1

TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased. RENATO D. TAYAG, ancillary

administrator-appellee, v. BENGUET CONSOLIDATED, INC., Oppositor-Appellant.
Cirilo F. Asperillo, Jr., for ancillary administrator-appellee.
Ross, Salcedo, Del Rosario, Bito & Misa for Oppositor-Appellant.
SYLLABUS
1. REMEDIAL LAW; SPECIAL PROCEEDINGS; SETTLEMENT OF ESTATE; WHEN ANCILLARY
ADMINISTRATION IS PROPER. 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 (Johannes v. Harvey, 43 Phil. 175).
Ancillary administration is necessary or the reason for such administration 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.
2. ID.; ID.; ID.; SCOPE OF POWER AND AUTHORITY OF AN ANCILLARY ADMINISTRATOR. No
one could dispute the power of an ancillary administrator to gain control and possession of all assets of the
decedent within the jurisdiction of the Philippines. Such a power is inherent in his duty to settle her estate and
satisfy the claims of local creditors (Rule 84, Sec. 3, Rules of Court. Cf Pavia v. De la Rosa, 8 Phil. 70;
Liwanag v. Reyes, L-19159, Sept. 29, 1964; Ignacio v. Elchico, L-18937, May 16, 1967; etc.). 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" (Leon and Ghezzi v.
Manufacturers
Life
Ins.
Co.,
90
Phil.
459).
3. ID.; ID.; ID.; ID.; CASE AT BAR. Since, in the case at bar, 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
a
party
or
entity.
4. CORPORATION LAW; CORPORATIONS; CONCEPT AND NATURE. A corporation is an artificial
being created by operation of law (Sec. 2, Act No. 1459). A corporation as known to Philippine jurisprudence
is a creature without any existence until it has received the imprimatur of the state acting 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. 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 (1 Fletcher, Cyclopedia Corporations, pp. 19-20)
DECISION
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 order challenged 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 appellants 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 domiciliary 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 willful 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 willful 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 decedents 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 administrators right to "the stock
certificates covering the 33,002 shares .. standing in her name in the books of [appellant] Benguet Consolidated,
Inc.." be respected is equally beyond question. For appellant is a Philippine corporation owing full allegiance and
subject to the unrestricted jurisdiction of local courts. Its shares of stock cannot therefore be considered in any wise as
immune
from
lawful
court
orders.
Our holding in Wells Fargo Bank and Union v. Collector of Internal Revenue 8 finds application. "In the instant case,
the actual situs of the shares of stock is in the Philippines, the corporation being domiciled [here]." To the force of the
above undeniable proposition, not even appellant is insensible. It does not dispute it. Nor could it successfully do so
even
if
it
were
so
minded.
2. In the face of such incontrovertible doctrines that argue in a rather conclusive fashion for the legality of the
challenged order, how does appellant Benguet Consolidated, Inc. propose to carry the extremely heavy burden of
persuasion of precisely demonstrating the contrary? It would assign as the basic error allegedly committed by the
lower court its "considering as lost the stock certificates covering 33,002 shares of Benguet belonging to the deceased
Idonah Slade Perkins, . . ." 9 More specifically, appellant would stress that the "lower court could not `consider as
lost the stock certificates in question when, as a matter of fact, his Honor the trial Judge knew, and does know, and it
is admitted by the appellee, that the said stock certificates are in existence and are today in the possession of the
domiciliary
administrator
in
New
York."
10
There may be an element of fiction in the above view of the lower court. That certainly does not suffice to call for the
reversal of the appealed order. Since there is a refusal, persistently adhered to by the domiciliary administrator in
New York, to deliver the shares of stocks of appellant corporation owned by the decedent to the ancillary
administrator in the Philippines, there was nothing unreasonable or arbitrary in considering them as lost and requiring
the appellant to issue new certificates in lieu thereof. Thereby, the task incumbent under the law on the ancillary
administrator
could
be
discharged
and
his
responsibility
fulfilled.
Any other view would result in the compliance to a valid judicial order being made to depend on the uncontrolled

discretion of the party or entity, in this case domiciled abroad, which thus far has shown the utmost persistence in
refusing to yield obedience. Certainly, appellant would not be heard to contend in all seriousness that a judicial decree
could be treated as a mere scrap of paper, the court issuing it being powerless to remedy its flagrant disregard.
It may be admitted of course that such alleged loss as found by the lower court did not correspond exactly with the
facts. To be more blunt, the quality of truth may be lacking in such a conclusion arrived at. It is to be remembered
however, again to borrow from Frankfurter, "that fictions which the law may rely upon in the pursuit of legitimate
ends
have
played
an
important
part
in
its
development."
11
Speaking of the common law in its earlier period, Cardozo could state that 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 a 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." 19 Dean
Pounds terse summary, a juristic person, resulting from an association of human beings granted legal personality by
the
state,
puts
the
matter
neatly.
20
There is thus a rejection of Gierkes genosssenchaft 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
acting 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 rights. 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 proceeding
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 U.S. Veteran
Administrator final and conclusive when made on claims properly 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."cralaw
virtua1aw
library
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 a 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-appellant Benguet Consolidated, Inc.

G.R. No. L-17295

July 30, 1962

ANG
PUE
&
COMPANY,
ET
vs.
SECRETARY OF COMMERCE AND INDUSTRY, defendant-appellee.

AL., plaintiffs-appellants,

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

for

plaintiffs-appellants.

DIZON, J.:
Action for declaratory relief filed in the Court of First Instance of Iloilo by Ang Pue & Company, Ang Pue and
Tan Siong against the Secretary of Commerce and Industry to secure judgment "declaring that plaintiffs could
extend for five years the term of the partnership pursuant to the provisions of plaintiffs' Amendment to the
Article of Co-partnership."
The answer filed by the defendant alleged, in substance, that the extension for another five years of the term
of the plaintiffs' partnership would be in violation of the provisions of Republic Act No. 1180.
It appears that on May 1, 1953, Ang Pue and Tan Siong, both Chinese citizens, organized the partnership Ang
Pue & Company for a term of five years from May 1, 1953, extendible by their mutual consent. The purpose
of the partnership was "to maintain the business of general merchandising, buying and selling at wholesale
and retail, particularly of lumber, hardware and other construction materials for commerce, either native or
foreign." The corresponding articles of partnership (Exhibit B) were registered in the Office of the Securities
& Exchange Commission on June 16, 1953.
On June 19, 1954 Republic Act No. 1180 was enacted to regulate the retail business. It provided, among other
things, that, after its enactment, a partnership not wholly formed by Filipinos could continue to engage in the
retail business until the expiration of its term.
On April 15, 1958 prior to the expiration of the five-year term of the partnership Ang Pue & Company, but
after the enactment of the Republic Act 1180, the partners already mentioned amended the original articles of
part ownership (Exhibit B) so as to extend the term of life of the partnership to another five years. When the
amended articles were presented for registration in the Office of the Securities & Exchange Commission on
April 16, 1958, registration was refused upon the ground that the extension was in violation of the aforesaid
Act.
From the decision of the lower court dismissing the action, with costs, the plaintiffs interposed this appeal.
The question before us is too clear to require an extended discussion. To organize a corporation or a
partnership that could claim a juridical personality of its own and transact business as such, is not a matter of
absolute right but a privilege which may be enjoyed only under such terms as the State may deem necessary to
impose. That the State, through Congress, and in the manner provided by law, had the right to enact Republic
Act No. 1180 and to provide therein that only Filipinos and concerns wholly owned by Filipinos may engage
in the retail business can not be seriously disputed. That this provision was clearly intended to apply to
partnership already existing at the time of the enactment of the law is clearly showing by its provision giving
them the right to continue engaging in their retail business until the expiration of their term or life.
To argue that because the original articles of partnership provided that the partners could extend the term of
the partnership, the provisions of Republic Act 1180 cannot be adversely affect appellants herein, is to
erroneously assume that the aforesaid provision constitute a property right of which the partners can not be
deprived without due process or without their consent. The agreement contain therein must be deemed subject
to the law existing at the time when the partners came to agree regarding the extension. In the present case, as
already stated, when the partners amended the articles of partnership, the provisions of Republic Act 1180
were already in force, and there can be not the slightest doubt that the right claimed by appellants to extend
the original term of their partnership to another five years would be in violation of the clear intent and purpose
of the law aforesaid.
WHEREFORE, the judgment appealed from is affirmed, with costs.

NATIONAL DEVELOPMENT COMPANY AND NEW AGRIX, INC., Petitioners, vs. PHILIPPINE
VETERANS BANK, THE EX-OFFICIO SHERIFF and GODOFREDO QUILING, in his capacity as
Deputy Sheriff of Calamba, Laguna, Respondents.
DECISION
CRUZ, J.:

This case involves the constitutionality of a presidential decree which, like all other issuances of President
Marcos during his regime, was at that time regarded as sacrosanct. It is only now, in a freer atmosphere, that
his acts are being tested by the touchstone of the fundamental law that even then was supposed to limit
presidential action.: rd
The particular enactment in question is Pres. Decree No. 1717, which ordered the rehabilitation of the Agrix
Group of Companies to be administered mainly by the National Development Company. The law outlined the
procedure for filing claims against the Agrix companies and created a Claims Committee to process these
claims. Especially relevant to this case, and noted at the outset, is Sec. 4(1) thereof providing that "all
mortgages and other liens presently attaching to any of the assets of the dissolved corporations are hereby
extinguished."
Earlier, the Agrix Marketing, Inc. (AGRIX) had executed in favor of private respondent Philippine Veterans
Bank a real estate mortgage dated July 7, 1978, over three (3) parcels of land situated in Los Baos, Laguna.
During the existence of the mortgage, AGRIX went bankrupt. It was for the expressed purpose of salvaging
this and the other Agrix companies that the aforementioned decree was issued by President Marcos.
Pursuant thereto, the private respondent filed a claim with the AGRIX Claims Committee for the payment of
its loan credit. In the meantime, the New Agrix, Inc. and the National Development Company, petitioners
herein, invoking Sec. 4 (1) of the decree, filed a petition with the Regional Trial Court of Calamba, Laguna,
for the cancellation of the mortgage lien in favor of the private respondent. For its part, the private respondent
took steps to extrajudicially foreclose the mortgage, prompting the petitioners to file a second case with the
same court to stop the foreclosure. The two cases were consolidated.
After the submission by the parties of their respective pleadings, the trial court rendered the impugned
decision. Judge Francisco Ma. Guerrero annulled not only the challenged provision, viz., Sec. 4 (1), but the
entire Pres. Decree No. 1717 on the grounds that: (1) the presidential exercise of legislative power was a
violation of the principle of separation of powers; (2) the law impaired the obligation of contracts; and (3) the
decree violated the equal protection clause. The motion for reconsideration of this decision having been
denied, the present petition was filed.: rd
The petition was originally assigned to the Third Division of this Court but because of the constitutional
questions involved it was transferred to the Court en banc. On August 30, 1988, the Court granted the
petitioner's prayer for a temporary restraining order and instructed the respondents to cease and desist from
conducting a public auction sale of the lands in question. After the Solicitor General and the private
respondent had filed their comments and the petitioners their reply, the Court gave due course to the petition
and ordered the parties to file simultaneous memoranda. Upon compliance by the parties, the case was
deemed submitted.
The petitioners contend that the private respondent is now estopped from contesting the validity of the decree.
In support of this contention, it cites the recent case of Mendoza v. Agrix Marketing, Inc., 1 where the
constitutionality of Pres. Decree No. 1717 was also raised but not resolved. The Court, after noting that the
petitioners had already filed their claims with the AGRIX Claims Committee created by the decree, had
simply dismissed the petition on the ground of estoppel.
The petitioners stress that in the case at bar the private respondent also invoked the provisions of Pres. Decree
No. 1717 by filing a claim with the AGRIX Claims Committee. Failing to get results, it sought to foreclose
the real estate mortgage executed by AGRIX in its favor, which had been extinguished by the decree. It was
only when the petitioners challenged the foreclosure on the basis of Sec. 4 (1) of the decree, that the private
respondent attacked the validity of the provision. At that stage, however, consistent with Mendoza, the private
respondent was already estopped from questioning the constitutionality of the decree.
The Court does not agree that the principle of estoppel is applicable.
It is not denied that the private respondent did file a claim with the AGRIX Claims Committee pursuant to this
decree. It must be noted, however, that this was done in 1980, when President Marcos was the absolute ruler
of this country and his decrees were the absolute law. Any judicial challenge to them would have been futile,

10

not to say foolhardy. The private respondent, no less than the rest of the nation, was aware of that reality and
knew it had no choice under the circumstances but to conform.: nad
It is true that there were a few venturesome souls who dared to question the dictator's decisions before the
courts of justice then. The record will show, however, that not a single act or issuance of President Marcos
was ever declared unconstitutional, not even by the highest court, as long as he was in power. To rule now that
the private respondent is estopped for having abided with the decree instead of boldly assailing it is to close
our eyes to a cynical fact of life during that repressive time.
This case must be distinguished from Mendoza, where the petitioners, after filing their claims with the
AGRIX Claims Committee, received in settlement thereof shares of stock valued at P40,000.00 without
protest or reservation. The herein private respondent has not been paid a single centavo on its claim, which
was kept pending for more than seven years for alleged lack of supporting papers. Significantly, the validity of
that claim was not questioned by the petitioner when it sought to restrain the extrajudicial foreclosure of the
mortgage by the private respondent. The petitioner limited itself to the argument that the private respondent
was estopped from questioning the decree because of its earlier compliance with its provisions.
Independently of these observations, there is the consideration that an affront to the Constitution cannot be
allowed to continue existing simply because of procedural inhibitions that exalt form over substance.
The Court is especially disturbed by Section 4(1) of the decree, quoted above, extinguishing all mortgages and
other liens attaching to the assets of AGRIX. It also notes, with equal concern, the restriction in Subsection (ii)
thereof that all "unsecured obligations shall not bear interest" and in Subsection (iii) that "all accrued interests,
penalties or charges as of date hereof pertaining to the obligations, whether secured or unsecured, shall not be
recognized."
These provisions must be read with the Bill of Rights, where it is clearly provided in Section 1 that "no person
shall be deprived of life, liberty or property without due course of law nor shall any person be denied the
equal protection of the law" and in Section 10 that "no law impairing the obligation of contracts shall be
passed."
In defending the decree, the petitioners argue that property rights, like all rights, are subject to regulation
under the police power for the promotion of the common welfare. The contention is that this inherent power
of the state may be exercised at any time for this purpose so long as the taking of the property right, even if
based on contract, is done with due process of law.
This argument is an over-simplification of the problem before us. The police power is not a panacea for all
constitutional maladies. Neither does its mere invocation conjure an instant and automatic justification for
every act of the government depriving a person of his life, liberty or property.
A legislative act based on the police power requires the concurrence of a lawful subject and a lawful method.
In more familiar words, a) the interests of the public generally, as distinguished from those of a particular
class, should justify the interference of the state; and b) the means employed are reasonably necessary for the
accomplishment of the purpose and not unduly oppressive upon individuals. 2
Applying these criteria to the case at bar, the Court finds first of all that the interests of the public are not
sufficiently involved to warrant the interference of the government with the private contracts of AGRIX. The
decree speaks vaguely of the "public, particularly the small investors," who would be prejudiced if the
corporation were not to be assisted. However, the record does not state how many there are of such investors,
and who they are, and why they are being preferred to the private respondent and other creditors of AGRIX
with vested property rights.:-cralaw
The public interest supposedly involved is not identified or explained. It has not been shown that by the
creation of the New Agrix, Inc. and the extinction of the property rights of the creditors of AGRIX, the
interests of the public as a whole, as distinguished from those of a particular class, would be promoted or
protected. The indispensable link to the welfare of the greater number has not been established. On the
contrary, it would appear that the decree was issued only to favor a special group of investors who, for reasons
not given, have been preferred to the legitimate creditors of AGRIX.

11

Assuming there is a valid public interest involved, the Court still finds that the means employed to rehabilitate
AGRIX fall far short of the requirement that they shall not be unduly oppressive. The oppressiveness is patent
on the face of the decree. The right to property in all mortgages, liens, interests, penalties and charges owing
to the creditors of AGRIX is arbitrarily destroyed. No consideration is paid for the extinction of the mortgage
rights. The accrued interests and other charges are simply rejected by the decree. The right to property is
dissolved by legislative fiat without regard to the private interest violated and, worse, in favor of another
private interest.
A mortgage lien is a property right derived from contract and so comes under the protection of the Bill of
Rights. So do interests on loans, as well as penalties and charges, which are also vested rights once they
accrue. Private property cannot simply be taken by law from one person and given to another without
compensation and any known public purpose. This is plain arbitrariness and is not permitted under the
Constitution.
And not only is there arbitrary taking, there is discrimination as well. In extinguishing the mortgage and other
liens, the decree lumps the secured creditors with the unsecured creditors and places them on the same level in
the prosecution of their respective claims. In this respect, all of them are considered unsecured creditors. The
only concession given to the secured creditors is that their loans are allowed to earn interest from the date of
the decree, but that still does not justify the cancellation of the interests earned before that date. Such interests,
whether due to the secured or the unsecured creditors, are all extinguished by the decree. Even assuming such
cancellation to be valid, we still cannot see why all kinds of creditors, regardless of security, are treated alike.
Under the equal protection clause, all persons or things similarly situated must be treated alike, both in the
privileges conferred and the obligations imposed. Conversely, all persons or things differently situated should
be treated differently. In the case at bar, persons differently situated are similarly treated, in disregard of the
principle that there should be equality only among equals.- nad
One may also well wonder why AGRIX was singled out for government help, among other corporations
where the stockholders or investors were also swindled. It is not clear why other companies entitled to similar
concern were not similarly treated. And surely, the stockholders of the private respondent, whose mortgage
lien had been cancelled and legitimate claims to accrued interests rejected, were no less deserving of
protection, which they did not get. The decree operated, to use the words of a celebrated case, 3 "with an evil
eye and an uneven hand."
On top of all this, New Agrix, Inc. was created by special decree notwithstanding the provision of Article XIV,
Section 4 of the 1973 Constitution, then in force, that:
SEC. 4. The Batasang Pambansa shall not, except by general law, provide for the formation, organization, or
regulation of private corporations, unless such corporations are owned or controlled by the Government or
any subdivision or instrumentality thereof. 4
The new corporation is neither owned nor controlled by the government. The National Development
Corporation was merely required to extend a loan of not more than P10,000,000.00 to New Agrix, Inc.
Pending payment thereof, NDC would undertake the management of the corporation, but with the obligation
of making periodic reports to the Agrix board of directors. After payment of the loan, the said board can then
appoint its own management. The stocks of the new corporation are to be issued to the old investors and
stockholders of AGRIX upon proof of their claims against the abolished corporation. They shall then be the
owners of the new corporation. New Agrix, Inc. is entirely private and so should have been organized under
the Corporation Law in accordance with the above-cited constitutional provision.
The Court also feels that the decree impairs the obligation of the contract between AGRIX and the private
respondent without justification. While it is true that the police power is superior to the impairment clause, the
principle will apply only where the contract is so related to the public welfare that it will be considered
congenitally susceptible to change by the legislature in the interest of the greater number. 5 Most present-day
contracts are of that nature. But as already observed, the contracts of loan and mortgage executed by AGRIX
are purely private transactions and have not been shown to be affected with public interest. There was
therefore no warrant to amend their provisions and deprive the private respondent of its vested property rights.

12

It is worth noting that only recently in the case of the Development Bank of the Philippines v. NLRC, 6 we
sustained the preference in payment of a mortgage creditor as against the argument that the claims of laborers
should take precedence over all other claims, including those of the government. In arriving at this ruling, the
Court recognized the mortgage lien as a property right protected by the due process and contract clauses
notwithstanding the argument that the amendment in Section 110 of the Labor Code was a proper exercise of
the police power.: nad
The Court reaffirms and applies that ruling in the case at bar.
Our finding, in sum, is that Pres. Decree No. 1717 is an invalid exercise of the police power, not being in
conformity with the traditional requirements of a lawful subject and a lawful method. The extinction of the
mortgage and other liens and of the interest and other charges pertaining to the legitimate creditors of AGRIX
constitutes taking without due process of law, and this is compounded by the reduction of the secured
creditors to the category of unsecured creditors in violation of the equal protection clause. Moreover, the new
corporation, being neither owned nor controlled by the Government, should have been created only by general
and not special law. And insofar as the decree also interferes with purely private agreements without any
demonstrated connection with the public interest, there is likewise an impairment of the obligation of the
contract.
With the above pronouncements, we feel there is no more need to rule on the authority of President Marcos to
promulgate Pres. Decree No. 1717 under Amendment No. 6 of the 1973 Constitution. Even if he had such
authority, the decree must fall just the same because of its violation of the Bill of Rights.
WHEREFORE, the petition is DISMISSED. Pres. Decree No. 1717 is declared UNCONSTITUTIONAL. The
temporary restraining order dated August 30, 1988, is LIFTED. Costs against the petitioners.- nad
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC

13

July 31, 1964

G.R.
J.R.S.

No.
BUSINESS

CORPORATION,

J.R.

DA

L-19891
SILVA

and

A.J.

BELTRAN,petitioners,

vs.
IMPERIAL INSURANCE, INC., MACARIO M. OFILADA, Sheriff of Manila and HON. AGUSTIN
MONTESA, Judge of the Court of First Instance of Manila, respondents.
Felipe

N.

Aurea

for

petitioners.

Taada, Teehankee and Carreon for respondent Imperial Insurance, Inc.

