incorporation were reconstructed in the
Securities and Exchange Commission on April 8, 1948. At first, this
corporation sole administered all the temporalities of the church existing
or located in the island of Mindanao. Later on, however, new dioceses
were formed and new corporations sole were created to correspond with
the territorial jurisdiction of the new dioceses, one of them being
petitioner herein, the Roman Catholic Apostolic Administrator of Davao,
Inc., which was registered with the Securities and Exchange Commission
on September 12, 1950, and succeeded in the administrative for all the
"temporalities" of the Roman Catholic Church existing in Davao.
According to our Corporation Law, Public Act No. 1549, approved April 1,
1906, a corporation sole.
is organized and composed of a single individual, the head of any
religious society or church, for the ADMINISTRATION of the
temporalities of such society or church. By "temporalities" is
 meant estate and properties not used exclusively for religious
worship. The successor in office of such religious head or chief
priest incorporated as a corporation sole shall become the
corporation sole on ascension to office, and shall be permitted
to transact business as such on filing with the Securities and
Exchange Commission a copy of his commission, certificate of
election or letter of appointment duly certified by any notary
public or clerk of court of record (Guevara's The Philippine
Corporation Law, p. 223).
The Corporation Law also contains the following provisions:
SECTION 159. Any corporation sole may purchase and hold real
estate and personal; property for its church, charitable,
benevolent, or educational purposes, and may receive bequests
or gifts of such purposes. Such corporation may mortgage or sell
real property held by it upon obtaining an order for that purpose
from the Court of First Instance of the province in which the
property is situated; but before making the order proof must be
made to the satisfaction of the Court that notice of the
application for leave to mortgage or sell has been given by
publication or otherwise in such manner and for such time as
said Court or the Judge thereof may have directed, and that it is
to the interest of the corporation that leave to mortgage or sell
must be made by petition, duly verified by the bishop, chief
priest, or presiding elder acting as corporation sole, and may be
opposed by any member of the religious denomination, society
or church represented by the corporation sole: Provided,
however, That in cases where the rules, regulations, and
discipline of the religious denomination, society or church
concerned represented by such corporation sole regulate the
methods of acquiring, holding, selling and mortgaging real
estate and personal property, such rules, regulations, and
discipline shall control and the intervention of the Courts shall
not be necessary.
It can, therefore, be noticed that the power of a corporation sole to
purchase real property, like the power exercised in the case at bar, it is not
restricted although the power to sell or mortgage sometimes is,
depending upon the rules, regulations, and discipline of the church
concerned represented by said corporation sole. If corporations sole can
purchase and sell real estate for its church, charitable, benevolent, or
educational purposes, can they register said real properties? As provided
by law, lands held in trust for specific purposes me be subject of
registration (section 69, Act 496), and the capacity of a corporation sole,
like petitioner herein, to register lands belonging to it is acknowledged,
and title thereto may be issued in its name (Bishop of Nueva Segovia vs.
Insular Government, 26 Phil. 300-1913). Indeed it is absurd that while the
corporations sole that might be in need of acquiring lands for the erection
of temples where the faithful can pray, or schools and cemeteries which
they are expressly authorized by law to acquire in connection with the
propagation of the Roman Catholic Apostolic faith or in furtherance of
their freedom of religion they could not register said properties in their
name. As professor Javier J. Nepomuceno very well says "Man in his search
for the immortal and imponderable, has, even before the dawn of
recorded history, erected temples to the Unknown God, and there is no
doubt that he will continue to do so for all time to come, as long as he
continues 'imploring the aid of Divine Providence'" (Nepomuceno's
Corporation Sole, VI Ateneo Law Journal, No. 1, p. 41, September, 1956).
Under the circumstances of this case, We might safely state that even
before the establishment of the Philippine Commonwealth and of the
Republic of the Philippines every corporation sole then organized and
registered had by express provision of law the necessary power and
qualification to purchase in its name private lands located in the territory
Page 76 of 106
in which it exercised its functions or ministry and for which it was created,
independently of the nationality of its incumbent unique and single
member and head, the bishop of the dioceses. It can be also maintained
without fear of being gainsaid that the Roman Catholic Apostolic Church
in the Philippines has no nationality and that the framers of the
Constitution, as will be hereunder explained, did not have in mind the
religious corporations sole when they provided that 60 per centum of the
capital thereof be owned by Filipino citizens.
There could be no controversy as to the fact that a duly registered
corporation sole is an artificial being having the right of succession and the
power, attributes, and properties expressly authorized by law or incident
to its existence (section 1, Corporation Law). In outlining the general
powers of a corporation. Public Act. No. 1459 provides among others:
SEC. 13. Every corporation has the power:
(5) To purchase, hold, convey, sell, lease, lot, mortgage,
encumber, and otherwise deal with such real and personal
property as the purpose for which the corporation was formed
may permit, and the transaction of the lawful business of the
corporation may reasonably and necessarily require, unless
otherwise prescribed in this Act: . . .
In implementation of the same and specially made applicable to a form of
corporation recognized by the same law, Section 159 aforequoted
expressly allowed the corporation sole to purchase and hold real as well
as personal properties necessary for the promotion of the objects for
which said corporation sole is created. Respondent Land Registration
Commissioner, however, maintained that since the Philippine
Constitution is a later enactment than public Act No. 1459, the provisions
of Section 159 in amplification of Section 13 thereof, as regard real
properties, should be considered repealed by the former.
There is a reason to believe that when the specific provision of the
Constitution invoked by respondent Commissioner was under
consideration, the framers of the same did not have in mind or overlooked
this particular form of corporation. It is undeniable that the naturalization
and conservation of our national resources was one of the dominating
objectives of the Convention and in drafting the present Article XII of the
Constitution, the delegates were goaded by the desire (1) to insure their
conservation for Filipino posterity; (2) to serve as an instrument of
national defense, helping prevent the extension into the country of
foreign control through peaceful economic penetration; and (3) to
prevent making the Philippines a source of international conflicts with the
consequent danger to its internal security and independence (See The
Framing of the Philippine Constitution by Professor Jose M. Aruego, a
Delegate to the Constitutional Convention, Vol. II. P. 592-604). In the same
book Delegate Aruego, explaining the reason behind the first
consideration, wrote:
At the time of the framing of Philippine Constitution, Filipino
capital had been to be rather shy. Filipinos hesitated s a general
rule to invest a considerable sum of their capital for the
development, exploitation and utilization of the natural
resources of the country. They had not as yet been so used to
corporate as the peoples of the west. This general apathy, the
delegates knew, would mean the retardation of the
development of the natural resources, unless foreign capital
would be encouraged to come and help in that
development. They knew that the naturalization of the natural
resources would certainly not encourage the INVESTMENT OF
FOREIGN CAPITAL into them. But there was a general feeling in
 the Convention that it was better to have such a development
retarded or even postpone together until such time when the
Filipinos would be ready and willing to undertake it rather than
permit the natural resources to be placed under the ownership
or control of foreigners in order that they might be immediately
be developed, with the Filipinos of the future serving not as
owners but utmost as tenants or workers under foreign
masters. By all means, the delegates believed, the natural
resources should be conserved for Filipino posterity.
It could be distilled from the foregoing that the farmers of the Constitution
intended said provisions as barrier for foreigners or corporations financed
by such foreigners to acquire, exploit and develop our natural resources,
saving these undeveloped wealth for our people to clear and enrich when
they are already prepared and capable of doing so. But that is not the case
of corporations sole in the Philippines, for, We repeat, they are mere
administrators of the "temporalities" or properties titled in their name and
for the benefit of the members of their respective religion composed of
an overwhelming majority of Filipinos. No mention nor allusion
whatsoever is made in the Constitution as to the prohibition against or the
liability of the Roman Catholic Church in the Philippines to acquire and
hold agricultural lands. Although there were some discussions on
landholdings, they were mostly confined in the inclusion of the provision
allowing the Government to break big landed estates to put an end to
absentee landlordism.
But let us suppose, for the sake of argument, that the above referred to
inhibitory clause of Section 1 of Article XIII of the constitution does have
bearing on the petitioner's case; even so the clause requiring that at least
60 per centum of the capital of the corporation be owned by Filipinos is
subordinated to the petitioner's aforesaid right already existing at the
time of the inauguration of the Commonwealth and the Republic of the
Philippines. In the language of Mr. Justice Jose P. Laurel (a delegate to the
Constitutional Convention), in his concurring opinion of the case of Gold
Creek mining Corporation, petitioner vs. Eulogio Rodriguez, Secretary of
Agriculture and Commerce, and Quirico Abadilla, Director of the Bureau
of Mines, respondent, 66 Phil. 259:
The saving clause in the section involved of the Constitution was
originally embodied in the report submitted by the Committee
on Naturalization and Preservation of Land and Other Natural
Resources to the Constitutional Convention on September 17,
1954. It was later inserted in the first draft of the Constitution
as section 13 of Article XIII thereof, and finally incorporated as
we find it now. Slight have been the changes undergone by the
proviso from the time when it comes out of the committee until
it was finally adopted. When first submitted and as inserted to
the first draft of the Constitution it reads: 'subject to any right,
grant, lease, or concession existing in respect thereto on the
date of the adoption of the Constitution'. As finally adopted, the
proviso reads: 'subject to any existing right, grant, lease, or
concession at the time of the inauguration of the Government
established under this Constitution'. This recognition is not
mere graciousness but springs form the just character of the
government established. The framers of the Constitution were
not obscured by the rhetoric of democracy or swayed to
hostility by an intense spirit of nationalism. They well knew that
conservation of our natural resources did not mean destruction
or annihilation of acquired property rights. Withal, they erected
a government neither episodic nor stationary but well-nigh
conservative in the protection of property rights. This
notwithstanding nationalistic and socialistic traits discoverable
upon even a sudden dip into a variety of the provisions
embodied in the instrument.
Page 77 of 106
The writer of this decision wishes to state at this juncture that during the
deliberation of this case he submitted to the consideration of the Court
the question that may be termed the "vested right saving clause"
contained in Section 1, Article XII of the Constitution, but some of the
members of this Court either did not agree with the theory of the writer,
or were not ready to take a definite stand on the particular point I am now
to discuss deferring our ruling on such debatable question for a better
occasion, inasmuch as the determination thereof is not absolutely
necessary for the solution of the problem involved in this case. In his
desire to face the issues squarely, the writer will endeavor, at least as a
disgression, to explain and develop his theory, not as a lucubration of the
Court, but of his own, for he deems it better and convenient to go over
the cycle of reasons that are linked to one another and that step by step
lead Us to conclude as We do in the dispositive part of this decision.
It will be noticed that Section 1 of Article XIII of the Constitution provides,
among other things, that "all agricultural lands of the public domain and
their disposition shall be limited to citizens of the Philippines or
to corporations at least 60 per centum of the capital of which is owned by
such citizens, SUBJECT TO ANY EXISTING RIGHT AT THE TIME OF THE
INAUGURATION OF THE GOVERNMENT ESTABLISHED UNDER THIS
CONSTITUTION."
As recounted by Mr. Justice Laurel in the aforementioned case of Gold
Creek Mining Corporation vs. Rodriguez et al., 66 Phil. 259, "this
recognition (in the clause already quoted), is not mere graciousness but
springs from the just character of the government established. The farmers
of the Constitution were not obscured by the rhetoric of democracy or
swayed to hostility by an intense spirit of nationalism. They well knew that
conservation of our natural resources did not mean destruction or
annihilation of ACQUIRED PROPERTY RIGHTS".
But respondents' counsel may argue that the preexisting right of
acquisition of public or private lands by a corporation which does not fulfill
this 60 per cent requisite, refers to purchases of the Constitution and not
to later transactions. This argument would imply that even assuming that
petitioner had at the time of the enactment of the Constitution the right
to purchase real property or right could not be exercised after the
effectivity of our Constitution, because said power or right of corporations
sole, like the herein petitioner, conferred in virtue of the aforequoted
provisions of the Corporation Law, could no longer be exercised in view of
the requisite therein prescribed that at least 60 per centum of the capital
of the corporation had to be Filipino. It has been shown before that: (1)
the corporation sole, unlike the ordinary corporations which are formed
by no less than 5 incorporators, is composed of only one persons, usually
the head or bishop of the diocese, a unit which is not subject to expansion
for the purpose of determining any percentage whatsoever; (2) the
corporation sole is only the administrator and not the owner of the
temporalities located in the territory comprised by said corporation sole;
(3) such temporalities are administered for and on behalf of the faithful
residing in the diocese or territory of the corporation sole; and (4) the
latter, as such, has no nationality and the citizenship of the incumbent
Ordinary has nothing to do with the operation, management or
administration of the corporation sole, nor effects the citizenship of the
faithful connected with their respective dioceses or corporation sole.
In view of these peculiarities of the corporation sole, it would seem
obvious that when the specific provision of the Constitution invoked by
respondent Commissioner (section 1, Art. XIII), was under consideration,
the framers of the same did not have in mind or overlooked this particular
form of corporation. If this were so, as the facts and circumstances already
indicated tend to prove it to be so, then the inescapable conclusion would
be that this requirement of at least 60 per cent of Filipino capital was
never intended to apply to corporations sole, and the existence or not a
vested right becomes unquestionably immaterial.
But let us assumed that the questioned proviso is material. yet We might
say that a reading of said Section 1 will show that it does not refer to any
actual acquisition of land up to the right, qualification or power to
acquire and hold private real property. The population of the Philippines,
Catholic to a high percentage, is ever increasing. In the practice of religion
of their faithful the corporation sole may be in need of more temples
where to pray, more schools where the children of the congregation could
be taught in the principles of their religion, more hospitals where their sick
could be treated, more hallow or consecrated grounds or cemeteries
where Catholics could be buried, many more than those actually existing
at the time of the enactment of our Constitution. This being the case,
could it be logically maintained that because the corporation sole which,
by express provision of law, has the power to hold and acquire real estate
and personal property of its churches, charitable benevolent, or
educational purposes (section 159, Corporation Law) it has to stop its
growth and restrain its necessities just because the corporation sole is a
non-stock corporation composed of only one person who in his unity does
not admit of any percentage, especially when that person is not the owner
but merely an administrator of the temporalities of the corporation sole?
The writer leaves the answer to whoever may read and consider this
portion of the decision.
Anyway, as stated before, this question is not a decisive factor in disposing
the case, for even if We were to disregard such saving clause of the
Constitution, which reads: subject to any existing right, grant, etc., at the
same time of the inauguration of the Government established under this
Constitution, yet We would have, under the evidence on record, sufficient
grounds to uphold petitioner's contention on this matter.
In this case of the Register of Deeds of Rizal vs. Ung Sui Si Temple, 2 G.R.
No. L-6776, promulgated May 21, 1955, wherein this question was
considered from a different angle, this Court through Mr. Justice J.B.L.
Reyes, said:
The fact that the appellant religious organization has no capital
stock does not suffice to escape the Constitutional inhibition,
since it is admitted that its members are of foreign nationality.
The purpose of the sixty per centum requirement is obviously to
ensure that corporation or associations allowed to acquire
agricultural land or to exploit natural resources shall be
controlled by Filipinos; and the spirit of the Constitution
demands that in the absence of capital stock, the controlling
membership should be composed of Filipino citizens.
In that case respondent-appellant Ung Siu Si Temple was not a corporation
sole but a corporation aggregate, i.e., an unregistered organization
operating through 3 trustees, all of Chinese nationality, and that is why
this Court laid down the doctrine just quoted. With regard to petitioner,
which likewise is a non-stock corporation, the case is different, because it
is a registered corporation sole, evidently of no nationality and registered
mainly to administer the temporalities and manage the properties
belonging to the faithful of said church residing in Davao. But even if we
were to go over the record to inquire into the composing membership to
determine whether the citizenship requirement is satisfied or not, we
would find undeniable proof that the members of the Roman Catholic
Apostolic faith within the territory of Davao are predominantly Filipino
citizens. As indicated before, petitioner has presented evidence to
establish that the clergy and lay members of this religion fully covers the
percentage of Filipino citizens required by the Constitution. These facts
are not controverted by respondents and our conclusion in this point is
sensibly obvious.
Page 78 of 106
Dissenting Opinion—Discussed. — After having developed our theory in
the case and arrived at the findings and conclusions already expressed in
this decision. We now deem it proper to analyze and delve into the basic
foundation on which the dissenting opinion stands up. Being aware of the
transcendental and far-reaching effects that Our ruling on the matter
might have, this case was thoroughly considered from all points of view,
the Court sparing no effort to solve the delicate problems involved herein.
At the deliberations had to attain this end, two ways were open to a
prompt dispatch of the case: (1) the reversal of the doctrine We laid down
in the celebrated Krivenko case by excluding urban lots and properties
from the group of the term "private agricultural lands" use in this section
5, Article XIII of the Constitution; and (2) by driving Our reasons to a point
that might indirectly cause the appointment of Filipino bishops or
Ordinary to head the corporations sole created to administer the
temporalities of the Roman Catholic Church in the Philippines. With
regard to the first way, a great majority of the members of this Court were
not yet prepared nor agreeable to follow that course, for reasons that are
obvious. As to the second way, it seems to be misleading because the
nationality of the head of a diocese constituted as a corporation sole has
no material bearing on the functions of the latter, which are limited to the
administration of the temporalities of the Roman Catholic Apostolic
Church in the Philippines.
Upon going over the grounds on which the dissenting opinion is based, it
may be noticed that its author lingered on the outskirts of the issues, thus
throwing the main points in controversy out of focus. Of course We fully
agree, as stated by Professor Aruego, that the framers of our Constitution
had at heart to insure the conservation of the natural resources of Our
motherland of Filipino posterity; to serve them as an instrument of
national defense, helping prevent the extension into the country
of foreign control through peaceful economic penetration; and to prevent
making the Philippines a source of international conflicts with the
consequent danger to its internal security and independence. But all these
precautions adopted by the Delegates to Our Constitutional Assembly
could have not been intended for or directed against cases like the one at
bar. The emphasis and wonderings on the statement that once the
capacity of a corporation sole to acquire private agricultural lands is
admitted there will be no limit to the areas that it may hold and that this
will pave the way for the "revival or revitalization of religious landholdings
that proved so troublesome in our past", cannot even furnish the
"penumbra" of a threat to the future of the Filipino people. In the first
place, the right of Filipino citizens, including those of foreign extraction,
and Philippine corporations, to acquire private lands is not subject to any
restriction or limit as to quantity or area, and We certainly do not see any
wrong in that. The right of Filipino citizens and corporations to acquire
public agricultural lands is already limited by law. In the second place,
corporations sole cannot be considered as aliens because they have no
nationality at all. Corporations sole are, under the law, mere
administrators of the temporalities of the Roman Catholic Church in the
Philippines. In the third place, every corporation, be it aggregate or sole,
is only entitled to purchase, convey, sell, lease, let, mortgage, encumber
and otherwise deal with real properties when it is pursuant to or in
consonance with the purposes for which the corporation was formed, and
when the transactions of the lawful business of the corporation
reasonably and necessarily require such dealing — section 13-(5) of the
Corporation Law, Public Act No. 1459 — and considering these provisions
in conjunction with Section 159 of the same law which provides that a
corporation sole may only "purchase and hold real estate and personal
properties for its church, charitable, benevolent or educational purposes",
the above mentioned fear of revitalization of religious landholdings in the
Philippines is absolutely dispelled. The fact that the law
thus expressly authorizes the corporations sole to receive bequests or gifts
of real properties (which were the main source that the friars had to
acquire their big haciendas during the Spanish regime), is a clear indication
that the requisite that bequests or gifts of real estate be for charitable,
benevolent, or educational purposes, was, in the opinion of the legislators,
considered sufficient and adequate protection against the revitalization of
religious landholdings.
Finally, and as previously stated, We have reason to believe that when the
Delegates to the Constitutional Convention drafted and approved Article
XIII of the Constitution they do not have in mind the corporation sole. We
come to this finding because the Constitutional Assembly, composed as it
was by a great number of eminent lawyers and jurists, was like any other
legislative body empowered to enact either the Constitution of the
country or any public statute, presumed to know the conditions existing
as to particular subject matter when it enacted a statute (Board of
Commerce of Orange Country vs. Bain, 92 S.E. 176; N. C. 377).
Immemorial customs are presumed to have been always in the
mind of the Legislature in enacting legislation. (In re Kruger's
Estate, 121 A. 109; 277 P. 326).
The Legislative is presumed to have a knowledge of the state of
the law on the subjects upon which it legislates. (Clover Valley
Land and Stock Co. vs. Lamb et al., 187, p. 723,726.)
The Court in construing a statute, will assume that the
legislature acted with full knowledge of the prior legislation on
the subject and its construction by the courts. (Johns vs. Town
of Sheridan, 89 N. E. 899, 44 Ind. App. 620.).
The Legislature is presumed to have been familiar with the
subject with which it was dealing . . . . (Landers vs.
Commonwealth, 101 S. E. 778, 781.).
The Legislature is presumed to know principles of statutory
construction. (People vs. Lowell, 230 N. W. 202, 250 Mich. 349,
followed in P. vs. Woodworth, 230 N.W. 211, 250 Mich. 436.).
It is not to be presumed that a provision was inserted in a
constitution or statute without reason, or that a result was
intended inconsistent with the judgment of men of common
sense guided by reason" (Mitchell vs. Lawden, 123 N.E. 566, 288
Ill. 326.) See City of Decatur vs. German, 142 N. E. 252, 310 Ill.
591, and may other authorities that can be cited in support
hereof.
Consequently, the Constitutional Assembly must have known:
1. That a corporation sole is organized by and composed of
a single individual, the head of any religious society or church
operating within the zone, area or jurisdiction covered by said
corporation sole (Article 155, Public Act No. 1459);
2. That a corporation sole is a non-stock corporation;
3. That the Ordinary ( the corporation sole proper) does not own
the temporalities which he merely administers;
4. That under the law the nationality of said Ordinary or of any
administrator has absolutely no bearing on the nationality of the
person desiring to acquire real property in the Philippines by
purchase or other lawful means other than by hereditary
Page 79 of 106
succession, who according to the Constitution must be a Filipino
(sections 1 and 5, Article XIII).
5. That section 159 of the Corporation Law expressly authorized
the corporation sole to purchase and holdreal estate for its
church, charitable, benevolent or educational purposes, and
to receive bequests or gifts for such purposes;
6. That in approving our Magna Carta the Delegates to the
Constitutional Convention, almost all of whom were Roman
Catholics, could not have intended to curtail the propagation of
the Roman Catholic faith or the expansion of the activities of
their church, knowing pretty well that with the growth of our
population more places of worship, more schools where our
youth could be taught and trained; more hallow grounds where
to bury our dead would be needed in the course of time.
Long before the enactment of our Constitution the law authorized the
corporations sole even to receive bequests or gifts of real estates and this
Court could not, without any clear and specific provision of the
Constitution, declare that any real property donated, let as say this year,
could no longer be registered in the name of the corporation sole to which
it was conveyed. That would be an absurdity that should not receive our
sanction on the pretext that corporations sole which have no nationality
and are non-stock corporations composed of only one person in the
capacity of administrator, have to establish first that at least sixty per
centum of their capital belong to Filipino citizens. The new Civil Code even
provides:
ART. 10. — In case of doubt in the interpretation or application
of laws, it is presumed that the lawmaking body intended right
and justice to prevail.
Moreover, under the laws of the Philippines, the administrator of the
properties of a Filipino can acquire, in the name of the latter, private lands
without any limitation whatsoever, and that is so because the properties
thus acquired are not for and would not belong to the administrator but
to the Filipino whom he represents. But the dissenting Justice inquires: If
the Ordinary is only the administrator, for whom does he administer? And
who can alter or overrule his acts? We will forthwith proceed to answer
these questions. The corporations sole by reason of their peculiar
constitution and form of operation have no designed owner of its
temporalities, although by the terms of the law it can be safely implied
that the Ordinary holds them in trust for the benefit of the Roman Catholic
faithful to their respective locality or diocese. Borrowing the very words
of the law, We may say that the temporalities of every corporation sole
are held in trust for the use, purpose, behalf and benefit of the religious
society, or order so incorporated or of the church to which the diocese,
synod, or district organization is an organized and constituent part
(section 163 of the Corporation Law).
In connection with the powers of the Ordinary over the temporalities of
the corporation sole, let us see now what is the meaning and scope of the
word "control". According to the Merriam-Webster's New International
Dictionary, 2nd ed., p. 580, on of the acceptations of the word "control"
is:
4. To exercise restraining or directing influence over; to
dominate; regulate; hence, to hold from action; to curb; subject;
also, Obs. — to overpower.
SYN: restrain, rule, govern, guide, direct; check, subdue.
It is true that under section 159 of the Corporation Law, the intervention
of the courts is not necessary, to mortgageor sell real property held by the
corporation sole where the rules, regulations and discipline of the
religious denomination, society or church concerned presented by such
corporation sole regulates the methods of acquiring, holding, selling and
mortgaging real estate, and that the Roman Catholic faithful residing in
the jurisdiction of the corporation sole has no say either in the manner of
acquiring or of selling real property. It may be also admitted that the
faithful of the diocese cannot govern or overrule the acts of the Ordinary,
but all this does not mean that the latter can administer the temporalities
of the corporation sole without check or restraint. We must not forget
that when a corporation sole is incorporated under Philippine laws, the
head and only member thereof subjects himself to the jurisdiction of the
Philippine courts of justice and these tribunals can thus entertain
grievances arising out of or with respect to the temporalities of the church
which came into the possession of the corporation sole as administrator.
It may be alleged that the courts cannot intervene as to the matters of
doctrine or teachings of the Roman Catholic Church. That is correct, but
the courts may step in, at the instance of the faithful for whom the
temporalities are being held in trust, to check undue exercise by the
corporation sole of its power as administrator to insure that they are used
for the purpose or purposes for which the corporation sole was created.
American authorities have these to say:
It has been held that the courts have jurisdiction over an action
brought by persons claiming to be members of a church, who
allege a wrongful and fraudulent diversion of the church
property to uses foreign to the purposes of the church, since no
ecclesiastical question is involved and equity will protect from
wrongful diversion of the property (Hendryx vs. Peoples United
Church, 42 Wash. 336, 4 L.R.A. — n.s. — 1154).
The courts of the State have no general jurisdiction and control
over the officers of such corporations in respect to the
performance of their official duties; but as in respect to the
property which they hold for the corporation, they stand in
position of TRUSTEES and the courts may exercise the same
supervision as in other cases of trust (Ramsey vs. Hicks, 174 Ind.
428, 91 N.E. 344, 92 N.E. 164, 30 L.R.A. — n.s. — 665; Hendryx
vs. Peoples United Church, supra.).
Courts of the state do not interfere with the administration of
church rules or discipline unless civil rights become involved and
which must be protected (Morris St., Baptist Church vs. Dart, 67
S.C. 338, 45 S.E. 753, and others). (All cited in Vol. II, Cooley's
Constitutional Limitations, p. 960-964.).
If the Constitutional Assembly was aware of all the facts above
enumerated and of the provisions of law relative to existing conditions as
to management and operation of corporations sole in the Philippines, and
if, on the other hand, almost all of the Delegates thereto embraced the
Roman Catholic faith, can it be imagined even for an instant that when
Article XIII of the Constitution was approved the framers thereof intended
to prevent or curtail from then on the acquisition sole, either by purchase
or donation, of real properties that they might need for the propagation
of the faith and for there religious and Christian activities such as the
moral education of the youth, the care, attention and treatment of the
sick and the burial of the dead of the Roman Catholic faithful residing in
the jurisdiction of the respective corporations sole? The mere indulgence
in said thought would impress upon Us a feeling of apprehension and
absurdity. And that is precisely the leit motiv that permeates the whole
fabric of the dissenting opinion.
Page 80 of 106
It seems from the foregoing that the main problem We are confronted
with in this appeal, hinges around the necessity of a proper and adequate
interpretation of sections 1 and 5 of Article XIII of the Constitution. Let Us
then be guided by the principles of statutory construction laid down by
the authorities on the matter:
The most important single factor in determining the intention
of the people from whom the constitution emanated is the
language in which it is expressed. The words employed are to
be taken in their natural sense, except that legal or technical
terms are to be given their technical meaning. The
imperfections of language as a vehicle for conveying meanings
result in ambiguities that must be resolved by result to
extraneous aids for discovering the intent of the framers.
Among the more important of these are a consideration of the
history of the times when the provision was adopted and of the
purposes aimed at in its adoption. The debates of constitutional
convention, contemporaneous construction, and practical
construction by the legislative and executive departments,
especially if long continued, may be resorted to resolve, but not
to create, ambiguities. . . . Consideration of the consequences
flowing from alternative constructions of doubtful provisions
constitutes an important interpretative device. . . . The purposes
of many of the broadly phrased constitutional limitations were
the promotion of policies that do not lend themselves to definite
and specific formulation. The courts have had to define those
policies and have often drawn on natural law and natural rights
theories in doing so. The interpretation of constitutions tends to
respond to changing conceptions of political and social values.
The extent to which these extraneous aids affect the judicial
construction of constitutions cannot be formulated in precise
rules, but their influence cannot be ignored in describing the
essentials of the process (Rottschaeffer on Constitutional Law,
1939 ed., p. 18-19).
There are times that when even the literal expression of
legislation may be inconsistent with the general objectives of
policy behind it, and on the basis of equity or spirit of the statute
the courts rationalize a restricted meaning of the latter. A
restricted interpretation is usually applied where the effect of
literal interpretation will make for injustice and absurdity or, in
the words of one court, the language must be so unreasonable
'as to shock general common sense'. (Vol. 3, Sutherland on
Statutory Construction, 3rd ed., 150.).
A constitution is not intended to be a limitation on the
development of a country nor an obstruction to its progress and
foreign relations (Moscow Fire Ins. Co. of Moscow, Russia vs.
Bank of New York and Trust Co., 294 N. Y. S.648; 56 N.E. 2d. 745,
293 N.Y. 749).
Although the meaning or principles of a constitution remain
fixed and unchanged from the time of its adoption, a
constitution must be construed as if intended to stand for a
great length of time, and it is progressive and not static.
Accordingly, it should not receive too narrow or literal an
interpretation but rather the meaning given it should be applied
in such manner as to meet new or changed conditions as they
arise (U.S. vs. Lassic, 313 U.S. 299, 85 L. Ed., 1368).
Effect should be given to the purpose indicated by a fair
interpretation of the language used and that construction which
effectuates, rather than that which destroys a plain intent or
purpose of a constitutional provision, is not only favored but will
 be adopted (State ex rel. Randolph Country vs. Walden, 206
S.W. 2d 979).
It is quite generally held that in arriving at the intent and
purpose the construction should be broad or liberal or
equitable, as the better method of ascertaining that intent,
rather than technical (Great Southern Life Ins. Co. vs. City of
Austin, 243 S.W. 778).
All these authorities uphold our conviction that the framers of the
Constitution had not in mind the corporations sole, nor intended to apply
them the provisions of section 1 and 5 of said Article XIII when they passed
and approved the same. And if it were so as We think it is, herein
petitioner, the Roman Catholic Apostolic Administrator of Davao, Inc.,
could not be deprived of the right to acquire by purchase or donation real
properties for charitable, benevolent and educational purposes, nor of the
right to register the same in its name with the Register of Deeds of Davao,
an indispensable requisite prescribed by the Land Registration Act for
lands covered by the Torrens system.
We leave as the last theme for discussion the much debated question
above referred to as "the vested right saving clause" contained in section
1, Article XIII of the Constitution. The dissenting Justice hurls upon the
personal opinion expressed on the matter by the writer of the decision
the most pointed darts of his severe criticism. We think, however, that this
strong dissent should have been spared, because as clearly indicated
before, some members of this Court either did not agree with the theory
of the writer or were not ready to take a definite stand on that particular
point, so that there being no majority opinion thereon there was no need
of any dissension therefrom. But as the criticism has been made the writer
deems it necessary to say a few words of explanation.
The writer fully agrees with the dissenting Justice that ordinarily "a
capacity to acquire (property) in futuro, is not in itself a vested or existing
property right that the Constitution protects from impairment. For a
property right to be vested (or acquired) there must be a transition from
the potential or contingent to the actual, and the proprietary interest
must have attached to a thing; it must have become 'fixed and
established'" (Balboa vs. Farrales, 51 Phil. 498). But the case at bar has to
be considered as an exception to the rule because among the rights
granted by section 159 of the Corporation Law was the right to receive
bequests or gifts of real properties for charitable, benevolent and
educational purposes. And this right to receive such bequests or gifts
(which implies donations in futuro), is not a mere potentiality that could
be impaired without any specific provision in the Constitution to that
effect, especially when the impairment would disturbingly affect the
propagation of the religious faith of the immense majority of the Filipino
people and the curtailment of the activities of their Church. That is why
the writer gave us a basis of his contention what Professor Aruego said in
his book "The Framing of the Philippine Constitution" and the enlightening
opinion of Mr. Justice Jose P. Laurel, another Delegate to the
Constitutional Convention, in his concurring opinion in the case of
Goldcreek Mining Co. vs. Eulogio Rodriguez et al., 66 Phil. 259. Anyway the
majority of the Court did not deem necessary to pass upon said "vested
right saving clause" for the final determination of this case.
JUDGMENT
Wherefore, the resolution of the respondent Land Registration
Commission of September 21, 1954, holding that in view of the provisions
of sections 1 and 5 of Article XIII of the Philippine Constitution the vendee
(petitioner) is not qualified to acquire lands in the Philippines in the
absence of proof that at least 60 per centum of the capital, properties or
Page 81 of 106
assets of the Roman Catholic Apostolic Administrator of Davao, Inc. is
actually owned or controlled by Filipino citizens, and denying the
registration of the deed of sale in the absence of proof of compliance with
such requisite, is hereby reversed. Consequently, the respondent Register
of Deeds of the City of Davao is ordered to register the deed of sale
executed by Mateo L. Rodis in favor of the Roman Catholic Apostolic
Administrator of Davao, Inc., which is the subject of the present litigation.
No pronouncement is made as to costs. It is so ordered.
Bautista Angelo and Endencia, JJ., concur.
Paras, C.J., and Bengzon, J., concur in the result.
LABRADOR, J., concurring:
The case at bar squarely present this important legal question: Has the
bishop or ordinary of the Roman Catholic Church who is not a Filipino
citizen, as corporation sole, the right to register land, belonging to the
Church over which he presides, in view of the Krivenko decision? Mr.
Justice Felix sustains the affirmative view while Mr. Justice J. B. L. Reyes,
the negative. As the undersigned understands it, the reason given for this
last view is that the constitutional provision prohibiting land ownership by
foreigners also extends to control because this lies within the scope and
purpose of the prohibition.
To our way of thinking, the question at issue depends for its resolution
upon another, namely, who is the owner of the land or property of the
Church sought to be registered? Under the Canon Law the parish and the
diocese have the right to acquire and own property.
SEC. 1. La Iglesia catolica y la Sede Apostolica, libre e
independientemente de la potestad civil, tiene derecho innato
de adquirir, retener y administrar bienes temporales para el
logro de sus propios fines.
SEC. 2. Tambien las iglesias particulares y demas personas
morales erigidas por la autoridad eclesiastica en persona
juridica, tienen derecho, a tenor de los sagrados canones, de
adquirir, retener y administrar bienes temporales. (Canon 1495)
(Codigo de Derecho Canonico por Miguelez-Alonzo-Cabreros,
4a ed., p. 562.).
The Canon Law further states that Church property belongs to the non-
collegiate moral person called the parish, or to the diocese.
In canon law the ownership of ecclesiastical goods belongs to
each separate juridical person in the Church (C. 1499). The
property of St. John's Church does not belong to the Pope, the
bishop, the pastor, or even to the people of the parish. It
belongs to the non-collegiate moral person called the parish,
which has been lawfully erected. It is not like a stock company.
The civil law does not recognize this canonical principle; it insists
on an act of civil incorporation or some other legal device.
(Ready Answers in Canon Law by Rev. P.J. Lydon, DD., 3rd ed.,
1948, p. 576.).
Parish. 3. A portion or subdivision of a diocese committed to the
spiritual jurisdiction or care of a priest or minister, called rector
or pastor. In the Protestant Episcopal Church, it is a territorial
division usually following civil bounds, as those of a town. In the
Roman Catholic Church, it is usually territorial, but whenever, as
in some parts of the United States there are different rites and
 languages, the boundaries and jurisdiction are determined by
right or language; as, a Ruthenian or Polish parish. "5. The
inhabitants or members of a parish, collectively.
Diocese. 3. Eccl. The circuit or extent of a bishop's jurisdiction;
the district in which a bishop has authority. (Webster's New
International Dictionary).
We are aware of the fact that some writers believe that ownership of
ecclesiastical properties resides in the Roman Catholic Pontiff as Head of
the Universal Church, but the better opinion seems to be that they do
belong to the parishes and diocese as above indicated.
Canonists entertain different opinions as to the person in whom
the ownership of the ecclesiastical properties is vested, with
respect to which we shall, for our purpose, confine ourselves to
stating with Donoso that, while many doctors cited by Fagnano
believe that it resides in the Roman Pontiff as Head of the
Universal Church, it is more probable that ownership, strictly
speaking, does not reside in the latter and, consequently,
ecclesiastical properties are owned by the churches, institutions
and canonically established private corporations to which said
properties have been donated. (3 Campos y Pulido, Legislacion
y Jurisprudencia Canonica, P. 420, cited in Trinidad vs. Roman
Catholic Archbishop of Manila, 63 Phil., 881, 888-889.).
The property in question, therefore, appears to belong to the parish or
the diocese of Davao. But the Roman Catholics of Davao are not organized
as a juridical person, either under the Canon law or under the Civil Law.
Neither is there any provision in either for their organization as a juridical
person. Registration of the property in the name of the Roman Catholics
of Davao is, therefore, impossible.
As under the Civil Law, however, the organization of parishes and dioceses
as juridical persons is not expressly provided for, the corporation law has
set up the fiction known as the "corporation sole."
It tolerates the corporation sole wherever and as long as the
state law does not permit the legal incorporation of the parish
or diocese. The bishop officially is the legal owner. (Ready
Answers in Canon Law, supra, p. 577.) .
and authorizes it to purchase and hold real estate for the Church.
SEC. 159. Any corporation sole may purchase and hold real
estate and personal property for its church, charitable,
benevolent, or educational purposes, and may receive bequests
or gifts for such purposes. Such corporation may mortgage or
sell real property held by it upon obtaining an order for that
purpose from the Court of First Instance of the province in
which the property is situated; but before making the order
proof must be made to the satisfaction of the court that notice
of the application for leave to mortgage or sell has been given
by publication or otherwise in such manner and for such time as
said court or the judge thereof may have directed, and that it is
to the interest of the corporation that leave to mortgage or sell
should be granted. The application for leave to mortgage or sell
must be made by petition, duly verified by the bishop, chief
priest, or presiding elder, acting as corporation sole, and may be
opposed by any member of the religious denomination, society,
or church represented by the corporation sole: Provided,
however, That in cases when the rules, regulations and
discipline of the religious denomination, society or church
Page 82 of 106
concerned represented by such corporation sole regulate the
methods of acquiring, holding, selling, and mortgaging real
estate and personal property, such rules, regulations, and
discipline shall control and the intervention of the courts shall
not be necessary. (The Corporation Law.)
And in accordance with the above section, temporalities of the Church or
of parish or a diocese are allowed to be registered in the name of the
corporation sole for purposes of administration and in trust for the real
owners.
The mere fact that the Corporation Law authorizes the corporation sole
to acquire and hold real estate or other property does not make the latter
the real owner thereof, as his tenure of Church property is merely for the
purposes of administration. As stated above, the bishop is only the legal
(technical) owner or trustee, the parish or diocese being the beneficial
owner, or cestui que trust.
Having arrived at the conclusion that the property in question belongs
actually either to the parish or to the dioceses of Davao, the next question
that possess for solution is, In case of said property, whose nationality
must be considered for the purpose of determining the applicability of the
constitutional provision limiting ownership of land to Filipinos, that of the
bishop or chief priest who registers as corporation sole, or that of the
constituents of the parish or diocese who are the beneficial owners of the
land? We believe that of a latter must be considered, and not that of the
priest clothed with the corporate fiction and denominated as the
corporation sole. The corporation sole is a mere contrivance to enable a
church to acquire, own and manage properties belonging to the church. It
is only a means to an end. The constitutional provision could not have
been meant to apply to the means through which and by which property
may be owned or acquired, but to the ultimate owner of the property.
Hence, the citizenship of the priest forming the corporation sole should
be no impediment if the parish or diocese which owns the property is
qualified to own and possess the property.
We can take judicial notice of the fact that a great majority of the
constituents of the parish or diocese of Davao are Roman Catholics. The
affidavit demanded is therefore, a mere formality.
The dissenting opinion sustains the proposition that control, not actual
ownership, is the factor that determines whether the constitutional
prohibition against alien ownership of lands should or should not apply.
We may assume the correctness of the proposition that the Holy See
exercises control cannot be real and actual but merely theoretical. In any
case, the constitutional prohibition is limited by its terms to ownership
and ownership alone. And should the corporation sole abuse its powers
and authority in relation to the administration or disposal of the property
contrary to the wishes of the constituents of the parish or the diocese, the
act may always be questioned as ultra vires.
We agree, therefore, with the reversal of the order.
Montemayor and Reyes, A., JJ., concur.
REYES, J.B.L., dissenting:
I regret not being able to assent to the opinion of Mr. Justice Felix. The
decision of the Supreme Court in this case will be of far reaching results,
for once the capacity of corporations sole to acquire public and private
agricultural lands is admitted, there will be no limit to the areas they may
hold until the Legislature implements section 3 of Article XIII of the
Constitution, empowering it to set a limit to the size of private agricultural
land that may be held; and even then it can only be done without prejudice
to rights acquired prior to the enactment of such law. In other words, even
if a limitative law is adopted, it will not affect the landholdings acquired
before the law become effective, no matter how vast the estate should
be.