PAREDES, J.:
Petitioner J. R. Da Silva, is the President of the J.R.S. Business Corporation, an establishment duly franchised
by the Congress of the Philippines, to conduct a messenger and delivery express service. On July 12, 1961,
the respondent Imperial Insurance, Inc., presented with the CFI of Manila a complaint (Civ. Case No. 47520),
for sum of money against the petitioner corporation. After the defendants therein have submitted their Answer,
the parties entered into a Compromise Agreement, assisted by their respective counsels, the pertinent portions
of which recite:
1) WHEREAS, the DEFENDANTS admit and confess their joint and solidary indebtedness to the
PLAINTIFF in the full sum of PESOS SIXTY ONE THOUSAND ONE HUNDRED SEVENTY-TWO &
32/100 (P61,172.32), Philippine Currency, itemized as follows:

a) Principal

P50,000.00

b) Interest at 12% per annum

5,706.14

c) Liquidated damages at 7% per annum

3,330.58

d) Costs of suit

135.60

e) Attorney's fees

2,000.00

2) WHEREAS, the DEFENDANTS bind themselves, jointly and severally, and hereby promise to pay their
aforementioned obligation to the PLAINTIFF at its business address at 301-305 Banquero St., (Ground
Floor), Regina Building, Escolta, Manila, within sixty (60) days from March 16, 1962 or on or before May 14,
1962;

14

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

15

theBusiness Name, Right to Operate and Capital Stocks of JRS Business Corporation". The auction sale was
set for June 21, 1962. In said motion, petitioners alleged that the loan they had applied for, was to be secured
within the next ten (10) days, and they would be able to discharge the judgment debt. Respondents opposed
the said motion and on June 21, 1962, the lower court denied the motion for postponement of the auction sale.
In the sale which was conducted in the premises of the JRS Business Corporation at 1341
Perez
St., Paco, Manila, all the properties of said corporation contained in the Notices of Sale dated May 26, 1962,
and June 2, 1962 (the latter notice being for the whole capital stocks of the defendant, JRS Business
Corporation, the business name, right of operation, the whole assets, furnitures and equipments, the total
liabilities and Net Worth, books of accounts, etc., etc.), were bought by respondent Imperial Insurance, Inc.,
for P10,000.00, which was the highest bid offered. Immediately after the sale, respondent Insurance Company
took possession of the proper ties and started running the affairs and operating the business of the JRS
Business Corporation. Hence, the present appeal.
It would seem that the matters which need determination are (1) whether the respondent Judge acted without
or in excess of his jurisdiction or with grave abuse of discretion in promulgating the Order of June 21, 1962,
denying the motion for postponement of the scheduled sale at public auction, of the properties of petitioner;
and (2) whether the business name or trade name, franchise (right to operate) and capital stocks of the
petitioner are properties or property rights which could be the subject of levy, execution and sale.
The respondent Court's act of postponing the scheduled sale was within the discretion of respondent Judge,
the exercise of which, one way or the other, did not constitute grave abuse of discretion and/or excess of
jurisdiction. There was a decision rendered and the corresponding writ of execution was issued. Respondent
Judge had jurisdiction over the matter and erroneous conclusions of law or fact, if any, committed in the
exercise of such jurisdiction are merely errors of judgment, not correctible by certiorari (Villa Rey Transit v.
Bello, et al., L-18957, April 23, 1963, and cases cited therein.)
The corporation law, on forced sale of franchises, provides
Any franchise granted to a corporation to collect tolls or to occupy, enjoy, or use public property or any
portion of the public domain or any right of way over public property or the public domain, and any rights and
privileges acquired under such franchise may be levied upon and sold under execution, together with the
property necessary for the enjoyment, the exercise of the powers, and the receipt of the proceeds of such
franchise or right of way, in the same manner and with like effect as any other property to satisfy any
judgment against the corporation: Provided, That the sale of the franchise or right of way and the property
necessary for the enjoyment, the exercise of the powers, and the receipt of the proceeds of said franchise or
right of way is especially decreed and ordered in the judgment: And provided, further, That the sale shall not
become effective until confirmed by the court after due notice. (Sec. 56, Corporation Law.)

16

In the case of Gulf Refining Co. v. Cleveland Trust Co., 108 So., 158, it was held
The first question then for decision is the meaning of the word "franchise" in the statute.
"A franchise is a special privilege conferred by governmental authority, and which does not belong to citizens
of the country generally as a matter of common right. ... Its meaning depends more or less upon the
connection in which the word is employed and the property and corporation to which it is applied. It may have
different significations.
"For practical purposes, franchises, so far as relating to corporations, are divisible into (1) corporate or general
franchises; and (2) special or secondary franchises. The former is the franchise to exist as a corporation, while
the latter are certain rights and privileges conferred upon existing corporations, such as the right to use the
streets of a municipality to lay pipes or tracks, erect poles or string wires." 2 Fletcher's Cyclopedia Corp. See.
1148; 14 C.J. p. 160; Adams v. Yazon & M. V. R. Co., 24 So. 200, 317, 28 So. 956, 77 Miss. 253, 60 L.R.A.
33 et seq.
The primary franchise of a corporation that is, the right to exist as such, is vested "in the individuals who
compose the corporation and not in the corporation itself" (14 C.J. pp. 160, 161; Adams v. Railroad, supra; 2
Fletcher's Cyclopedia Corp. Secs. 1153, 1158; 3 Thompson on Corporations 2d Ed.] Secs. 2863, 2864), and
cannot be conveyed in the absence of a legislative authority so to do (14A CJ. 543, 577; 1 Fletcher's Cyc.
Corp. Sec. 1224; Memphis & L.R.R. Co. v. Berry 5 S. Ct. 299, 112 U.S. 609, 28 L.E.d. 837; Vicksburg
Waterworks Co. v. Vicksburg, 26 S. Ct. 660, 202 U.S. 453, 50 L.E.d. 1102, 6 Ann. Cas. 253; Arthur v.
Commercial & Railroad Bank, 9 Smedes & M. 394, 48 Am. Dec. 719),but the specify or secondary franchises
of a corporation are vested in the corporation and may ordinarily be conveyed or mortgaged under a general
power granted to a corporation to dispose of its property (Adams v. Railroad, supra; 14A C.J. 542, 557; 3
Thompson on Corp. [2nd Ed.] Sec. 2909), except such special or secondary franchises as are charged with a
public use (2 Fletcher's Cyc. Corp. see. 1225; 14A C.J. 544; 3 Thompson on Corp. [2d Ed.] sec. 2908; Arthur
v. Commercial & R.R. Bank, supra; McAllister v. Plant, 54 Miss. 106).
The right to operate a messenger and express delivery service, by virtue of a legislative enactment, is
admittedly a secondary franchise (R.A. No. 3260, entitled "An Act granting the JRS Business Corporation a
franchise to conduct a messenger and express service)" and, as such, under our corporation law, is subject to
levy and sale on execution together and including all the property necessary for the enjoyment thereof. The
law, however, indicates the procedure under which the same (secondary franchise and the properties necessary
for its enjoyment) may be sold under execution. Said franchise can be sold under execution, when such sale is

17

especially decreed and ordered in the judgment and it becomes effective only when the sale is confirmed by
the Court after due notice (Sec. 56, Corp. Law). The compromise agreement and the judgment based thereon,
do not contain any special decree or order making the franchise answerable for the judgment debt. The same
thing may be stated with respect to petitioner's trade name or business name and its capital stock. Incidentally,
the trade name or business name corresponds to the initials of the President of the petitioner corporation and
there can be no serious dispute regarding the fact that a trade name or business name and capital stock are
necessarily included in the enjoyment of the franchise. Like that of a franchise, the law mandates, that
property necessary for the enjoyment of said franchise, can only be sold to satisfy a judgment debt if the
decision especially so provides. As We have stated heretofore, no such directive appears in the decision.
Moreover, a trade name or business name cannot be sold separately from the franchise, and the capital stock
of the petitioner corporation or any other corporation, for the matter, represents the interest and is the property
of stockholders in the corporation, who can only be deprived thereof in the manner provided by law (Therbee
v. Baker, 35 N.E. Eq. [8 Stew.] 501, 505; In re Wells' Estate, 144 N.W. 174, 177, Wis. 294, cited in 6 Words
and Phrases, 109).
It, therefore, results that the inclusion of the franchise, the trade name and/or business name and the capital
stock of the petitioner corporation, in the sale of the properties of the JRS Business Corporation, has no
justification. The sale of the properties of petitioner corporation is set aside, in so far as it authorizes the levy
and sale of its franchise, trade name and capital stocks. Without pronouncement as to costs.

G.R. No. L-25894 January 30, 1971

QUIRINO BOLAOS, EDILBERTO ALEJANDRINO and DIOSDADO DE LOS REYES, petitionersappellees,
vs.
J. M. TUASON & CO., INC. and PEOPLE'S HOMESITE and HOUSING CORPORATION,
respondents-appellants.
Pablo G. Macapagal for petitioner-appellee Edilberto Alejandrino.
Diosdado de los Reyes for himself and A. M. Dizon for petitioner-appellee Quirino Bolaos.
Sison and San Juan for respondent-appellant J. M. Tuason and Co., Inc.

18

BARREDO, J.:
Appeal by J. M. Tuason & Co., Inc. and the People's Homesite and Housing Corporation from the order dated
September 9, 1965 of the Court of First Instance of Rizal, Branch X, issued in LRC Rec. No. 7581, Quirino
Bolaos, et als., petitioners, versus J. M. Tuason & Co., Inc., et al., respondents, reading in full as follows:
In their urgent petition dated March 17, 1965, the petitioner prayed that an order be published
at the expense of the petitioners and addressed to all to whom it may concern enjoining all and
sundry "pending the promulgation of the decision of the Supreme Court on any appeal which
may be taken from the decision of this Honorable Court dated January 12, 1965" to desist from
disturbing the physical possession of petitioner Quirino Bolaos of the parcel of land object of
this case comprising 13.2619 hectares and included in the area covered by said TCT Nos.
37677 and 37686 of the Registry of Deeds of Rizal.
It appears that in a case filed before the Court of First Instance of Rizal, Quezon City Branch,
entitled "J. M. Tuason & Co., Inc., represented by its managing partner, Gregorio Araneta, Inc.
versus Quirino Bolaos," the plaintiffs sought to recover possession of the parcel of land object
of the present action from the defendant therein, and who is now one of the petitioners; that
decision having been rendered in favor of the plaintiff in said case and against the defendant,
defendant Quirino Bolaos appealed the case to the Supreme Court (Exhibits "B," "B-1," to
"B-7") which rendered a decision (No. L-4935, May 28, 1954), affirming the decision of the
lower court.
In Civil Cases Nos. 3621, 3622, and 3623 of this Court, Branch II, a decision was rendered on
January 18, 1965, declaring Original Certificate of Title No. 735 of the Registry of Deeds of
Rizal as null and void. The petitioners made this decision as the basis of their action, alleging
that the certificate of title covering the parcel of land now in litigation having been derived
from Original Certificate of Title No. 735, it follows that these titles which were issued later
should also be declared null and void in the event the aforementioned decision becomes final
and executory, or the same is affirmed by the Supreme Court.
The petition merely prays for an Order to be published at the expense of the herein petitioners
to enjoin all and sundry from disturbing the physical possession of petitioner Quirino Bolaos
of the parcel of land object of the petition and which is included in the property covered by
TCT Nos. 37677 and 37686. It is not disputed that the petitioners were in possession of the
parcel of land object of this petition at the time that the civil action before the Court of First
Instance of Rizal, Quezon City, was instituted and up to the present time (Exhibits "B-2" to "B5").lwph1.t The records show that the petition was published at the expense of the
petitioners in the Daily Mirror in its issues of May 22, 29, and June 5, 1965 (Exhibit "A"). The
decision of the Supreme Court in the aforementioned case was promulgated on May 28, 1954.
Notwithstanding the lapse of more than ten years, it appears that said decision has not been
executed and the defendant in said case, Quirino Bolaos, who is one of the petitioners in the
present case, is still in possession of the parcel of land in question. In view of the decisions in
Civil Cases Nos. 3621, 3622, and 3623 of this Court, Branch II, as already stated above, it
would appear that the position of the petitioner that their possession should not be disturbed
until said decision is reversed by the appellate court, is tenable.
WHEREFORE, finding the petition to be well-taken, the same is granted, and it is hereby
ordered that the respondents, their agents, and all persons acting for and in their behalf as well
as all others are hereby enjoined from disturbing the physical possession of petitioner Quirino
Bolaos of the parcel of land comprising 13.2619 hectares and included in the area covered by
said TCT Nos. 37677 and 37686, said notice having been published in a newspaper of general
circulation as already stated above.

19

SO ORDERED.
In their brief, appellants have assigned the following alleged errors of the lower court:
I
THE LOWER COURT ERRED IN NOT HOLDING THAT PETITION IS ALREADY
BARRED BY THE JUDGMENT IN G.R. NO. L-4935 ENTITLED J. M. TUASON & CO.
INC., ET AL. VS. QUIRINO BOLAOS, PROMULGATED ON 28 MAY 1954 (95 Phil.
106).
II
THE LOWER COURT ERRED IN PROCEEDING TO HEAR THE PETITION
NOTWITHSTANDING THE FACT THAT IT HAS NO JURISDICTION OVER THE
SUBJECT MATTER OF THE PETITION.
III
THE LOWER COURT ERRED IN ASSUMING THAT THE DECISION IN G.R. NO. L-4935
HAS NOT YET BEEN EXECUTED AND THAT PETITIONER BOLAOS IS STILL IN
POSSESSION OF THE LAND IN QUESTION.
IV
THE LOWER COURT ERRED IN ISSUING THE ORDER DATED 5 AUGUST 1965.
As can be gleaned from the above-quoted order, the relief sought by appellees in their petition filed with the
courta quo was virtually a general preliminary injunction against the whole world not to disturb their alleged
possession of the parcels of land covered by Transfer Certificates of Title Nos. 37677 and 37686 of the Office
of the Register of Deeds of Rizal issued to appellant J. M. Tuason & Co., Inc. upon the ground that in the
three other civil cases Nos. 3621, 3622 and 3623 of the same Court of First Instance of Rizal, the said court
has rendered a decision, still pending appeal, declaring Original Certificate of Title No. 735 from which the
two above-mentioned titles have been derived null and void, principally for want of jurisdiction of the court
that issued said original title on account of defects in the publication of the notices of the proceedings for their
registration, the injunction to last, per their prayer, until the decision of this Court in the said three civil cases,
albeit the impugned order itself does not specify the period of its duration. Petitioners sought such relief
notwithstanding the admitted fact that in a previous case filed by appellant Tuason against appellees for the
recovery of the possession of said land, that of Tuason vs. Bolaos, 93 Phil. 106, wherein appellees had
alleged among their defenses that appellant Tuason's titles were obtained "thru fraud or error and without
knowledge (of) or notice, either personal or thru publication to" said appellees, this Court upheld the validity
of the questioned titles and affirmed the decision of the trial court "declaring defendant (now appellee
Bolaos) to be without any right to the land in question and ordering him to restore possession thereof to
plaintiff (now appellant) Tuason." In the said decision of this Court, it was held:
As the land in dispute is covered by plaintiff's Torrens certificate of title and was registered in
1914, the decree of registration can no longer be impugned on the ground of fraud, error or
lack of notice to defendant, as more than one year has already elapsed from the issuance and
entry of the decree. Neither could the decree be collaterally attached by any person claiming
title to, or interest in, the land prior to the registration proceedings. (Sorogon vs. Makalintal,
[90 Phil. 259] 45 Off. Gaz. 3819.) Nor could title to that land in derogation of that of plaintiff,
the registered owner, be acquired by prescription or adverse possession. (Section 46, Act No.
496.) Adverse, notorious and continuous possession under claim of ownership for the period
fixed by law is ineffective against a Torrens title. (Valiente vs. Judge of CFI of Tarlac, [80 Phil.

20

415.] etc., 45 Off. Gaz., Supp. 9, p. 43.) And it is likewise settled that the right to secure
possession under a decree of registration does not prescribe. (Francisco vs. Cruz, 43 Off. Gaz.,
5105, 5109-5110). A recent decision of this Court on this point is that rendered in the case of
Jose Alcantara, et al. vs. Mariano et al., 92 Phil., 796. This disposes of the alleged errors V and
VI.
In these circumstances, the appealed order is entirely propless. Leaving aside all the other issues raised in
appellants' brief about res adjudicata, conclusiveness of judgment and conclusiveness of the respondentsappellants' Torrens Titles, it is obvious that the subject matter of appellee's petition was clearly beyond the
competence and jurisdiction of the trial court sitting as it did in this case as a land registration court, this, even
on the assumption, which is most doubtful, that such a general against-the-whole world preliminary injunction
could be sought in any court, it being axiomatic that an auxiliary remedy cannot be secured unless there is a
principal remedy to which it pertains. Once a land registration proceeding is terminated and a corresponding
decree has been issued, the only matter of possession of the land involved that remains within the jurisdiction
of the Land Registration Court is in regard to the issuance of the writ of possession, if one should be needed.
No provision of the Land Registration Act (Act 496) or any other law has been cited by appellees and We
know of none which authorizes the land registration court to resolve issues of possession, in any of its aspects,
after the original registration proceedings have come to an end and a writ of possession has already been
issued and implemented. Section 112 of Act 496 which is the only provision in the said law empowering the
land registration court to issue post or after-registration orders refers exclusively to amendments and
alterations of the title issued and has nothing to do with possession of the land at all.
The theory of appellees is not clear in their brief. Seemingly, they are of the belief that since the abovementioned Original Certificate of Title No. 735 which was annulled was issued in the same LRC No. 7581 in
which the present petition was filed, it should follow that the court a quo may act on their petition. Appellees'
position is not correct. The mere fact that Original Certificate of Title No. 735 has been voided in so far as the
titles involved in Civil Cases Nos. 3621, 3622 and 3623, derived from said original certificate of title, are
concerned, does not mean that such declaration of nullity affects also the other titles, also derived from it but
issued in the names of other persons who have neither been heard nor notified. This is elementary under the
due process principle. Although incidents regarding any title derived from an original one are supposed to be
filed in the same expediente or record of the original proceeding, the incidents regarding each title so derived
constitute separate and distinct proceedings from those affecting the other titles derived from the same
original title, and are, accordingly, always treated as such. Indeed, the very fact that ordinary civil actions had
to be filed by the plaintiffs in those three civil cases relied upon by appellees proves that the relief sought by
them in their petition in the court below may not be obtained in the form of a mere incident in the original
registration proceedings or expediente. Besides, as already noted earlier, there is no showing that there is now
pending in the lower court either an action or any kind of proceeding in which appellees are asking that
Transfer Certificates of Title Nos. 37677 and 37686 of appellant Tuason should be annulled, assuming without
deciding that such a relief could still be available to appellees inspite of Tuason vs. Bolaos, supra. Such
being the case, the trial court placed the cart before the horse in issuing its questioned order, for how could
anyone be enjoined from disturbing the possession of somebody whose right to such possession has not even
been alleged, much less established in an appropriate proceeding?
Having come to this conclusion, We consider it unnecessary to resolve the other issues raised by appellants.
WHEREFORE, the appealed order is declared to have been issued beyond the jurisdiction of the court a quo
and it is hereby declared null and void and set aside, with costs against appellees.

21

G.R. No. 75875 December 15, 1989

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

22

G.R. Nos. 75975-76 December 15, 1989

LUCIANO
E.
SALAZAR, petitioner,
vs.
SANITARY WARES MANUFACTURING CORPORATION, ERNESTO V. LAGDAMEO, ERNESTO
R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN,
BALDWIN YOUNG, AVELINO V. CRUZ and the COURT OF APPEALS, respondents.
Belo, Abiera & Associates for petitioners in 75875.
Sycip, Salazar, Hernandez & Gatmaitan for Luciano E. Salazar.

GUTIERREZ, JR., J.:

These consolidated petitions seek the review of the amended decision of the Court of Appeals in CA-G.R. SP
Nos. 05604 and 05617 which set aside the earlier decision dated June 5, 1986, of the then Intermediate
Appellate Court and directed that in all subsequent elections for directors of Sanitary Wares Manufacturing
Corporation (Saniwares), American Standard Inc. (ASI) cannot nominate more than three (3) directors; that
the Filipino stockholders shall not interfere in ASI's choice of its three (3) nominees; that, on the other hand,
the Filipino stockholders can nominate only six (6) candidates and in the event they cannot agree on the six
(6) nominees, they shall vote only among themselves to determine who the six (6) nominees will be, with
cumulative voting to be allowed but without interference from ASI.
The antecedent facts can be summarized as follows:
In 1961, Saniwares, a domestic corporation was incorporated for the primary purpose of manufacturing and
marketing sanitary wares. One of the incorporators, Mr. Baldwin Young went abroad to look for foreign
partners, European or American who could help in its expansion plans. On August 15, 1962, ASI, a foreign
corporation domiciled in Delaware, United States entered into an Agreement with Saniwares and some
Filipino investors whereby ASI and the Filipino investors agreed to participate in the ownership of an
enterprise which would engage primarily in the business of manufacturing in the Philippines and selling here
and abroad vitreous china and sanitary wares. The parties agreed that the business operations in the
Philippines shall be carried on by an incorporated enterprise and that the name of the corporation shall
initially be "Sanitary Wares Manufacturing Corporation."
The Agreement has the following provisions relevant to the issues in these cases on the nomination and
election of the directors of the corporation:
3. Articles of Incorporation
(a) The Articles of Incorporation of the Corporation shall be substantially in the form annexed
hereto as Exhibit A and, insofar as permitted under Philippine law, shall specifically provide
for
(1) Cumulative voting for directors:
xxx xxx xxx
5. Management
(a) The management of the Corporation shall be vested in a Board of Directors, which shall
consist of nine individuals. As long as American-Standard shall own at least 30% of the

23

outstanding stock of the Corporation, three of the nine directors shall be designated by
American-Standard, and the other six shall be designated by the other stockholders of the
Corporation. (pp. 51 & 53, Rollo of 75875)
At the request of ASI, the agreement contained provisions designed to protect it as a minority group, including
the grant of veto powers over a number of corporate acts and the right to designate certain officers, such as a
member of the Executive Committee whose vote was required for important corporate transactions.
Later, the 30% capital stock of ASI was increased to 40%. The corporation was also registered with the Board
of Investments for availment of incentives with the condition that at least 60% of the capital stock of the
corporation shall be owned by Philippine nationals.
The joint enterprise thus entered into by the Filipino investors and the American corporation prospered.
Unfortunately, with the business successes, there came a deterioration of the initially harmonious relations
between the two groups. According to the Filipino group, a basic disagreement was due to their desire to
expand the export operations of the company to which ASI objected as it apparently had other subsidiaries of
joint joint venture groups in the countries where Philippine exports were contemplated. On March 8, 1983, the
annual stockholders' meeting was held. The meeting was presided by Baldwin Young. The minutes were taken
by the Secretary, Avelino Cruz. After disposing of the preliminary items in the agenda, the stockholders then
proceeded to the election of the members of the board of directors. The ASI group nominated three persons
namely; Wolfgang Aurbach, John Griffin and David P. Whittingham. The Philippine investors nominated six,
namely; Ernesto Lagdameo, Sr., Raul A. Boncan, Ernesto R. Lagdameo, Jr., George F. Lee, and Baldwin
Young. Mr. Eduardo R, Ceniza then nominated Mr. Luciano E. Salazar, who in turn nominated Mr. Charles
Chamsay. The chairman, Baldwin Young ruled the last two nominations out of order on the basis of section 5
(a) of the Agreement, the consistent practice of the parties during the past annual stockholders' meetings to
nominate only nine persons as nominees for the nine-member board of directors, and the legal advice of
Saniwares' legal counsel. The following events then, transpired:
... There were protests against the action of the Chairman and heated arguments ensued. An
appeal was made by the ASI representative to the body of stockholders present that a vote be
taken on the ruling of the Chairman. The Chairman, Baldwin Young, declared the appeal out of
order and no vote on the ruling was taken. The Chairman then instructed the Corporate
Secretary to cast all the votes present and represented by proxy equally for the 6 nominees of
the Philippine Investors and the 3 nominees of ASI, thus effectively excluding the 2 additional
persons nominated, namely, Luciano E. Salazar and Charles Chamsay. The ASI representative,
Mr. Jaqua protested the decision of the Chairman and announced that all votes accruing to ASI
shares, a total of 1,329,695 (p. 27, Rollo, AC-G.R. SP No. 05617) were being cumulatively
voted for the three ASI nominees and Charles Chamsay, and instructed the Secretary to so vote.
Luciano E. Salazar and other proxy holders announced that all the votes owned by and or
represented by them 467,197 shares (p. 27, Rollo, AC-G.R. SP No. 05617) were being voted
cumulatively in favor of Luciano E. Salazar. The Chairman, Baldwin Young, nevertheless
instructed the Secretary to cast all votes equally in favor of the three ASI nominees, namely,
Wolfgang Aurbach, John Griffin and David Whittingham and the six originally nominated by
Rogelio Vinluan, namely, Ernesto Lagdameo, Sr., Raul Boncan, Ernesto Lagdameo, Jr.,
Enrique Lagdameo, George F. Lee, and Baldwin Young. The Secretary then certified for the
election of the following Wolfgang Aurbach, John Griffin, David Whittingham Ernesto
Lagdameo, Sr., Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, Raul A. Boncan,
Baldwin Young. The representative of ASI then moved to recess the meeting which was duly
seconded. There was also a motion to adjourn (p. 28, Rollo, AC-G.R. SP No. 05617). This
motion to adjourn was accepted by the Chairman, Baldwin Young, who announced that the
motion was carried and declared the meeting adjourned. Protests against the adjournment were
registered and having been ignored, Mr. Jaqua the ASI representative, stated that the meeting
was not adjourned but only recessed and that the meeting would be reconvened in the next
room. The Chairman then threatened to have the stockholders who did not agree to the decision

24

of the Chairman on the casting of votes bodily thrown out. The ASI Group, Luciano E. Salazar
and other stockholders, allegedly representing 53 or 54% of the shares of Saniwares, decided to
continue the meeting at the elevator lobby of the American Standard Building. The continued
meeting was presided by Luciano E. Salazar, while Andres Gatmaitan acted as Secretary. On
the basis of the cumulative votes cast earlier in the meeting, the ASI Group nominated its four
nominees; Wolfgang Aurbach, John Griffin, David Whittingham and Charles Chamsay.
Luciano E. Salazar voted for himself, thus the said five directors were certified as elected
directors by the Acting Secretary, Andres Gatmaitan, with the explanation that there was a tie
among the other six (6) nominees for the four (4) remaining positions of directors and that the
body decided not to break the tie. (pp. 37-39, Rollo of 75975-76)
These incidents triggered off the filing of separate petitions by the parties with the Securities and Exchange
Commission (SEC). The first petition filed was for preliminary injunction by Saniwares, Emesto V.
Lagdameo, Baldwin Young, Raul A. Bonean Ernesto R. Lagdameo, Jr., Enrique Lagdameo and George F. Lee
against Luciano Salazar and Charles Chamsay. The case was denominated as SEC Case No. 2417. The second
petition was for quo warranto and application for receivership by Wolfgang Aurbach, John Griffin, David
Whittingham, Luciano E. Salazar and Charles Chamsay against the group of Young and Lagdameo
(petitioners in SEC Case No. 2417) and Avelino F. Cruz. The case was docketed as SEC Case No. 2718. Both
sets of parties except for Avelino Cruz claimed to be the legitimate directors of the corporation.
The two petitions were consolidated and tried jointly by a hearing officer who rendered a decision upholding
the election of the Lagdameo Group and dismissing the quo warranto petition of Salazar and Chamsay. The
ASI Group and Salazar appealed the decision to the SEC en banc which affirmed the hearing officer's
decision.
The SEC decision led to the filing of two separate appeals with the Intermediate Appellate Court by Wolfgang
Aurbach, John Griffin, David Whittingham and Charles Chamsay (docketed as AC-G.R. SP No. 05604) and
by Luciano E. Salazar (docketed as AC-G.R. SP No. 05617). The petitions were consolidated and the
appellate court in its decision ordered the remand of the case to the Securities and Exchange Commission with
the directive that a new stockholders' meeting of Saniwares be ordered convoked as soon as possible, under
the supervision of the Commission.
Upon a motion for reconsideration filed by the appellees Lagdameo Group) the appellate court (Court of
Appeals) rendered the questioned amended decision. Petitioners Wolfgang Aurbach, John Griffin, David P.
Whittingham and Charles Chamsay in G.R. No. 75875 assign the following errors:
I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED ELECTION OF
PRIVATE RESPONDENTS AS MEMBERS OF THE BOARD OF DIRECTORS OF
SANIWARES WHEN IN FACT THERE WAS NO ELECTION AT ALL.
II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS FROM EXERCISING
THEIR FULL VOTING RIGHTS REPRESENTED BY THE NUMBER OF SHARES IN
SANIWARES, THUS DEPRIVING PETITIONERS AND THE CORPORATION THEY
REPRESENT OF THEIR PROPERTY RIGHTS WITHOUT DUE PROCESS OF LAW.
III. THE COURT OF APPEALS IMPOSES CONDITIONS AND READS PROVISIONS
INTO THE AGREEMENT OF THE PARTIES WHICH WERE NOT THERE, WHICH
ACTION IT CANNOT LEGALLY DO. (p. 17, Rollo-75875)
Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended decision on the following grounds:
11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of binding contractual agreements
entered into by stockholders and the replacement of the conditions of such agreements with
terms never contemplated by the stockholders but merely dictated by the CA .

25

11.2. The Amended decision would likewise sanction the deprivation of the property rights of
stockholders without due process of law in order that a favored group of stockholders may be
illegally benefitted and guaranteed a continuing monopoly of the control of a corporation. (pp.
14-15, Rollo-75975-76)
On the other hand, the petitioners in G.R. No. 75951 contend that:
I
THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE RECOGNIZING
THAT THE STOCKHOLDERS OF SANIWARES ARE DIVIDED INTO TWO BLOCKS,
FAILS TO FULLY ENFORCE THE BASIC INTENT OF THE AGREEMENT AND THE
LAW.
II
THE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT PRIVATE
PETITIONERS HEREIN WERE THE DULY ELECTED DIRECTORS DURING THE 8
MARCH 1983 ANNUAL STOCKHOLDERS MEETING OF SANTWARES. (P. 24, Rollo75951)
The issues raised in the petitions are interrelated, hence, they are discussed jointly.
The main issue hinges on who were the duly elected directors of Saniwares for the year 1983 during its annual
stockholders' meeting held on March 8, 1983. To answer this question the following factors should be
determined: (1) the nature of the business established by the parties whether it was a joint venture or a
corporation and (2) whether or not the ASI Group may vote their additional 10% equity during elections of
Saniwares' board of directors.
The rule is that whether the parties to a particular contract have thereby established among themselves a joint
venture or some other relation depends upon their actual intention which is determined in accordance with the
rules governing the interpretation and construction of contracts. (Terminal Shares, Inc. v. Chicago, B. and
Q.R. Co. (DC MO) 65 F Supp 678; Universal Sales Corp. v. California Press Mfg. Co. 20 Cal. 2nd 751, 128 P
2nd 668)
The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual intention of the parties
should be viewed strictly on the "Agreement" dated August 15,1962 wherein it is clearly stated that the
parties' intention was to form a corporation and not a joint venture.
They specifically mention number 16 under Miscellaneous Provisions which states:
xxx xxx xxx
c) nothing herein contained shall be construed to constitute any of the parties hereto partners or
joint venturers in respect of any transaction hereunder. (At P. 66, Rollo-GR No. 75875)
They object to the admission of other evidence which tends to show that the parties' agreement was to
establish a joint venture presented by the Lagdameo and Young Group on the ground that it contravenes the
parol evidence rule under section 7, Rule 130 of the Revised Rules of Court. According to them, the
Lagdameo and Young Group never pleaded in their pleading that the "Agreement" failed to express the true
intent of the parties.
The parol evidence Rule under Rule 130 provides:

26

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

27

The Agreement also requires a 75% super-majority vote for the amendment of the articles and
by-laws of Saniwares [Sec. 3 (a) (iv) and (b) (iii)]. ASI is also given the right to designate the
president and plant manager [Sec. 5 (6)]. The Agreement further provides that the sales policy
of Saniwares shall be that which is normally followed by ASI [Sec. 13 (a)] and that Saniwares
should not export "Standard" products otherwise than through ASI's Export Marketing Services
[Sec. 13 (6)]. Under the Agreement, ASI agreed to provide technology and know-how to
Saniwares and the latter paid royalties for the same. (At p. 2).
xxx xxx xxx
It is pertinent to note that the provisions of the Agreement requiring a 7 out of 9 votes of the
board of directors for certain actions, in effect gave ASI (which designates 3 directors under the
Agreement) an effective veto power. Furthermore, the grant to ASI of the right to designate
certain officers of the corporation; the super-majority voting requirements for amendments of
the articles and by-laws; and most significantly to the issues of tms case, the provision that ASI
shall designate 3 out of the 9 directors and the other stockholders shall designate the other 6,
clearly indicate that there are two distinct groups in Saniwares, namely ASI, which owns 40%
of the capital stock and the Philippine National stockholders who own the balance of 60%, and
that 2) ASI is given certain protections as the minority stockholder.
Premises considered, we believe that under the Agreement there are two groups of stockholders
who established a corporation with provisions for a special contractual relationship between
the parties, i.e., ASI and the other stockholders. (pp. 4-5)
Section 5 (a) of the agreement uses the word "designated" and not "nominated" or "elected" in the selection of
the nine directors on a six to three ratio. Each group is assured of a fixed number of directors in the board.
Moreover, ASI in its communications referred to the enterprise as joint venture. Baldwin Young also testified
that Section 16(c) of the Agreement that "Nothing herein contained shall be construed to constitute any of the
parties hereto partners or joint venturers in respect of any transaction hereunder" was merely to obviate the
possibility of the enterprise being treated as partnership for tax purposes and liabilities to third parties.
Quite often, Filipino entrepreneurs in their desire to develop the industrial and manufacturing capacities of a
local firm are constrained to seek the technology and marketing assistance of huge multinational corporations
of the developed world. Arrangements are formalized where a foreign group becomes a minority owner of a
firm in exchange for its manufacturing expertise, use of its brand names, and other such assistance. However,
there is always a danger from such arrangements. The foreign group may, from the start, intend to establish its
own sole or monopolistic operations and merely uses the joint venture arrangement to gain a foothold or test
the Philippine waters, so to speak. Or the covetousness may come later. As the Philippine firm enlarges its
operations and becomes profitable, the foreign group undermines the local majority ownership and actively
tries to completely or predominantly take over the entire company. This undermining of joint ventures is not
consistent with fair dealing to say the least. To the extent that such subversive actions can be lawfully
prevented, the courts should extend protection especially in industries where constitutional and legal
requirements reserve controlling ownership to Filipino citizens.
The Lagdameo Group stated in their appellees' brief in the Court of Appeal
In fact, the Philippine Corporation Code itself recognizes the right of stockholders to enter into
agreements regarding the exercise of their voting rights.
Sec. 100. Agreements by stockholders.xxx xxx xxx

28

2. An agreement between two or more stockholders, if in writing and signed by the parties
thereto, may provide that in exercising any voting rights, the shares held by them shall be voted
as therein provided, or as they may agree, or as determined in accordance with a procedure
agreed upon by them.
Appellants contend that the above provision is included in the Corporation Code's chapter on
close corporations and Saniwares cannot be a close corporation because it has 95 stockholders.
Firstly, although Saniwares had 95 stockholders at the time of the disputed stockholders
meeting, these 95 stockholders are not separate from each other but are divisible into groups
representing a single Identifiable interest. For example, ASI, its nominees and lawyers count
for 13 of the 95 stockholders. The YoungYutivo family count for another 13 stockholders, the
Chamsay family for 8 stockholders, the Santos family for 9 stockholders, the Dy family for 7
stockholders, etc. If the members of one family and/or business or interest group are
considered as one (which, it is respectfully submitted, they should be for purposes of
determining how closely held Saniwares is there were as of 8 March 1983, practically only 17
stockholders of Saniwares. (Please refer to discussion in pp. 5 to 6 of appellees' Rejoinder
Memorandum dated 11 December 1984 and Annex "A" thereof).
Secondly, even assuming that Saniwares is technically not a close corporation because it has
more than 20 stockholders, the undeniable fact is that it is a close-held corporation. Surely,
appellants cannot honestly claim that Saniwares is a public issue or a widely held corporation.
In the United States, many courts have taken a realistic approach to joint venture corporations
and have not rigidly applied principles of corporation law designed primarily for public issue
corporations. These courts have indicated that express arrangements between corporate joint
ventures should be construed with less emphasis on the ordinary rules of law usually applied to
corporate entities and with more consideration given to the nature of the agreement between
the joint venturers (Please see Wabash Ry v. American Refrigerator Transit Co., 7 F 2d 335;
Chicago, M & St. P. Ry v. Des Moines Union Ry; 254 Ass'n. 247 US. 490'; Seaboard Airline
Ry v. Atlantic Coast Line Ry; 240 N.C. 495,.82 S.E. 2d 771; Deboy v. Harris, 207 Md.,
212,113 A 2d 903; Hathway v. Porter Royalty Pool, Inc., 296 Mich. 90, 90, 295 N.W. 571;
Beardsley v. Beardsley, 138 U.S. 262; "The Legal Status of Joint Venture Corporations", 11
Vand Law Rev. p. 680,1958). These American cases dealt with legal questions as to the extent
to which the requirements arising from the corporate form of joint venture corporations should
control, and the courts ruled that substantial justice lay with those litigants who relied on the
joint venture agreement rather than the litigants who relied on the orthodox principles of
corporation law.
As correctly held by the SEC Hearing Officer:
It is said that participants in a joint venture, in organizing the joint venture deviate from the
traditional pattern of corporation management. A noted authority has pointed out that just as in
close corporations, shareholders' agreements in joint venture corporations often contain
provisions which do one or more of the following: (1) require greater than majority vote for
shareholder and director action; (2) give certain shareholders or groups of shareholders power
to select a specified number of directors; (3) give to the shareholders control over the selection
and retention of employees; and (4) set up a procedure for the settlement of disputes by
arbitration (See I O' Neal, Close Corporations, 1971 ed., Section 1.06a, pp. 15-16) (Decision of
SEC Hearing Officer, P. 16)
Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not necessarily imply that
agreements regarding the exercise of voting rights are allowed only in close corporations. As
Campos and Lopez-Campos explain:

29

Paragraph 2 refers to pooling and voting agreements in particular. Does this provision
necessarily imply that these agreements can be valid only in close corporations as defined by
the Code? Suppose that a corporation has twenty five stockholders, and therefore cannot
qualify as a close corporation under section 96, can some of them enter into an agreement to
vote as a unit in the election of directors? It is submitted that there is no reason for denying
stockholders of corporations other than close ones the right to enter into not voting or pooling
agreements to protect their interests, as long as they do not intend to commit any wrong, or
fraud on the other stockholders not parties to the agreement. Of course, voting or pooling
agreements are perhaps more useful and more often resorted to in close corporations. But they
may also be found necessary even in widely held corporations. Moreover, since the Code limits
the legal meaning of close corporations to those which comply with the requisites laid down by
section 96, it is entirely possible that a corporation which is in fact a close corporation will not
come within the definition. In such case, its stockholders should not be precluded from
entering into contracts like voting agreements if these are otherwise valid. (Campos & LopezCampos, op cit, p. 405)
In short, even assuming that sec. 5(a) of the Agreement relating to the designation or
nomination of directors restricts the right of the Agreement's signatories to vote for directors,
such contractual provision, as correctly held by the SEC, is valid and binding upon the
signatories thereto, which include appellants. (Rollo No. 75951, pp. 90-94)
In regard to the question as to whether or not the ASI group may vote their additional equity during elections
of Saniwares' board of directors, the Court of Appeals correctly stated:
As in other joint venture companies, the extent of ASI's participation in the management of the
corporation is spelled out in the Agreement. Section 5(a) hereof says that three of the nine
directors shall be designated by ASI and the remaining six by the other stockholders, i.e., the
Filipino stockholders. This allocation of board seats is obviously in consonance with the
minority position of ASI.
Having entered into a well-defined contractual relationship, it is imperative that the parties
should honor and adhere to their respective rights and obligations thereunder. Appellants seem
to contend that any allocation of board seats, even in joint venture corporations, are null and
void to the extent that such may interfere with the stockholder's rights to cumulative voting as
provided in Section 24 of the Corporation Code. This Court should not be prepared to hold that
any agreement which curtails in any way cumulative voting should be struck down, even if
such agreement has been freely entered into by experienced businessmen and do not prejudice
those who are not parties thereto. It may well be that it would be more cogent to hold, as the
Securities and Exchange Commission has held in the decision appealed from, that cumulative
voting rights may be voluntarily waived by stockholders who enter into special relationships
with each other to pursue and implement specific purposes, as in joint venture relationships
between foreign and local stockholders, so long as such agreements do not adversely affect
third parties.
In any event, it is believed that we are not here called upon to make a general rule on this
question. Rather, all that needs to be done is to give life and effect to the particular contractual
rights and obligations which the parties have assumed for themselves.
On the one hand, the clearly established minority position of ASI and the contractual allocation
of board seats Cannot be disregarded. On the other hand, the rights of the stockholders to
cumulative voting should also be protected.
In our decision sought to be reconsidered, we opted to uphold the second over the first. Upon
further reflection, we feel that the proper and just solution to give due consideration to both

30

factors suggests itself quite clearly. This Court should recognize and uphold the division of the
stockholders into two groups, and at the same time uphold the right of the stockholders within
each group to cumulative voting in the process of determining who the group's nominees
would be. In practical terms, as suggested by appellant Luciano E. Salazar himself, this means
that if the Filipino stockholders cannot agree who their six nominees will be, a vote would have
to be taken among the Filipino stockholders only. During this voting, each Filipino stockholder
can cumulate his votes. ASI, however, should not be allowed to interfere in the voting within
the Filipino group. Otherwise, ASI would be able to designate more than the three directors it
is allowed to designate under the Agreement, and may even be able to get a majority of the
board seats, a result which is clearly contrary to the contractual intent of the parties.
Such a ruling will give effect to both the allocation of the board seats and the stockholder's
right to cumulative voting. Moreover, this ruling will also give due consideration to the issue
raised by the appellees on possible violation or circumvention of the Anti-Dummy Law (Com.
Act No. 108, as amended) and the nationalization requirements of the Constitution and the
laws if ASI is allowed to nominate more than three directors. (Rollo-75875, pp. 38-39)
The ASI Group and petitioner Salazar, now reiterate their theory that the ASI Group has the right to vote their
additional equity pursuant to Section 24 of the Corporation Code which gives the stockholders of a
corporation the right to cumulate their votes in electing directors. Petitioner Salazar adds that this right if
granted to the ASI Group would not necessarily mean a violation of the Anti-Dummy Act (Commonwealth
Act 108, as amended). He cites section 2-a thereof which provides:
And provided finally that the election of aliens as members of the board of directors or
governing body of corporations or associations engaging in partially nationalized activities
shall be allowed in proportion to their allowable participation or share in the capital of such
entities. (amendments introduced by Presidential Decree 715, section 1, promulgated May 28,
1975)
The ASI Group's argument is correct within the context of Section 24 of the Corporation Code. The point of
query, however, is whether or not that provision is applicable to a joint venture with clearly defined
agreements:
The legal concept of ajoint venture is of common law origin. It has no precise legal definition
but it has been generally understood to mean an organization formed for some temporary
purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is in fact hardly distinguishable from the
partnership, since their elements are similar community of interest in the business, sharing of
profits and losses, and a mutual right of control. Blackner v. Mc Dermott, 176 F. 2d. 498,
[1949]; Carboneau v. Peterson, 95 P. 2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183,
288 P. 2d. 12 289 P. 2d. 242 [1955]). The main distinction cited by most opinions in common
law jurisdictions is that the partnership contemplates a general business with some degree of
continuity, while the joint venture is formed for the execution of a single transaction, and is
thus of a temporary nature. (Tufts v. Mann 116 Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v.
Martin, 395 111. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]). This
observation is not entirely accurate in this jurisdiction, since under the Civil Code, a
partnership may be particular or universal, and a particular partnership may have for its object
a specific undertaking. (Art. 1783, Civil Code). It would seem therefore that under Philippine
law, a joint venture is a form of partnership and should thus be governed by the law of
partnerships. The Supreme Court has however recognized a distinction between these two
business forms, and has held that although a corporation cannot enter into a partnership
contract, it may however engage in a joint venture with others. (At p. 12, Tuazon v. Bolanos,
95 Phil. 906 [1954]) (Campos and Lopez-Campos Comments, Notes and Selected Cases,
Corporation Code 1981)

31

Moreover, the usual rules as regards the construction and operations of contracts generally apply to a contract
of joint venture. (O' Hara v. Harman 14 App. Dev. (167) 43 NYS 556).
Bearing these principles in mind, the correct view would be that the resolution of the question of whether or
not the ASI Group may vote their additional equity lies in the agreement of the parties.
Necessarily, the appellate court was correct in upholding the agreement of the parties as regards the allocation
of director seats under Section 5 (a) of the "Agreement," and the right of each group of stockholders to
cumulative voting in the process of determining who the group's nominees would be under Section 3 (a) (1) of
the "Agreement." As pointed out by SEC, Section 5 (a) of the Agreement relates to the manner of nominating
the members of the board of directors while Section 3 (a) (1) relates to the manner of voting for these
nominees.
This is the proper interpretation of the Agreement of the parties as regards the election of members of the
board of directors.
To allow the ASI Group to vote their additional equity to help elect even a Filipino director who would be
beholden to them would obliterate their minority status as agreed upon by the parties. As aptly stated by the
appellate court:
... ASI, however, should not be allowed to interfere in the voting within the Filipino group.
Otherwise, ASI would be able to designate more than the three directors it is allowed to
designate under the Agreement, and may even be able to get a majority of the board seats, a
result which is clearly contrary to the contractual intent of the parties.
Such a ruling will give effect to both the allocation of the board seats and the stockholder's
right to cumulative voting. Moreover, this ruling will also give due consideration to the issue
raised by the appellees on possible violation or circumvention of the Anti-Dummy Law (Com.
Act No. 108, as amended) and the nationalization requirements of the Constitution and the
laws if ASI is allowed to nominate more than three directors. (At p. 39, Rollo, 75875)
Equally important as the consideration of the contractual intent of the parties is the consideration as regards
the possible domination by the foreign investors of the enterprise in violation of the nationalization
requirements enshrined in the Constitution and circumvention of the Anti-Dummy Act. In this regard,
petitioner Salazar's position is that the Anti-Dummy Act allows the ASI group to elect board directors in
proportion to their share in the capital of the entity. It is to be noted, however, that the same law also limits the
election of aliens as members of the board of directors in proportion to their allowance participation of said
entity. In the instant case, the foreign Group ASI was limited to designate three directors. This is the allowable
participation of the ASI Group. Hence, in future dealings, this limitation of six to three board seats should
always be maintained as long as the joint venture agreement exists considering that in limiting 3 board seats in
the 9-man board of directors there are provisions already agreed upon and embodied in the parties' Agreement
to protect the interests arising from the minority status of the foreign investors.
With these findings, we the decisions of the SEC Hearing Officer and SEC which were impliedly affirmed by
the appellate court declaring Messrs. Wolfgang Aurbach, John Griffin, David P Whittingham, Emesto V.
Lagdameo, Baldwin young, Raul A. Boncan, Emesto V. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee
as the duly elected directors of Saniwares at the March 8,1983 annual stockholders' meeting.
On the other hand, the Lagdameo and Young Group (petitioners in G.R. No. 75951) object to a cumulative
voting during the election of the board of directors of the enterprise as ruled by the appellate court and
submits that the six (6) directors allotted the Filipino stockholders should be selected by consensus pursuant to
section 5 (a) of the Agreement which uses the word "designate" meaning "nominate, delegate or appoint."