The Constitutional restrictions to the acquisition of agricultural land are
well known:
SECTION 1. All agricultural, timber, and mineral lands of the
public domain, waters, minerals, coal, petroleum, and other
mineral oils, all forces of potential energy, and other natural
resources of the Philippines belong to the State, and their
disposition, exploitation, development, or utilization shall be
limited to citizens of the Philippines, or to corporations or
associations at least sixty per centum of the capital of which is
owned by such citizens, subject to any existing right, grant,
lease, or concession at the time of the inauguration of the
Government established under this Constitution. Natural
resources, with the exception of public agricultural land, shall
not be alienated, and no license, concession, or lease for the
exploitation, development, or utilization of any of the natural
resources shall be granted for a period exceeding twenty-five
years, renewable for another twenty-five years, except as to
water rights for irrigation, water supply fisheries, or industrial
uses other than the development of water power, in which
cases beneficial use may be the measure and the limit of the
grant. (Article XII, Constitution of the Phil.).
SEC. 5. Save in cases of hereditary succession, no private
agricultural land shall be transferred or assigned except to
individuals, corporations, or associations qualified to acquire or
hold lands of the public domain in the Philippines. (Art. XII,
Constitution of the Phil.).
In requiring corporations or associations to have sixty per cent (60%) of
their capital owned by Filipino citizens, the constitution manifestly
disregarded the corporate fiction, i.e., the juridical personality of such
corporations or associations. It went behind the corporate entity and
looked at the natural persons that composed it, and demanded that a
clear majority in interest (60%) should be Filipino. To me this was done to
ensure that the control of its properties (not merely the beneficial
ownership thereof) remained in Filipino hands. (Aruego, Framing of the
Constitution, Vol. 2. pp. 604, 606.) .
The nationalization of the natural resources of the country was
intended (1) to insure their conservation for Filipino posterity;
(2) to serve as an instrument of national defense, helping
prevent the extension into the country of foreign control
through peaceful economic penetration; and (3) to prevent
making the Philippines a source of international conflicts with
the consequent danger to its internal security and
independence. . . .
The convention permitted aliens to acquire an interest in the
natural resources of the country and in private agricultural lands
as component elements of corporations or associations. The
maximum limit of interest that they could hold in a corporation
or association would be only forty per centum of the capital.
Accordingly the control of the corporation or association would
remain in Filipino hands.
Page 83 of 106
In its report the committee on nationalization and preservation
of lands and other natural resources recommended that the
maximum limit of interest that aliens could hold in a corporation
or association should be only twenty-five per centum of the
capital. The purpose of the committee was to enable Filipino-
controlled corporations or associations, if necessary, to interest
aliens to join their technical or managerial staff by giving them
a part interest in the same. The sub-committee of seven
embodied this recommendation in the first draft of the
Constitution; but in the revised article on General Provisions, it
raised the amount to forty per centum. (emphasis supplied.)
It was in recognition of this basic rule that we held in Register of Deeds vs.
Ung Siu Si Temple, 51 Off. Gaz. p. 2866, that if the association had no
capital, its controlling membership must be composed of Filipinos.
Because ownership divorced from control is not true ownership.
From these premises it can be deduced that the preliminary question to
be decide by the court is the following: what and who exercises the power
of control in the corporation sole known as "The Roman Catholic Apostolic
Administrator of Davao, Inc."?.
Under section 155 of the Corporation Law, the bishop, or other religious
head, as corporation sole, is "charged with the administration of the
temporalities of his church." It becomes then pertinent to inquire: if he is
only an administrator, for whom does he administer? And who can alter
or overrule his acts?
If his acts as administrator can not be overridden, or altered, except by
himself, then obviously the control of the corporation and its
temporalities is in the bishop himself, and he must be a Filipino citizen. If,
on the other hand, the final say as to management, exploitation,
encumbrance or disposition of the temporalities resides in another
individual or body of individuals, then the control resides there. To possess
constitutional capacity to acquire agricultural land or other natural
resources, that body making the final decision for the corporation must
have at least 60 per cent Filipino membership.
By this test, the body of members professing the Catholic faith in the
diocese of Davao does not constitute the controlling membership. For
under the rules of the Roman Catholic Church the faithful can not control
the acts of the Ordinary; they cannot override his decision, just as they do
not elect or remove him. Only his hierarchical superiors can do that; the
control is from above, not from below. Hence, the fact that 90 per cent
(or even 100 per cent) of the faithful in the diocese should be composed
of Filipino citizens is totally devoid of significance from the standpoint of
the constitutional restrictions in question (see Codex, Canons 1518 and
1530, paragraph 1, No. 3).
Moreover, I do not think that the body of Catholic faithful in the Davao
diocese can be taken, for the purpose here under consideration, as the
Church represented by the Ordinary of Davao. That body does not
constitute an entity or unit separate and apart from the rest of the faithful
throughout the world that compose the Roman Catholic Church that has
always claimed ecumenical (universal) character. There is nom Catholic
Church of Davao district and independent of the Catholic Church of
Manila, Lipa or Rome. All those professing Catholic faith are members of
only one single church or religious group. Thus the Iglesia Filipina
Independiente is not part of the Catholic Church, precisely because of its
independence.
If, the, the Catholic Church of Davao is part and parcel of the universal
Catholic Church, it can not be considered separate and apart from it in this
case. And if considered with it, obviously the condition of 60 per cent
Filipino membership is not satisfied when all the Catholic faithful in the
world are taken into account.
The unity and singleness of the various diocese of the church appears
expressly recognized in section 163 of the Corporation Law, which
provides that the corporation (sole) shall hold the temporalities, not for
the diocese; but for the benefit "of the church of which the diocese — is
an organized or constituent part."
SEC. 163. The right to administer all temporalities and all
property held or owned by a religious order or society, or by the
diocese synod, or district organization of any religious
denomination or church shall, on its incorporation, pass to the
corporation and shall be held in trust for the use purpose,
behalf, and benefit of the religious society or order so
incorporated or of the church of which the diocese, synod, or
district organization is an organized and constituent part.
So that, even from the standpoint of beneficial ownership, the dioceses of
Davao can not be viewed as a group legally isolated from the Catholic
Church as a whole.
Nor does court control over the acts of the corporation sole constitute a
guarantee of Filipino control that would satisfy the purposes of the
constitution, for the reason that under section 159 (last proviso) of the
Corporation law, the court intervention is dispensed with where the rules
and discipline of the church already regulate the acquisition and
disposition of real estate and personal property.
Provided however, that in cases where the rules, regulations and
discipline of the religious denomination, society, or church
concerned represented by such corporation sole regulate the
methods of acquiring, holding, selling, and mortgaging real
estate and personal property, such rules, regulations, and
discipline shall control and the intervention of the courts shall
not be necessary. (emphasis supplied.)
It is argued that a distinction must be drawn between the lands to be
devoted to purely religious purposes and the lands held in ordinary
ownership. But where in the Constitution is such a distinction drawn?
Under it, capacity to acquire agricultural land for the erection of a church
is capacity to acquire agricultural lands for any lawful purpose, whether it
be for convents or schools or seminaries or haciendas for their support or
land to be held solely for enjoyment of the revenue. Once the capacity to
acquire is granted, the way is paved for the revitalization of religious
landholdings that proved so troublesome in our past. I cannot conceive
that the Constitution intended to revive them.
It is also argued that, before the Constitution was adopted, the
corporations sole had, by express statute, the right to acquire agricultural
land; and that the Constitution was not intended to destroy such
"acquired property rights." If followed, the argument destroys the
constitutional restrictions. All aliens had a capacity to acquire agricultural
land before the Constitution came into effect, because no prohibition
existed previously. Must their right to acquire and hold agricultural land
be conceded in spite of the Constitution?.
That the law should have expressly conferred capacity to acquire land
upon corporations sole was not due any special predilection for them; it
was exclusively due to the principle that corporation, as artificial entities,
have no inherent rights, but only those granted by the sovereign. Unless
conferred, the corporate right would not exist.
Page 84 of 106
Furthermore, a capacity to acquire in futuro, is not in itself a vested
existing property right that the Constitution protects from impairment.
For a property right to be vested (or acquired) there must be a transition
from the potential, or contingent, to the actual, and the proprietary
interest must have attached to a thing, it must have become "fixed or
established "(Balboa vs. Farrales, 51 Phil. 498). If mere potentialities
cannot be impaired, then the law would become unchangeable, for every
variation in it will reduce some one's legal ability to do or not to do.
Already in Benguet Consolidated vs. Pineda, 3 52 Off. Gaz. 1961, we have
ruled that no one has a vested right in statutory privileges or exemptions.
And in the concurring opinion in Gold Creek Mining Corp. vs. Rodriguez,
66 Phil. 259 (cited by Justice Felix), Mr. Justice Laurel squarely declared
that "contingency or expectation is neither property right." (cas. cit., p.
269.) Finally, the point is also made that the Ordinary, as religious
corporation sole, has no citizenship, and is not an alien. The answer is that
under the Constitution of the Republic, it is not enough that the acquirer
of agricultural land be not an alien; he must be a Filipino or controlled by
Filipinos.
Wherefore, I am constrained to conclude:
(1) That the capacity of religious corporations sole to acquire agricultural
land depends upon 60 per cent Filipino membership of the group or body
exercising control of the corporation;lawphi1.net
(2) That if control of any such corporation should be vested in a single
person, then such person must be a Filipino citizen;1awphi1.net
(3) That in the absence of evidence on these points, the order appealed
from, denying registration of the conveyance, should be affirmed.
Concepcion, J., concur.
G.R. No. L-6055 June 12, 1953
THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee,
vs.
WILLIAM H. QUASHA, defendant-appellant.
Jose P. Laurel for appellant and William H. Quasha in his own behalf.
Office of the Solicitor General Juan R. Liwag and Assistant Solicitor General
Francisco Carreon for appellee.
REYES, J.:
William H. Quasha, a member of the Philippine bar, was charged in the
Court of First Instance of Manila with the crime of falsification of a public
and commercial document in that, having been entrusted with the
preparation and registration of the article of incorporation of the Pacific
Airways Corporation, a domestic corporation organized for the purpose of
engaging in business as a common carrier, he caused it to appear in said
article of incorporation that one Arsenio Baylon, a Filipino citizen, had
subscribed to and was the owner of 60.005 per cent of the subscribed
capital stock of the corporation when in reality, as the accused well knew,
such was not the case, the truth being that the owner of the portion of
the capital stock subscribed to by Baylon and the money paid thereon
were American citizen whose name did not appear in the article of
incorporation, and that the purpose for making this false statement was
to circumvent the constitutional mandate that no corporation shall be
authorize to operate as a public utility in the Philippines unless 60 per cent
of its capital stock is owned by Filipinos.
Found guilty after trial and sentenced to a term of imprisonment and a
fine, the accused has appealed to this Court.
The essential facts are not in dispute. On November 4,1946, the Pacific
Airways Corporation registered its articles of incorporation with the
Securities and Exchanged Commission. The article were prepared and the
registration was effected by the accused, who was in fact the organizer of
the corporation. The article stated that the primary purpose of the
corporation was to carry on the business of a common carrier by air, land
or water; that its capital stock was P1,000,000, represented by 9,000
preferred and 100,000 common shares, each preferred share being of the
par value of p100 and entitled to 1/3 vote and each common share, of the
par value of P1 and entitled to one vote; that the amount capital stock
actually subscribed was P200,000, and the names of the subscribers were
Arsenio Baylon, Eruin E. Shannahan, Albert W. Onstott, James O'Bannon,
Denzel J. Cavin, and William H. Quasha, the first being a Filipino and the
other five all Americans; that Baylon's subscription was for 1,145
preferred shares, of the total value of P114,500, and for 6,500 common
shares, of the total par value of P6,500, while the aggregate subscriptions
of the American subscribers were for 200 preferred shares, of the total
par value of P20,000, and 59,000 common shares, of the total par value
of P59,000; and that Baylon and the American subscribers had already
paid 25 per cent of their respective subscriptions. Ostensibly the owner
of, or subscriber to, 60.005 per cent of the subscribed capital stock of the
corporation, Baylon nevertheless did not have the controlling vote
because of the difference in voting power between the preferred shares
and the common shares. Still, with the capital structure as it was, the
article of incorporation were accepted for registration and a certificate of
incorporation was issued by the Securities and Exchange Commission.
There is no question that Baylon actually subscribed to 60.005 per cent of
the subscribed capital stock of the corporation. But it is admitted that the
money paid on his subscription did not belong to him but to the Americans
subscribers to the corporate stock. In explanation, the accused testified,
without contradiction, that in the process of organization Baylon was
made a trustee for the American incorporators, and that the reason for
making Baylon such trustee was as follows:
Q. According to this article of incorporation Arsenio Baylon
subscribed to 1,135 preferred shares with a total value of
P1,135. Do you know how that came to be?
A. Yes.
The people who were desirous of forming the corporation, whose names
are listed on page 7 of this certified copy came to my house, Messrs.
Shannahan, Onstott, O'Bannon, Caven, Perry and Anastasakas one
evening. There was considerable difficulty to get them all together at one
time because they were pilots. They had difficulty in deciding what their
respective share holdings would be. Onstott had invested a certain
amount of money in airplane surplus property and they had obtained a
considerable amount of money on those planes and as I recall they were
desirous of getting a corporation formed right away. And they wanted to
have their respective shares holdings resolved at a latter date. They stated
that they could get together that they feel that they had no time to settle
their respective share holdings. We discussed the matter and finally it was
decided that the best way to handle the things was not to put the shares
in the name of anyone of the interested parties and to have someone act
as trustee for their respective shares holdings. So we looked around for a
trustee. And he said "There are a lot of people whom I trust." He said, "Is
there someone around whom we could get right away?" I said, "There is
Arsenio. He was my boy during the liberation and he cared for me when i
was sick and i said i consider him my friend." I said. They all knew Arsenio.
Page 85 of 106
He is a very kind man and that was what was done. That is how it came
about.
Defendant is accused under article 172 paragraph 1, in connection with
article 171, paragraph 4, of the Revised Penal Code, which read:
ART. 171. Falsification by public officer, employee, or notary or
ecclesiastic minister. — The penalty of prision mayor and a fine
not to exceed 5,000 pesos shall be imposed upon any public
officer, employee, or notary who, taking advantage of his official
position, shall falsify a document by committing any of the
following acts:
xxx xxx xxx
4. Making untruthful statements in a narration of facts.
ART. 172. Falsification by private individuals and use of falsified
documents. — The penalty of prision correccional in its medium
and maximum period and a fine of not more than 5,000 pesos
shall be imposed upon:
xxx xxx xxx
1. Any private individual who shall commit any of the
falsifications enumerated in the next preceding article in any
public or official document or letter of exchange or any other
kind of commercial document.
Commenting on the above provision, Justice Albert, in his well-known
work on the Revised Penal Code ( new edition, pp. 407-408), observes, on
the authority of U.S. vs. Reyes, (1 Phil., 341), that the perversion of truth
in the narration of facts must be made with the wrongful intent of injuring
a third person; and on the authority of U.S. vs. Lopez (15 Phil., 515), the
same author further maintains that even if such wrongful intent is proven,
still the untruthful statement will not constitute the crime of falsification
if there is no legal obligation on the part of the narrator to disclose the
truth. Wrongful intent to injure a third person and obligation on the part
of the narrator to disclose the truth are thus essential to a conviction for
a crime of falsification under the above article of the Revised Penal Code.
Now, as we see it, the falsification imputed in the accused in the present
case consists in not disclosing in the articles of incorporation that Baylon
was a mere trustee ( or dummy as the prosecution chooses to call him) of
his American co-incorporators, thus giving the impression that Baylon was
the owner of the shares subscribed to by him which, as above stated,
amount to 60.005 per cent of the sub-scribed capital stock. This, in the
opinion of the trial court, is a malicious perversion of the truth made with
the wrongful intent circumventing section 8, Article XIV of the
Constitution, which provides that " no franchise, certificate, or any other
form of authorization for the operation of a public utility shall be granted
except to citizens of the Philippines or to corporation or other entities
organized under the law of the Philippines, sixty per centum of the capital
of which is owned by citizens of the Philippines . . . ." Plausible though it
may appear at first glance, this opinion loses validity once it is noted that
it is predicated on the erroneous assumption that the constitutional
provision just quoted was meant to prohibit the mere formation of a
public utility corporation without 60 per cent of its capital being owned by
the Filipinos, a mistaken belief which has induced the lower court to that
the accused was under obligation to disclose the whole truth about the
nationality of the subscribed capital stock of the corporation by revealing
that Baylon was a mere trustee or dummy of his American co-
incorporators, and that in not making such disclosure defendant's
intention was to circumvent the Constitution to the detriment of the
public interests. Contrary to the lower court's assumption, the
Constitution does not prohibit the mere formation of a public utility
corporation without the required formation of Filipino capital. What it
does prohibit is the granting of a franchise or other form of authorization
for the operation of a public utility to a corporation already in
existence but without the requisite proportion of Filipino capital. This is
obvious from the context, for the constitutional provision in question
qualifies the terms " franchise", "certificate", or "any other form of
authorization" with the phrase "for the operation of a public utility,"
thereby making it clear that the franchise meant is not the "primary
franchise" that invest a body of men with corporate existence but the
"secondary franchise" or the privilege to operate as a public utility after
the corporation has already come into being.
If the Constitution does not prohibit the mere formation of a public utility
corporation with the alien capital, then how can the accused be charged
with having wrongfully intended to circumvent that fundamental law by
not revealing in the articles of incorporation that Baylon was a mere
trustee of his American co-incorporation and that for that reason the
subscribed capital stock of the corporation was wholly American? For the
mere formation of the corporation such revelation was not essential, and
the Corporation Law does not require it. Defendant was, therefore, under
no obligation to make it. In the absence of such obligation and of the
allege wrongful intent, defendant cannot be legally convicted of the crime
with which he is charged.
It is urged, however, that the formation of the corporation with 60 per
cent of its subscribed capital stock appearing in the name of Baylon was
an indispensable preparatory step to the subversion of the constitutional
prohibition and the laws implementing the policy expressed therein. This
view is not correct. For a corporation to be entitled to operate a public
utility it is not necessary that it be organized with 60 per cent of its capital
owned by Filipinos from the start. A corporation formed with capital that
is entirely alien may subsequently change the nationality of its capital
through transfer of shares to Filipino citizens. conversely, a corporation
originally formed with Filipino capital may subsequently change the
national status of said capital through transfer of shares to foreigners.
What need is there then for a corporation that intends to operate a public
utility to have, at the time of its formation, 60 per cent of its capital owned
by Filipinos alone? That condition may anytime be attained thru the
necessary transfer of stocks. The moment for determining whether a
corporation is entitled to operate as a public utility is when it applies for a
franchise, certificate, or any other form of authorization for that purpose.
And that can be done after the corporation has already come into being
and not while it is still being formed. And at that moment, the corporation
must show that it has complied not only with the requirement of the
Constitution as to the nationality of its capital, but also with the
requirements of the Civil Aviation Law if it is a common carrier by air, the
Revised Administrative Code if it is a common carrier by water, and the
Public Service Law if it is a common carrier by land or other kind of public
service.
Equally untenable is the suggestion that defendant should at least be held
guilty of an "impossible crime" under article 59 of the Revised Penal Code.
It not being possible to suppose that defendant had intended to commit
a crime for the simple reason that the alleged constitutional prohibition
which he is charged for having tried to circumvent does not exist,
conviction under that article is out of the question.
The foregoing consideration can not but lead to the conclusion that the
defendant can not be held guilty of the crime charged. The majority of the
court, however, are also of the opinion that, even supposing that the act
imputed to the defendant constituted falsification at the time it was
Page 86 of 106
perpetrated, still with the approval of the Party Amendment to the
Constitution in March, 1947, which placed Americans on the same footing
as Filipino citizens with respect to the right to operate public utilities in
the Philippines, thus doing away with the prohibition in section 8, Article
XIV of the Constitution in so far as American citizens are concerned, the
said act has ceased to be an offense within the meaning of the law, so that
defendant can no longer be held criminally liable therefor.
In view of the foregoing, the judgment appealed from is reversed and the
defendant William H. Quasha acquitted, with costs de oficio.
Paras, C.J., Pablo, Bengzon, Padilla, Tuason, Jugo, Bautista Angelo, and
Labrador, 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.
JOHNSON, J.:
This action was brought in the Court of First Instance of the City of Manila
on the 17th day of July, 1923, for the purpose of recovering the sum of
P12,044.68, alleged to have been paid under protest by the plaintiff
company to the defendant, as specific tax on 24,089.3 tons of coal. Said
company is a corporation created by Act No. 2705 of the Philippine
Legislature for the purpose of developing the coal industry in the
Philippine Islands and is actually engaged in coal mining on reserved lands
belonging to the Government. It claimed exemption from taxes under the
provision of sections 14 and 15 of Act No. 2719, and prayed for a judgment
ordering the defendant to refund to the plaintiff said sum of P12,044.68,
with legal interest from the date of the presentation of the complaint, and
costs against the defendant.