32

They also stress the possibility that the ASI Group might take control of the enterprise if the Filipino
stockholders are allowed to select their nominees separately and not as a common slot determined by the
majority of their group.
Section 5 (a) of the Agreement which uses the word designates in the allocation of board directors should not
be interpreted in isolation. This should be construed in relation to section 3 (a) (1) of the Agreement. As we
stated earlier, section 3(a) (1) relates to the manner of voting for these nominees which is cumulative
voting while section 5(a) relates to the manner of nominating the members of the board of directors. The
petitioners in G.R. No. 75951 agreed to this procedure, hence, they cannot now impugn its legality.
The insinuation that the ASI Group may be able to control the enterprise under the cumulative voting
procedure cannot, however, be ignored. The validity of the cumulative voting procedure is dependent on the
directors thus elected being genuine members of the Filipino group, not voters whose interest is to increase
the ASI share in the management of Saniwares. The joint venture character of the enterprise must always be
taken into account, so long as the company exists under its original agreement. Cumulative voting may not be
used as a device to enable ASI to achieve stealthily or indirectly what they cannot accomplish openly. There
are substantial safeguards in the Agreement which are intended to preserve the majority status of the Filipino
investors as well as to maintain the minority status of the foreign investors group as earlier discussed. They
should be maintained.
WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are DISMISSED and the petition in
G.R. No. 75951 is partly GRANTED. The amended decision of the Court of Appeals is MODIFIED in that
Messrs. Wolfgang Aurbach John Griffin, David Whittingham Emesto V. Lagdameo, Baldwin Young, Raul A.
Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee are declared as the duly elected
directors of Saniwares at the March 8,1983 annual stockholders' meeting. In all other respects, the questioned
decision is AFFIRMED. Costs against the petitioners in G.R. Nos. 75975-76 and G.R. No. 75875.
SO ORDERED.

33

G.R. No. 15574

September 17, 1919

SMITH,
BELL
&
COMPANY
vs.
JOAQUIN NATIVIDAD, Collector of Customs of the port of Cebu, respondent.
Ross
and
Attorney-General Paredes for respondent.

Lawrence

for

(LTD.), petitioner,

petitioner.

MALCOLM, J.:
A writ of mandamus is prayed for by Smith, Bell & Co. (Ltd.), against Joaquin Natividad, Collector of
Customs of the port of Cebu, Philippine Islands, to compel him to issue a certificate of Philippine registry to
the petitioner for its motor vessel Bato. The Attorney-General, acting as counsel for respondent, demurs to the
petition on the general ground that it does not state facts sufficient to constitute a cause of action. While the
facts are thus admitted, and while, moreover, the pertinent provisions of law are clear and understandable, and
interpretative American jurisprudence is found in abundance, yet the issue submitted is not lightly to be
resolved. The question, flatly presented, is, whether Act. No. 2761 of the Philippine Legislature is valid or,
more directly stated, whether the Government of the Philippine Islands, through its Legislature, can deny the
registry of vessels in its coastwise trade to corporations having alien stockholders.
FACTS.
Smith, Bell & Co., (Ltd.), is a corporation organized and existing under the laws of the Philippine Islands. A
majority of its stockholders are British subjects. It is the owner of a motor vessel known as the Bato built for it
in the Philippine Islands in 1916, of more than fifteen tons gross The Bato was brought to Cebu in the present
year for the purpose of transporting plaintiff's merchandise between ports in the Islands. Application was
made at Cebu, the home port of the vessel, to the Collector of Customs for a certificate of Philippine registry.
The Collector refused to issue the certificate, giving as his reason that all the stockholders of Smith, Bell &
Co., Ltd., were not citizens either of the United States or of the Philippine Islands. The instant action is the
result.
LAW.

34

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 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

35

the United States residing in the Philippine Islands; (c) any corporation or company composed wholly
of citizens of the Philippine Islands or of the United States or of both, created under the laws of the
United States, or of any State thereof, or of thereof, or the managing agent or master of the vessel
resides in the Philippine Islands
Any vessel of more than fifteen gross tons which on February eighth, nineteen hundred and eighteen,
had a certificate of Philippine register under existing law, shall likewise be deemed a vessel of
domestic ownership so long as there shall not be any change in the ownership thereof nor any transfer
of stock of the companies or corporations owning such vessel to person not included under the last
preceding paragraph.
Sections 2 and 3 of Act No. 2761 amended sections 1176 and 1202 of the Administrative Code to read as
follows:
SEC. 1176. Investigation into character of vessel. No application for a certificate of Philippine
register shall be approved until the collector of customs is satisfied from an inspection of the vessel
that it is engaged or destined to be engaged in legitimate trade and that it is of domestic ownership as
such ownership is defined in section eleven hundred and seventy-two of this Code.
The collector of customs may at any time inspect a vessel or examine its owner, master, crew, or
passengers in order to ascertain whether the vessel is engaged in legitimate trade and is entitled to have
or retain the certificate of Philippine register.
SEC. 1202. Limiting number of foreign officers and engineers on board vessels. No Philippine
vessel operating in the coastwise trade or on the high seas shall be permitted to have on board more
than one master or one mate and one engineer who are not citizens of the United States or of the
Philippine Islands, even if they hold licenses under section one thousand one hundred and ninety-nine
hereof. No other person who is not a citizen of the United States or of the Philippine Islands shall be
an officer or a member of the crew of such vessel. Any such vessel which fails to comply with the
terms of this section shall be required to pay an additional tonnage tax of fifty centavos per net ton per
month during the continuance of said failure.
ISSUES.
Predicated on these facts and provisions of law, the issues as above stated recur, namely, whether Act No 2761
of the Philippine Legislature is valid in whole or in part whether the Government of the Philippine Islands,
through its Legislature, can deny the registry of vessel in its coastwise trade to corporations having alien
stockholders .
OPINION.
1. Considered from a positive standpoint, there can exist no measure of doubt as to the power of the Philippine
Legislature to enact Act No. 2761. The Act of Congress of April 29, 1908, with its specific delegation of
authority to the Government of the Philippine Islands to regulate the transportation of merchandise and
passengers between ports or places therein, the liberal construction given to the provisions of the Philippine
Bill, the Act of Congress of July 1, 1902, by the courts, and the grant by the Act of Congress of August 29,
1916, of general legislative power to the Philippine Legislature, are certainly superabundant authority for such
a law. While the Act of the local legislature may in a way be inconsistent with the Act of Congress regulating
the coasting trade of the Continental United States, yet the general rule that only such laws of the United
States have force in the Philippines as are expressly extended thereto, and the abnegation of power by
Congress in favor of the Philippine Islands would leave no starting point for convincing argument. As a matter
of fact, counsel for petitioner does not assail legislative action from this direction (See U. S. vs. Bull [1910],
15 Phil., 7; Sinnot vs. Davenport [1859] 22 How., 227.)

36

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;
Truaxvs. Raich [1915], 239 U. S., 33.) Private corporations, likewise, are "persons" within the scope of the
guaranties in so far as their property is concerned. (Santa Clara County vs. Southern Pac. R. R. Co. [1886],
118.U. S., 394; Pembina Mining Co. vs. Pennsylvania [1888],.125 U. S., 181 Covington & L. Turnpike Road
Co. vs. Sandford [1896], 164 U. S., 578.) Classification with the end in view of providing diversity of
treatment may be made among corporations, but must be based upon some reasonable ground and not be a
mere arbitrary selection (Gulf, Colorado & Santa Fe Railway Co. vs. Ellis [1897],.165 U. S., 150.) Examples
of laws held unconstitutional because of unlawful discrimination against aliens could be cited. Generally,
these decisions relate to statutes which had attempted arbitrarily to forbid aliens to engage in ordinary kinds of
business to earn their living. (Statevs. Montgomery [1900], 94 Maine, 192, peddling but see.
Commonwealth vs. Hana [1907], 195 Mass., 262; Templar vs. Board of Examiners of Barbers [1902], 131
Mich., 254, barbers; Yick Wo vs. Hopkins [1886], 118 U. S.,.356, discrimination against Chinese;
Truax vs. Raich [1915], 239 U. S., 33; In re Parrott [1880], 1 Fed , 481; Fraser vs. McConway & Torley Co.
[1897], 82 Fed , 257; Juniata Limestone Co. vs. Fagley [1898], 187 Penn., 193, all relating to the employment
of aliens by private corporations.)
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

37

amendment, "was designed to interfere with the power of the State, sometimes termed its `police power,' to
prescribe regulations to promote the health, peace, morals, education, and good order of the people, and
legislate so as to increase the industries of the State, develop its resources and add to its wealth and prosperity.
From the very necessities of society, legislation of a special character, having these objects in view, must often
be had in certain districts." (Barbier vs. Connolly [1884], 113 U.S., 27; New Orleans Gas Co. vs. Lousiana
Light Co. [1885], 115 U.S., 650.) This is the same police power which the United States Supreme Court say
"extends to so dealing with the conditions which exist in the state as to bring out of them the greatest welfare
in of its people." (Bacon vs. Walker [1907], 204 U.S., 311.) For quite similar reasons, none of the provision of
the Philippine Organic Law could could have had the effect of denying to the Government of the Philippine
Islands, acting through its Legislature, the right to exercise that most essential, insistent, and illimitable of
powers, the sovereign police power, in the promotion of the general welfare and the public interest. (U.
S. vs. Toribio [1910], 15 Phil., 85; Churchill and Tait vs. Rafferty [1915], 32 Phil., 580; Rubi vs. Provincial
Board of Mindoro [1919], 39 Phil., 660.) Another notable exception permits of the regulation or distribution
of the public domain or the common property or resources of the people of the State, so that use may be
limited to its citizens. (Ex parte Gilleti [1915], 70 Fla., 442; McCready vs. Virginia [1876], 94 U. S., 391;
Patsone vs. Commonwealth of Pennsylvania [1914], 232U. S., 138.) Still another exception permits of the
limitation of employment in the construction of public works by, or for, the State or a municipality to citizens
of the United States or of the State. (Atkin vs. Kansas [1903],191 U. S., 207; Heim vs. McCall [1915], 239
U.S., 175; Crane vs. New York [1915], 239 U. S., 195.) Even as to classification, it is admitted that a State
may classify with reference to the evil to be prevented; the question is a practical one, dependent upon
experience. (Patsone vs. Commonwealth of Pennsylvania [1914], 232 U. S., 138.)
To justify that portion of Act no. 2761 which permits corporations or companies to obtain a certificate of
Philippine registry only on condition that they be composed wholly of citizens of the Philippine Islands or of
the United States or both, as not infringing Philippine Organic Law, it must be done under some one of the
exceptions here mentioned This must be done, moreover, having particularly in mind what is so often of
controlling effect in this jurisdiction our local experience and our peculiar local conditions.
To recall a few facts in geography, within the confines of Philippine jurisdictional limits are found more than
three thousand islands. Literally, and absolutely, steamship lines are, for an Insular territory thus situated, the
arteries of commerce. If one be severed, the life-blood of the nation is lost. If on the other hand these arteries
are protected, then the security of the country and the promotion of the general welfare is sustained. Time and
again, with such conditions confronting it, has the executive branch of the Government of the Philippine
Islands, always later with the sanction of the judicial branch, taken a firm stand with reference to the presence
of undesirable foreigners. The Government has thus assumed to act for the all-sufficient and primitive reason
of the benefit and protection of its own citizens and of the self-preservation and integrity of its dominion. (In
re Patterson [1902], 1 Phil., 93; Forbes vs. Chuoco, Tiaco and Crossfield [1910], 16 Phil., 534;.228 U.S.,
549; In re McCulloch Dick [1918], 38 Phil., 41.) Boats owned by foreigners, particularly by such solid and
reputable firms as the instant claimant, might indeed traverse the waters of the Philippines for ages without
doing any particular harm. Again, some evilminded foreigner might very easily take advantage of such lavish
hospitality to chart Philippine waters, to obtain valuable information for unfriendly foreign powers, to stir up
insurrection, or to prejudice Filipino or American commerce. Moreover, under the Spanish portion of
Philippine law, the waters within the domestic jurisdiction are deemed part of the national domain, open to
public use. (Book II, Tit. IV, Ch. I, Civil Code; Spanish Law of Waters of August 3, 1866, arts 1, 2, 3.)
Common carriers which in the Philippines as in the United States and other countries are, as Lord Hale said,
"affected with a public interest," can only be permitted to use these public waters as a privilege and under
such conditions as to the representatives of the people may seem wise. (See De Villata vs. Stanley [1915], 32
Phil., 541.)
In Patsone vs. Commonwealth of Pennsylvania ([1913], 232 U.S., 138), a case herein before mentioned,
Justice Holmes delivering the opinion of the United States Supreme Court said:
This statute makes it unlawful for any unnaturalized foreign-born resident to kill any wild bird or
animal except in defense of person or property, and `to that end' makes it unlawful for such foreign-

38

born person to own or be possessed of a shotgun or rifle; with a penalty of $25 and a forfeiture of the
gun or guns. The plaintiff in error was found guilty and was sentenced to pay the abovementioned fine.
The judgment was affirmed on successive appeals. (231 Pa., 46; 79 Atl., 928.) He brings the case to
this court on the ground that the statute is contrary to the 14th Amendment and also is in contravention
of the treaty between the United States and Italy, to which latter country the plaintiff in error belongs .
Under the 14th Amendment the objection is twofold; unjustifiably depriving the alien of property, and
discrimination against such aliens as a class. But the former really depends upon the latter, since it
hardly can be disputed that if the lawful object, the protection of wild life (Geer vs. Connecticut, 161
U.S., 519; 40 L. ed., 793; 16 Sup. Ct. Rep., 600), warrants the discrimination, the, means adopted for
making it effective also might be adopted. . . .
The discrimination undoubtedly presents a more difficult question. But we start with reference to the
evil to be prevented, and that if the class discriminated against is or reasonably might be considered to
define those from whom the evil mainly is to be feared, it properly may be picked out. A lack of
abstract symmetry does not matter. The question is a practical one, dependent upon experience. . . .
The question therefore narrows itself to whether this court can say that the legislature of Pennsylvania
was not warranted in assuming as its premise for the law that resident unnaturalized aliens were the
peculiar source of the evil that it desired to prevent. (Barrett vs. Indiana,. 229 U.S., 26, 29; 57 L. ed.,
1050, 1052; 33 Sup. Ct. Rep., 692.)
Obviously the question, so stated, is one of local experience, on which this court ought to be very slow
to declare that the state legislature was wrong in its facts (Adams vs. Milwaukee, 228 U.S., 572, 583;
57 L. ed., 971,.977; 33 Sup. Ct. Rep., 610.) If we might trust popular speech in some states it was
right; but it is enough that this court has no such knowledge of local conditions as to be able to say that
it was manifestly wrong. . . .
Judgment affirmed.
We are inclined to the view that while Smith, Bell & Co. Ltd., a corporation having alien stockholders, is
entitled to the protection afforded by the due-process of law and equal protection of the laws clause of the
Philippine Bill of Rights, nevertheless, Act No. 2761 of the Philippine Legislature, in denying to corporations
such as Smith, Bell &. Co. Ltd., the right to register vessels in the Philippines coastwise trade, does not belong
to that vicious species of class legislation which must always be condemned, but does fall within authorized
exceptions, notably, within the purview of the police power, and so does not offend against the constitutional
provision.
This opinion might well be brought to a close at this point. It occurs to us, however, that the legislative history
of the United States and the Philippine Islands, and, probably, the legislative history of other countries, if we
were to take the time to search it out, might disclose similar attempts at restriction on the right to enter the
coastwise trade, and might thus furnish valuable aid by which to ascertain and, if possible, effectuate
legislative intention.
3. The power to regulate commerce, expressly delegated to the Congress by the Constitution, includes
the power to nationalize ships built and owned in the United States by registries and enrollments, and
the recording of the muniments of title of American vessels. The Congress "may encourage or it may
entirely prohibit such commerce, and it may regulate in any way it may see fit between these two
extremes." (U.S.vs. Craig [1886], 28 Fed., 795; Gibbons vs. Ogden [1824], 9 Wheat., 1; The Passenger
Cases [1849], 7 How., 283.)
Acting within the purview of such power, the first Congress of the United States had not been long convened
before it enacted on September 1, 1789, "An Act for Registering and Clearing Vessels, Regulating the
Coasting Trade, and for other purposes." Section 1 of this law provided that for any ship or vessel to obtain

39

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 AttorneyGeneral 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

40

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

41

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 RizalQuezon City Branch, and JUDGE DAMIAN JIMENEZ, Municipal Court of Quezon City, respondents.
Paredes, Poblador, Cruz and Nazareno and Meer, Meer and Meer and Juan T. David for petitioners.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Pacifico P. de Castro, Assistant
Solicitor General Frine C. Zaballero, Solicitor Camilo D. Quiason and Solicitor C. Padua for respondents.
CONCEPCION, C.J.:
Upon application of the officers of the government named on the margin 1 hereinafter referred to as
Respondents-Prosecutors several judges2 hereinafter referred to as Respondents-Judges issued, on
different dates,3 a total of 42 search warrants against petitioners herein 4 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

42

were not delivered to the courts that issued the warrants, to be disposed of in accordance with law on
March 20, 1962, said petitioners filed with the Supreme Court this original action for certiorari,
prohibition, mandamus and injunction, and prayed that, pending final disposition of the present case, a writ of
preliminary injunction be issued restraining Respondents-Prosecutors, their agents and /or representatives
from using the effects seized as aforementioned or any copies thereof, in the deportation cases already
adverted to, and that, in due course, thereafter, decision be rendered quashing the contested search warrants
and declaring the same null and void, and commanding the respondents, their agents or representatives to
return to petitioners herein, in accordance with Section 3, Rule 67, of the Rules of Court, the documents,
papers, things and cash moneys seized or confiscated under the search warrants in question.
In their answer, respondents-prosecutors alleged, 6 (1) that the contested search warrants are valid and have
been issued in accordance with law; (2) that the defects of said warrants, if any, were cured by petitioners'
consent; and (3) that, in any event, the effects seized are admissible in evidence against herein petitioners,
regardless of the alleged illegality of the aforementioned searches and seizures.
On March 22, 1962, this Court issued the writ of preliminary injunction prayed for in the petition. However,
by resolution dated June 29, 1962, the writ was partially lifted or dissolved, insofar as the papers, documents
and things seized from the offices of the corporations above mentioned are concerned; but, the injunction was
maintained as regards the papers, documents and things found and seized in the residences of petitioners
herein.7
Thus, the documents, papers, and things seized under the alleged authority of the warrants in question may be
split into two (2) major groups, namely: (a) those found and seized in the offices of the aforementioned
corporations, and (b) those found and seized in the residences of petitioners herein.
As regards the first group, we hold that petitioners herein have no cause of action to assail the legality of the
contested warrants and of the seizures made in pursuance thereof, for the simple reason that said corporations
have their respective personalities, separate and distinct from the personality of herein petitioners, regardless
of the amount of shares of stock or of the interest of each of them in said corporations, and whatever the
offices they hold therein may be.8 Indeed, it is well settled that the legality of a seizure can be
contested only by the party whose rights have been impaired thereby,9 and that the objection to an unlawful
search and seizure is purely personal and cannot be availed of by third parties. 10 Consequently, petitioners
herein may not validly object to the use in evidence against them of the documents, papers and things seized
from the offices and premises of the corporations adverted to above, since the right to object to the admission
of said papers in evidence belongsexclusively to the corporations, to whom the seized effects belong, and may
not be invoked by the corporate officers in proceedings against them in their individual capacity. 11 Indeed, it
has been held:
. . . that the Government's action in gaining possession of papers belonging to the corporation did not
relate to nor did it affect the personal defendants. If these papers were unlawfully seized and thereby
the constitutional rights of or any one were invaded, they were the rights of the corporation and not
the rights of the other defendants. Next, it is clear that a question of the lawfulness of a seizure can be
raised only by one whose rights have been invaded. Certainly, such a seizure, if unlawful, could not
affect the constitutional rights of defendants whose property had not been seized or the privacy of
whose homes had not been disturbed; nor could they claim for themselves the benefits of the Fourth
Amendment, when its violation, if any, was with reference to the rights of another. Remus vs. United
States (C.C.A.)291 F. 501, 511. It follows, therefore, that the question of the admissibility of the
evidence based on an alleged unlawful search and seizure does not extend to the personal defendants
but embraces only the corporation whose property was taken. . . . (A Guckenheimer & Bros. Co. vs.
United States, [1925] 3 F. 2d. 786, 789, Emphasis supplied.)
With respect to the documents, papers and things seized in the residences of petitioners herein, the
aforementioned resolution of June 29, 1962, lifted the writ of preliminary injunction previously issued by this

43

Court,12 thereby, in effect, restraining herein Respondents-Prosecutors from using them in evidence against
petitioners herein.
In connection with said documents, papers and things, two (2) important questions need be settled, namely:
(1) whether the search warrants in question, and the searches and seizures made under the authority thereof,
are valid or not, and (2) if the answer to the preceding question is in the negative, whether said documents,
papers and things may be used in evidence against petitioners herein.1wph1.t
Petitioners maintain that the aforementioned search warrants are in the nature of general warrants and that
accordingly, the seizures effected upon the authority there of are null and void. In this connection, the
Constitution13 provides:
The right of the people to be secure in their persons, houses, papers, and effects against unreasonable
searches and seizures shall not be violated, and no warrants shall issue but upon probable cause, to be
determined by the judge after examination under oath or affirmation of the complainant and the
witnesses he may produce, and particularly describing the place to be searched, and the persons or
things to be seized.
Two points must be stressed in connection with this constitutional mandate, namely: (1) that no warrant shall
issue but upon probable cause, to be determined by the judge in the manner set forth in said provision; and (2)
that the warrant shall particularly describe the things to be seized.
None of these requirements has been complied with in the contested warrants. Indeed, the same were issued
upon applications stating that the natural and juridical person therein named had committed a "violation of
Central Ban Laws, Tariff and Customs Laws, Internal Revenue (Code) and Revised Penal Code." In other
words, nospecific offense had been alleged in said applications. The averments thereof with respect to the
offense committed were abstract. As a consequence, it was impossible for the judges who issued the warrants
to have found the existence of probable cause, for the same presupposes the introduction of competent proof
that the party against whom it is sought has performed particular acts, or committed specific omissions,
violating a given provision of our criminal laws. As a matter of fact, the applications involved in this case do
not allege any specific acts performed by herein petitioners. It would be the legal heresy, of the highest order,
to convict anybody of a "violation of Central Bank Laws, Tariff and Customs Laws, Internal Revenue (Code)
and Revised Penal Code," as alleged in the aforementioned applications without reference to any
determinate provision of said laws or
To uphold the validity of the warrants in question would be to wipe out completely one of the most
fundamental rights guaranteed in our Constitution, for it would place the sanctity of the domicile and the
privacy of communication and correspondence at the mercy of the whims caprice or passion of peace officers.
This is precisely the evil sought to be remedied by the constitutional provision above quoted to outlaw the
so-called general warrants. It is not difficult to imagine what would happen, in times of keen political strife,
when the party in power feels that the minority is likely to wrest it, even though by legal means.
Such is the seriousness of the irregularities committed in connection with the disputed search warrants, that
this Court deemed it fit to amend Section 3 of Rule 122 of the former Rules of Court 14 by providing in its
counterpart, under the Revised Rules of Court 15 that "a search warrant shall not issue but upon probable
cause in connection with one specific offense." Not satisfied with this qualification, the Court added thereto a
paragraph, directing that "no search warrant shall issue for more than one specific offense."
The grave violation of the Constitution made in the application for the contested search warrants was
compounded by the description therein made of the effects to be searched for and seized, to wit:
Books of accounts, financial records, vouchers, journals, correspondence, receipts, ledgers, portfolios,
credit journals, typewriters, and other documents and/or papers showing all business transactions
including disbursement receipts, balance sheets and related profit and loss statements.

44

Thus, the warrants authorized the search for and seizure of records pertaining to all business transactions of
petitioners herein, regardless of whether the transactions were legal or illegal. The warrants sanctioned the
seizure of all records of the petitioners and the aforementioned corporations, whatever their nature, thus
openly contravening the explicit command of our Bill of Rights that the things to be seized
be particularly described as well as tending to defeat its major objective: the elimination
of general warrants.
Relying upon Moncado vs. People's Court (80 Phil. 1), Respondents-Prosecutors maintain that, even if the
searches and seizures under consideration were unconstitutional, the documents, papers and things thus seized
are admissible in evidence against petitioners herein. Upon mature deliberation, however, we are unanimously
of the opinion that the position taken in the Moncado case must be abandoned. Said position was in line with
the American common law rule, that the criminal should not be allowed to go free merely "because the
constable has blundered," 16 upon the theory that the constitutional prohibition against unreasonable searches
and seizures is protected by means other than the exclusion of evidence unlawfully obtained, 17 such as the
common-law action for damages against the searching officer, against the party who procured the issuance of
the search warrant and against those assisting in the execution of an illegal search, their criminal punishment,
resistance, without liability to an unlawful seizure, and such other legal remedies as may be provided by other
laws.
However, most common law jurisdictions have already given up this approach and eventually adopted the
exclusionary rule, realizing that this is the only practical means of enforcing the constitutional
injunction against unreasonable searches and seizures. In the language of Judge Learned Hand:
As we understand it, the reason for the exclusion of evidence competent as such, which has been
unlawfully acquired, is that exclusion is the only practical way of enforcing the constitutional
privilege. In earlier times the action of trespass against the offending official may have been protection
enough; but that is true no longer. Only in case the prosecution which itself controls the seizing
officials, knows that it cannot profit by their wrong will that wrong be repressed.18
In fact, over thirty (30) years before, the Federal Supreme Court had already declared:
If letters and private documents can thus be seized and held and used in evidence against a citizen
accused of an offense, the protection of the 4th Amendment, declaring his rights to be secure against
such searches and seizures, is of no value, and, so far as those thus placed are concerned, might as well
be stricken from the Constitution. The efforts of the courts and their officials to bring the guilty to
punishment, praiseworthy as they are, are not to be aided by the sacrifice of those great principles
established by years of endeavor and suffering which have resulted in their embodiment in the
fundamental law of the land.19
This view was, not only reiterated, but, also, broadened in subsequent decisions on the same Federal
Court. 20After reviewing previous decisions thereon, said Court held, in Mapp vs. Ohio (supra.):
. . . Today we once again examine the Wolf's constitutional documentation of the right of privacy free
from unreasonable state intrusion, and after its dozen years on our books, are led by it to close the only
courtroom door remaining open to evidence secured by official lawlessness in flagrant abuse of that
basic right, reserved to all persons as a specific guarantee against that very same unlawful conduct. We
hold that all evidence obtained by searches and seizures in violation of the Constitution is, by that
same authority, inadmissible in a State.
Since the Fourth Amendment's right of privacy has been declared enforceable against the States
through the Due Process Clause of the Fourteenth, it is enforceable against them by the same sanction
of exclusion as it used against the Federal Government. Were it otherwise, then just as without the
Weeks rule the assurance against unreasonable federal searches and seizures would be "a form of
words," valueless and underserving of mention in a perpetual charter of inestimable human liberties,

45

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

46

premises considered in said Resolution as residences of herein petitioners, Harry S. Stonehill, Robert P.
Brook, John J. Brooks and Karl Beck, respectively, and that, furthermore, the records, papers and other effects
seized in the offices of the corporations above referred to include personal belongings of said petitioners and
other effects under their exclusive possession and control, for the exclusion of which they have a standing
under the latest rulings of the federal courts of federal courts of the United States. 22
We note, however, that petitioners' theory, regarding their alleged possession of and control over the
aforementioned records, papers and effects, and the alleged "personal" nature thereof, has Been
Advanced, notin their petition or amended petition herein, but in the Motion for Reconsideration and
Amendment of the Resolution of June 29, 1962. In other words, said theory would appear to be readjustment
of that followed in said petitions, to suit the approach intimated in the Resolution sought to be reconsidered
and amended. Then, too, some of the affidavits or copies of alleged affidavits attached to said motion for
reconsideration, or submitted in support thereof, contain either inconsistent allegations, or allegations
inconsistent with the theory now advanced by petitioners herein.
Upon the other hand, we are not satisfied that the allegations of said petitions said motion for reconsideration,
and the contents of the aforementioned affidavits and other papers submitted in support of said motion, have
sufficiently established the facts or conditions contemplated in the cases relied upon by the petitioners; to
warrant application of the views therein expressed, should we agree thereto. At any rate, we do not deem it
necessary to express our opinion thereon, it being best to leave the matter open for determination in
appropriate cases in the future.
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

47

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 expresslydeclaring 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 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).

48

The searches and seizures were to be made, and were actually

"office/house/warehouse/premises" owned by or under the control of the petitioners.

made,

in

the

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
heplaces 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):

49

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 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.

50

Both Henzel andVillano 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 of all 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; andSchwimmer 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.

51

Prescinding a from the foregoing, this Court, at all events, should order the return to the petitioners
all personaland private papers and effects 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 arepersonal/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.

52

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

53

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 attorneys fees. On March 18, 1970, the respondents, thru the
Solicitor General, filed an answer to the petition. After hearing, the court, presided over by respondent Judge,
issued on July 29, 1970, an order dismissing the petition for dissolution of the search warrant. In the
meantime, or on April 16, 1970, the Bureau of Internal Revenue made tax assessments on petitioner
corporation in the total sum of P2,594,729.97, partly, if not entirely, based on the documents thus seized.
Petitioners
came
to
this
Court.
The
1.

petition

should

Respondent

be

Judge

granted
failed

for

to

the

following

personally

reasons:chanrob1es

examine

the

complainant

virtual
and

1aw
his

library
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 SubCommittee 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

dejar

compaero

los

piropos

vamos

al

grano.

En los casos de una necesidad de actuar inmediatamente para que no se frusten los fines de la justicia
mediante el registro inmediato y la incautacion del cuerpo del delito, no cree Su Seoria que causaria cierta

54

demora el procedimiento apuntado en su enmienda en tal forma que podria frustrar los fines de la justicia o si
Su Seoria encuentra un remedio para esto casos con el fin de compaginar los fines de la justicia con los
derechos
del
individuo
en
su
persona,
bienes
etcetera,
etcetera.
"SR. FRANCISCO. No puedo ver en la practica el caso hipottico que Su Seoria pregunta por la siguiente
razon: el que solicita un mandamiento de registro tiene que hacerlo por escrito y ese escrito no aparecer en la
Mesa del Juez sin que alguien vaya el juez a presentar ese escrito o peticion de sucuestro. Esa persona que
presenta el registro puede ser el mismo denunciante o alguna persona que solicita dicho mandamiento de
registro. Ahora toda la enmienda en esos casos consiste en que haya peticion de registro y el juez no se
atendra solamente a sea peticion sino que el juez examiner a ese denunciante y si tiene testigos tambin
examiner
a
los
testigos.
"SR. ORENSE. No cree Su Seoria que el tomar le declaracion de ese denunciante por escrito siempre
requeriria
algun
tiempo?.
"SR. FRANCISCO. Seria cuestio de un par de horas, pero por otro lado minimizamos en todo lo posible las
vejaciones injustas con la expedicion arbitraria de los mandamientos de registro. Creo que entre dos males
debemos escoger. el menor.
x

"MR. LAUREL. . . . The reason why we are in favor of this amendment is because we are incorporating in our
constitution something of a fundamental character. Now, before a judge could issue a search warrant, he must
be under the obligation to examine personally under oath the complainant and if he has any witness, the
witnesses
that
he
may
produce
.
.
."cralaw
virtua1aw
library
The implementing rule in the Revised Rules of Court, Sec. 4, Rule 126, is more emphatic and candid, for it
requires the judge, before issuing a search warrant, to "personally examine on oath or affirmation the
complainant and any witnesses he may produce . . ."cralaw virtua1aw library
Personal examination by the judge of the complainant and his witnesses is necessary to enable him to
determine the existence or non-existence of a probable cause, pursuant to Art. III, Sec. 1, par. 3, of the
Constitution, and Sec. 3, Rule 126 of the Revised Rules of Court, both of which prohibit the issuance of
warrants except "upon probable cause." The determination of whether or not a probable cause exists calls for
the exercise of judgment after a judicial appraisal of facts and should not be allowed to be delegated in the
absence
of
any
rule
to
the
contrary.
In the case at bar, no personal examination at all was conducted by respondent Judge of the complainant
(respondent De Leon) and his witness (respondent Logronio). While it is true that the complainants
application for search warrant and the witness printed-form deposition were subscribed and sworn to before
respondent Judge, the latter did not ask either of the two any question the answer to which could possibly be
the basis for determining whether or not there was probable cause against herein petitioners. Indeed, the
participants seem to have attached so little significance to the matter that notes of the proceedings before
respondent Judge were not even taken. At this juncture it may be well to recall the salient facts. The transcript
of stenographic notes (pp. 61-76, April 1, 1970, Annex J-2 of the Petition) taken at the hearing of this case in
the court below shows that per instruction of respondent Judge, Mr. Eleodoro V. Gonzales, Special Deputy
Clerk of Court, took the depositions of the complainant and his witness, and that stenographic notes thereof
were taken by Mrs. Gaspar. At that time respondent Judge was at the sala hearing a case. After respondent
Judge was through with the hearing, Deputy Clerk Gonzales, stenographer Gaspar, complainant De Leon and
witness Logronio went to respondent Judges chamber and informed the Judge that they had finished the
depositions. Respondent Judge then requested the stenographer to read to him her stenographic notes. Special
Deputy
Clerk
Gonzales
testified
as
follows:jgc:chanrobles.com.ph

55

"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
"A

And
And

thereafter,

"Q

he

signed

the

Who

"A

thereafter?
deposition

is

The

"A

The

Thereafter,

Mr.

Logronio.

this

The

"Q

of

he?

Honorable
deposition

affidavit,

or

Your

respondent

the

Honor."cralaw

Judge

Judge.

signed

affidavit?

virtua1aw

the

library

search

warrant.

The participation of respondent Judge in the proceedings which led to the issuance of Search Warrant No. 2M-70 was thus limited to listening to the stenographers readings of her notes, to a few words of warning
against the commission of perjury, and to administering the oath to the complainant and his witness. This
cannot be consider a personal examination. If there was an examination at all of the complainant and his
witness, it was the one conducted by the Deputy Clerk of Court. But, as stated, the Constitution and the rules
require a personal examination by the judge. It was precisely on account of the intention of the delegates to
the Constitutional Convention to make it a duty of the issuing judge to personally examine the complainant
and his witnesses that the question of how much time would be consumed by the judge in examining them
came up before the Convention, as can be seen from the record of the proceedings quoted above. The reading
of the stenographic notes to respondent Judge did not constitute sufficient compliance with the constitutional
mandate and the rule; for by that manner respondent Judge did not have the opportunity to observe the
demeanor of the complainant and his witness, and to propound initial and follow-up questions which the
judicial mind, on account of its training, was in the best position to conceive. These were important in arriving
at a sound inference on the all-important question of whether or not there was probable cause.
2.

The

search

warrant

was

issued

for

more

than

one

specific

offense.

Search Warrant No. 2-M-70 was issued for" [v]iolation of Sec. 46(a) of the National Internal Revenue Code in
relation to all other pertinent provisions thereof particularly Secs. 53, 72, 73, 208 and 209." The question is:
Was the said search warrant issued "in connection with one specific offense," as required by Sec. 3, Rule 126?
To arrive at the correct answer it is essential to examine closely the provisions of the Tax Code referred to
above.
Thus
we
find
the
following:chanrob1es
virtual
1aw
library
Sec.

46(a)

requires

Sec.

53

requires

the
the

filing

of

withholding

income
of

tax
income

returns
taxes

by

corporations.
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

56

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

57

disbursement

receipts,

balance

sheets

and

related

profit

and

loss

statements.

"Thus, the warrants authorized the search for and seizure of records pertaining to all business transactions of
petitioners herein, regardless of whether the transactions were legal or illegal. The warrants sanctioned the
seizure of all records of the petitioners and the aforementioned corporations, whatever their nature, thus
openly contravening the explicit command of our Bill of Rights that the things to be seized be particularly
described as well as tending to defeat its major objective: the elimination of general warrants."cralaw
virtua1aw
library
While the term "all business transactions" does not appear in Search Warrant No. 2-M-70, the said warrant
nevertheless tends to defeat the major objective of the Bill of Rights, i.e., the elimination of general warrants,
for the language used therein is so all-embracing as to include all conceivable records of petitioner
corporation,
which,
if
seized,
could
possibly
render
its
business
inoperative.
In Uy Kheytin, Et. Al. v. Villareal, etc., Et Al., 42 Phil. 886, 896, this Court had occasion to explain the
purpose of the requirement that the warrant should particularly describe the place to be searched and the
things
to
be
seized,
to
wit:jgc:chanrobles.com.ph
". . . Both the Jones Law (sec. 3) and General Orders No. 58 (sec. 97) specifically require that a search
warrant should particularly describe the place to be searched and the things to be seized. The evident purpose
and intent of this requirement is to limit the things to be seized to those, and only those, particularly described
in the search warrant to leave the officers of the law with no discretion regarding what articles they shall
seize, to the end that unreasonable searches and seizures may not be made, that abuses may not be
committed. That this is the correct interpretation of this constitutional provision is borne out by American
authorities."cralaw
virtua1aw
library
The purpose as thus explained could, surely and effectively, be defeated under the search warrant issued in
this
case.
A search warrant may be said to particularly describe the things to be seized when the description therein is as
specific as the circumstances will ordinarily allow (People v. Rubio; 57 Phil. 384); or when the description
expresses a conclusion of fact not of law by which the warrant officer may be guided in making the
search and seizure (idem., dissent of Abad Santos, J.,); or when the things described are limited to those which
bear direct relation to the offense for which the warrant is being issued (Sec. 2, Rule 126, Revised Rules of
Court). The herein search warrant does not conform to any of the foregoing tests. If the articles desired to be
seized have any direct relation to an offense committed, the applicant must necessarily have some evidence,
other than those articles, to prove the said offense; and the articles subject of search and seizure should come
in handy merely to strengthen such evidence. In this event, the description contained in the herein disputed
warrant should have mentioned, at least, the dates, amounts, persons, and other pertinent data regarding the
receipts of payments, certificates of stocks and securities, contracts, promissory notes, deeds of sale, messages
and communications, checks, bank deposits and withdrawals, records of foreign remittances, among others,
enumerated
in
the
warrant.
Respondents contend that certiorari does not lie because petitioners failed to file a motion for reconsideration
of respondent Judges order of July 29, 1970. The contention is without merit. In the first place, when the
questions raised before this Court are the same as those which were squarely raised in and passed upon by the
court below, the filing of a motion for reconsideration in said court before certiorari can be instituted in this
Court is no longer a prerequisite. (Pajo, etc., Et. Al. v. Ago, Et Al., 108 Phil., 905). In the second place, the
rule requiring the filing of a motion for reconsideration before an application for a writ of certiorari can be
entertained was never intended to be applied without considering the circumstances. (Matutina v. Buslon, Et
Al., 109 Phil., 140.) In the case at bar time is of the essence in view of the tax assessments sought to be
enforced by respondent officers of the Bureau of Internal Revenue against petitioner corporation, On account
of which immediate and more direct action becomes necessary. (Matute v. Court of Appeals, Et Al., 26 SCRA
768.) Lastly, the rule does not apply where, as in this case, the deprivation of petitioners fundamental right to

58

due process taints the proceeding against them in the court below not only with irregularity but also with
nullity.
(Matute
v.
Court
of
Appeals,
Et
Al.,
supra.)
It is next contended by respondents that a corporation is not entitled to protection against unreasonable search
and
seizures.
Again,
we
find
no
merit
in
the
contention.
"Although, for the reasons above stated, we are of the opinion that an officer of a corporation which is
charged with a violation of a statute of the state of its creation, or of an act of Congress passed in the exercise
of its constitutional powers, cannot refuse to produce the books and papers of such corporation, we do not
wish to be understood as holding that a corporation is not entitled to immunity, under the 4th Amendment,
against unreasonable searches and seizures. A corporation is, after all, but an association of individuals under
an assumed name and with a distinct legal entity. In organizing itself as a collective body it waives no
constitutional immunities appropriate to such body. Its property cannot be taken without compensation. It can
only be proceeded against by due process of law, and is protected, under the 14th Amendment, against
unlawful discrimination . . ." (Hale v. Henkel, 201 U.S. 43, 50 L. ed. 652.)
"In Linn v. United States, 163 C.C.A. 470, 251 Fed. 476, 480, it was thought that a different rule applied to a
corporation, the ground that it was not privileged from producing its books and papers. But the rights of a
corporation against unlawful search and seizure are to be protected even if the same result might have been
achieved in a lawful way." (Silverthorne Lumber Company, Et. Al. v. United States of America, 251 U.S. 385,
64
L.
ed.
319.)
In Stonehill, Et. Al. v. Diokno, Et Al., supra, this Court impliedly recognized the right of a corporation to
object
against
unreasonable
searches
and
seizures,
thus:jgc:chanrobles.com.ph
"As regards the first group, we hold that petitioners herein have no cause of action to assail the legality of the
contested warrants and of the seizures made in pursuance thereof, for the simple reason that said corporations
have their respective personalities, separate and distinct from the personality of herein petitioners, regardless
of the amount of shares of stock or the interest of each of them in said corporations, whatever, the offices they
hold therein may be. Indeed, it is well settled that the legality of a seizure can be contested only by the party
whose rights have been impaired thereby, and that the objection to an unlawful search and seizure is purely
personal and cannot be availed of by third parties. Consequently, petitioners herein may not validly object to
the use in evidence against them of the documents, papers and things seized from the offices and premises of
the corporations adverted to above, since the right to object to the admission of said papers in evidence
belongs exclusively to the corporations, to whom the seized effects belong, and may not be invoked by the
corporate officers in proceedings against them in their individual capacity . . ."cralaw virtua1aw library
In the Stonehill case only the officers of the various corporations in whose offices documents, papers and
effects were searched and seized were the petitioners. In the case at bar, the corporation to whom the seized
documents belong, and whose rights have thereby been impaired, is itself a petitioner. On that score, petitioner
corporation here stands on a different footing from the corporations in Stonehill.
The tax assessments referred to earlier in this opinion were, if not entirely as claimed by petitioners at
least partly as in effect admitted by respondents based on the documents seized by virtue of Search
Warrant No. 2-M-70. Furthermore, the fact that the assessments were made some one and one-half months
after the search and seizure on February 25, 1970, is a strong indication that the documents thus seized served
as basis for the assessments. Those assessments should therefore not be enforced.
PREMISES CONSIDERED, the petition is granted. Accordingly, Search Warrant No. 2-M-70 issued by
respondent Judge is declared null and void; respondents are permanently enjoined from enforcing the said
search warrant; the documents, papers and effects seized thereunder are ordered to be returned to petitioners;
and respondent officials the Bureau of Internal Revenue and their representatives are permanently enjoined
from enforcing the assessments mentioned in Annex "G" of the present petition, as well as other assessments
based on the documents, papers and effects seized under the search warrant herein nullified, and from using

59

the same against petitioners in any criminal or other proceeding. No pronouncement as to costs.
Concepcion, C.J., Dizon,
Reyes,

Makalintal,

J.B.L., J.,

Zaldivar, Fernando, Teehankee

concurs

with

Mr.

and Makasiar, JJ., concur.