The defendant answered denying generally and specifically all the
material allegations of the complaint, except the legal existence and
personality of the plaintiff. As a special defense, the defendant alleged (a)
that the sum of P12,044.68 was paid by the plaintiff without protests, and
(b) that said sum was due and owing from the plaintiff to the Government
of the Philippine Islands under the provisions of section 1496 of the
Administrative Code and prayed that the complaint be dismissed, with
costs against the plaintiff.
Upon the issue thus presented, the case was brought on for trial. After a
consideration of the evidence adduced by both parties, the Honorable
Pedro Conception, judge, held that the words "lands owned by any
person, etc.," in section 15 of Act No. 2719 should be understood to mean
"lands held in lease or usufruct," in harmony with the other provision of
said Act; that the coal lands possessed 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; and sentenced the defendant to refund to the
plaintiff the sum of P11,081.11 which is the difference between the
amount collected under section 1496 of the Administrative Code and the
amount which should have been collected under the provisions of said
section 15 of Act No. 2719. From that sentence the defendant appealed,
and now makes the following assignments of error:
I. The court below erred in holding that section 15 of Act No. 2719 does
not refer to coal lands owned by persons and corporations.
II. The court below erred in holding that the plaintiff was not subject to
the tax prescribed in section 1496 of the Administrative Code.
The question confronting us in this appeal is whether the plaintiff is
subject to the taxes under section 15 of Act No. 2719, or to the specific
taxes under section 1496 of the Administrative Code.
The plaintiff corporation was created on the 10th day of March, 1917, by
Act No. 2705, for the purpose of developing the coal industry in the
Philippine Island, in harmony with the general plan of the Government to
encourage the development of the natural resources of the country, and
to provided facilities therefor. By said Act, the company was granted the
general powers of a corporation "and such other powers as may be
necessary to enable it to prosecute the business of developing coal
deposits in the Philippine Island and of mining, extracting, transporting
and selling the coal contained in said deposits." (Sec. 2, Act No. 2705.) By
the same law (Act No. 2705) the Government of the Philippine Islands is
made the majority stockholder, evidently in order to insure proper
government supervision and control, and thus to place the Government
in a position to render all possible encouragement, assistance and help in
the prosecution and furtherance of the company's business.
On May 14, 1917, two months after the passage of Act No. 2705, creating
the National Coal Company, the Philippine Legislature passed Act No.
2719 "to provide for the leasing and development of coal lands in the
Philippine Islands." On October 18, 1917, upon petition of the National
Coal Company, the Governor-General, by Proclamation No. 39, withdrew
"from settlement, entry, sale or other disposition, all coal-bearing public
lands within the Province of Zamboanga, Department of Mindanao and
Sulu, and the Island of Polillo, Province of Tayabas." Almost immediately
after the issuance of said proclamation the National Coal Company took
possession of the coal lands within the said reservation, with an area of
about 400 hectares, without any further formality, contract or lease. Of
the 30,000 shares of stock issued by the company, the Government of the
Philippine Islands is the owner of 29,809 shares, that is, of 99 1/3 per
centum of the whole capital stock.
If we understand the theory of the plaintiff-appellee, it is, that it claims to
be the owner of the land from which it has mined the coal in question and
is therefore subject to the provisions of section 15 of Act No. 2719 and
not to the provisions of the section 1496 of the Administrative Code. That
contention of the plaintiff leads us to an examination of the evidence upon
the question of the ownership of the land from which the coal in question
was mined. Was the plaintiff the owner of the land from which the coal in
question was mined? If the evidence shows the affirmative, then the
judgment should be affirmed. If the evidence shows that the land does
not belong to the plaintiff, then the judgment should be reversed, unless
the plaintiff's rights fall under section 3 of said Act.
The only witness presented by the plaintiff upon the question of the
ownership of the land in question was Mr. Dalmacio Costas, who stated
that he was a member of the board of directors of the plaintiff
corporation; that the plaintiff corporation took possession of the land in
question by virtue of the proclamation of the Governor-General, known
as Proclamation No. 39 of the year 1917; that no document had been
issued in favor of the plaintiff corporation; that said corporation had
Page 87 of 106
received no permission from the Secretary of Agriculture and Natural
Resources; that it took possession of said lands covering an area of about
400 hectares, from which the coal in question was mined, solely, by virtue
of said proclamation (Exhibit B, No. 39).
Said proclamation (Exhibit B) was issued by Francis Burton Harrison, then
Governor-General, on the 18th day of October, 1917, and provided:
"Pursuant to the provision of section 71 of Act No. 926, I hereby withdraw
from settlement, entry, sale, or other disposition, all coal-bearing public
lands within the Province of Zamboanga, Department of Mindanao and
Sulu, and the Island of Polillo, Province of Tayabas." It will be noted that
said proclamation only provided that all coal-bearing public lands within
said province and island should be withdrawn from settlement, entry,
sale, or other disposition. There is nothing in said proclamation which
authorizes the plaintiff or any other person to enter upon said
reversations and to mine coal, and no provision of law has been called to
our attention, by virtue of which the plaintiff was entitled to enter upon
any of the lands so reserved by said proclamation without first obtaining
permission therefor.
The plaintiff is a private corporation. The mere fact that the Government
happens to the majority stockholder does not make it a public
corporation. Act No. 2705, as amended by Act No. 2822, makes it subject
to all of the provisions of the Corporation Law, in so far as they are not
inconsistent with said Act (No. 2705). No provisions of Act No. 2705 are
found to be inconsistent with the provisions of the Corporation Law. As a
private corporation, it has no greater rights, powers or privileges than any
other corporation which might be organized for the same purpose under
the Corporation Law, and certainly it was not the intention of the
Legislature to give it a preference or right or privilege over other
legitimate private corporations in the mining of coal. While it is true that
said proclamation No. 39 withdrew "from settlement, entry, sale, or other
disposition of coal-bearing public lands within the Province of Zamboanga
. . . and the Island of Polillo," it made no provision for the occupation and
operation by the plaintiff, to the exclusion of other persons or
corporations who might, under proper permission, enter upon the
operate coal mines.
On the 14th day of May, 1917, and before the issuance of said
proclamation, the Legislature of the Philippine Island in "an Act for the
leasing and development of coal lands in the Philippine Islands" (Act No.
2719), made liberal provision. Section 1 of said Act provides: "Coal-bearing
lands of the public domain in the Philippine Island shall not be disposed of
in any manner except as provided in this Act," thereby giving a clear
indication that no "coal-bearing lands of the public domain" had been
disposed of by virtue of said proclamation.
Neither is there any provision in Act No. 2705 creating the National Coal
Company, nor in the amendments thereof found in Act No. 2822, which
authorizes the National Coal Company to enter upon any of the reserved
coal lands without first having obtained permission from the Secretary of
Agriculture and Natural Resources.lawphi1.net
The following propositions are fully sustained by the facts and the law:
(1) The National Coal Company is an ordinary private corporation
organized under Act No. 2705, and has no greater powers nor privileges
than the ordinary private corporation, except those mentioned, perhaps,
in section 10 of Act No. 2719, and they do not change the situation here.
(2) It mined on public lands between the month of July, 1920, and the
months of March, 1922, 24,089.3 tons of coal.
(3) Upon demand of the Collector of Internal Revenue it paid a tax of P0.50
a ton, as taxes under the provisions of article 1946 of the Administrative
Code on the 15th day of December, 1922.
(4) It is admitted that it is neither the owner nor the lessee of the lands
upon which said coal was mined.
(5) The proclamation of Francis Burton Harrison, Governor-General, of the
18th day of October, 1917, by authority of section 1 of Act No. 926,
withdrawing from settlement, entry, sale, or other dispositon all coal-
bearing public lands within the Province of Zamboanga and the Island of
Polillo, was not a reservation for the benefit of the National Coal Company,
but for any person or corporation of the Philippine Islands or of the United
States.
(6) That the National Coal Company entered upon said land and mined
said coal, so far as the record shows, without any lease or other authority
from either the Secretary of Agriculture and Natural Resources or any
person having the power to grant a leave or authority.
From all of the foregoing facts we find that the issue is well defined
between the plaintiff and the defendant. The plaintiff contends that it was
liable only to pay the internal revenue and other fees and taxes provided
for under section 15 of Act No. 2719; while the defendant contends, under
the facts of record, the plaintiff is obliged to pay the internal revenue duty
provided for in section 1496 of the Administrative Code. That being the
issue, an examination of the provisions of Act No. 2719 becomes
necessary.
An examination of said Act (No. 2719) discloses the following facts
important for consideration here:
First. All "coal-bearing lands of the public domain in the Philippine Islands
shall not be disposed of in any manner except as provided in this Act."
Second. Provisions for leasing by the Secretary of Agriculture and Natural
Resources of "unreserved, unappropriated coal-bearing public lands," and
the obligation to the Government which shall be imposed by said
Secretary upon the lessee.lawphi1.net
Third. The internal revenue duty and tax which must be paid upon coal-
bearing lands owned by any person, firm, association or corporation.
To repeat, it will be noted, first, that Act No. 2719 provides an internal
revenue duty and tax upon unreserved, unappropriated coal-bearing
public lands which may be leased by the Secretary of Agriculture and
Natural Resources; and, second, that said Act (No. 2719) provides an
internal revenue duty and tax imposed upon any person, firm, association
or corporation, who may be the owner of "coal-bearing lands." A reading
of said Act clearly shows that the tax imposed thereby is imposed upon
two classes of persons only — lessees and owners.
The lower court had some trouble in determining what was the correct
interpretation of section 15 of said Act, by reason of what he believed to
be some difference in the interpretation of the language used in Spanish
and English. While there is some ground for confusion in the use of the
language in Spanish and English, we are persuaded, considering all the
provisions of said Act, that said section 15 has reference only to persons,
firms, associations or corporations which had already, prior to the
existence of said Act, become the owners of coal lands. Section 15 cannot
certainty refer to "holders or lessees of coal lands' for the reason that
practically all of the other provisions of said Act has reference to lessees
or holders. If section 15 means that the persons, firms, associations, or
corporation mentioned therein are holders or lessees of coal lands only, it
Page 88 of 106
is difficult to understand why the internal revenue duty and tax in said
section was made different from the obligations mentioned in section 3
of said Act, imposed upon lessees or holders.
From all of the foregoing, it seems to be made plain that the plaintiff is
neither a lessee nor an owner of coal-bearing lands, and is, therefore, not
subject to any other provisions of Act No. 2719. But, is the plaintiff subject
to the provisions of section 1496 of the Administrative Code?
Section 1496 of the Administrative Code provides that "on all coal and
coke there shall be collected, per metric ton, fifty centavos." Said section
(1496) is a part of article, 6 which provides for specific taxes. Said article
provides for a specific internal revenue tax upon all things manufactured
or produced in the Philippine Islands for domestic sale or consumption,
and upon things imported from the United States or foreign countries. It
having been demonstrated that the plaintiff has produced coal in the
Philippine Islands and is not a lessee or owner of the land from which the
coal was produced, we are clearly of the opinion, and so hold, that it is
subject to pay the internal revenue tax under the provisions of section
1496 of the Administrative Code, and is not subject to the payment of the
internal revenue tax under section 15 of Act No. 2719, nor to any other
provisions of said Act.
Therefore, the judgment appealed from is hereby revoked, and the
defendant is hereby relieved from all responsibility under the complaint.
And, without any finding as to costs, it is so ordered.
Street, Malcolm, Avanceña, Villamor, Ostrand and Romualdez, JJ., concur.
G.R. No. 155650 July 20, 2006
MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner,
vs.
COURT OF APPEALS, CITY OF PARAÑAQUE, CITY MAYOR OF PARAÑAQUE,
SANGGUNIANG PANGLUNGSOD NG PARAÑAQUE, CITY ASSESSOR OF
PARAÑAQUE, and CITY TREASURER OF PARAÑAQUE, respondents.
DECISION
CARPIO, J.:
The Antecedents
Petitioner Manila International Airport Authority (MIAA) operates the
Ninoy Aquino International Airport (NAIA) Complex in Parañaque City
under Executive Order No. 903, otherwise known as the Revised Charter
of the Manila International Airport Authority ("MIAA Charter"). Executive
Order No. 903 was issued on 21 July 1983 by then President Ferdinand E.
Marcos. Subsequently, Executive Order Nos. 9091 and 2982 amended the
MIAA Charter.
As operator of the international airport, MIAA administers the land,
improvements and equipment within the NAIA Complex. The MIAA
Charter transferred to MIAA approximately 600 hectares of
land,3 including the runways and buildings ("Airport Lands and Buildings")
then under the Bureau of Air Transportation.4 The MIAA Charter further
provides that no portion of the land transferred to MIAA shall be disposed
of through sale or any other mode unless specifically approved by the
President of the Philippines.5
On 21 March 1997, the Office of the Government Corporate Counsel
(OGCC) issued Opinion No. 061. The OGCC opined that the Local
Government Code of 1991 withdrew the exemption from real estate tax Tambo, Parañaque City; in the public market of Barangay La Huerta; and
granted to MIAA under Section 21 of the MIAA Charter. Thus, MIAA in the main lobby of the Parañaque City Hall. The City of Parañaque
negotiated with respondent City of Parañaque to pay the real estate tax published the notices in the 3 and 10 January 2003 issues of the Philippine
imposed by the City. MIAA then paid some of the real estate tax already Daily Inquirer, a newspaper of general circulation in the Philippines. The
due. notices announced the public auction sale of the Airport Lands and
Buildings to the highest bidder on 7 February 2003, 10:00 a.m., at the
On 28 June 2001, MIAA received Final Notices of Real Estate Tax Legislative Session Hall Building of Parañaque City.
Delinquency from the City of Parañaque for the taxable years 1992 to
2001. MIAA's real estate tax delinquency is broken down as follows: A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA
filed before this Court an Urgent Ex-Parte and Reiteratory Motion for the
Issuance of a Temporary Restraining Order. The motion sought to restrain
TAX DECLARATION TAXABLE YEAR TAX DUE PENALTY TOTAL
respondents — the City of Parañaque, City Mayor of
E-016-01370 1992-2001 19,558,160.00 11,201,083.20
Parañaque, 30,789,243.20
Sangguniang Panglungsod ng Parañaque, City Treasurer of
E-016-01374 1992-2001 111,689,424.90 Parañaque, and the
68,149,479.59 City Assessor of Parañaque
179,838,904.49 ("respondents") — from
auctioning the Airport Lands and Buildings.
E-016-01375 1992-2001 20,276,058.00 12,371,832.00 32,647,890.00
E-016-01376 1992-2001 58,144,028.00 35,477,712.00 93,621,740.00
On 7 February 2003, this Court issued a temporary restraining order (TRO)
E-016-01377 1992-2001 18,134,614.65 11,065,188.59
effective 29,199,803.24
immediately. The Court ordered respondents to cease and desist
E-016-01378 1992-2001 111,107,950.40 from67,794,681.59
selling at public auction the Airport Lands and Buildings.
178,902,631.99
Respondents received the TRO on the same day that the Court issued it.
E-016-01379 1992-2001 4,322,340.00 2,637,360.00 6,959,700.00
However, respondents received the TRO only at 1:25 p.m. or three hours
E-016-01380 1992-2001 7,776,436.00 after 4,744,944.00 12,521,380.00
the conclusion of the public auction.
*E-016-013-85 1998-2001 6,444,810.00 2,900,164.50 9,344,974.50
*E-016-01387 1998-2001 34,876,800.00 On 105,694,560.00
February 2003, this Court issued a Resolution confirming nunc pro
50,571,360.00
tunc the TRO.
*E-016-01396 1998-2001 75,240.00 33,858.00 109,098.00
GRAND TOTAL P392,435,861.95 On 29
P232,070,863.47
March 2005, the CourtP 624,506,725.42
heard the parties in oral arguments. In
compliance with the directive issued during the hearing, MIAA,
1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 respondent City of Parañaque, and the Solicitor General subsequently
for P4,207,028.75 submitted their respective Memoranda.

#9476101 for P28,676,480.00
#9476103 for P49,115.006
On 17 July 2001, the City of Parañaque, through its City Treasurer, issued
notices of levy and warrants of levy on the Airport Lands and Buildings.
The Mayor of the City of Parañaque threatened to sell at public auction
the Airport Lands and Buildings should MIAA fail to pay the real estate tax
delinquency. MIAA thus sought a clarification of OGCC Opinion No. 061.
MIAA admits that the MIAA Charter has placed the title to the Airport
Lands and Buildings in the name of MIAA. However, MIAA points out that
it cannot claim ownership over these properties since the real owner of
the Airport Lands and Buildings is the Republic of the Philippines. The
MIAA Charter mandates MIAA to devote the Airport Lands and Buildings
for the benefit of the general public. Since the Airport Lands and Buildings
are devoted to public use and public service, the ownership of these
properties remains with the State. The Airport Lands and Buildings are
thus inalienable and are not subject to real estate tax by local
governments.

On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC
Opinion No. 061. The OGCC pointed out that Section 206 of the Local
Government Code requires persons exempt from real estate tax to show
proof of exemption. The OGCC opined that Section 21 of the MIAA Charter
is the proof that MIAA is exempt from real estate tax.
On 1 October 2001, MIAA filed with the Court of Appeals an original
petition for prohibition and injunction, with prayer for preliminary
injunction or temporary restraining order. The petition sought to restrain
the City of Parañaque from imposing real estate tax on, levying against,
and auctioning for public sale the Airport Lands and Buildings. The petition
was docketed as CA-G.R. SP No. 66878.
On 5 October 2001, the Court of Appeals dismissed the petition because
MIAA filed it beyond the 60-day reglementary period. The Court of
Appeals also denied on 27 September 2002 MIAA's motion for
reconsideration and supplemental motion for reconsideration. Hence,
MIAA filed on 5 December 2002 the present petition for review.7
Meanwhile, in January 2003, the City of Parañaque posted notices of
auction sale at the Barangay Halls of Barangays Vitalez, Sto. Niño, and
Page 89 of 106
MIAA also points out that Section 21 of the MIAA Charter specifically
exempts MIAA from the payment of real estate tax. MIAA insists that it is
also exempt from real estate tax under Section 234 of the Local
Government Code because the Airport Lands and Buildings are owned by
the Republic. To justify the exemption, MIAA invokes the principle that the
government cannot tax itself. MIAA points out that the reason for tax
exemption of public property is that its taxation would not inure to any
public advantage, since in such a case the tax debtor is also the tax
creditor.
Respondents invoke Section 193 of the Local Government Code,
which expressly withdrew the tax exemption privileges of "government-
owned and-controlled corporations" upon the effectivity of the Local
Government Code. Respondents also argue that a basic rule of statutory
construction is that the express mention of one person, thing, or act
excludes all others. An international airport is not among the exceptions
mentioned in Section 193 of the Local Government Code. Thus,
respondents assert that MIAA cannot claim that the Airport Lands and
Buildings are exempt from real estate tax.
Respondents also cite the ruling of this Court in Mactan International
Airport v. Marcos8 where we held that the Local Government Code has
withdrawn the exemption from real estate tax granted to international
airports. Respondents further argue that since MIAA has already paid
some of the real estate tax assessments, it is now estopped from claiming
that the Airport Lands and Buildings are exempt from real estate tax.
The Issue
This petition raises the threshold issue of whether the Airport Lands and
Buildings of MIAA are exempt from real estate tax under existing laws. If
so exempt, then the real estate tax assessments issued by the City of
Parañaque, and all proceedings taken pursuant to such assessments, are
void. In such event, the other issues raised in this petition become moot.
The Court's Ruling
We rule that MIAA's Airport Lands and Buildings are exempt from real
estate tax imposed by local governments.
First, MIAA is not a government-owned or controlled corporation but
an instrumentality of the National Government and thus exempt from
local taxation. Second, the real properties of MIAA are owned by the
Republic of the Philippines and thus exempt from real estate tax.
1. MIAA is Not a Government-Owned or Controlled Corporation
Respondents argue that MIAA, being a government-owned or controlled
corporation, is not exempt from real estate tax. Respondents claim that
the deletion of the phrase "any government-owned or controlled so
exempt by its charter" in Section 234(e) of the Local Government Code
withdrew the real estate tax exemption of government-owned or
controlled corporations. The deleted phrase appeared in Section 40(a) of
the 1974 Real Property Tax Code enumerating the entities exempt from
real estate tax.