Justice

Barredo.

Castro, J., concurs in the result.

G.R. No. 75885 May 27, 1987

BATAAN
SHIPYARD
&
ENGINEERING
CO.,
INC.
(BASECO), petitioner,
vs.
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, CHAIRMAN JOVITO SALONGA,

60

COMMISSIONER MARY CONCEPCION BAUTISTA, COMMISSIONER RAMON DIAZ,

COMMISSIONER RAUL R. DAZA, COMMISSIONER QUINTIN S. DOROMAL, CAPT. JORGE B.
SIACUNCO, et al., respondents.
Apostol, Bernas, Gumaru, Ona and Associates for petitioner.
Vicente G. Sison for intervenor A.T. Abesamis.

NARVASA, J.:
Challenged in this special civil action of certiorari and prohibition by a private corporation known as the
Bataan Shipyard and Engineering Co., Inc. are: (1) Executive Orders Numbered 1 and 2, promulgated by
President Corazon C. Aquino on February 28, 1986 and March 12, 1986, respectively, and (2) the
sequestration, takeover, and other orders issued, and acts done, in accordance with said executive orders by
the Presidential Commission on Good Government and/or its Commissioners and agents, affecting said
corporation.
1. The Sequestration, Takeover, and Other Orders Complained of
a. The Basic Sequestration Order
The sequestration order which, in the view of the petitioner corporation, initiated all its misery was issued on
April 14, 1986 by Commissioner Mary Concepcion Bautista. It was addressed to three of the agents of the
Commission, hereafter simply referred to as PCGG. It reads as follows:
RE: SEQUESTRATION ORDER
By virtue of the powers vested in the Presidential Commission on Good Government, by
authority of the President of the Philippines, you are hereby directed to sequester the following
companies.
1. Bataan Shipyard and Engineering Co., Inc. (Engineering Island Shipyard and
Mariveles Shipyard)
2. Baseco Quarry
3. Philippine Jai-Alai Corporation
4. Fidelity Management Co., Inc.
5. Romson Realty, Inc.
6. Trident Management Co.
7. New Trident Management
8. Bay Transport
9. And all affiliate companies of Alfredo "Bejo" Romualdez
You are hereby ordered:

61

1. To implement this sequestration order with a minimum disruption of these companies'

business activities.
2. To ensure the continuity of these companies as going concerns, the care and maintenance of
these assets until such time that the Office of the President through the Commission on Good
Government should decide otherwise.
3. To report to the Commission on Good Government periodically.
Further, you are authorized to request for Military/Security Support from the Military/Police
authorities, and such other acts essential to the achievement of this sequestration order. 1
b. Order for Production of Documents
On the strength of the above sequestration order, Mr. Jose M. Balde, acting for the PCGG, addressed a letter
dated April 18, 1986 to the President and other officers of petitioner firm, reiterating an earlier request for the
production of certain documents, to wit:
1. Stock Transfer Book
2. Legal documents, such as:
2.1. Articles of Incorporation
2.2. By-Laws
2.3. Minutes of the Annual Stockholders Meeting from 1973 to 1986
2.4. Minutes of the Regular and Special Meetings of the Board of Directors
from 1973 to 1986
2.5. Minutes of the Executive Committee Meetings from 1973 to 1986
2.6. Existing contracts with suppliers/contractors/others.
3. Yearly list of stockholders with their corresponding share/stockholdings from 1973 to 1986
duly certified by the Corporate Secretary.
4. Audited Financial Statements such as Balance Sheet, Profit & Loss and others from 1973 to
December 31, 1985.
5. Monthly Financial Statements for the current year up to March 31, 1986.
6. Consolidated Cash Position Reports from January to April 15, 1986.
7. Inventory listings of assets up dated up to March 31, 1986.
8. Updated schedule of Accounts Receivable and Accounts Payable.
9. Complete list of depository banks for all funds with the authorized signatories for
withdrawals thereof.
10. Schedule of company investments and placements. 2

62

The letter closed with the warning that if the documents were not submitted within five days, the officers
would be cited for "contempt in pursuance with Presidential Executive Order Nos. 1 and 2."
c. Orders Re Engineer Island
(1) Termination of Contract for Security Services
A third order assailed by petitioner corporation, hereafter referred to simply as BASECO, is that issued on
April 21, 1986 by a Capt. Flordelino B. Zabala, a member of the task force assigned to carry out the basic
sequestration order. He sent a letter to BASECO's Vice-President for Finance, 3 terminating the contract for
security services within the Engineer Island compound between BASECO and "Anchor and FAIRWAYS" and
"other civilian security agencies," CAPCOM military personnel having already been assigned to the area,
(2) Change of Mode of Payment of Entry Charges
On July 15, 1986, the same Capt. Zabala issued a Memorandum addressed to "Truck Owners and
Contractors," particularly a "Mr. Buddy Ondivilla National Marine Corporation," advising of the amendment
in part of their contracts with BASECO in the sense that the stipulated charges for use of the BASECO road
network were made payable "upon entry and not anymore subject to monthly billing as was originally agreed
upon." 4
d. Aborted Contract for Improvement of Wharf at Engineer Island
On July 9, 1986, a PCGG fiscal agent, S. Berenguer, entered into a contract in behalf of BASECO with
Deltamarine Integrated Port Services, Inc., in virtue of which the latter undertook to introduce improvements
costing approximately P210,000.00 on the BASECO wharf at Engineer Island, allegedly then in poor
condition, avowedly to "optimize its utilization and in return maximize the revenue which would flow into the
government coffers," in consideration of Deltamarine's being granted "priority in using the improved portion
of the wharf ahead of anybody" and exemption "from the payment of any charges for the use of wharf
including the area where it may install its bagging equipments" "until the improvement remains in a condition
suitable for port operations." 5 It seems however that this contract was never consummated. Capt. Jorge B.
Siacunco, "Head- (PCGG) BASECO Management Team," advised Deltamarine by letter dated July 30, 1986
that "the new management is not in a position to honor the said contract" and thus "whatever improvements *
* (may be introduced) shall be deemed unauthorized * * and shall be at * * (Deltamarine's) own risk." 6
e. Order for Operation of Sesiman Rock Quarry, Mariveles, Bataan
By Order dated June 20, 1986, Commissioner Mary Bautista first directed a PCGG agent, Mayor Melba O.
Buenaventura, "to plan and implement progress towards maximizing the continuous operation of the
BASECO Sesiman Rock Quarry * * by conventional methods;" but afterwards, Commissioner Bautista, in
representation of the PCGG, authorized another party, A.T. Abesamis, to operate the quarry, located at
Mariveles, Bataan, an agreement to this effect having been executed by them on September 17, 1986. 7
f. Order to Dispose of Scrap, etc.
By another Order of Commissioner Bautista, this time dated June 26, 1986, Mayor Buenaventura was also
"authorized to clean and beautify the Company's compound," and in this connection, to dispose of or sell
"metal scraps" and other materials, equipment and machineries no longer usable, subject to specified
guidelines and safeguards including audit and verification. 8
g. The TAKEOVER Order

63

By letter dated July 14, 1986, Commissioner Ramon A. Diaz decreed the provisional takeover by the PCGG
of BASECO, "the Philippine Dockyard Corporation and all their affiliated companies." 9 Diaz invoked the
provisions of Section 3 (c) of Executive Order No. 1, empowering the Commission
* * To provisionally takeover in the public interest or to prevent its disposal or dissipation,
business enterprises and properties taken over by the government of the Marcos Administration
or by entities or persons close to former President Marcos, until the transactions leading to
such acquisition by the latter can be disposed of by the appropriate authorities.
A management team was designated to implement the order, headed by Capt. Siacunco, and was given the
following powers:
1. Conducts all aspects of operation of the subject companies;
2. Installs key officers, hires and terminates personnel as necessary;
3. Enters into contracts related to management and operation of the companies;
4. Ensures that the assets of the companies are not dissipated and used effectively and
efficiently; revenues are duly accounted for; and disburses funds only as may be necessary;
5. Does actions including among others, seeking of military support as may be necessary, that
will ensure compliance to this order;
6. Holds itself fully accountable to the Presidential Commission on Good Government on all
aspects related to this take-over order.
h. Termination of Services of BASECO Officers
Thereafter, Capt. Siacunco, sent letters to Hilario M. Ruiz, Manuel S. Mendoza, Moises M. Valdez, Gilberto
Pasimanero, and Benito R. Cuesta I, advising of the termination of their services by the PCGG. 10
2. Petitioner's Plea and Postulates
It is the foregoing specific orders and acts of the PCGG and its members and agents which, to repeat,
petitioner BASECO would have this Court nullify. More particularly, BASECO prays that this Court1) declare unconstitutional and void Executive Orders Numbered 1 and 2;
2) annul the sequestration order dated April- 14, 1986, and all other orders subsequently issued and acts done
on the basis thereof, inclusive of the takeover order of July 14, 1986 and the termination of the services of the
BASECO executives. 11
a. Re Executive Orders No. 1 and 2, and the Sequestration and Takeover Orders
While BASECO concedes that "sequestration without resorting to judicial action, might be made within the
context of Executive Orders Nos. 1 and 2 before March 25, 1986 when the Freedom Constitution was
promulgated, under the principle that the law promulgated by the ruler under a revolutionary regime is the law
of the land, it ceased to be acceptable when the same ruler opted to promulgate the Freedom Constitution on
March 25, 1986 wherein under Section I of the same, Article IV (Bill of Rights) of the 1973 Constitution was
adopted providing, among others, that "No person shall be deprived of life, liberty and property without due
process of law." (Const., Art. I V, Sec. 1)." 12

64

It declares that its objection to the constitutionality of the Executive Orders "as well as the Sequestration
Order * * and Takeover Order * * issued purportedly under the authority of said Executive Orders, rests on
four fundamental considerations: First, no notice and hearing was accorded * * (it) before its properties and
business were taken over; Second, the PCGG is not a court, but a purely investigative agency and therefore
not competent to act as prosecutor and judge in the same cause; Third, there is nothing in the issuances which
envisions any proceeding, process or remedy by which petitioner may expeditiously challenge the validity of
the takeover after the same has been effected; and Fourthly, being directed against specified persons, and in
disregard of the constitutional presumption of innocence and general rules and procedures, they constitute a
Bill of Attainder." 13
b. Re Order to Produce Documents
It argues that the order to produce corporate records from 1973 to 1986, which it has apparently already
complied with, was issued without court authority and infringed its constitutional right against selfincrimination, and unreasonable search and seizure. 14
c. Re PCGG's Exercise of Right of Ownership and Management
BASECO further contends that the PCGG had unduly interfered with its right of dominion and management
of its business affairs by
1) terminating its contract for security services with Fairways & Anchor, without the consent and against the
will of the contracting parties; and amending the mode of payment of entry fees stipulated in its Lease
Contract with National Stevedoring & Lighterage Corporation, these acts being in violation of the nonimpairment clause of the constitution; 15
2) allowing PCGG Agent Silverio Berenguer to enter into an "anomalous contract" with Deltamarine
Integrated Port Services, Inc., giving the latter free use of BASECO premises; 16
3) authorizing PCGG Agent, Mayor Melba Buenaventura, to manage and operate its rock quarry at Sesiman,
Mariveles; 17
4) authorizing the same mayor to sell or dispose of its metal scrap, equipment, machinery and other
materials; 18
5) authorizing the takeover of BASECO, Philippine Dockyard Corporation, and all their affiliated companies;
6) terminating the services of BASECO executives: President Hilario M. Ruiz; EVP Manuel S. Mendoza; GM
Moises M. Valdez; Finance Mgr. Gilberto Pasimanero; Legal Dept. Mgr. Benito R. Cuesta I; 19
7) planning to elect its own Board of Directors; 20
8) allowing willingly or unwillingly its personnel to take, steal, carry away from petitioner's premises at
Mariveles * * rolls of cable wires, worth P600,000.00 on May 11, 1986; 21
9) allowing "indiscriminate diggings" at Engineer Island to retrieve gold bars supposed to have been buried
therein. 22
3. Doubts, Misconceptions regarding Sequestration, Freeze and Takeover Orders
Many misconceptions and much doubt about the matter of sequestration, takeover and freeze orders have been
engendered by misapprehension, or incomplete comprehension if not indeed downright ignorance of the law
governing these remedies. It is needful that these misconceptions and doubts be dispelled so that uninformed
and useless debates about them may be avoided, and arguments tainted b sophistry or intellectual dishonesty

65

be quickly exposed and discarded. Towards this end, this opinion will essay an exposition of the law on the
matter. In the process many of the objections raised by BASECO will be dealt with.
4. The Governing Law
a. Proclamation No. 3
The impugned executive orders are avowedly meant to carry out the explicit command of the Provisional
Constitution, ordained by Proclamation No. 3, 23 that the President-in the exercise of legislative power which
she was authorized to continue to wield "(until a legislature is elected and convened under a new
Constitution" "shall give priority to measures to achieve the mandate of the people," among others
to (r)ecover ill-gotten properties amassed by the leaders and supporters of the previous regime and protect
the interest of the people through orders of sequestration or freezing of assets or accounts." 24
b. Executive Order No. 1
Executive Order No. 1 stresses the "urgent need to recover all ill-gotten wealth," and postulates that "vast
resources of the government have been amassed by former President Ferdinand E. Marcos, his immediate
family, relatives, and close associates both here and abroad." 25 Upon these premises, the Presidential
Commission on Good Government was created, 26 "charged with the task of assisting the President in regard
to (certain specified) matters," among which was precisely* * The recovery of all in-gotten wealth accumulated by former President Ferdinand E.
Marcos, his immediate family, relatives, subordinates and close associates, whether located in
the Philippines or abroad, including the takeover or sequestration of all business enterprises
and entities owned or controlled by them, during his administration, directly or through
nominees, by taking undue advantage of their public office and/or using their powers,
authority, influence, connections or relationship. 27
In relation to the takeover or sequestration that it was authorized to undertake in the fulfillment of its mission,
the PCGG was granted "power and authority" to do the following particular acts, to wit:
1. To sequester or place or cause to be placed under its control or possession any building or
office wherein any ill-gotten wealth or properties may be found, and any records pertaining
thereto, in order to prevent their destruction, concealment or disappearance which would
frustrate or hamper the investigation or otherwise prevent the Commission from accomplishing
its task.
2. To provisionally take over in the public interest or to prevent the disposal or dissipation,
business enterprises and properties taken over by the government of the Marcos Administration
or by entities or persons close to former President Marcos, until the transactions leading to
such acquisition by the latter can be disposed of by the appropriate authorities.
3. To enjoin or restrain any actual or threatened commission of acts by any person or entity
that may render moot and academic, or frustrate or otherwise make ineffectual the efforts of the
Commission to carry out its task under this order. 28
So that it might ascertain the facts germane to its objectives, it was granted power to conduct investigations;
require submission of evidence by subpoenae ad testificandum and duces tecum; administer oaths; punish for
contempt. 29 It was given power also to promulgate such rules and regulations as may be necessary to carry
out the purposes of * * (its creation). 30
c. Executive Order No. 2

66

Executive Order No. 2 gives additional and more specific data and directions respecting "the recovery of illgotten properties amassed by the leaders and supporters of the previous regime." It declares that:
1) * * the Government of the Philippines is in possession of evidence showing that there are
assets and properties purportedly pertaining to former Ferdinand E. Marcos, and/or his wife
Mrs. Imelda Romualdez Marcos, their close relatives, subordinates, business associates,
dummies, agents or nominees which had been or were acquired by them directly or indirectly,
through or as a result of the improper or illegal use of funds or properties owned by the
government of the Philippines or any of its branches, instrumentalities, enterprises, banks or
financial institutions, or by taking undue advantage of their office, authority, influence,
connections or relationship, resulting in their unjust enrichment and causing grave damage and
prejudice to the Filipino people and the Republic of the Philippines:" and
2) * * said assets and properties are in the form of bank accounts, deposits, trust accounts,
shares of stocks, buildings, shopping centers, condominiums, mansions, residences, estates,
and other kinds of real and personal properties in the Philippines and in various countries of the
world." 31
Upon these premises, the President1) froze "all assets and properties in the Philippines in which former President Marcos and/or
his wife, Mrs. Imelda Romualdez Marcos, their close relatives, subordinates, business
associates, dummies, agents, or nominees have any interest or participation;
2) prohibited former President Ferdinand Marcos and/or his wife * *, their close relatives,
subordinates, business associates, duties, agents, or nominees from transferring, conveying,
encumbering, concealing or dissipating said assets or properties in the Philippines and abroad,
pending the outcome of appropriate proceedings in the Philippines to determine whether any
such assets or properties were acquired by them through or as a result of improper or illegal use
of or the conversion of funds belonging to the Government of the Philippines or any of its
branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue
advantage of their official position, authority, relationship, connection or influence to unjustly
enrich themselves at the expense and to the grave damage and prejudice of the Filipino people
and the Republic of the Philippines;
3) prohibited "any person from transferring, conveying, encumbering or otherwise depleting
or concealing such assets and properties or from assisting or taking part in their transfer,
encumbrance, concealment or dissipation under pain of such penalties as are prescribed by
law;" and
4) required "all persons in the Philippines holding such assets or properties, whether located in
the Philippines or abroad, in their names as nominees, agents or trustees, to make full
disclosure of the same to the Commission on Good Government within thirty (30) days from
publication of * (the) Executive Order, * *. 32
d. Executive Order No. 14
A third executive order is relevant: Executive Order No. 14, 33 by which the PCGG is empowered, "with the
assistance of the Office of the Solicitor General and other government agencies, * * to file and prosecute all
cases investigated by it * * as may be warranted by its findings." 34 All such cases, whether civil or criminal,
are to be filed "with the Sandiganbayanwhich shall have exclusive and original jurisdiction
thereof." 35 Executive Order No. 14 also pertinently provides that civil suits for restitution, reparation of
damages, or indemnification for consequential damages, forfeiture proceedings provided for under Republic
Act No. 1379, or any other civil actions under the Civil Code or other existing laws, in connection with * *

67

(said Executive Orders Numbered 1 and 2) may be filed separately from and proceed independently of any
criminal proceedings and may be proved by a preponderance of evidence;" and that, moreover, the "technical
rules of procedure and evidence shall not be strictly applied to* * (said)civil cases." 36
5. Contemplated Situations
The situations envisaged and sought to be governed are self-evident, these being:
1) that "(i)ll-gotten properties (were) amassed by the leaders and supporters of the previous
regime";37
a) more particularly, that ill-gotten wealth (was) accumulated by former President Ferdinand E.
Marcos, his immediate family, relatives, subordinates and close associates, * * located in the
Philippines or abroad, * * (and) business enterprises and entities (came to be) owned or
controlled by them, during * * (the Marcos) administration, directly or through nominees, by
taking undue advantage of their public office and/or using their powers, authority, influence,
Connections or relationship; 38
b) otherwise stated, that "there are assets and properties purportedly pertaining to former
President Ferdinand E. Marcos, and/or his wife Mrs. Imelda Romualdez Marcos, their close
relatives, subordinates, business associates, dummies, agents or nominees which had been or
were acquired by them directly or indirectly, through or as a result of the improper or illegal
use of funds or properties owned by the Government of the Philippines or any of its branches,
instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of
their office, authority, influence, connections or relationship, resulting in their unjust
enrichment and causing grave damage and prejudice to the Filipino people and the Republic of
the Philippines"; 39
c) that "said assets and properties are in the form of bank accounts. deposits, trust. accounts,
shares of stocks, buildings, shopping centers, condominiums, mansions, residences, estates,
and other kinds of real and personal properties in the Philippines and in various countries of the
world;" 40 and
2) that certain "business enterprises and properties (were) taken over by the government of the
Marcos Administration or by entities or persons close to former President Marcos. 41
6. Government's Right and Duty to Recover All Ill-gotten Wealth
There can be no debate about the validity and eminent propriety of the Government's plan "to recover all illgotten wealth."
Neither can there be any debate about the proposition that assuming the above described factual premises of
the Executive Orders and Proclamation No. 3 to be true, to be demonstrable by competent evidence, the
recovery from Marcos, his family and his dominions of the assets and properties involved, is not only a right
but a duty on the part of Government.
But however plain and valid that right and duty may be, still a balance must be sought with the equally
compelling necessity that a proper respect be accorded and adequate protection assured, the fundamental
rights of private property and free enterprise which are deemed pillars of a free society such as ours, and to
which all members of that society may without exception lay claim.
* * Democracy, as a way of life enshrined in the Constitution, embraces as its necessary
components freedom of conscience, freedom of expression, and freedom in the pursuit of
happiness. Along with these freedoms are included economic freedom and freedom of

68

enterprise within reasonable bounds and under proper control. * * Evincing much concern for
the protection of property, the Constitution distinctly recognizes the preferred position which
real estate has occupied in law for ages. Property is bound up with every aspect of social life in
a democracy as democracy is conceived in the Constitution. The Constitution realizes the
indispensable role which property, owned in reasonable quantities and used legitimately, plays
in the stimulation to economic effort and the formation and growth of a solid social middle
class that is said to be the bulwark of democracy and the backbone of every progressive and
happy country. 42
a. Need of Evidentiary Substantiation in Proper Suit
Consequently, the factual premises of the Executive Orders cannot simply be assumed. They will have to be
duly established by adequate proof in each case, in a proper judicial proceeding, so that the recovery of the illgotten wealth may be validly and properly adjudged and consummated; although there are some who maintain
that the fact-that an immense fortune, and "vast resources of the government have been amassed by former
President Ferdinand E. Marcos, his immediate family, relatives, and close associates both here and abroad,"
and they have resorted to all sorts of clever schemes and manipulations to disguise and hide their illicit
acquisitions-is within the realm of judicial notice, being of so extensive notoriety as to dispense with proof
thereof, Be this as it may, the requirement of evidentiary substantiation has been expressly acknowledged, and
the procedure to be followed explicitly laid down, in Executive Order No. 14.
b. Need of Provisional Measures to Collect and Conserve Assets Pending Suits
Nor may it be gainsaid that pending the institution of the suits for the recovery of such "ill-gotten wealth" as
the evidence at hand may reveal, there is an obvious and imperative need for preliminary, provisional
measures to prevent the concealment, disappearance, destruction, dissipation, or loss of the assets and
properties subject of the suits, or to restrain or foil acts that may render moot and academic, or effectively
hamper, delay, or negate efforts to recover the same.
7. Provisional Remedies Prescribed by Law
To answer this need, the law has prescribed three (3) provisional remedies. These are: (1) sequestration; (2)
freeze orders; and (3) provisional takeover.
Sequestration and freezing are remedies applicable generally to unearthed instances of "ill-gotten wealth." The
remedy of "provisional takeover" is peculiar to cases where "business enterprises and properties (were) taken
over by the government of the Marcos Administration or by entities or persons close to former President
Marcos."43
a. Sequestration
By the clear terms of the law, the power of the PCGG to sequester property claimed to be "ill-gotten" means
to place or cause to be placed under its possession or control said property, or any building or office wherein
any such property and any records pertaining thereto may be found, including "business enterprises and
entities,"-for the purpose of preventing the destruction, concealment or dissipation of, and otherwise
conserving and preserving, the same-until it can be determined, through appropriate judicial proceedings,
whether the property was in truth will- gotten," i.e., acquired through or as a result of improper or illegal use
of or the conversion of funds belonging to the Government or any of its branches, instrumentalities,
enterprises, banks or financial institutions, or by taking undue advantage of official position, authority
relationship, connection or influence, resulting in unjust enrichment of the ostensible owner and grave damage
and prejudice to the State. 44 And this, too, is the sense in which the term is commonly understood in other
jurisdictions. 45
b. "Freeze Order"