There is no dispute that a government-owned or controlled corporation is
not exempt from real estate tax. However, MIAA is not a government-
owned or controlled corporation. Section 2(13) of the Introductory
Provisions of the Administrative Code of 1987 defines a government-
owned or controlled corporation as follows:
SEC. 2. General Terms Defined. – x x x x
(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: x x x. (Emphasis
supplied)
A government-owned or controlled corporation must be "organized as a
stock or non-stock corporation." MIAA is not organized as a stock or non-
stock corporation. MIAA is not a stock corporation because it has no
capital stock divided into shares. MIAA has no stockholders or voting
shares. Section 10 of the MIAA Charter9 provides:
SECTION 10. Capital. — The capital of the Authority to be
contributed by the National Government shall be increased
Page 90 of 106
from Two and One-half Billion (P2,500,000,000.00) Pesos to Ten
Billion (P10,000,000,000.00) Pesos to consist of:
(a) The value of fixed assets including airport facilities, runways
and equipment and such other properties, movable and
immovable[,] which may be contributed by the National
Government or transferred by it from any of its agencies, the
valuation of which shall be determined jointly with the
Department of Budget and Management and the Commission
on Audit on the date of such contribution or transfer after
making due allowances for depreciation and other deductions
taking into account the loans and other liabilities of the
Authority at the time of the takeover of the assets and other
properties;
(b) That the amount of P605 million as of December 31, 1986
representing about seventy percentum (70%) of the unremitted
share of the National Government from 1983 to 1986 to be
remitted to the National Treasury as provided for in Section 11
of E. O. No. 903 as amended, shall be converted into the equity
of the National Government in the Authority. Thereafter, the
Government contribution to the capital of the Authority shall be
provided in the General Appropriations Act.
Clearly, under its Charter, MIAA does not have capital stock that is divided
into shares.
Section 3 of the Corporation Code10 defines a stock corporation as one
whose "capital stock is divided into shares and x x x authorized to distribute
to the holders of such shares dividends x x x." MIAA has capital but it is not
divided into shares of stock. MIAA has no stockholders or voting shares.
Hence, MIAA is not a stock corporation.
MIAA is also not a non-stock corporation because it has no members.
Section 87 of the Corporation Code defines a non-stock corporation as
"one where no part of its income is distributable as dividends to its
members, trustees or officers." A non-stock corporation must have
members. Even if we assume that the Government is considered as the
sole member of MIAA, this will not make MIAA a non-stock corporation.
Non-stock corporations cannot distribute any part of their income to their
members. Section 11 of the MIAA Charter mandates MIAA to remit 20%
of its annual gross operating income to the National Treasury.11 This
prevents MIAA from qualifying as a non-stock corporation.
Section 88 of the Corporation Code provides that non-stock corporations
are "organized for charitable, religious, educational, professional, cultural,
recreational, fraternal, literary, scientific, social, civil service, or similar
purposes, like trade, industry, agriculture and like chambers." MIAA is not
organized for any of these purposes. MIAA, a public utility, is organized to
operate an international and domestic airport for public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not
qualify as a government-owned or controlled corporation. What then is
the legal status of MIAA within the National Government?
MIAA is a government instrumentality vested with corporate powers to
perform efficiently its governmental functions. MIAA is like any other
government instrumentality, the only difference is that MIAA is vested
with corporate powers. Section 2(10) of the Introductory Provisions of the
Administrative Code defines a government "instrumentality" as follows:
SEC. 2. General Terms Defined. –– x x x x
 (10) Instrumentality refers to any agency of the National
Government, not integrated within the department framework,
vested with special functions or jurisdiction by law, endowed
with some if not all corporate powers, administering special
funds, and enjoying operational autonomy, usually through a
charter. x x x (Emphasis supplied)
When the law vests in a government instrumentality corporate powers,
the instrumentality does not become a corporation. Unless the
government instrumentality is organized as a stock or non-stock
corporation, it remains a government instrumentality exercising not only
governmental but also corporate powers. Thus, MIAA exercises the
governmental powers of eminent domain,12 police authority13 and the
levying of fees and charges.14 At the same time, MIAA exercises "all the
powers of a corporation under the Corporation Law, insofar as these
powers are not inconsistent with the provisions of this Executive Order."15
Likewise, when the law makes a government instrumentality operationally
autonomous, the instrumentality remains part of the National
Government machinery although not integrated with the department
framework. The MIAA Charter expressly states that transforming MIAA
into a "separate and autonomous body"16 will make its operation more
"financially viable."17
Many government instrumentalities are vested with corporate powers but
they do not become stock or non-stock corporations, which is a necessary
condition before an agency or instrumentality is deemed a government-
owned or controlled corporation. Examples are the Mactan International
Airport Authority, the Philippine Ports Authority, the University of the
Philippines and Bangko Sentral ng Pilipinas. All these government
instrumentalities exercise corporate powers but they are not organized as
stock or non-stock corporations as required by Section 2(13) of the
Introductory Provisions of the Administrative Code. These government
instrumentalities are sometimes loosely called government corporate
entities. However, they are not government-owned or controlled
corporations in the strict sense as understood under the Administrative
Code, which is the governing law defining the legal relationship and status
of government entities.
A government instrumentality like MIAA falls under Section 133(o) of the
Local Government Code, which states:
SEC. 133. Common Limitations on the Taxing Powers of Local
Government Units. – Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalitiesand local
government units.(Emphasis and underscoring supplied)
Section 133(o) recognizes the basic principle that local governments
cannot tax the national government, which historically merely delegated
to local governments the power to tax. While the 1987 Constitution now
includes taxation as one of the powers of local governments, local
governments may only exercise such power "subject to such guidelines
and limitations as the Congress may provide."18
When local governments invoke the power to tax on national government
instrumentalities, such power is construed strictly against local
governments. The rule is that a tax is never presumed and there must be
Page 91 of 106
clear language in the law imposing the tax. Any doubt whether a person,
article or activity is taxable is resolved against taxation. This rule applies
with greater force when local governments seek to tax national
government instrumentalities.
Another rule is that a tax exemption is strictly construed against the
taxpayer claiming the exemption. However, when Congress grants an
exemption to a national government instrumentality from local taxation,
such exemption is construed liberally in favor of the national government
instrumentality. As this Court declared in Maceda v. Macaraig, Jr.:
The reason for the rule does not apply in the case of exemptions
running to the benefit of the government itself or its agencies.
In such case the practical effect of an exemption is merely to
reduce the amount of money that has to be handled by
government in the course of its operations. For these reasons,
provisions granting exemptions to government agencies may be
construed liberally, in favor of non tax-liability of such
agencies.19
There is, moreover, no point in national and local governments taxing
each other, unless a sound and compelling policy requires such transfer of
public funds from one government pocket to another.
There is also no reason for local governments to tax national government
instrumentalities for rendering essential public services to inhabitants of
local governments. The only exception is when the legislature clearly
intended to tax government instrumentalities for the delivery of essential
public services for sound and compelling policy considerations. There must
be express language in the law empowering local governments to tax
national government instrumentalities. Any doubt whether such power
exists is resolved against local governments.
Thus, Section 133 of the Local Government Code states that "unless
otherwise provided" in the Code, local governments cannot tax national
government instrumentalities. As this Court held in Basco v. Philippine
Amusements and Gaming Corporation:
The states have no power by taxation or otherwise, to
retard, impede, burden or in any manner control the
operation of constitutional laws enacted by Congress
to carry into execution the powers vested in the
federal government. (MC Culloch v. Maryland, 4
Wheat 316, 4 L Ed. 579)
This doctrine emanates from the "supremacy" of the National
Government over local governments.
"Justice Holmes, speaking for the Supreme Court,
made reference to the entire absence of power on the
part of the States to touch, in that way (taxation) at
least, the instrumentalities of the United States
(Johnson v. Maryland, 254 US 51) and it can be agreed
that no state or political subdivision can regulate a
federal instrumentality in such a way as to prevent it
from consummating its federal responsibilities, or
even to seriously burden it in the accomplishment of
them." (Antieau, Modern Constitutional Law, Vol. 2, p.
140, emphasis supplied)
Otherwise, mere creatures of the State can defeat National
policies thru extermination of what local authorities may
perceive to be undesirable activities or enterprise using the
 power to tax as "a tool for regulation" (U.S. v. Sanchez, 340 US
42).
The power to tax which was called by Justice Marshall as the
"power to destroy" (Mc Culloch v. Maryland, supra) cannot be
allowed to defeat an instrumentality or creation of the very
entity which has the inherent power to wield it. 20
2. Airport Lands and Buildings of MIAA are Owned by the Republic
a. Airport Lands and Buildings are of Public Dominion
The Airport Lands and Buildings of MIAA are property of public dominion
and therefore owned by the State or the Republic of the Philippines. The
Civil Code provides:
ARTICLE 419. Property is either of public dominion or of private
ownership.
ARTICLE 420. The following things are property of public
dominion:
(1) Those intended for public use, such as roads, canals, rivers,
torrents, ports and bridges constructed by the State, banks,
shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public
use, and are intended for some public service or for the
development of the national wealth. (Emphasis supplied)
ARTICLE 421. All other property of the State, which is not of the
character stated in the preceding article, is patrimonial
property.
ARTICLE 422. Property of public dominion, when no longer
intended for public use or for public service, shall form part of
the patrimonial property of the State.
No one can dispute that properties of public dominion mentioned in
Article 420 of the Civil Code, like "roads, canals, rivers, torrents, ports and
bridges constructed by the State," are owned by the State. The term
"ports" includes seaports and airports. The MIAA Airport Lands and
Buildings constitute a "port" constructed by the State. Under Article 420
of the Civil Code, the MIAA Airport Lands and Buildings are properties of
public dominion and thus owned by the State or the Republic of the
Philippines.
The Airport Lands and Buildings are devoted to public use because they
are used by the public for international and domestic travel and
transportation. The fact that the MIAA collects terminal fees and other
charges from the public does not remove the character of the Airport
Lands and Buildings as properties for public use. The operation by the
government of a tollway does not change the character of the road as one
for public use. Someone must pay for the maintenance of the road, either
the public indirectly through the taxes they pay the government, or only
those among the public who actually use the road through the toll fees
they pay upon using the road. The tollway system is even a more efficient
and equitable manner of taxing the public for the maintenance of public
roads.
Page 92 of 106
The charging of fees to the public does not determine the character of the
property whether it is of public dominion or not. Article 420 of the Civil
Code defines property of public dominion as one "intended for public
use." Even if the government collects toll fees, the road is still "intended
for public use" if anyone can use the road under the same terms and
conditions as the rest of the public. The charging of fees, the limitation on
the kind of vehicles that can use the road, the speed restrictions and other
conditions for the use of the road do not affect the public character of the
road.
The terminal fees MIAA charges to passengers, as well as the landing fees
MIAA charges to airlines, constitute the bulk of the income that maintains
the operations of MIAA. The collection of such fees does not change the
character of MIAA as an airport for public use. Such fees are often termed
user's tax. This means taxing those among the public who actually use a
public facility instead of taxing all the public including those who never use
the particular public facility. A user's tax is more equitable — a principle
of taxation mandated in the 1987 Constitution.21
The Airport Lands and Buildings of MIAA, which its Charter calls the
"principal airport of the Philippines for both international and domestic air
traffic,"22 are properties of public dominion because they are intended for
public use. As properties of public dominion, they indisputably belong to
the State or the Republic of the Philippines.
b. Airport Lands and Buildings are Outside the Commerce of Man
The Airport Lands and Buildings of MIAA are devoted to public use and
thus are properties of public dominion. As properties of public dominion,
the Airport Lands and Buildings are outside the commerce of man. The
Court has ruled repeatedly that properties of public dominion are outside
the commerce of man. As early as 1915, this Court already ruled
in Municipality of Cavite v. Rojas that properties devoted to public use are
outside the commerce of man, thus:
According to article 344 of the Civil Code: "Property for public
use in provinces and in towns comprises the provincial and town
roads, the squares, streets, fountains, and public waters, the
promenades, and public works of general service supported by
said towns or provinces."
The said Plaza Soledad being a promenade for public use, the
municipal council of Cavite could not in 1907 withdraw or
exclude from public use a portion thereof in order to lease it for
the sole benefit of the defendant Hilaria Rojas. In leasing a
portion of said plaza or public place to the defendant for private
use the plaintiff municipality exceeded its authority in the
exercise of its powers by executing a contract over a thing of
which it could not dispose, nor is it empowered so to do.
The Civil Code, article 1271, prescribes that everything which is
not outside the commerce of man may be the object of a
contract, and plazas and streets are outside of this commerce,
as was decided by the supreme court of Spain in its decision of
February 12, 1895, which says: "Communal things that cannot
be sold because they are by their very nature outside of
commerce are those for public use, such as the plazas, streets,
common lands, rivers, fountains, etc." (Emphasis supplied) 23
Again in Espiritu v. Municipal Council, the Court declared that properties of
public dominion are outside the commerce of man:
 xxx Town plazas are properties of public dominion, to be
devoted to public use and to be made available to the public in
general. They are outside the commerce of man and cannot be
disposed of or even leased by the municipality to private parties.
While in case of war or during an emergency, town plazas may
be occupied temporarily by private individuals, as was done and
as was tolerated by the Municipality of Pozorrubio, when the
emergency has ceased, said temporary occupation or use must
also cease, and the town officials should see to it that the town
plazas should ever be kept open to the public and free from
encumbrances or illegal private constructions.24 (Emphasis
supplied)
The Court has also ruled that property of public dominion, being outside
the commerce of man, cannot be the subject of an auction sale.25
Properties of public dominion, being for public use, are not subject to levy,
encumbrance or disposition through public or private sale. Any
encumbrance, levy on execution or auction sale of any property of public
dominion is void for being contrary to public policy. Essential public
services will stop if properties of public dominion are subject to
encumbrances, foreclosures and auction sale. This will happen if the City
of Parañaque can foreclose and compel the auction sale of the 600-
hectare runway of the MIAA for non-payment of real estate tax.
Before MIAA can encumber26 the Airport Lands and Buildings, the
President must first withdraw from public usethe Airport Lands and
Buildings. Sections 83 and 88 of the Public Land Law or Commonwealth
Act No. 141, which "remains to this day the existing general law governing
the classification and disposition of lands of the public domain other than
timber and mineral lands,"27 provide:
SECTION 83. Upon the recommendation of the Secretary of
Agriculture and Natural Resources, the President may designate
by proclamation any tract or tracts of land of the public domain
as reservations for the use of the Republic of the Philippines or
of any of its branches, or of the inhabitants thereof, in
accordance with regulations prescribed for this purposes, or for
quasi-public uses or purposes when the public interest requires
it, including reservations for highways, rights of way for
railroads, hydraulic power sites, irrigation systems, communal
pastures or lequas communales, public parks, public quarries,
public fishponds, working men's village and other
improvements for the public benefit.
SECTION 88. The tract or tracts of land reserved under the
provisions of Section eighty-three shall be non-alienable and
shall not be subject to occupation, entry, sale, lease, or other
disposition until again declared alienable under the provisions of
this Act or by proclamation of the President. (Emphasis and
underscoring supplied)
Thus, unless the President issues a proclamation withdrawing the Airport
Lands and Buildings from public use, these properties remain properties
of public dominion and are inalienable. Since the Airport Lands and
Buildings are inalienable in their present status as properties of public
dominion, they are not subject to levy on execution or foreclosure sale. As
long as the Airport Lands and Buildings are reserved for public use, their
ownership remains with the State or the Republic of the Philippines.
The authority of the President to reserve lands of the public domain for
public use, and to withdraw such public use, is reiterated in Section 14,
Chapter 4, Title I, Book III of the Administrative Code of 1987, which states:
Page 93 of 106
SEC. 14. Power to Reserve Lands of the Public and Private
Domain of the Government. — (1) The President shall have the
power to reserve for settlement or public use, and for specific
public purposes, any of the lands of the public domain, the use of
which is not otherwise directed by law. The reserved land shall
thereafter remain subject to the specific public purpose indicated
until otherwise provided by law or proclamation;
x x x x. (Emphasis supplied)
There is no question, therefore, that unless the Airport Lands and
Buildings are withdrawn by law or presidential proclamation from public
use, they are properties of public dominion, owned by the Republic and
outside the commerce of man.
c. MIAA is a Mere Trustee of the Republic
MIAA is merely holding title to the Airport Lands and Buildings in trust for
the Republic. Section 48, Chapter 12, Book I of the Administrative Code
allows instrumentalities like MIAA to hold title to real properties owned by
the Republic, thus:
SEC. 48. Official Authorized to Convey Real Property. —
Whenever real property of the Government is authorized by law
to be conveyed, the deed of conveyance shall be executed in
behalf of the government by the following:
(1) For property belonging to and titled in the name of the
Republic of the Philippines, by the President, unless the
authority therefor is expressly vested by law in another officer.
(2) For property belonging to the Republic of the Philippines but
titled in the name of any political subdivision or of any corporate
agency or instrumentality, by the executive head of the agency
or instrumentality. (Emphasis supplied)
In MIAA's case, its status as a mere trustee of the Airport Lands and
Buildings is clearer because even its executive head cannot sign the deed
of conveyance on behalf of the Republic. Only the President of the
Republic can sign such deed of conveyance.28
d. Transfer to MIAA was Meant to Implement a Reorganization
The MIAA Charter, which is a law, transferred to MIAA the title to the
Airport Lands and Buildings from the Bureau of Air Transportation of the
Department of Transportation and Communications. The MIAA Charter
provides:
SECTION 3. Creation of the Manila International Airport
Authority. — x x x x
The land where the Airport is presently located as well as the
surrounding land area of approximately six hundred hectares, are
hereby transferred, conveyed and assigned to the ownership and
administration of the Authority, subject to existing rights, if any.
The Bureau of Lands and other appropriate government
agencies shall undertake an actual survey of the area
transferred within one year from the promulgation of this
Executive Order and the corresponding title to be issued in the
name of the Authority. Any portion thereof shall not be disposed
through sale or through any other mode unless specifically
 approved by the President of the Philippines. (Emphasis
supplied)
SECTION 22. Transfer of Existing Facilities and Intangible Assets.
— All existing public airport facilities, runways, lands, buildings
and other property, movable or immovable, belonging to the
Airport, and all assets, powers, rights, interests and
privileges belonging to the Bureau of Air Transportation relating
to airport works or air operations, including all equipment which
are necessary for the operation of crash fire and rescue
facilities, are hereby transferred to the Authority. (Emphasis
supplied)
SECTION 25. Abolition of the Manila International Airport as a
Division in the Bureau of Air Transportation and Transitory
Provisions. — The Manila International Airport including the
Manila Domestic Airport as a division under the Bureau of Air
Transportation is hereby abolished.
x x x x.
The MIAA Charter transferred the Airport Lands and Buildings to MIAA
without the Republic receiving cash, promissory notes or even stock since
MIAA is not a stock corporation.
The whereas clauses of the MIAA Charter explain the rationale for the
transfer of the Airport Lands and Buildings to MIAA, thus:
WHEREAS, the Manila International Airport as the principal
airport of the Philippines for both international and domestic air
traffic, is required to provide standards of airport
accommodation and service comparable with the best airports
in the world;
WHEREAS, domestic and other terminals, general aviation and
other facilities, have to be upgraded to meet the current and
future air traffic and other demands of aviation in Metro Manila;
WHEREAS, a management and organization study has indicated
that the objectives of providing high standards of
accommodation and service within the context of a financially
viable operation, will best be achieved by a separate and
autonomous body; and
WHEREAS, under Presidential Decree No. 1416, as amended by
Presidential Decree No. 1772, the President of the Philippines is
given continuing authority to reorganize the National
Government, which authority includes the creation of new
entities, agencies and instrumentalities of the Government[.]
(Emphasis supplied)
The transfer of the Airport Lands and Buildings from the Bureau of Air
Transportation to MIAA was not meant to transfer beneficial ownership
of these assets from the Republic to MIAA. The purpose was merely
to reorganize a division in the Bureau of Air Transportation into a separate
and autonomous body. The Republic remains the beneficial owner of the
Airport Lands and Buildings. MIAA itself is owned solely by the Republic.
No party claims any ownership rights over MIAA's assets adverse to the
Republic.
The MIAA Charter expressly provides that the Airport Lands and Buildings
"shall not be disposed through sale or through any other mode unless
Page 94 of 106
specifically approved by the President of the Philippines." This only means
that the Republic retained the beneficial ownership of the Airport Lands
and Buildings because under Article 428 of the Civil Code, only the "owner
has the right to x x x dispose of a thing." Since MIAA cannot dispose of the
Airport Lands and Buildings, MIAA does not own the Airport Lands and
Buildings.
At any time, the President can transfer back to the Republic title to the
Airport Lands and Buildings without the Republic paying MIAA any
consideration. Under Section 3 of the MIAA Charter, the President is the
only one who can authorize the sale or disposition of the Airport Lands
and Buildings. This only confirms that the Airport Lands and Buildings
belong to the Republic.
e. Real Property Owned by the Republic is Not Taxable
Section 234(a) of the Local Government Code exempts from real estate
tax any "[r]eal property owned by the Republic of the Philippines." Section
234(a) provides:
SEC. 234. Exemptions from Real Property Tax. — The following
are exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any
of its political subdivisions except when the beneficial use thereof
has been granted, for consideration or otherwise, to a taxable
person;
x x x. (Emphasis supplied)
This exemption should be read in relation with Section 133(o) of the same
Code, which prohibits local governments from imposing "[t]axes, fees or
charges of any kind on the National Government, its agencies
and instrumentalitiesx x x." The real properties owned by the Republic are
titled either in the name of the Republic itself or in the name of agencies
or instrumentalities of the National Government. The Administrative Code
allows real property owned by the Republic to be titled in the name of
agencies or instrumentalities of the national government. Such real
properties remain owned by the Republic and continue to be exempt from
real estate tax.