69

A "freeze order" prohibits the person having possession or control of property alleged to constitute "ill-gotten
wealth" "from transferring, conveying, encumbering or otherwise depleting or concealing such property, or
from assisting or taking part in its transfer, encumbrance, concealment, or dissipation." 46 In other words, it
commands the possessor to hold the property and conserve it subject to the orders and disposition of the
authority decreeing such freezing. In this sense, it is akin to a garnishment by which the possessor or
ostensible owner of property is enjoined not to deliver, transfer, or otherwise dispose of any effects or credits
in his possession or control, and thus becomes in a sense an involuntary depositary thereof. 47
c. Provisional Takeover
In providing for the remedy of "provisional takeover," the law acknowledges the apparent distinction between
"ill gotten" "business enterprises and entities" (going concerns, businesses in actual operation), generally, as to
which the remedy of sequestration applies, it being necessarily inferred that the remedy entails no
interference, or the least possible interference with the actual management and operations thereof; and
"business enterprises which were taken over by the government government of the Marcos Administration or
by entities or persons close to him," in particular, as to which a "provisional takeover" is authorized, "in the
public interest or to prevent disposal or dissipation of the enterprises." 48 Such a "provisional takeover"
imports something more than sequestration or freezing, more than the placing of the business under physical
possession and control, albeit without or with the least possible interference with the management and
carrying on of the business itself. In a "provisional takeover," what is taken into custody is not only the
physical assets of the business enterprise or entity, but the business operation as well. It is in fine the
assumption of control not only over things, but over operations or on- going activities. But, to repeat, such a
"provisional takeover" is allowed only as regards "business enterprises * * taken over by the government of
the Marcos Administration or by entities or persons close to former President Marcos."
d. No Divestment of Title Over Property Seized
It may perhaps be well at this point to stress once again the provisional, contingent character of the remedies
just described. Indeed the law plainly qualifies the remedy of take-over by the adjective, "provisional." These
remedies may be resorted to only for a particular exigency: to prevent in the public interest the disappearance
or dissipation of property or business, and conserve it pending adjudgment in appropriate proceedings of the
primary issue of whether or not the acquisition of title or other right thereto by the apparent owner was
attended by some vitiating anomaly. None of the remedies is meant to deprive the owner or possessor of his
title or any right to the property sequestered, frozen or taken over and vest it in the sequestering agency, the
Government or other person. This can be done only for the causes and by the processes laid down by law.
That this is the sense in which the power to sequester, freeze or provisionally take over is to be understood and
exercised, the language of the executive orders in question leaves no doubt. Executive Order No. 1 declares
that the sequestration of property the acquisition of which is suspect shall last "until the transactions leading
to such acquisition * * can be disposed of by the appropriate authorities." 49 Executive Order No. 2 declares
that the assets or properties therein mentioned shall remain frozen "pending the outcome of appropriate
proceedings in the Philippines to determine whether any such assets or properties were acquired" by illegal
means. Executive Order No. 14 makes clear that judicial proceedings are essential for the resolution of the
basic issue of whether or not particular assets are "ill-gotten," and resultant recovery thereof by the
Government is warranted.
e. State of Seizure Not To Be Indefinitely Maintained; The Constitutional Command
There is thus no cause for the apprehension voiced by BASECO 50 that sequestration, freezing or provisional
takeover is designed to be an end in itself, that it is the device through which persons may be deprived of their
property branded as "ill-gotten," that it is intended to bring about a permanent, rather than a passing,
transitional state of affairs. That this is not so is quite explicitly declared by the governing rules.

70

Be this as it may, the 1987 Constitution should allay any lingering fears about the duration of these
provisional remedies. Section 26 of its Transitory Provisions, 51 lays down the relevant rule in plain terms,
apart from extending ratification or confirmation (although not really necessary) to the institution by
presidential fiat of the remedy of sequestration and freeze orders:
SEC. 26. The authority to issue sequestration or freeze orders under Proclamation No. 3 dated
March 25, 1986 in relation to the recovery of ill-gotten wealth shag remain operative for not
more than eighteen months after the ratification of this Constitution. However, in the national
interest, as certified by the President, the Congress may extend said period.
A sequestration or freeze order shall be issued only upon showing of a prima facie case. The
order and the list of the sequestered or frozen properties shall forthwith be registered with the
proper court. For orders issued before the ratification of this Constitution, the corresponding
judicial action or proceeding shall be filed within six months from its ratification. For those
issued after such ratification, the judicial action or proceeding shall be commenced within six
months from the issuance thereof.
The sequestration or freeze order is deemed automatically lifted if no judicial action or
proceeding is commenced as herein provided. 52
f. Kinship to Attachment Receivership
As thus described, sequestration, freezing and provisional takeover are akin to the provisional remedy of
preliminary attachment, or receivership. 53 By attachment, a sheriff seizes property of a defendant in a civil
suit so that it may stand as security for the satisfaction of any judgment that may be obtained, and not
disposed of, or dissipated, or lost intentionally or otherwise, pending the action. 54 By receivership, property,
real or personal, which is subject of litigation, is placed in the possession and control of a receiver appointed
by the Court, who shall conserve it pending final determination of the title or right of possession over it. 55 All
these remedies sequestration, freezing, provisional, takeover, attachment and receivership are
provisional, temporary, designed for-particular exigencies, attended by no character of permanency or finality,
and always subject to the control of the issuing court or agency.
g. Remedies, Non-Judicial
Parenthetically, that writs of sequestration or freeze or takeover orders are not issued by a court is of no
moment. The Solicitor General draws attention to the writ of distraint and levy which since 1936 the
Commissioner of Internal Revenue has been by law authorized to issue against property of a delinquent
taxpayer. 56 BASECO itself declares that it has not manifested "a rigid insistence on sequestration as a purely
judicial remedy * * (as it feels) that the law should not be ossified to a point that makes it insensitive to
change." What it insists on, what it pronounces to be its "unyielding position, is that any change in procedure,
or the institution of a new one, should conform to due process and the other prescriptions of the Bill of Rights
of the Constitution." 57 It is, to be sure, a proposition on which there can be no disagreement.
h. Orders May Issue Ex Parte
Like the remedy of preliminary attachment and receivership, as well as delivery of personal property
in replevinsuits, sequestration and provisional takeover writs may issue ex parte. 58 And as in preliminary
attachment, receivership, and delivery of personality, no objection of any significance may be raised to the ex
parte issuance of an order of sequestration, freezing or takeover, given its fundamental character of
temporariness or conditionality; and taking account specially of the constitutionally expressed "mandate of the
people to recover ill-gotten properties amassed by the leaders and supporters of the previous regime and
protect the interest of the people;" 59 as well as the obvious need to avoid alerting suspected possessors of "illgotten wealth" and thereby cause that disappearance or loss of property precisely sought to be prevented, and

71

the fact, just as self-evident, that "any transfer, disposition, concealment or disappearance of said assets and
properties would frustrate, obstruct or hamper the efforts of the Government" at the just recovery thereof.60
8. Requisites for Validity
What is indispensable is that, again as in the case of attachment and receivership, there exist a prima facie
factual foundation, at least, for the sequestration, freeze or takeover order, and adequate and fair opportunity
to contest it and endeavor to cause its negation or nullification. 61
Both are assured under the executive orders in question and the rules and regulations promulgated by the
PCGG.
a. Prima Facie Evidence as Basis for Orders
Executive Order No. 14 enjoins that there be "due regard to the requirements of fairness and due
process." 62Executive Order No. 2 declares that with respect to claims on allegedly "ill-gotten" assets and
properties, "it is the position of the new democratic government that President Marcos * * (and other parties
affected) be afforded fair opportunity to contest these claims before appropriate Philippine
authorities." 63 Section 7 of the Commission's Rules and Regulations provides that sequestration or freeze (and
takeover) orders issue upon the authority of at least two commissioners, based on the affirmation or complaint
of an interested party, or motu proprio when the Commission has reasonable grounds to believe that the
issuance thereof is warranted. 64 A similar requirement is now found in Section 26, Art. XVIII of the 1987
Constitution, which requires that a "sequestration or freeze order shall be issued only upon showing of
a prima facie case."65
b. Opportunity to Contest
And Sections 5 and 6 of the same Rules and Regulations lay down the procedure by which a party may seek
to set aside a writ of sequestration or freeze order, viz:
SECTION 5. Who may contend.-The person against whom a writ of sequestration or freeze or
hold order is directed may request the lifting thereof in writing, either personally or through
counsel within five (5) days from receipt of the writ or order, or in the case of a hold order,
from date of knowledge thereof.
SECTION 6. Procedure for review of writ or order.-After due hearing or motu proprio for good
cause shown, the Commission may lift the writ or order unconditionally or subject to such
conditions as it may deem necessary, taking into consideration the evidence and the
circumstance of the case. The resolution of the commission may be appealed by the party
concerned to the Office of the President of the Philippines within fifteen (15) days from receipt
thereof.
Parenthetically, even if the requirement for a prima facie showing of "ill- gotten wealth" were not expressly
imposed by some rule or regulation as a condition to warrant the sequestration or freezing of property
contemplated in the executive orders in question, it would nevertheless be exigible in this jurisdiction in
which the Rule of Law prevails and official acts which are devoid of rational basis in fact or law, or are
whimsical and capricious, are condemned and struck down. 66
9. Constitutional Sanction of Remedies
If any doubt should still persist in the face of the foregoing considerations as to the validity and propriety of
sequestration, freeze and takeover orders, it should be dispelled by the fact that these particular remedies and
the authority of the PCGG to issue them have received constitutional approbation and sanction. As already
mentioned, the Provisional or "Freedom" Constitution recognizes the power and duty of the President to enact

72

"measures to achieve the mandate of the people to * * * (recover ill- gotten properties amassed by the leaders
and supporters of the previous regime and protect the interest of the people through orders of sequestration or
freezing of assets or accounts." And as also already adverted to, Section 26, Article XVIII of the 1987
Constitution67 treats of, and ratifies the "authority to issue sequestration or freeze orders under Proclamation
No. 3 dated March 25, 1986."
The institution of these provisional remedies is also premised upon the State's inherent police power,
regarded, as t lie power of promoting the public welfare by restraining and regulating the use of liberty and
property," 68 and as "the most essential, insistent and illimitable of powers * * in the promotion of general
welfare and the public interest," 69and said to be co-extensive with self-protection and * * not inaptly termed
(also) the'law of overruling necessity." " 70
10. PCGG not a "Judge"; General Functions
It should also by now be reasonably evident from what has thus far been said that the PCGG is not, and was
never intended to act as, a judge. Its general function is to conduct investigations in order to collect
evidenceestablishing instances of "ill-gotten wealth;" issue sequestration, and such orders as may be
warranted by the evidence thus collected and as may be necessary to preserve and conserve the assets of
which it takes custody and control and prevent their disappearance, loss or dissipation; and eventually file and
prosecute in the proper court of competent jurisdiction all cases investigated by it as may be warranted by its
findings. It does not try and decide, or hear and determine, or adjudicate with any character of finality or
compulsion, cases involving the essential issue of whether or not property should be forfeited and transferred
to the State because "ill-gotten" within the meaning of the Constitution and the executive orders. This function
is reserved to the designated court, in this case, the Sandiganbayan. 71 There can therefore be no serious regard
accorded to the accusation, leveled by BASECO, 72 that the PCGG plays the perfidious role of prosecutor and
judge at the same time.
11. Facts Preclude Grant of Relief to Petitioner
Upon these premises and reasoned conclusions, and upon the facts disclosed by the record, hereafter to be
discussed, the petition cannot succeed. The writs of certiorari and prohibition prayed for will not be issued.
The facts show that the corporation known as BASECO was owned or controlled by President Marcos "during
his administration, through nominees, by taking undue advantage of his public office and/or using his powers,
authority, or influence, " and that it was by and through the same means, that BASECO had taken over the
business and/or assets of the National Shipyard and Engineering Co., Inc., and other government-owned or
controlled entities.
12. Organization and Stock Distribution of BASECO
BASECO describes itself in its petition as "a shiprepair and shipbuilding company * * incorporated as a
domestic private corporation * * (on Aug. 30, 1972) by a consortium of Filipino shipowners and shipping
executives. Its main office is at Engineer Island, Port Area, Manila, where its Engineer Island Shipyard is
housed, and its main shipyard is located at Mariveles Bataan." 73 Its Articles of Incorporation disclose that its
authorized capital stock is P60,000,000.00 divided into 60,000 shares, of which 12,000 shares with a value of
P12,000,000.00 have been subscribed, and on said subscription, the aggregate sum of P3,035,000.00 has been
paid by the incorporators. 74 The same articles Identify the incorporators, numbering fifteen (15), as follows:
(1) Jose A. Rojas, (2) Anthony P. Lee, (3) Eduardo T. Marcelo, (4) Jose P. Fernandez, (5) Generoso Tanseco,
(6) Emilio T. Yap, (7) Antonio M. Ezpeleta, (8) Zacarias Amante, (9) Severino de la Cruz, (10) Jose Francisco,
(11) Dioscoro Papa, (12) Octavio Posadas, (13) Manuel S. Mendoza, (14) Magiliw Torres, and (15) Rodolfo
Torres.
By 1986, however, of these fifteen (15) incorporators, six (6) had ceased to be stockholders, namely: (1)
Generoso Tanseco, (2) Antonio Ezpeleta, (3) Zacarias Amante, (4) Octavio Posadas, (5) Magiliw Torres, and

73

(6) Rodolfo Torres. As of this year, 1986, there were twenty (20) stockholders listed in BASECO's Stock and
Transfer Book. 75 Their names and the number of shares respectively held by them are as follows:
1. Jose A. Rojas

1,248 shares

2. Severino G. de
la Cruz

1,248 shares

3. Emilio T. Yap

2,508 shares

4.
Fernandez

1,248 shares

Jose

5. Jose Francisco

128 shares

6. Manuel
Mendoza

S.

96 shares

7. Anthony
Lee

P.

1,248 shares

8. Hilario
Ruiz

M.

32 shares

9. Constante L.
Farias

8 shares

10.
Fidelity
Management,
Inc.

65,882
shares

11.
Trident
Management

7,412 shares

12. United Phil.

Lines

1,240 shares

13. Renato M.
Tanseco

8 shares

14. Fidel Ventura

8 shares

15. Metro Bay

Drydock

136,370
shares

16.
Jacela

Manuel

1 share

17. Jonathan G.
Lu

1 share

18.
Jose
Tanchanco

1 share

19.
Papa

J.

Dioscoro

20. Edward T.

128 shares
4 shares

74

Marcelo
TOTAL

218,819
shares.

13 Acquisition of NASSCO by BASECO

Barely six months after its incorporation, BASECO acquired from National Shipyard & Steel Corporation, or
NASSCO, a government-owned or controlled corporation, the latter's shipyard at Mariveles, Bataan, known
as the Bataan National Shipyard (BNS), and except for NASSCO's Engineer Island Shops and certain
equipment of the BNS, consigned for future negotiation all its structures, buildings, shops, quarters,
houses, plants, equipment and facilities, in stock or in transit. This it did in virtue of a "Contract of Purchase
and Sale with Chattel Mortgage" executed on February 13, 1973. The price was P52,000,000.00. As partial
payment thereof, BASECO delivered to NASSCO a cash bond of P11,400,000.00, convertible into cash
within twenty-four (24) hours from completion of the inventory undertaken pursuant to the contract. The
balance of P41,600,000.00, with interest at seven percent (7%) per annum, compounded semi-annually, was
stipulated to be paid in equal semi-annual installments over a term of nine (9) years, payment to commence
after a grace period of two (2) years from date of turnover of the shipyard to BASECO. 76
14. Subsequent Reduction of Price; Intervention of Marcos
Unaccountably, the price of P52,000,000.00 was reduced by more than one-half, to P24,311,550.00, about
eight (8) months later. A document to this effect was executed on October 9, 1973, entitled "Memorandum
Agreement," and was signed for NASSCO by Arturo Pacificador, as Presiding Officer of the Board of
Directors, and David R. Ines, as General Manager. 77 This agreement bore, at the top right corner of the first
page, the word "APPROVED" in the handwriting of President Marcos, followed by his usual full signature.
The document recited that a down payment of P5,862,310.00 had been made by BASECO, and the balance of
P19,449,240.00 was payable in equal semi-annual installments over nine (9) years after a grace period of two
(2) years, with interest at 7% per annum.
15. Acquisition of 300 Hectares from Export Processing Zone Authority
On October 1, 1974, BASECO acquired three hundred (300) hectares of land in Mariveles from the Export
Processing Zone Authority for the price of P10,047,940.00 of which, as set out in the document of sale,
P2,000.000.00 was paid upon its execution, and the balance stipulated to be payable in installments. 78
16. Acquisition of Other Assets of NASSCO; Intervention of Marcos
Some nine months afterwards, or on July 15, 1975, to be precise, BASECO, again with the intervention of
President Marcos, acquired ownership of the rest of the assets of NASSCO which had not been included in the
first two (2) purchase documents. This was accomplished by a deed entitled "Contract of Purchase and
Sale," 79which, like the Memorandum of Agreement dated October 9, 1973 supra also bore at the upper righthand corner of its first page, the handwritten notation of President Marcos reading, "APPROVED, July 29,
1973," and underneath it, his usual full signature. Transferred to BASECO were NASSCO's "ownership and
all its titles, rights and interests over all equipment and facilities including structures, buildings, shops,
quarters, houses, plants and expendable or semi-expendable assets, located at the Engineer Island, known as
the Engineer Island Shops, including all the equipment of the Bataan National Shipyards (BNS) which were
excluded from the sale of NBS to BASECO but retained by BASECO and all other selected equipment and
machineries of NASSCO at J. Panganiban Smelting Plant." In the same deed, NASSCO committed itself to
cooperate with BASECO for the acquisition from the National Government or other appropriate Government
entity of Engineer Island. Consideration for the sale was set at P5,000,000.00; a down payment of
P1,000,000.00 appears to have been made, and the balance was stipulated to be paid at 7% interest per annum
in equal semi annual installments over a term of nine (9) years, to commence after a grace period of two (2)

75

years. Mr. Arturo Pacificador again signed for NASSCO, together with the general manager, Mr. David R.
Ines.
17. Loans Obtained
It further appears that on May 27, 1975 BASECO obtained a loan from the NDC, taken from "the last
available Japanese war damage fund of $19,000,000.00," to pay for "Japanese made heavy equipment (brand
new)." 80On September 3, 1975, it got another loan also from the NDC in the amount of
P30,000,000.00 (id.). And on January 28, 1976, it got still another loan, this time from the GSIS, in the sum of
P12,400,000.00. 81 The claim has been made that not a single centavo has been paid on these loans. 82
18. Reports to President Marcos
In September, 1977, two (2) reports were submitted to President Marcos regarding BASECO. The first was
contained in a letter dated September 5, 1977 of Hilario M. Ruiz, BASECO president. 83 The second was
embodied in a confidential memorandum dated September 16, 1977 of Capt. A.T. Romualdez. 84 They further
disclose the fine hand of Marcos in the affairs of BASECO, and that of a Romualdez, a relative by affinity.
a. BASECO President's Report
In his letter of September 5, 1977, BASECO President Ruiz reported to Marcos that there had been "no orders
or demands for ship construction" for some time and expressed the fear that if that state of affairs persisted,
BASECO would not be able to pay its debts to the Government, which at the time stood at the not
inconsiderable amount of P165,854,000.00. 85 He suggested that, to "save the situation," there be a "spinoff (of their) shipbuilding activities which shall be handled exclusively by an entirely new corporation to be
created;" and towards this end, he informed Marcos that BASECO was
* * inviting NDC and LUSTEVECO to participate by converting the NDC shipbuilding loan to
BASECO amounting to P341.165M and assuming and converting a portion of BASECO's
shipbuilding loans from REPACOM amounting to P52.2M or a total of P83.365M as NDC's
equity contribution in the new corporation. LUSTEVECO will participate by absorbing and
converting a portion of the REPACOM loan of Bay Shipyard and Drydock, Inc., amounting to
P32.538M. 86
b. Romualdez' Report
Capt. A.T. Romualdez' report to the President was submitted eleven (11) days later. It opened with the
following caption:
MEMORANDUM:
FOR : The President
SUBJECT: An Evaluation and Re-assessment of a Performance of a Mission
FROM: Capt. A.T. Romualdez.
Like Ruiz, Romualdez wrote that BASECO faced great difficulties in meeting its loan obligations due chiefly
to the fact that "orders to build ships as expected * * did not materialize."
He advised that five stockholders had "waived and/or assigned their holdings inblank," these being: (1) Jose
A. Rojas, (2) Severino de la Cruz, (3) Rodolfo Torres, (4) Magiliw Torres, and (5) Anthony P. Lee. Pointing
out that "Mr. Magiliw Torres * * is already dead and Mr. Jose A. Rojas had a major heart attack," he made the
following quite revealing, and it may be added, quite cynical and indurate recommendation, to wit:

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* * (that) their replacements (be effected) so we can register their names in the stock book prior
to the implementation of your instructions to pass a board resolution to legalize the transfers
under SEC regulations;
2. By getting their replacements, the families cannot question us later on; and
3. We will owe no further favors from them. 87
He also transmitted to Marcos, together with the report, the following documents: 88
1. Stock certificates indorsed and assigned in blank with assignments and waivers; 89
2. The articles of incorporation, the amended articles, and the by-laws of BASECO;
3. Deed of Sales, wherein NASSCO sold to BASECO four (4) parcels of land in "Engineer
Island", Port Area, Manila;
4. Transfer Certificate of Title No. 124822 in the name of BASECO, covering "Engineer
Island";
5. Contract dated October 9, 1973, between NASSCO and BASECO re-structure and
equipment at Mariveles, Bataan;
6. Contract dated July 16, 1975, between NASSCO and BASECO re-structure and equipment
at Engineer Island, Port Area Manila;
7. Contract dated October 1, 1974, between EPZA and BASECO re 300 hectares of land at
Mariveles, Bataan;
8. List of BASECO's fixed assets;
9. Loan Agreement dated September 3, 1975, BASECO's loan from NDC of P30,000,000.00;
10. BASECO-REPACOM Agreement dated May 27, 1975;
11. GSIS loan to BASECO dated January 28, 1976 of P12,400,000.00 for the housing facilities
for BASECO's rank-and-file employees. 90
Capt. Romualdez also recommended that BASECO's loans be restructured "until such period when BASECO
will have enough orders for ships in order for the company to meet loan obligations," and that
An LOI may be issued to government agencies using floating equipment, that a linkage scheme
be applied to a certain percent of BASECO's net profit as part of BASECO's amortization
payments tomake it justifiable for you, Sir. 91
It is noteworthy that Capt. A.T. Romualdez does not appear to be a stockholder or officer of BASECO, yet he
has presented a report on BASECO to President Marcos, and his report demonstrates intimate familiarity with
the firm's affairs and problems.
19. Marcos' Response to Reports
President Marcos lost no time in acting on his subordinates' recommendations, particularly as regards the
"spin-off" and the "linkage scheme" relative to "BASECO's amortization payments."

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a. Instructions re "Spin-Off"
Under date of September 28, 1977, he addressed a Memorandum to Secretary Geronimo Velasco of the
Philippine National Oil Company and Chairman Constante Farias of the National Development Company,
directing them "to participate in the formation of a new corporation resulting from the spin-off of the
shipbuilding component of BASECO along the following guidelines:
a. Equity participation of government shall be through LUSTEVECO and NDC in the amount
of P115,903,000 consisting of the following obligations of BASECO which are hereby
authorized to be converted to equity of the said new corporation, to wit:
1. NDC P83,865,000 (P31.165M loan & P52.2M Reparation)
2. LUSTEVECO P32,538,000 (Reparation)
b. Equity participation of government shall be in the form of non- voting shares.
For immediate compliance. 92
Mr. Marcos' guidelines were promptly complied with by his subordinates. Twenty-two (22) days after
receiving their president's memorandum, Messrs. Hilario M. Ruiz, Constante L. Farias and Geronimo Z.
Velasco, in representation of their respective corporations, executed a PRE-INCORPORATION
AGREEMENT dated October 20, 1977. 93 In it, they undertook to form a shipbuilding corporation to be
known as "PHIL-ASIA SHIPBUILDING CORPORATION," to bring to realization their president's
instructions. It would seem that the new corporation ultimately formed was actually named "Philippine
Dockyard Corporation (PDC)." 94
b. Letter of Instructions No. 670
Mr. Marcos did not forget Capt. Romualdez' recommendation for a letter of instructions. On February 14,
1978, he issued Letter of Instructions No. 670 addressed to the Reparations Commission REPACOM the
Philippine National Oil Company (PNOC), the Luzon Stevedoring Company (LUSTEVECO), and the
National Development Company (NDC). What is commanded therein is summarized by the Solicitor General,
with pithy and not inaccurate observations as to the effects thereof (in italics), as follows:
* * 1) the shipbuilding equipment procured by BASECO through reparations be transferred to
NDC subject to reimbursement by NDC to BASECO (of) the amount of s allegedly
representing the handling and incidental expenses incurred by BASECO in the installation of
said equipment (so instead of NDC getting paid on its loan to BASECO, it was made to pay
BASECO instead the amount of P18.285M); 2) the shipbuilding equipment procured from
reparations through EPZA, now in the possession of BASECO and BSDI (Bay Shipyard &
Drydocking, Inc.) be transferred to LUSTEVECO through PNOC; and 3) the shipbuilding
equipment (thus) transferred be invested by LUSTEVECO, acting through PNOC and NDC, as
the government's equity participation in a shipbuilding corporation to be established in
partnership with the private sector.
xxx xxx xxx
And so, through a simple letter of instruction and memorandum, BASECO's loan obligation to
NDC and REPACOM * * in the total amount of P83.365M and BSD's REPACOM loan of
P32.438M were wiped out and converted into non-voting preferred shares. 95
20. Evidence of Marcos'

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Ownership of BASECO
It cannot therefore be gainsaid that, in the context of the proceedings at bar, the actuality of the control by
President Marcos of BASECO has been sufficiently shown.
Other evidence submitted to the Court by the Solicitor General proves that President Marcos not
only exercised control over BASECO, but also that he actually owns well nigh one hundred percent of its
outstanding stock.
It will be recalled that according to petitioner- itself, as of April 23, 1986, there were 218,819 shares of stock
outstanding, ostensibly owned by twenty (20) stockholders. 96 Four of these twenty are juridical persons:
(1) Metro Bay Drydock, recorded as holding 136,370 shares; (2) Fidelity Management, Inc., 65,882 shares;
(3) Trident Management,7,412 shares; and (4) United Phil. Lines, 1,240 shares. The first three corporations,
among themselves, own an aggregate of 209,664 shares of BASECO stock, or 95.82% of the outstanding
stock.
Now, the Solicitor General has drawn the Court's attention to the intriguing circumstance that found in
Malacanang shortly after the sudden flight of President Marcos, were certificates corresponding to more
thanninety-five percent (95%) of all the outstanding shares of stock of BASECO, endorsed in blank, together
with deeds of assignment of practically all the outstanding shares of stock of the three (3) corporations above
mentioned (which hold 95.82% of all BASECO stock), signed by the owners thereof although not notarized. 97
More specifically, found in Malacanang (and now in the custody of the PCGG) were:
1) the deeds of assignment of all 600 outstanding shares of Fidelity Management Inc. which
supposedly owns as aforesaid 65,882 shares of BASECO stock;
2) the deeds of assignment of 2,499,995 of the 2,500,000 outstanding shares of Metro Bay
Drydock Corporation which allegedly owns 136,370 shares of BASECO stock;
3) the deeds of assignment of 800 outstanding shares of Trident Management Co., Inc.
which allegedly owns 7,412 shares of BASECO stock, assigned in blank; 98 and
4) stock certificates corresponding to 207,725 out of the 218,819 outstanding shares of
BASECO stock; that is, all but 5 % all endorsed in blank. 99
While the petitioner's counsel was quick to dispute this asserted fact, assuring this Court that the BASECO
stockholders were still in possession of their respective stock certificates and had "never endorsed * * them in
blank or to anyone else," 100 that denial is exposed by his own prior and subsequent recorded statements as a
mere gesture of defiance rather than a verifiable factual declaration.
By resolution dated September 25, 1986, this Court granted BASECO's counsel a period of 10 days "to
SUBMIT,as undertaken by him, * * the certificates of stock issued to the stockholders of * * BASECO as of
April 23, 1986, as listed in Annex 'P' of the petition.' 101 Counsel thereafter moved for extension; and in his
motion dated October 2, 1986, he declared inter alia that "said certificates of stock are in the possession of
third parties, among whom being the respondents themselves * * and petitioner is still endeavoring to secure
copies thereof from them." 102 On the same day he filed another motion praying that he be allowed "to secure
copies of the Certificates of Stock in the name of Metro Bay Drydock, Inc., and of all other Certificates, of
Stock of petitioner's stockholders in possession of respondents." 103
In a Manifestation dated October 10, 1986,, 104 the Solicitor General not unreasonably argued that counsel's
aforestated motion to secure copies of the stock certificates "confirms the fact that stockholders of petitioner
corporation are not in possession of * * (their) certificates of stock," and the reason, according to him, was
"that 95% of said shares * * have been endorsed in blank and found in Malacaang after the former President

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and his family fled the country." To this manifestation BASECO's counsel replied on November 5, 1986, as
already mentioned, Stubbornly insisting that the firm's stockholders had not really assigned their stock. 105
In view of the parties' conflicting declarations, this Court resolved on November 27, 1986 among other things
"to require * * the petitioner * * to deposit upon proper receipt with Clerk of Court Juanito Ranjo the
originals of the stock certificates alleged to be in its possession or accessible to it, mentioned and described in
Annex 'P' of its petition, (and other pleadings) * * within ten (10) days from notice." 106 In a motion filed on
December 5, 1986, 107 BASECO's counsel made the statement, quite surprising in the premises, that "it will
negotiate with the owners (of the BASECO stock in question) to allow petitioner to borrow from them, if
available, the certificates referred to" but that "it needs a more sufficient time therefor" (sic). BASECO's
counsel however eventually had to confess inability to produce the originals of the stock certificates, putting
up the feeble excuse that while he had "requested the stockholders to allow * * (him) to borrow said
certificates, * * some of * * (them) claimed that they had delivered the certificates to third parties by way of
pledge and/or to secure performance of obligations, while others allegedly have entrusted them to third parties
in view of last national emergency." 108 He has conveniently omitted, nor has he offered to give the details of
the transactions adverted to by him, or to explain why he had not impressed on the supposed stockholders the
primordial importance of convincing this Court of their present custody of the originals of the stock, or if he
had done so, why the stockholders are unwilling to agree to some sort of arrangement so that the originals of
their certificates might at the very least be exhibited to the Court. Under the circumstances, the Court can only
conclude that he could not get the originals from the stockholders for the simple reason that, as the Solicitor
General maintains, said stockholders in truth no longer have them in their possession, these having already
been assigned in blank to then President Marcos.
21. Facts Justify Issuance of Sequestration and Takeover Orders
In the light of the affirmative showing by the Government that, prima facie at least, the stockholders and
directors of BASECO as of April, 1986 109 were mere "dummies," nominees or alter egos of President
Marcos; at any rate, that they are no longer owners of any shares of stock in the corporation, the conclusion
cannot be avoided that said stockholders and directors have no basis and no standing whatever to cause the
filing and prosecution of the instant proceeding; and to grant relief to BASECO, as prayed for in the petition,
would in effect be to restore the assets, properties and business sequestered and taken over by the PCGG to
persons who are "dummies," nominees or alter egos of the former president.
From the standpoint of the PCGG, the facts herein stated at some length do indeed show that the private
corporation known as BASECO was "owned or controlled by former President Ferdinand E. Marcos * *
during his administration, * * through nominees, by taking advantage of * * (his) public office and/or using *
* (his) powers, authority, influence * *," and that NASSCO and other property of the government had been
taken over by BASECO; and the situation justified the sequestration as well as the provisional takeover of the
corporation in the public interest, in accordance with the terms of Executive Orders No. 1 and 2, pending the
filing of the requisite actions with the Sandiganbayan to cause divestment of title thereto from Marcos, and its
adjudication in favor of the Republic pursuant to Executive Order No. 14.
As already earlier stated, this Court agrees that this assessment of the facts is correct; accordingly, it sustains
the acts of sequestration and takeover by the PCGG as being in accord with the law, and, in view of what has
thus far been set out in this opinion, pronounces to be without merit the theory that said acts, and the
executive orders pursuant to which they were done, are fatally defective in not according to the parties
affected prior notice and hearing, or an adequate remedy to impugn, set aside or otherwise obtain relief
therefrom, or that the PCGG had acted as prosecutor and judge at the same time.
22. Executive Orders Not a Bill of Attainder
Neither will this Court sustain the theory that the executive orders in question are a bill of attainder. 110 "A
bill of attainder is a legislative act which inflicts punishment without judicial trial." 111 "Its essence is the
substitution of a legislative for a judicial determination of guilt." 112

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In the first place, nothing in the executive orders can be reasonably construed as a determination or
declaration of guilt. On the contrary, the executive orders, inclusive of Executive Order No. 14, make it
perfectly clear that any judgment of guilt in the amassing or acquisition of "ill-gotten wealth" is to be handed
down by a judicial tribunal, in this case, the Sandiganbayan, upon complaint filed and prosecuted by the
PCGG. In the second place, no punishment is inflicted by the executive orders, as the merest glance at their
provisions will immediately make apparent. In no sense, therefore, may the executive orders be regarded as a
bill of attainder.
23. No Violation of Right against Self-Incrimination and Unreasonable Searches and Seizures
BASECO also contends that its right against self incrimination and unreasonable searches and seizures had
been transgressed by the Order of April 18, 1986 which required it "to produce corporate records from 1973 to
1986 under pain of contempt of the Commission if it fails to do so." The order was issued upon the authority
of Section 3 (e) of Executive Order No. 1, treating of the PCGG's power to "issue subpoenas requiring * * the
production of such books, papers, contracts, records, statements of accounts and other documents as may be
material to the investigation conducted by the Commission, " and paragraph (3), Executive Order No. 2
dealing with its power to "require all persons in the Philippines holding * * (alleged "ill-gotten") assets or
properties, whether located in the Philippines or abroad, in their names as nominees, agents or trustees, to
make full disclosure of the same * *." The contention lacks merit.
It is elementary that the right against self-incrimination has no application to juridical persons.
While an individual may lawfully refuse to answer incriminating questions unless protected by
an immunity statute, it does not follow that a corporation, vested with special privileges and
franchises, may refuse to show its hand when charged with an abuse ofsuchprivileges * * 113
Relevant jurisprudence is also cited by the Solicitor General. 114
* * corporations are not entitled to all of the constitutional protections which private
individuals have. * * They are not at all within the privilege against selfincrimination, although this court more than once has said that the privilege runs very closely
with the 4th Amendment's Search and Seizure provisions. It is also settled that an officer of the
company cannot refuse to produce its records in its possession upon the plea that they will
either incriminate him or may incriminate it." (Oklahoma Press Publishing Co. v. Walling, 327
U.S. 186; emphasis, the Solicitor General's).
* * The corporation is a creature of the state. It is presumed to be incorporated for the benefit
of the public. It received certain special privileges and franchises, and holds them subject to the
laws of the state and the limitations of its charter. Its powers are limited by law. It can make no
contract not authorized by its charter. Its rights to act as a corporation are only preserved to it
so long as it obeys the laws of its creation. There is a reserve right in the legislature to
investigate its contracts and find out whether it has exceeded its powers. It would be a strange
anomaly to hold that a state, having chartered a corporation to make use of certain franchises,
could not, in the exercise of sovereignty, inquire how these franchises had been employed, and
whether they had been abused, and demand the production of the corporate books and papers
for that purpose. The defense amounts to this, that an officer of the corporation which is
charged with a criminal violation of the statute may plead the criminality of such corporation
as a refusal to produce its books. To state this proposition is to answer it. While an individual
may lawfully refuse to answer incriminating questions unless protected by an immunity statute,
it does not follow that a corporation, vested with special privileges and franchises may refuse
to show its hand when charged with an abuse of such privileges. (Wilson v. United States, 55
Law Ed., 771, 780 [emphasis, the Solicitor General's])

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At any rate, Executive Order No. 14-A, amending Section 4 of Executive Order No. 14 assures protection to
individuals required to produce evidence before the PCGG against any possible violation of his right against
self-incrimination. It gives them immunity from prosecution on the basis of testimony or information he is
compelled to present. As amended, said Section 4 now provides that
xxx xxx xxx
The witness may not refuse to comply with the order on the basis of his privilege against selfincrimination; but no testimony or other information compelled under the order (or any
information directly or indirectly derived from such testimony, or other information) may be
used against the witness in any criminal case, except a prosecution for perjury, giving a false
statement, or otherwise failing to comply with the order.
The constitutional safeguard against unreasonable searches and seizures finds no application to the case at bar
either. There has been no search undertaken by any agent or representative of the PCGG, and of course no
seizure on the occasion thereof.
24. Scope and Extent of Powers of the PCGG
One other question remains to be disposed of, that respecting the scope and extent of the powers that may be
wielded by the PCGG with regard to the properties or businesses placed under sequestration or provisionally
taken over. Obviously, it is not a question to which an answer can be easily given, much less one which will
suffice for every conceivable situation.
a. PCGG May Not Exercise Acts of Ownership
One thing is certain, and should be stated at the outset: the PCGG cannot exercise acts of dominion over
property sequestered, frozen or provisionally taken over. AS already earlier stressed with no little insistence,
the act of sequestration; freezing or provisional takeover of property does not import or bring about a
divestment of title over said property; does not make the PCGG the owner thereof. In relation to the property
sequestered, frozen or provisionally taken over, the PCGG is a conservator, not an owner. Therefore, it can
not perform acts of strict ownership; and this is specially true in the situations contemplated by the
sequestration rules where, unlike cases of receivership, for example, no court exercises effective supervision
or can upon due application and hearing, grant authority for the performance of acts of dominion.
Equally evident is that the resort to the provisional remedies in question should entail the least possible
interference with business operations or activities so that, in the event that the accusation of the business
enterprise being "ill gotten" be not proven, it may be returned to its rightful owner as far as possible in the
same condition as it was at the time of sequestration.
b. PCGG Has Only Powers of Administration
The PCGG may thus exercise only powers of administration over the property or business sequestered or
provisionally taken over, much like a court-appointed receiver, 115 such as to bring and defend actions in its
own name; receive rents; collect debts due; pay outstanding debts; and generally do such other acts and things
as may be necessary to fulfill its mission as conservator and administrator. In this context, it may in addition
enjoin or restrain any actual or threatened commission of acts by any person or entity that may render moot
and academic, or frustrate or otherwise make ineffectual its efforts to carry out its task; punish for direct or
indirect contempt in accordance with the Rules of Court; and seek and secure the assistance of any office,
agency or instrumentality of the government. 116 In the case of sequestered businesses generally (i.e., going
concerns, businesses in current operation), as in the case of sequestered objects, its essential role, as already
discussed, is that of conservator, caretaker, "watchdog" or overseer. It is not that of manager, or innovator,
much less an owner.

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c. Powers over Business Enterprises Taken Over by Marcos or Entities or Persons Close to
him; Limitations Thereon
Now, in the special instance of a business enterprise shown by evidence to have been "taken over by the
government of the Marcos Administration or by entities or persons close to former President Marcos," 117 the
PCGG is given power and authority, as already adverted to, to "provisionally take (it) over in the public
interest or to prevent * * (its) disposal or dissipation;" and since the term is obviously employed in reference
to going concerns, or business enterprises in operation, something more than mere physical custody is
connoted; the PCGG may in this case exercise some measure of control in the operation, running, or
management of the business itself. But even in this special situation, the intrusion into management should be
restricted to the minimum degree necessary to accomplish the legislative will, which is "to prevent the
disposal or dissipation" of the business enterprise. There should be no hasty, indiscriminate, unreasoned
replacement or substitution of management officials or change of policies, particularly in respect of viable
establishments. In fact, such a replacement or substitution should be avoided if at all possible, and undertaken
only when justified by demonstrably tenable grounds and in line with the stated objectives of the PCGG. And
it goes without saying that where replacement of management officers may be called for, the greatest
prudence, circumspection, care and attention - should accompany that undertaking to the end that truly
competent, experienced and honest managers may be recruited. There should be no role to be played in this
area by rank amateurs, no matter how wen meaning. The road to hell, it has been said, is paved with good
intentions. The business is not to be experimented or played around with, not run into the ground, not driven
to bankruptcy, not fleeced, not ruined. Sight should never be lost sight of the ultimate objective of the whole
exercise, which is to turn over the business to the Republic, once judicially established to be "ill-gotten."
Reason dictates that it is only under these conditions and circumstances that the supervision, administration
and control of business enterprises provisionally taken over may legitimately be exercised.
d. Voting of Sequestered Stock; Conditions Therefor
So, too, it is within the parameters of these conditions and circumstances that the PCGG may properly
exercise the prerogative to vote sequestered stock of corporations, granted to it by the President of the
Philippines through a Memorandum dated June 26, 1986. That Memorandum authorizes the PCGG, "pending
the outcome of proceedings to determine the ownership of * * (sequestered) shares of stock," "to vote such
shares of stock as it may have sequestered in corporations at all stockholders' meetings called for the election
of directors, declaration of dividends, amendment of the Articles of Incorporation, etc." The Memorandum
should be construed in such a manner as to be consistent with, and not contradictory of the Executive Orders
earlier promulgated on the same matter. There should be no exercise of the right to vote simply because the
right exists, or because the stocks sequestered constitute the controlling or a substantial part of the corporate
voting power. The stock is not to be voted to replace directors, or revise the articles or by-laws, or otherwise
bring about substantial changes in policy, program or practice of the corporation except for demonstrably
weighty and defensible grounds, and always in the context of the stated purposes of sequestration or
provisional takeover, i.e., to prevent the dispersion or undue disposal of the corporate assets. Directors are not
to be voted out simply because the power to do so exists. Substitution of directors is not to be done without
reason or rhyme, should indeed be shunned if at an possible, and undertaken only when essential to prevent
disappearance or wastage of corporate property, and always under such circumstances as assure that the
replacements are truly possessed of competence, experience and probity.
In the case at bar, there was adequate justification to vote the incumbent directors out of office and elect
others in their stead because the evidence showed prima facie that the former were just tools of President
Marcos and were no longer owners of any stock in the firm, if they ever were at all. This is why, in its
Resolution of October 28, 1986; 118 this Court declared that
Petitioner has failed to make out a case of grave abuse or excess of jurisdiction in respondents'
calling and holding of a stockholders' meeting for the election of directors as authorized by the
Memorandum of the President * * (to the PCGG) dated June 26, 1986, particularly, where as in
this case, the government can, through its designated directors, properly exercise control and

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management over what appear to be properties and assets owned and belonging to the
government itself and over which the persons who appear in this case on behalf of BASECO
have failed to show any right or even any shareholding in said corporation.
It must however be emphasized that the conduct of the PCGG nominees in the BASECO Board in the
management of the company's affairs should henceforth be guided and governed by the norms herein laid
down. They should never for a moment allow themselves to forget that they are conservators, not owners of
the business; they are fiduciaries, trustees, of whom the highest degree of diligence and rectitude is, in the
premises, required.
25. No Sufficient Showing of Other Irregularities
As to the other irregularities complained of by BASECO, i.e., the cancellation or revision, and the execution
of certain contracts, inclusive of the termination of the employment of some of its executives, 119 this Court
cannot, in the present state of the evidence on record, pass upon them. It is not necessary to do so. The issues
arising therefrom may and will be left for initial determination in the appropriate action. But the Court will
state that absent any showing of any important cause therefor, it will not normally substitute its judgment for
that of the PCGG in these individual transactions. It is clear however, that as things now stand, the petitioner
cannot be said to have established the correctness of its submission that the acts of the PCGG in question were
done without or in excess of its powers, or with grave abuse of discretion.
WHEREFORE, the petition is dismissed. The temporary restraining order issued on October 14, 1986 is
lifted.
Yap, Fernan, Paras, Gancayco and Sarmiento, JJ., concur.