The Republic may grant the beneficial use of its real property to an agency
or instrumentality of the national government. This happens when title of
the real property is transferred to an agency or instrumentality even as
the Republic remains the owner of the real property. Such arrangement
does not result in the loss of the tax exemption. Section 234(a) of the Local
Government Code states that real property owned by the Republic loses
its tax exemption only if the "beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person." MIAA, as a government
instrumentality, is not a taxable person under Section 133(o) of the Local
Government Code. Thus, even if we assume that the Republic has granted
to MIAA the beneficial use of the Airport Lands and Buildings, such fact
does not make these real properties subject to real estate tax.
However, portions of the Airport Lands and Buildings that MIAA leases to
private entities are not exempt from real estate tax. For example, the land
area occupied by hangars that MIAA leases to private corporations is
subject to real estate tax. In such a case, MIAA has granted the beneficial
use of such land area for a consideration to a taxable person and therefore
such land area is subject to real estate tax. In Lung Center of the Philippines
v. Quezon City, the Court ruled:
 Accordingly, we hold that the portions of the land leased to
private entities as well as those parts of the hospital leased to
private individuals are not exempt from such taxes. On the other
hand, the portions of the land occupied by the hospital and
portions of the hospital used for its patients, whether paying or
non-paying, are exempt from real property taxes.29
3. Refutation of Arguments of Minority
The minority asserts that the MIAA is not exempt from real estate tax
because Section 193 of the Local Government Code of 1991 withdrew the
tax exemption of "all persons, whether natural or juridical" upon the
effectivity of the Code. Section 193 provides:
SEC. 193. Withdrawal of Tax Exemption Privileges – Unless
otherwise provided in this Code, tax exemptions or incentives
granted to, or presently enjoyed by all persons, whether natural
or juridical, including government-owned or controlled
corporations, except local water districts, cooperatives duly
registered under R.A. No. 6938, non-stock and non-profit
hospitals and educational institutions are hereby withdrawn
upon effectivity of this Code. (Emphasis supplied)
The minority states that MIAA is indisputably a juridical person. The
minority argues that since the Local Government Code withdrew the tax
exemption of all juridical persons, then MIAA is not exempt from real
estate tax. Thus, the minority declares:
It is evident from the quoted provisions of the Local Government
Code that the withdrawn exemptions from realty tax cover not
just GOCCs, but all persons. To repeat, the provisions lay down
the explicit proposition that the withdrawal of realty tax
exemption applies to all persons. The reference to or the
inclusion of GOCCs is only clarificatory or illustrative of the
explicit provision.
The term "All persons" encompasses the two classes of persons
recognized under our laws, natural and juridical persons.
Obviously, MIAA is not a natural person. Thus, the determinative
test is not just whether MIAA is a GOCC, but whether MIAA is a
juridical person at all. (Emphasis and underscoring in the
original)
The minority posits that the "determinative test" whether MIAA is exempt
from local taxation is its status — whether MIAA is a juridical person or
not. The minority also insists that "Sections 193 and 234 may be examined
in isolation from Section 133(o) to ascertain MIAA's claim of exemption."
The argument of the minority is fatally flawed. Section 193 of the Local
Government Code expressly withdrew the tax exemption of all juridical
persons "[u]nless otherwise provided in this Code." Now, Section 133(o) of
the Local Government Code expressly provides otherwise,
specifically prohibiting local governments from imposing any kind of tax
on national government instrumentalities. Section 133(o) states:
SEC. 133. Common Limitations on the Taxing Powers of Local
Government Units. – Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the following:
xxxx
Page 95 of 106
(o) Taxes, fees or charges of any kinds on the National
Government, its agencies and instrumentalities, and local
government units. (Emphasis and underscoring supplied)
By express mandate of the Local Government Code, local governments
cannot impose any kind of tax on national government instrumentalities
like the MIAA. Local governments are devoid of power to tax the national
government, its agencies and instrumentalities. The taxing powers of local
governments do not extend to the national government, its agencies and
instrumentalities, "[u]nless otherwise provided in this Code" as stated in
the saving clause of Section 133. The saving clause refers to Section 234(a)
on the exception to the exemption from real estate tax of real property
owned by the Republic.
The minority, however, theorizes that unless exempted in Section 193
itself, all juridical persons are subject to tax by local governments. The
minority insists that the juridical persons exempt from local taxation are
limited to the three classes of entities specifically enumerated as exempt
in Section 193. Thus, the minority states:
x x x Under Section 193, the exemption is limited to (a) local
water districts; (b) cooperatives duly registered under Republic
Act No. 6938; and (c) non-stock and non-profit hospitals and
educational institutions. It would be belaboring the obvious why
the MIAA does not fall within any of the exempt entities under
Section 193. (Emphasis supplied)
The minority's theory directly contradicts and completely negates Section
133(o) of the Local Government Code. This theory will result in gross
absurdities. It will make the national government, which itself is a juridical
person, subject to tax by local governments since the national
government is not included in the enumeration of exempt entities in
Section 193. Under this theory, local governments can impose any kind of
local tax, and not only real estate tax, on the national government.
Under the minority's theory, many national government instrumentalities
with juridical personalities will also be subject to any kind of local tax, and
not only real estate tax. Some of the national government
instrumentalities vested by law with juridical personalities are: Bangko
Sentral ng Pilipinas,30 Philippine Rice Research Institute,31Laguna Lake
Development Authority,32 Fisheries Development Authority,33 Bases
Conversion Development Authority,34Philippine Ports
Authority,35 Cagayan de Oro Port Authority,36 San Fernando Port
Authority,37 Cebu Port Authority,38 and Philippine National Railways.39
The minority's theory violates Section 133(o) of the Local Government
Code which expressly prohibits local governments from imposing any kind
of tax on national government instrumentalities. Section 133(o) does not
distinguish between national government instrumentalities with or
without juridical personalities. Where the law does not distinguish, courts
should not distinguish. Thus, Section 133(o) applies to all national
government instrumentalities, with or without juridical personalities. The
determinative test whether MIAA is exempt from local taxation is not
whether MIAA is a juridical person, but whether it is a national
government instrumentality under Section 133(o) of the Local
Government Code. Section 133(o) is the specific provision of law
prohibiting local governments from imposing any kind of tax on the
national government, its agencies and instrumentalities.
Section 133 of the Local Government Code starts with the saving clause
"[u]nless otherwise provided in this Code." This means that unless the
Local Government Code grants an express authorization, local
governments have no power to tax the national government, its agencies
and instrumentalities. Clearly, the rule is local governments have no
power to tax the national government, its agencies and instrumentalities.
As an exception to this rule, local governments may tax the national
government, its agencies and instrumentalities only if the Local
Government Code expressly so provides.
The saving clause in Section 133 refers to the exception to the exemption
in Section 234(a) of the Code, which makes the national government
subject to real estate tax when it gives the beneficial use of its real
properties to a taxable entity. Section 234(a) of the Local Government
Code provides:
SEC. 234. Exemptions from Real Property Tax – The following
are exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or
any of its political subdivisions except when the beneficial use
thereof has been granted, for consideration or otherwise, to a
taxable person.
x x x. (Emphasis supplied)
Under Section 234(a), real property owned by the Republic is exempt from
real estate tax. The exception to this exemption is when the government
gives the beneficial use of the real property to a taxable entity.
The exception to the exemption in Section 234(a) is the only instance
when the national government, its agencies and instrumentalities are
subject to any kind of tax by local governments. The exception to the
exemption applies only to real estate tax and not to any other tax. The
justification for the exception to the exemption is that the real property,
although owned by the Republic, is not devoted to public use or public
service but devoted to the private gain of a taxable person.
The minority also argues that since Section 133 precedes Section 193 and
234 of the Local Government Code, the later provisions prevail over
Section 133. Thus, the minority asserts:
x x x Moreover, sequentially Section 133 antecedes Section 193
and 234. Following an accepted rule of construction, in case of
conflict the subsequent provisions should prevail. Therefore,
MIAA, as a juridical person, is subject to real property taxes, the
general exemptions attaching to instrumentalities under
Section 133(o) of the Local Government Code being qualified by
Sections 193 and 234 of the same law. (Emphasis supplied)
The minority assumes that there is an irreconcilable conflict between
Section 133 on one hand, and Sections 193 and 234 on the other. No one
has urged that there is such a conflict, much less has any one presenteda
persuasive argument that there is such a conflict. The minority's
assumption of an irreconcilable conflict in the statutory provisions is an
egregious error for two reasons.
First, there is no conflict whatsoever between Sections 133 and 193
because Section 193 expressly admits its subordination to other
provisions of the Code when Section 193 states "[u]nless otherwise
provided in this Code." By its own words, Section 193 admits the
superiority of other provisions of the Local Government Code that limit
the exercise of the taxing power in Section 193. When a provision of law
grants a power but withholds such power on certain matters, there is no
conflict between the grant of power and the withholding of power. The
Page 96 of 106
grantee of the power simply cannot exercise the power on matters
withheld from its power.
Second, Section 133 is entitled "Common Limitations on the Taxing
Powers of Local Government Units." Section 133 limits the grant to local
governments of the power to tax, and not merely the exercise of a
delegated power to tax. Section 133 states that the taxing powers of local
governments "shall not extend to the levy" of any kind of tax on the
national government, its agencies and instrumentalities. There is no
clearer limitation on the taxing power than this.
Since Section 133 prescribes the "common limitations" on the taxing
powers of local governments, Section 133 logically prevails over Section
193 which grants local governments such taxing powers. By their very
meaning and purpose, the "common limitations" on the taxing power
prevail over the grant or exercise of the taxing power. If the taxing power
of local governments in Section 193 prevails over the limitations on such
taxing power in Section 133, then local governments can impose any kind
of tax on the national government, its agencies and instrumentalities — a
gross absurdity.
Local governments have no power to tax the national government, its
agencies and instrumentalities, except as otherwise provided in the Local
Government Code pursuant to the saving clause in Section 133 stating
"[u]nless otherwise provided in this Code." This exception — which is an
exception to the exemption of the Republic from real estate tax imposed
by local governments — refers to Section 234(a) of the Code. The
exception to the exemption in Section 234(a) subjects real property
owned by the Republic, whether titled in the name of the national
government, its agencies or instrumentalities, to real estate tax if the
beneficial use of such property is given to a taxable entity.
The minority also claims that the definition in the Administrative Code of
the phrase "government-owned or controlled corporation" is not
controlling. The minority points out that Section 2 of the Introductory
Provisions of the Administrative Code admits that its definitions are not
controlling when it provides:
SEC. 2. General Terms Defined. — Unless the specific words of
the text, or the context as a whole, or a particular statute, shall
require a different meaning:
xxxx
The minority then concludes that reliance on the Administrative Code
definition is "flawed."
The minority's argument is a non sequitur. True, Section 2 of the
Administrative Code recognizes that a statute may require a different
meaning than that defined in the Administrative Code. However, this does
not automatically mean that the definition in the Administrative Code
does not apply to the Local Government Code. Section 2 of the
Administrative Code clearly states that "unless the specific words x x x of
a particular statute shall require a different meaning," the definition in
Section 2 of the Administrative Code shall apply. Thus, unless there is
specific language in the Local Government Code defining the phrase
"government-owned or controlled corporation" differently from the
definition in the Administrative Code, the definition in the Administrative
Code prevails.
The minority does not point to any provision in the Local Government
Code defining the phrase "government-owned or controlled corporation"
differently from the definition in the Administrative Code. Indeed, there is
none. The Local Government Code is silent on the definition of the phrase
"government-owned or controlled corporation." The Administrative Code,
however, expressly defines the phrase "government-owned or controlled
corporation." The inescapable conclusion is that the Administrative Code
definition of the phrase "government-owned or controlled corporation"
applies to the Local Government Code.
The third whereas clause of the Administrative Code states that the Code
"incorporates in a unified document the major structural, functional and
procedural principles and rules of governance." Thus, the Administrative
Code is the governing law defining the status and relationship of
government departments, bureaus, offices, agencies and
instrumentalities. Unless a statute expressly provides for a different status
and relationship for a specific government unit or entity, the provisions of
the Administrative Code prevail.
The minority also contends that the phrase "government-owned or
controlled corporation" should apply only to corporations organized
under the Corporation Code, the general incorporation law, and not to
corporations created by special charters. The minority sees no reason why
government corporations with special charters should have a capital
stock. Thus, the minority declares:
I submit that the definition of "government-owned or controlled
corporations" under the Administrative Code refer to those
corporations owned by the government or its instrumentalities
which are created not by legislative enactment, but formed and
organized under the Corporation Code through registration
with the Securities and Exchange Commission. In short, these
are GOCCs without original charters.
xxxx
It might as well be worth pointing out that there is no point in
requiring a capital structure for GOCCs whose full ownership is
limited by its charter to the State or Republic. Such GOCCs are
not empowered to declare dividends or alienate their capital
shares.
The contention of the minority is seriously flawed. It is not in accord with
the Constitution and existing legislations. It will also result in gross
absurdities.
First, the Administrative Code definition of the phrase "government-
owned or controlled corporation" does not distinguish between one
incorporated under the Corporation Code or under a special charter.
Where the law does not distinguish, courts should not distinguish.
Second, Congress has created through special charters several
government-owned corporations organized as stock corporations. Prime
examples are the Land Bank of the Philippines and the Development Bank
of the Philippines. The special charter40 of the Land Bank of the Philippines
provides:
SECTION 81. Capital. — The authorized capital stock of the Bank
shall be nine billion pesos, divided into seven hundred and
eighty million common shares with a par value of ten pesos
each, which shall be fully subscribed by the Government, and
one hundred and twenty million preferred shares with a par
value of ten pesos each, which shall be issued in accordance
with the provisions of Sections seventy-seven and eighty-three
of this Code. (Emphasis supplied)
Page 97 of 106
Likewise, the special charter41 of the Development Bank of the Philippines
provides:
SECTION 7. Authorized Capital Stock – Par value. — The capital
stock of the Bank shall be Five Billion Pesos to be divided into
Fifty Million common shares with par value of P100 per share.
These shares are available for subscription by the National
Government. Upon the effectivity of this Charter, the National
Government shall subscribe to Twenty-Five Million common
shares of stock worth Two Billion Five Hundred Million which
shall be deemed paid for by the Government with the net asset
values of the Bank remaining after the transfer of assets and
liabilities as provided in Section 30 hereof. (Emphasis supplied)
Other government-owned corporations organized as stock corporations
under their special charters are the Philippine Crop Insurance
Corporation,42 Philippine International Trading Corporation,43 and the
Philippine National Bank44 before it was reorganized as a stock
corporation under the Corporation Code. All these government-owned
corporations organized under special charters as stock corporations are
subject to real estate tax on real properties owned by them. To rule that
they are not government-owned or controlled corporations because they
are not registered with the Securities and Exchange Commission would
remove them from the reach of Section 234 of the Local Government
Code, thus exempting them from real estate tax.
Third, the government-owned or controlled corporations created through
special charters are those that meet the two conditions prescribed in
Section 16, Article XII of the Constitution. The first condition is that the
government-owned or controlled corporation must be established for the
common good. The second condition is that the government-owned or
controlled corporation must meet the test of economic viability. Section
16, Article XII of the 1987 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. (Emphasis and underscoring supplied)
The Constitution expressly authorizes the legislature to create
"government-owned or controlled corporations" through special charters
only if these entities are required to meet the twin conditions of common
good and economic viability. In other words, Congress has no power to
create government-owned or controlled corporations with special
charters unless they are made to comply with the two conditions of
common good and economic viability. The test of economic viability
applies only to government-owned or controlled corporations that
perform economic or commercial activities and need to compete in the
market place. Being essentially economic vehicles of the State for the
common good — meaning for economic development purposes — these
government-owned or controlled corporations with special charters are
usually organized as stock corporations just like ordinary private
corporations.
In contrast, government instrumentalities vested with corporate powers
and performing governmental or public functions need not meet the test
of economic viability. These instrumentalities perform essential public
services for the common good, services that every modern State must
provide its citizens. These instrumentalities need not be economically
viable since the government may even subsidize their entire operations.
These instrumentalities are not the "government-owned or controlled
corporations" referred to in Section 16, Article XII of the 1987
Constitution.
Thus, the Constitution imposes no limitation when the legislature creates
government instrumentalities vested with corporate powers but
performing essential governmental or public functions. Congress has
plenary authority to create government instrumentalities vested with
corporate powers provided these instrumentalities perform essential
government functions or public services. However, when the legislature
creates through special charters corporations that perform economic or
commercial activities, such entities — known as "government-owned or
controlled corporations" — must meet the test of economic viability
because they compete in the market place.
This is the situation of the Land Bank of the Philippines and the
Development Bank of the Philippines and similar government-owned or
controlled corporations, which derive their income to meet operating
expenses solely from commercial transactions in competition with the
private sector. The intent of the Constitution is to prevent the creation of
government-owned or controlled corporations that cannot survive on
their own in the market place and thus merely drain the public coffers.
Commissioner Blas F. Ople, proponent of the test of economic viability,
explained to the Constitutional Commission the purpose of this test, as
follows:
MR. OPLE: Madam President, the reason for this concern is
really that when the government creates a corporation, there is
a sense in which this corporation becomes exempt from the test
of economic performance. We know what happened in the past.
If a government corporation loses, then it makes its claim upon
the taxpayers' money through new equity infusions from the
government and what is always invoked is the common good.
That is the reason why this year, out of a budget of P115 billion
for the entire government, about P28 billion of this will go into
equity infusions to support a few government financial
institutions. And this is all taxpayers' money which could have
been relocated to agrarian reform, to social services like health
and education, to augment the salaries of grossly underpaid
public employees. And yet this is all going down the drain.
Therefore, when we insert the phrase "ECONOMIC VIABILITY"
together with the "common good," this becomes a restraint on
future enthusiasts for state capitalism to excuse themselves
from the responsibility of meeting the market test so that they
become viable. And so, Madam President, I reiterate, for the
committee's consideration and I am glad that I am joined in this
proposal by Commissioner Foz, the insertion of the standard of
"ECONOMIC VIABILITY OR THE ECONOMIC TEST," together with
the common good.45
Father Joaquin G. Bernas, a leading member of the Constitutional
Commission, explains in his textbook The 1987 Constitution of the
Republic of the Philippines: A Commentary:
The second sentence was added by the 1986 Constitutional
Commission. The significant addition, however, is the phrase "in
the interest of the common good and subject to the test of
economic viability." The addition includes the ideas that they
must show capacity to function efficiently in business and that
they should not go into activities which the private sector can
do better. Moreover, economic viability is more than financial
viability but also includes capability to make profit and generate
Page 98 of 106
benefits not quantifiable in financial terms.46(Emphasis
supplied)
Clearly, the test of economic viability does not apply to government
entities vested with corporate powers and performing essential public
services. The State is obligated to render essential public services
regardless of the economic viability of providing such service. The non-
economic viability of rendering such essential public service does not
excuse the State from withholding such essential services from the public.
However, government-owned or controlled corporations with special
charters, organized essentially for economic or commercial objectives,
must meet the test of economic viability. These are the government-
owned or controlled corporations that are usually organized under their
special charters as stock corporations, like the Land Bank of the Philippines
and the Development Bank of the Philippines. These are the government-
owned or controlled corporations, along with government-owned or
controlled corporations organized under the Corporation Code, that fall
under the definition of "government-owned or controlled corporations"
in Section 2(10) of the Administrative Code.
The MIAA need not meet the test of economic viability because the
legislature did not create MIAA to compete in the market place. MIAA
does not compete in the market place because there is no competing
international airport operated by the private sector. MIAA performs an
essential public service as the primary domestic and international airport
of the Philippines. The operation of an international airport requires the
presence of personnel from the following government agencies:
1. The Bureau of Immigration and Deportation, to document the
arrival and departure of passengers, screening out those
without visas or travel documents, or those with hold departure
orders;
2. The Bureau of Customs, to collect import duties or enforce
the ban on prohibited importations;
3. The quarantine office of the Department of Health, to enforce
health measures against the spread of infectious diseases into
the country;
4. The Department of Agriculture, to enforce measures against
the spread of plant and animal diseases into the country;
5. The Aviation Security Command of the Philippine National
Police, to prevent the entry of terrorists and the escape of
criminals, as well as to secure the airport premises from terrorist
attack or seizure;
6. The Air Traffic Office of the Department of Transportation and
Communications, to authorize aircraft to enter or leave
Philippine airspace, as well as to land on, or take off from, the
airport; and
7. The MIAA, to provide the proper premises — such as runway
and buildings — for the government personnel, passengers, and
airlines, and to manage the airport operations.
All these agencies of government perform government functions essential
to the operation of an international airport.
MIAA performs an essential public service that every modern State must
provide its citizens. MIAA derives its revenues principally from the
mandatory fees and charges MIAA imposes on passengers and airlines.
The terminal fees that MIAA charges every passenger are regulatory or
administrative fees47 and not income from commercial transactions.
MIAA falls under the definition of a government instrumentality under
Section 2(10) of the Introductory Provisions of the Administrative Code,
which provides:
SEC. 2. General Terms Defined. – x x x x
(10) Instrumentality refers to any agency of the National
Government, not integrated within the department framework,
vested with special functions or jurisdiction by law, endowed
with some if not all corporate powers, administering special
funds, and enjoying operational autonomy, usually through a
charter. x x x (Emphasis supplied)
The fact alone that MIAA is endowed with corporate powers does not
make MIAA a government-owned or controlled corporation. Without a
change in its capital structure, MIAA remains a government
instrumentality under Section 2(10) of the Introductory Provisions of the
Administrative Code. More importantly, as long as MIAA renders essential
public services, it need not comply with the test of economic viability.
Thus, MIAA is outside the scope of the phrase "government-owned or
controlled corporations" under Section 16, Article XII of the 1987
Constitution.
The minority belittles the use in the Local Government Code of the phrase
"government-owned or controlled corporation" as merely "clarificatory or
illustrative." This is fatal. The 1987 Constitution prescribes explicit
conditions for the creation of "government-owned or controlled
corporations." The Administrative Code defines what constitutes a
"government-owned or controlled corporation." To belittle this phrase as
"clarificatory or illustrative" is grave error.
To summarize, MIAA is not a government-owned or controlled
corporation under Section 2(13) of the Introductory Provisions of the
Administrative Code because it is not organized as a stock or non-stock
corporation. Neither is MIAA a government-owned or controlled
corporation under Section 16, Article XII of the 1987 Constitution because
MIAA is not required to meet the test of economic viability. MIAA is a
government instrumentality vested with corporate powers and
performing essential public services pursuant to Section 2(10) of the
Introductory Provisions of the Administrative Code. As a government
instrumentality, MIAA is not subject to any kind of tax by local
governments under Section 133(o) of the Local Government Code. The
exception to the exemption in Section 234(a) does not apply to MIAA
because MIAA is not a taxable entity under the Local Government Code.
Such exception applies only if the beneficial use of real property owned
by the Republic is given to a taxable entity.
Finally, the Airport Lands and Buildings of MIAA are properties devoted to
public use and thus are properties of public dominion. Properties of public
dominion are owned by the State or the Republic. Article 420 of the Civil
Code provides:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers,
torrents, ports and bridges constructed by the State, banks,
shores, roadsteads, and others of similar character;
Page 99 of 106
(2) Those which belong to the State, without being for public
use, and are intended for some public service or for the
development of the national wealth. (Emphasis supplied)
The term "ports x x x constructed by the State" includes airports and
seaports. The Airport Lands and Buildings of MIAA are intended for public
use, and at the very least intended for public service. Whether intended
for public use or public service, the Airport Lands and Buildings are
properties of public dominion. As properties of public dominion, the
Airport Lands and Buildings are owned by the Republic and thus exempt
from real estate tax under Section 234(a) of the Local Government Code.
4. Conclusion
Under Section 2(10) and (13) of the Introductory Provisions of the
Administrative Code, which governs the legal relation and status of
government units, agencies and offices within the entire government
machinery, MIAA is a government instrumentality and not a government-
owned or controlled corporation. Under Section 133(o) of the Local
Government Code, MIAA as a government instrumentality is not a taxable
person because it is not subject to "[t]axes, fees or charges of any kind" by
local governments. The only exception is when MIAA leases its real
property to a "taxable person" as provided in Section 234(a) of the Local
Government Code, in which case the specific real property leased
becomes subject to real estate tax. Thus, only portions of the Airport
Lands and Buildings leased to taxable persons like private parties are
subject to real estate tax by the City of Parañaque.
Under Article 420 of the Civil Code, the Airport Lands and Buildings of
MIAA, being devoted to public use, are properties of public dominion and
thus owned by the State or the Republic of the Philippines. Article 420
specifically mentions "ports x x x constructed by the State," which includes
public airports and seaports, as properties of public dominion and owned
by the Republic. As properties of public dominion owned by the Republic,
there is no doubt whatsoever that the Airport Lands and Buildings are
expressly exempt from real estate tax under Section 234(a) of the Local
Government Code. This Court has also repeatedly ruled that properties of
public dominion are not subject to execution or foreclosure sale.
WHEREFORE, we GRANT the petition. We SET ASIDE the assailed
Resolutions of the Court of Appeals of 5 October 2001 and 27 September
2002 in CA-G.R. SP No. 66878. We DECLARE the Airport Lands and
Buildings of the Manila International Airport Authority EXEMPT from the
real estate tax imposed by the City of Parañaque. We declare VOID all the
real estate tax assessments, including the final notices of real estate tax
delinquencies, issued by the City of Parañaque on the Airport Lands and
Buildings of the Manila International Airport Authority, except for the
portions that the Manila International Airport Authority has leased to
private parties. We also declare VOID the assailed auction sale, and all its
effects, of the Airport Lands and Buildings of the Manila International
Airport Authority.
No costs.
SO ORDERED.
G.R. No. L-2832 November 24, 1906
REV. JORGE BARLIN, in his capacity as apostolic administrator of this vacant
bishopric and legal representative of the general interests of the Roman
Catholic Apostolic Church in the diocese of Nueva Caceres, plaintiff-
appellee,
vs.
P. VICENTE RAMIREZ, ex-rector of the Roman Catholic Apostolic Parochial
Church of Lagonoy, AND THE MUNICIPALITY OF LAGONOY, defendants-
appellants.
Manly & Gallup for appellants.
Leoncio Imperial and Chicote, Miranda & Sierra for appellee.
WILLARD, J.:
There had been priests of the Roman Catholic Church in the pueblo of
Lagonoy, in the Province of Ambos Camarines, since 1839. On the 13th of
January, 1869, the church and convent were burned. They were rebuilt
between 1870 and 1873. There was evidence that this was done by the
order of the provincial governor. The labor necessary for this
reconstruction was performed by the people of the pueblo the direction
of the cabeza de barangay. Under the law then in force, each man in the
pueblo was required to work for the government, without compensation,
for forty days every year. The time spent in the reconstruction of these
buildings was counted as a part of the forty days. The material necessary
was brought and paid for in part by the parish priest from the funds of the
church and in part was donated by certain individuals of the pueblo. After
the completion of the church it was always administered, until November
14, 1902, by a priest of a Roman Catholic Communion and all the people
of the pueblo professed that faith and belonged to that church.
The defendant, Ramirez, having been appointed by the plaintiff parish
priest, took possession of the church on the 5th of July, 1901. he
administered it as such under the orders of his superiors until the 14th day
of November, 1902. His successor having been then appointed, the latter
made a demand on this defendant for the delivery to him of the church,
convent, and cemetery, and the sacred ornaments, books, jewels, money,
and other property of the church. The defendant, by a written document
of that date, refused to make such delivery. That document is as follows:
At 7 o'clock last night I received through Father Agripino Pisino
your respected order of the 12th instant, wherein I am advised
of the appointment of Father Pisino as acting parish priest of
this town, and directed to turn over to him this parish and to
report to you at the vicarage. In reply thereto, I have the honor
to inform you that the town of Lagonoy, in conjunction with the
parish priest thereof, has seen fit to sever connection with the
Pope at Rome and his representatives in these Islands, and join
the Filipino Church, the head of which is at Manila. This
resolution of the people was reduced to writing and triplicate
copies made, of which I beg to inclose a copy herewith.
For this reason I regret to inform you that I am unable to obey
your said order by delivering to Father Agripino Pisino the parish
property of Lagonoy which, as I understand, is now outside of
the control of the Pope and his representatives in these Islands.
May God guard you many years.
Lagonoy, November 14, 1902.
(Signed) VICENTE RAMIREZ.
RT. REV. VICAR OF THIS DISTRICT.
The document, a copy of which is referred to in this letter, is as follows:
Page 100 of 106
LAGONOY, November, 9, 1902.
The municipality of this town and some of its most prominent
citizens having learned through the papers from the capital of
these Islands of the constitution of the Filipino National Church,
separate from the control of the Pope at Rome by reason of the
fact that the latter has refused to either recognize or grant the
rights to the Filipino clergy which have many times been urged,
and it appearing to us that the reasons advanced why such
offices should be given to the Filipino clergy are evidently well-
founded, we have deemed it advisable to consult with the parish
priest of this town as to whether it would be advantageous to
join the said Filipino Church and to separate from the control of
the Pope as long as he continues to ignore the rights of the said
Filipino clergy, under the conditions that there will be no change
in the articles of faith, and that the sacraments and other
dogmas will be recognized and particularly that of the
immaculate conception of the mother of our Lord. But the
moment the Pope at Rome recognizes and grants the rights
heretofore denied to the Filipino clergy we will return to his
control. In view of this, and subject to this condition, the
reverend parish priest, together with the people of the town,
unanimously join in declaring that from this date they separate
themselves from the obedience and control of the Pope and join
the Filipino National Church. This assembly and the reverend
parish priest have accordingly adopted this resolution written in
triplicate, and resolved to send a copy thereof to the civil
government of this province for its information, and do sign the
same below. Vicente Ramirez, Francisco Israel, Ambrosio Bocon,
Florentino Relloso, Macario P. Ledesma, Cecilio Obias, Balbino
Imperial, Juan Preseñada, Fernando Deudor, Mauricio Torres,
Adriano Sabater.
At the meeting at which the resolution spoken of in this document was
adopted, there were present about 100 persons of the pueblo. There is
testimony in the case that the population of the pueblo was at that time
9,000 and that all but 20 of the inhabitants were satisfied with the action
there taken. Although it is of no importance in the case, we are inclined to
think that the testimony to this effect merely means that about 100 of the
principal men of the town were in favor of the resolution and about 20 of
such principal men were opposed to it. After the 14th of November, the
defendant, Ramirez, continued in the possession of the church and other
property and administered the same under the directions of his superior,
the Obispo Maximo of the Independent Filipino Church. The rites and
ceremonies and the manner of worship were the same after the 14th day
of November as they were before, but the relations between the Roman
Catholic Church and the defendant had been entirely severed.
In January, 1904, the plaintiff brought this action against the defendant,
Ramirez, alleging in his amended complaint that the Roman Catholic
Church was the owner of the church building, the convent, cemetery, the
books, money, and other property belonging thereto, and asking that it be
restored to the possession thereof and that the defendant render an
account of the property which he had received and which was retained by
him, and for other relief.
The answer of the defendant, Ramirez, in addition to a general denial of
the allegation of the complaint, admitted that he was in the possession
and administration of the property described therein with the authority
of the municipality of Lagonoy and of the inhabitants of the same, who
were the lawful owners of the said property. After this answer had been
presented, and on the 1st day of November, 1904, the municipality of
Lagonoy filed a petition asking that it be allowed to intervene in the case
and join with the defendant, Ramirez, as a defendant therein. This petition
been granted, the municipality of the 1st day of December filed an answer
in which it alleged that the defendant, Ramirez, was in possession of the
property described in the complaint under the authority and with the
consent of the municipality of Lagonoy and that such municipality was the
owner thereof.
Plaintiff answered this complaint, or answer in intervention, and the case
was tried and final judgment in entered therein in favor of the plaintiff and
against the defendants. The defendants then brought the case here by a
bill of exceptions.
That the person in the actual possession of the church and other property
described in the complaint is the defendant, Ramirez, is plainly established
by the evidence. It does not appear that the municipality, as a corporate
body, ever took any action in reference to this matter until they presented
their petition for intervention in this case. In fact, the witnesses for the
defense, when they speak of the ownership of the buildings, say that they
are owned by the people of the pueblo, and one witness, the president,
said that the municipality as a corporation had nothing whatever to do
with the matter. That the resolution adopted on the 14th of November,
and which has been quoted above, was not the action of the municipality,
as such, is apparent from an inspection thereof.
The witnesses for the defenses speak of a delivery of the church by the
people of the pueblo to the defendant, Ramirez, but there is no evidence
in the case of any such delivery. Their testimony in regard to the delivery
always refers to the action taken on the 14th of November, a record of
which appears that in the document above quoted. It is apparent that the
action taken consisted simply in separating themselves from the Roman
Catholic Church, and nothing is said therein in reference to the material
property then in possession of the defendant, Ramirez.
There are several grounds upon which this judgment must be affirmed.
(1) As to the defendant, Ramirez, it appears that he took possession of the
property as the servant or agent of the plaintiff. The only right which he
had to the possession at the time he took it, was the right which was given
to him by the plaintiff, and he took possession under the agreement to
return that possession whenever it should be demanded of him. Under
such circumstances he will not be allowed, when the return of such
possession is demanded by him the plaintiff, to say that the plaintiff is not
the owner of the property and is not entitled to have it delivered back to
him. The principle of law that a tenant can not deny his landlord's title,
which is found in section 333, paragraph 2, of the Code of Civil Procedure,
and also in the Spanish law, is applicable to a case of this kind. An answer
of the defendant, Ramirez, in which he alleged that he himself was the
owner of the property at the time he received it from the plaintiff, or in
which he alleged that the pueblo was the owner of the property at that
time, would constitute no defense. There is no claim made by him that
since the delivery of the possession of the property to him by the plaintiff
he has acquired the title thereto by other means, nor does he is own
behalf make any claim whatever either to the property or to the
possession thereof.
(2) The municipality of Lagonoy, in its answer, claims as such, to be the
owner of the property. As we have said before, the evidence shows that
it never was in the physical possession of the property. But waiving this
point and assuming that the possession of Ramirez, which he alleges in his
answer is the possession of the municipality, gives the municipality the
rights of a possessor, the question still arises, Who has the better right to
the present possession of the property? The plaintiff, in 1902, had been
in the lawful possession thereof for more than thirty years and during all
that time its possession had never been questioned or disturbed. That
Page 101 of 106
possession has been taken away from it and it has the right now to recover
the possession from the persons who have so deprived it of such
possession, unless the latter can show that they have a better right
thereto. This was the preposition which was discussed and settled in the
case of Bishop of Cebu vs. Mangaron, 1No. 1748, decided June 1, 1906.
That decision holds that as against one who has been in possession for the
length of the plaintiff has been in possession, and who had been deprived
of his possession, and who can not produce any written evidence of title,
the mere fact that the defendant is in possession does not entitle the
defendant to retain that possession. In order that he may continue in
possession, he must show a better right thereto.
The evidence in this case does not show that the municipality has, as such,
any right of whatever in the property in question. It has produced no
evidence of ownership. Its claim of ownership is rested in its brief in this
court upon the following propositions: That the property in question
belonged prior to the treaty of Paris to the Spanish Government; that by
the treaty of Paris the ownership thereof passed to the Government of
the United States; that by section 12 of the act of Congress of July 1, 1902,
such property was transferred to the Government of the Philippine
Islands, and that by the circular of that Government, dated November 11,
1902, the ownership and the right to the possession of this property
passed to the municipality of Lagonoy. If, for the purposes of the
argument, we should admit that the other propositions are true, there is
no evidence whatever to support the last proposition, namely that the
Government of the Philippine Islands has transferred the ownership of
this church to the municipality of Lagonoy. We have found no circular of
the date above referred to. The one of February 10, 1903, which is
probably the one intended, contains nothing that indicates any such
transfer. As to the municipality of Lagonoy, therefore, it is very clear that
it has neither title, ownership, nor right of possession.
(3) We have said that it would have no such title or ownership ever
admitting that the Spanish Government was the owner of the property
and it has passed by the treaty of Paris to the American Government. But
this assumption is not true. As a matter of law, the Spanish Government
at the time the treaty of peace was signed, was not the owner of this
property, nor of any other property like it, situated in the Philippine
Islands.
It does not admit of doubt that from the earliest times the parish churches
in the Philippine Islands were built by the Spanish Government. Law 2, title
2, book 1, of the Compilation of the Laws of the Indies is, in part, as
follows:
Having erected all the churches, cathedrals, and parish houses
of the Spaniards and natives of our Indian possessions from
their discovery at the cost and expense of our royal treasury,
and applied for their service and maintenance the part of the
tithes belonging to us by apostolic concession according to the
division we have made.
Law 3 of the same title to the construction of parochial churches such as
the one in question. That law is as follows:
The parish churches which was erected in Spanish towns shall
be of durable and decent construction. Their costs shall be
divided and paid in three parts: One by our royal treasury,
another by the residents and Indian encomenderos of the place
where such churches are constructed, and the other part by the
Indians who abide there; and if within the limits of a city, village,
or place there should be any Indians incorporated to our royal
crown, we command that for our part there be contributed the
 same amount as the residents and encomenderos, respectively,
contribute; and the residents who have no Indians shall also
contribute for this purpose in accordance with their stations and
wealth, and that which is so given shall be deducted from the
share of the Indians should pay.1âwphil.net
Law 11 of the same title is as follows:
We command that the part of the tithes which belongs to the
fund for the erection of churches shall be given to their
superintendents to be expended for those things necessary for
these churches with the advice of the prelates and officials, and
by their warrants, and not otherwise. And we request and
charge the archbishops and bishops not to interfere in the
collection and disbursement thereof, but to guard these
structures.
Law 4, title 3, book 6, is as follows:
In all settlements, even though the Indians are few, there shall
be erected a church where mass can be decently held, and it
shall have a donor with a key, notwithstanding the fact that it
be the subject to or separate from a parish.
Not only were all the parish churches in the Philippines erected by the King
and under his direction, but it was made unlawful to erect a church
without the license of the King. This provision is contained in Law 2, title
6, book 1, which is as follows:
Whereas it is our intention to erect, institute, found, and
maintain all cathedrals, parish churches, monasteries, votive
hospitals, churches, and religious and pious establishments
where they are necessary for the teaching, propagation, and
preaching of the doctrine of our sacred Roman Catholic faith,
and to aid to this effect with out royal treasury whenever
possible, and to receive information of such places where they
should be founded and are necessary, and the ecclesiastical
patronage of all our Indies belonging to us:
We command that there shall not be erected, instituted,
founded, or maintained any cathedral, parish church,
monastery, hospital, or votive churches, or other pious or
religious establishment without our express permission as is
provided in Law 1, title 2, and Law 1, title 3, of this book,
notwithstanding any permission heretofore given by our viceroy
or other ministers, which in this respect we revoke and make
null, void, and of no effect.
By agreement at an early date between the Pope and the Crown of Spain,
all tithes in the Indies were given by the former to the latter and the
disposition made the King of the fund thus created is indicated by Law 1,
title 16, book 1, which is as follows:
Whereas the ecclesiastical tithes from the Indies belong to us by
the apostolic concessions of the supreme pontiffs, we command
the officials of our royal treasury of those provinces to collect
and cause to be collected all tithes due and to become due from
the crops and flocks of the residents in the manner in which it
has been the custom to pay the same, and from these tithes the
churches shall be provided with competent persons of good
character to serve them and with all ornaments and things
which may be necessary for divine worship, to the end that
these churches may be well served and equipped, and we shall
Page 102 of 106
be informed of God, our Lord; this order shall be observed
where the contrary has not already been directed by us in
connection with the erection of churches.
That the condition of things existing by virtue of the Laws of the Indies was
continued to the present time is indicated by the royal order of the 31st
of January, 1856, and by the royal order of the 13th of August, 1876, both
relating to the construction and repair of churches, there being authority
for saying that the latter order was in force in the Philippines.
This church, and other churches similarly situated in the Philippines,
having been erected by the Spanish Government, and under its direction,
the next question to be considered is, To whom did these churches
belong?
Title 28 of the third partida is devoted to the ownership of things and,
after discussing what can be called public property and what can be called
private property, speaks, in Law 12, of those things which are sacred,
religious, or holy. That law is as follows:
Law XII. — HOW SACRED OR RELIGIOUS THINGS CAN NOT BE
OWNED BY ANY PERSON.
No sacred, religious, or holy thing, devoted to the service of
God, can be the subject of ownership by any man, nor can it be
considered as included in his property holdings. Although the
priests may have such things in their possession, yet they are
not the owners thereof. They, hold them thus as guardians or
servants, or because they have the care of the same and serve
God in or without them. Hence they were allowed to take from
the revenues of the church and lands what was reasonably
necessary for their support; the balance, belonging to God, was
to be devoted to pious purposes, such as the feeding and
clothing of the poor, the support of orphans, the marrying of
poor virgins to prevent their becoming evil women because of
their poverty, and for the redemption of captives and the
repairing of the churches, and the buying of chalices, clothing,
books, and others things which they might be in need of, and
other similar charitable purposes.
And then taking up for consideration the first of the classes in to which
this law has divided these things, it defines in Law 13, title 28,
third partida, consecrated things. That law is as follows:
Sacred things, we say, are those which are consecrated by the
bishops, such as churches, the altars therein, crosses, chalices,
censers, vestments, books, and all other things which are in
tended for the service of the church, and the title to these things
can not be alienated except in certain specific cases as we have
already shown in the first partida of this book by the laws
dealing with this subject. We say further that even where a
consecrated church is razed, the ground upon which it formerly
stood shall always be consecrated ground. But if any
consecrated church should fall into the hands of the enemies of
our faith it shall there and then cease to be sacred as long as the
enemy has it under control, although once recovered by the
Christians, it will again become sacred, reverting to its condition
before the enemy seized it and shall have all the right and
privileges formerly belonging to it.
That the principles of the partida in reference to churches still exist is
indicated by Sanchez Roman, whose work on the Civil Law contains the
following statement:
 First Group. Spiritual and corporeal or ecclesiastical. A. Spiritual.
— From early times distinction has been made by authors and
by law between things governed by divine law, called divine, and
those governed by human law, called human, and although the
former can not be the subject of civil juridical relations, their
nature and species should be ascertained either to identify
them and exclude them from such relations or because they
furnish a complete explanation of the foregoing tabulated
statement, or finally because the laws of the partida deal with
them.
Divine things are those which are either directly or indirectly established by
God for his service and sanctification of men and which are governed by
divine or canonical laws. This makes it necessary to divide them into
spiritual things, which are those which have a direct influence on the
religious redemption of man such as the sacrament, prayers, fasts,
indulgences, etc., and corporeal or ecclesiastical, which are those means
more or less direct for the proper religious salvation of man.
7. First Group. Divine things. B. Corporeal or ecclesiastical
things (sacred, religious, holy, and temporal belonging to the
church). — Corporeal or ecclesiastical things are so divided.
(a) Sacred things are those devoted to God, religion, and worship
in general, such as temples, altars, ornaments, etc. These things
can not be alienated except for some pious purpose and in such
cases as are provided for in the laws, according to which their
control pertains to the ecclesiastical authorities, and in so far as
their use is concerned, to the believers and the clergy. (2
Derecho Civil Español, Sanchez Roman, p. 480; 8 Manresa,
Commentaries on the Spanish Civil Code, p. 636; 3 Alcubilla,
Diccionario de la Administracion Española, p. 486.)
The partidas defined minutely what things belonged to the public in
general and what belonged to private persons. In the first group churches
are not named. The present Civil Code declares in article 338 that property
is of public or private ownership. Article 339, which defines public
property, is as follows:
Property of public ownership is —
1. That destined to the public use, such as roads, canals, rivers,
torrents, ports, and bridges constructed by the State, and banks,
shores, roadsteads, and that of similar character.
2. That belonging exclusively to the state without being for
public use and which is destined to some public service, or to
the development of the national wealth, such as walls,
fortresses, and other works for the defense of the territory, and
mines, until their concession has been granted.
The code also defines the property of provinces and of pueblos, and in
defining what property is of public use, article 344 declares as follows:
Property for public use in provinces and in towns comprises the
provincial and town roads, the squares, streets, fountains, and
public waters, the promenades, and public works of general
service supported by the said towns or provinces.
All other property possessed by either is patrimonial, and shall
be governed by the provisions of this code, unless otherwise
prescribe in special laws.
Page 103 of 106
It will be noticed that in either one of these articles is any mention made
of churches. When the Civil Code undertook to define those things in a
pueblo which were for the common use of the inhabitants of the pueblo,
or which belonged to the State, while it mentioned a great many other
things, it did not mention churches.
It has been said that article 25 of the Regulations for the Execution of the
Mortgage Law indicates that churches belong to the State and are public
property. That article is as follows:
There shall be excepted from the record required by article 2 of
the law:
First. Property which belongs exclusively to the eminent domain
of the State, and which is for the use of all, such as the shores
of the sea, islands, rivers and their borders, wagon roads, and
the roads of all kinds, with the exception of railroads; streets,
parks, public promenades, and commons of towns, provided
they are not lands of common profit to the inhabitants; walls of
cities and parks, ports, and roadsteads, and any other analogous
property during the time they are in common and general use,
always reserving the servitudes established by law on the shores
of the sea and borders of navigable rivers.
Second. Public temples dedicated to the Catholic faith.
A reading of this article shows that far from proving that churches belong
to the State and to the eminent domain thereof, it proves the contrary,
for, if they had belonged to the State, they would have been included in
the first paragraph instead of being placed in a paragraph by themselves.
The truth is that, from the earliest times down to the cession of the
Philippines to the United States, churches and other consecrated objects
were considered outside of the commerce of man. They were not public
property, nor could they be subjects of private property in the sense that
any private person could the owner thereof. They constituted a kind of
property distinctive characteristic of which was that it was devoted to the
worship of God.
But, being material things was necessary that some one should have the
care and custody of them and the administration thereof, and the
question occurs, To whom, under the Spanish law, was intrusted that
possession and administration? For the purposes of the Spanish law there
was only one religion. That was the religion professed by the Roman
Catholic Church. It was for the purposes of that religion and for the
observance of its rites that this church and all other churches in the
Philippines were erected. The possession of the churches, their care and
custody, and the maintenance of religious worship therein were
necessarily, therefore, intrusted to that body. It was, by virtue of the laws
of Spain, the only body which could under any circumstances have
possession of, or any control over, any church dedicated to the worship of
God. By virtue of those laws this possession and right of control were
necessarily exclusive. It is not necessary or important to give any name to
this right of possession and control exercised by the Roman Catholic
Church in the church buildings of the Philippines prior to 1898. It is not
necessary to show that the church as a juridical person was the owner of
the buildings. It is sufficient to say that this right to the exclusive
possession and control of the same, for the purposes of its creation,
existed.
The right of patronage, existing in the King of Spain with reference to the
churches in the Philippines, did not give him any right to interfere with the
material possession of these buildings.
Title 6 of book 1 of the Compilation of the laws of the Indies treats Del
Patronazgo Real de las Indias. There is nothing in any one of the fifty-one
laws which compose this title which in any way indicates that the King of
Spain was the owner of the churches in the Indies because he had
constructed them. These laws relate to the right of presentation to
ecclesiastical charges and offices. For example, Law 49 of the title
commences as follows:
Because the patronage and right of presentation of all
archbishops, bishops, dignitaries, prevents, curates, and
doctrines and all other beneficiaries and ecclesiastical offices
whatsoever belong to us, no other person can obtain or possess
the same without our presentation as provided in Law 1 and
other laws of this title.
Title 15 of the first partida treats of the right of patronage vesting in
private persons, but there is nothing in any one of its fifteen laws which in
any way indicates that the private patron is the owner of the church.
When it is said that this church never belonged to the Crown of Spain, it is
not intended to say that the Government and had no power over it. It may
be that by virtue of that power of eminent domain which is necessarily
resides in every government, it might have appropriated this church and
other churches, and private property of individuals. But nothing of this
kind was ever attempted in the Philippines.
It, therefore, follows that in 1898, and prior to the treaty of Paris, the
Roman Catholic Church had by law the exclusive right to the possession of
this church and it had the legal right to administer the same for the
purposes for which the building was consecrated. It was then in the full
and peaceful possession of the church with the rights aforesaid. That
these rights were fully protected by the treaty of Paris is very clear. That
treaty, in article 8, provides, among other things, as follows:
And it is hereby declared that the relinquishment or cession, as
the case may be, to which the preceding paragraph refers, can
not in any respect impair the property or rights which by law
belong to the peaceful possession of property of all kinds, or
provinces, municipalities, public or private establishments,
ecclesiastical or civic bodies, or any other associations having
legal capacity to acquire and possess property in the aforesaid
territories renounced or ceded, or of private individuals, or
whatsoever nationality such individuals may be.
It is not necessary, however, to invoke the provisions of that treaty.
Neither the Government of the United States, nor the Government of
these Islands, has ever attempted in any way to interfere with the rights
which the Roman Catholic Church had in this building when Spanish
sovereignty ceased in the Philippines. Any interference that has resulted
has been caused by private individuals, acting without any authority from
the Government.
No point is made in the brief of the appellant that any distinction should
be made between the church and the convent. The convent undoubtedly
was annexed to the church and, as to it, the provisions of Law 19, title 2,
book 1, of the Compilation of the Laws of the Indies would apply. That law
is as follows:
We command that the Indians of each town or barrio shall
construct such houses as may be deemed sufficient in which the
priests of such towns or barrios may live comfortably adjoining
the parish church of the place where that may be built for the
benefit of the priests in charge of such churches and engaged in
Page 104 of 106
the education and conversion of their Indian parishioners, and
they shall not be alienated or devoted to any other purpose.
The evidence in this case makes no showing in regard to the cemetery. It
is always mentioned in connection with the church and convent and no
point is made by the possession of the church and convent, he is not also
entitled to recover possession of the cemetery. So, without discussing the
question as to whether the rules applicable to churches are all respects
applicable to cemeteries, we hold for the purpose of this case that the
plaintiff has the same right to the cemetery that he has to the church.
(4) It is suggested by the appellant that the Roman Catholic Church has no
legal personality in the Philippine Islands. This suggestion, made with
reference to an institution which antedates by almost a thousand years
any other personality in Europe, and which existed "when Grecian
eloquence still flourished in Antioch, and when idols were still worshiped
in the temple of Mecca," does not require serious consideration. In the
preamble to the budget relating to ecclesiastical obligations, presented by
Montero Rios to the Cortes on the 1st of October 1871, speaking of the
Roman Catholic Church, he says:
Persecuted as an unlawful association since the early days of its
existence up to the time of Galieno, who was the first of the
Roman emperors to admit it among the juridicial entities
protected by the laws of the Empire, it existed until then by the
mercy and will of the faithful and depended for such existence
upon pious gifts and offerings. Since the latter half of the third
century, and more particularly since the year 313, when
Constantine, by the edict of Milan, inaugurated an era of
protection for the church, the latter gradually entered upon the
exercise of such rights as were required for the acquisition,
preservation, and transmission of property the same as any
other juridical entity under the laws of the Empire. (3 Dictionary
of Spanish Administration, Alcubilla, p. 211. See also the royal
order of the 4th of December, 1890, 3 Alcubilla, 189.)
The judgment of the court below is affirmed, with the costs of this
instance against the appellant. After the expiration of twenty days from
the date hereof let judgment be entered in accordance herewith, and ten
days thereafter the record be remanded to the court below for execution.
So ordered.
Arellano, C.J., Torres, Mapa and Tracey, JJ., concur.
Johnson, J., reserves his vote.
Separate Opinions
CARSON, J., concurring:
I am in entire accord with the majority of the court as to the disposition of
this case, but I can not adopt the reasoning by which some of the
conclusions appear to have been obtained, nor accept without reserve all
of the propositions laid down in the majority opinion.
Profoundly as I respect the judgment of my associates, and distrustful as I
ought to be of my own, the transcendant importance of the issues
involved seems to impose upon me the duty of writing a separate opinion
and stating therein as clearly as may be the precise grounds upon which I
base my assent and the reasons which forbid my acceptance of the
majority opinion in its entirety.
I accept the argument and authority of the opinion of the court in so far
as it finds: That the Roman Catholic Church is a juridical entity in the
Philippine Islands; that the defendant, Ramirez, can not and should not be
permitted in this action to deny the plaintiff's right to the possession of
the property in question, because he can not be heard to set up title
thereto in himself or a third person, at least until he has first formally
surrendered it to the plaintiff who intrusted it to his care; that the
municipality of Lagonoy has failed to show by evidence of record that it is
or ever was in physical possession of the property in question; and that
the possession of the defendant Ramirez, can not be relied upon as the
possession of the municipality because the same reason which estops
Ramirez from denying the right of possession in the plaintiff estops any
other person claiming possession through him from denying that right. I
agree, furthermore, with the finding that the defendant municipality
failed to establish a better right to the possession than the plaintiff in this
action, because, claiming to be the owner by virtue of a grant from the
Philippine Government, it failed to establish the existence of such grant;
and because, furthermore, it was shown that the plaintiff or his
predecessors had been in possession and control of the property in
question for a long period of years prior to the treaty of Paris by unlawful
authority of the King of Spain, and that since the sovereignty of these
Islands has been transferred to the United States the new sovereign has
never at any time divested or attempted to divest the plaintiff of this
possession and control.
Thus far I am able to accept the reasoning of the majority opinion, and
these propositions, supported as they are by the law and the evidence in
this case, completely dispose of the question before us and establish the
right of the plaintiff to a judgment for possession.
I am not prepared, however, to give my assent to the proposition that
prior to the Treaty of Paris "The King of Spain was not the owner of the
property in question nor of any other property like it situated in the
Philippine Islands," and inferentially that the United States is not now the
owner thereof and has no property rights therein other than, perhaps, the
mere right of eminent domain.
I decline to affirm this proposition, first, because it is not necessary in the
decision of this case; and second, because I am of opinion that, in the
unlimited and unrestricted sense in which it is stated in the majority
opinion, it is inaccurate and misleading, if not wholly erroneous.
That it is not necessary for the proper disposition of this case will be
apparent if we consider the purpose for which it is introduced in the
argument and the proposition which it is intended to controvert. As stated
in the majority opinion, the claim of ownership of the defendant
municipality —
It is rested upon the following propositions: That the property
in question belonged, prior to the treaty of Paris, to the Spanish
Government; that by the treaty of Paris the ownership of
thereof passed to the Government of the United States; that by
article 12 of the act of Congress of July 1, 1902, such property
was transferred to the Government of the Philippine Islands,
and that by a circular of that Government dated November 11,
Page 105 of 106
1902, the ownership and the right to the possession of this
property passed to the municipality of Lagonoy.
It is evident that if any of these propositions is successfully controverted,
the defendants' claim of ownership must fall to the ground. The majority
opinion finds (and I am entire accord as to this finding) that neither the
Government of the United States nor the Philippine Government had ever
made, or attempted to make, such transfer, and in making its finding it
completely, conclusively, and finally disposes of defendants' claim of
ownership.
All the acts of the Government of the United States and of the present
Government of the Philippine Islands which can have any relation to the
property in question are before us, and so short a period of years has
elapsed since the transfer of the sovereignty of these Islands to the United
States that it is possible to demonstrate with the utmost certainty that by
no act of the United States or of the Government of the Philippine Islands
has the ownership and possession of this property been conferred upon
the defendant municipality; it is a very different undertaking, however, to
review the legislation of Spain for the three centuries of her Philippine
occupation for the purpose of deciding the much-vexed question of the
respective property rights of the Spanish sovereign and the Roman
Catholic Church in State-constructed and State-aided churches in these
Islands; and if I am correct in my contention that a holding that the King
of Spain was not." and, inferentially, that the Government of the United
States is not, "the owner of this property or any other property like it is
situated in the Philippine Islands" is not necessary for the full, final, and
complete determination of the case at bar, then I think that this court
should refrain from making so momentous a finding in a case wherein the
United States is not a party and has never had an opportunity to be heard.
But the mere fact that a finding that the King of Spain had no right of
ownership in this property which could pass to the United States under
the provisions of the treaty of Paris is not necessary in my opinion for the
disposition of the case at bar, would not impose upon me the duty of
writing a separate opinion if it were in fact and a law a correct holding. I
am convinced, however, that when stated without limitations or
restrictions, as it appears in the majority opinion, it is inaccurate and
misleading, and it may not be improper, therefore, to indicate briefly my
reasons for doubting it.
As stated in the majority opinion, "it does not admit of doubt that the
parish churches in the Philippines were built by the Spanish Government,"
and it would seem therefore that prior to their dedication, the beneficial
ownership, the legal title, the possession and control of all this property
must be taken to have been vested in that Government. But it must be
admitted that after this property was dedicated, the ownership, in
contemplation of Spanish law, was said to have been in God, and there
can be no doubt that the physical possession and control of these
churches for the purposes for which they were dedicated was given to the
Roman Catholic Church — not, as I think, absolutely and conclusively, but
limited by and subject to the royal patronage ( patronato real) which
included the right to intervene in the appointment of the representatives
of the church into whose hands the possession and control of the sacred
editors were to be intrusted.
The anomalous status thus created might well have given rise to doubts
and uncertainties as to the legal title and beneficial ownership of this
property had not the grantor and the lawgiver of Spain expressly and
specifically provided that neither the Roman Catholic Church nor any
other person was or could become the owner thereof, and that all these
sacred edifices were to be regarded as beyond the commerce of men.
 No sacred, religious, or holy thing, devoted to the service of
God, can be the subject of ownership by any man, nor it can be
considered as included in his property holdings. Although the
priests may have such things in their possession, yet they are
not the owners thereof. They hold them thus as guardians or
servants, or because they have the care of the same and serve
God in or with them. Hence they were allowed to take from the
Revenues of the church and lands what was reasonably
necessary for their support; the balance, belonging to God, was
to be devoted to pious purposes, such as the feeding and
clothing of the poor, the support of orphans, the marrying of
poor virgins to prevent their becoming evil women because of
their poverty; and for the redemption of captivers and the
repairing of the churches, and the buying of chalices, clothing,
books, and other things which they might be in seed of, and
other similar charitable purposes. (Law 12, title 28, partida 3.)
It is difficult to determine, and still more difficult to state, the precise
meaning and legal effect of this disposition of the ownership, possession,
and control of the parish churches in the Philippines; but since it was not
possible for God, in any usual or ordinary sense to take or hold, to enforce
or to defend the legal title to this property, it would seem that a grant to
Him by the King or the Government of Spain could not suffice to convey
to Him the legal title of the property set out in the grant, and the truth
would seem to be that the treatment of this property in contemplation of
Spanish law as the property of God was a mere arbitrary convention, the
purpose and object of which was crystallize the status of all such property
in the peculiar and unusual mold in which it was cast at the time of its
dedication.
So long as church and state remained united and so long as the Roman
Catholic Church continued to be the church of the State, this convention
served its purpose well; indeed, its very indefiniteness seems to have
aided in the accomplishment of the end for which it was adopted, and on
a review of all the pertinent citations of Spanish law which have been
brought to my attention, I am satisfied that the status created by the
above-cited law 12 of the partidas continued without substantial
modification to the date of the transfer of sovereignty from the King of
Spain to the United States. But this transfer of sovereignty, and the
absolute severance of church and state which resulted therefrom, render
it necessary to ascertain as definitely as may be the true meaning and
intent of this conventional treatment of the parish churches in the
Philippines as the property of God, and it is evident that for this purpose
we must look to the substance rather than the form and examine the
intention of the grantor and the object he sought to attain, rather than
the words and conventional terms whereby that intent was symbolically
expressed.
It is not necessary to go beyond the citations of the majority opinion to
see that the objects which the grantor sought to attain were, first, and
chiefly, to advance the cause of religion among the people of the
Philippine Islands and to provide for their religious instruction and
edification by furnishing them with parish churches suitable for the
worship and glorification of God; second, to place those sacred edifices
under the guardian care and custody of the church of the State; and, third,
to deny to that church and to all others the right of ownership in the
property thus dedicated; and since God could neither take nor hold the
legal title to this property, the declaration of the King of Spain as set out
in the above-cited law, that when dedicated these churches became in
some peculiar and especial manner the property of God, was in effect no
more than a solemn obligation imposed upon himself to hold them for the
purposes for which they were dedicated, and to exercise no right of
property in them inconsistent therewith.
Page 106 of 106
This declaration that these churches are the property of God and the
provisions which accompanied it, appear to me to be precisely equivalent
to a declaration of trust by the grantor that he would hold the property as
trustee for the use for which it was
dedicated — that is, for the religious edification and enjoyment of the
people of the Philippine Islands — and that he would give to the Roman
Catholic Church the physical possession and control thereof, including the
disposition of any funds arising therefrom, under certain stipulated
conditions and for the purposes expressly provided by law. In other words,
the people of the Philippine Islands became the beneficial owners of all
such property, and the grantor continued to hold the legal title, in trust
nevertheless to hold the property for the purposes for which it was
dedicated and on the further trust to give the custody and control thereof
to the Roman Catholic Church. If this interpretation of the meaning and
intent of the convention of Spanish law which treated God as the owner
of the parish churches of the Philippine Islands be correct, a holding that
the King of Spain had no right to ownership in this property which could
pass to the United States by virtue of the treaty of Paris can not be
maintained; and it is to withhold my assent from this proposition that I
have been compelled to write this separate opinion.
For the purposes of this opinion it is not necessary, nor would it be
profitable, to do more than indicate the line of reasoning which has led
me to my conclusions, nor to discuss at length the question of ownership
of this property, because whether it be held to be in abeyance or in God
or in the Roman Catholic Church or in the United States it has been shown
without deciding this question of ownership that the right to the
possession for the purpose for which it was dedicated is in the Roman
Catholic Church, and while the complaint in this action alleges that the
Roman Catholic Church is the owner of the property in question, the
prayer of the complaint is for the possession of this property of which it is
alleged that church has been unlawfully deprived; and because,
furthermore, if I am correct in my contention that the legal title to the
State-constructed churches in the Philippines passed to the United States
the virtue of the treaty of Paris, it passed, nevertheless, subject to the
trusts under which it was held prior thereto, and the United States can not
at will repudiate the conditions of that trust and retain its place in the
circle of civilized nations; and as long as the property continues to be used
for the purposes for which it was dedicated, the Government of the
United States has no lawful right to deprive the Roman Catholic Church of
the possession and control thereof under the terms and conditions upon
which that possession and control were originally granted.