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G.R. No.

L-23145 November 29, 1968 challenged order represents a response and expresses a policy, to paraphrase
Frankfurter, arising out of a specific problem, addressed to the attainment of specific
TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased. RENATO D. TAYAG, ends by the use of specific remedies, with full and ample support from legal
ancillary administrator-appellee, vs. BENGUET CONSOLIDATED, INC., oppositor- doctrines of weight and significance.
appellant.
The facts will explain why. As set forth in the brief of appellant Benguet
FERNANDO, J.: 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,
Confronted by an obstinate and adamant refusal of the domiciliary administrator, the certificates being in the possession of the County Trust Company of New York,
the County Trust Company of New York, United States of America, of the estate of which as noted, is the domiciliary administrator of the estate of the deceased.2 Then
the deceased Idonah Slade Perkins, who died in New York City on March 27, 1960, to came this portion of the appellant's brief: "On August 12, 1960, Prospero Sanidad
surrender to the ancillary administrator in the Philippines the stock certificates instituted ancillary administration proceedings in the Court of First Instance of
owned by her in a Philippine corporation, Benguet Consolidated, Inc., to satisfy the Manila; Lazaro A. Marquez was appointed ancillary administrator, and on January 22,
legitimate claims of local creditors, the lower court, then presided by the Honorable 1963, he was substituted by the appellee Renato D. Tayag. A dispute arose between
Arsenio Santos, now retired, issued on May 18, 1964, an order of this tenor: "After the domiciary administrator in New York and the ancillary administrator in the
considering the motion of the ancillary administrator, dated February 11, 1964, as Philippines as to which of them was entitled to the possession of the stock
well as the opposition filed by the Benguet Consolidated, Inc., the Court hereby (1) certificates in question. On January 27, 1964, the Court of First Instance of Manila
considers as lost for all purposes in connection with the administration and ordered the domiciliary administrator, County Trust Company, to "produce and
liquidation of the Philippine estate of Idonah Slade Perkins the stock certificates deposit" them with the ancillary administrator or with the Clerk of Court. The
covering the 33,002 shares of stock standing in her name in the books of the Benguet domiciliary administrator did not comply with the order, and on February 11, 1964,
Consolidated, Inc., (2) orders said certificates cancelled, and (3) directs said the ancillary administrator petitioned the court to "issue an order declaring the
corporation to issue new certificates in lieu thereof, the same to be delivered by said certificate or certificates of stocks covering the 33,002 shares issued in the name of
corporation to either the incumbent ancillary administrator or to the Probate Idonah Slade Perkins by Benguet Consolidated, Inc., be declared [or] considered as
Division of this Court."1 lost."3

From such an order, an appeal was taken to this Court not by the domiciliary It is to be noted further that appellant Benguet Consolidated, Inc. admits that "it is
administrator, the County Trust Company of New York, but by the Philippine immaterial" as far as it is concerned as to "who is entitled to the possession of the
corporation, the Benguet Consolidated, Inc. The appeal cannot possibly prosper. 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 by entering its appearance through counsel on June 27, 1963, and filing a petition for
the possession of the domiciliary administrator, the County Trust Company, in New relief from a previous order of March 15, 1963.
York, U.S.A...."4
Thus did the lower court, in the order now on appeal, impart vitality and
It is its view, therefore, that under the circumstances, the stock certificates cannot effectiveness to what was decreed. For without it, what it had been decided would
be declared or considered as lost. Moreover, it would allege that there was a failure be set at naught and nullified. Unless such a blatant disregard by the domiciliary
to observe certain requirements of its by-laws before new stock certificates could be administrator, with residence abroad, of what was previously ordained by a court
issued. Hence, its appeal. 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.
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 1. Appellant Benguet Consolidated, Inc. did not dispute the power of the
be emasculated by the wilful conduct of the domiciliary administrator in refusing to appellee ancillary administrator to gain control and possession of all assets of the
accord obedience to a court decree. How, then, can this order be stigmatized as decedent within the jurisdiction of the Philippines. Nor could it. Such a power is
illegal? 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
As is true of many problems confronting the judiciary, such a response was called for recognized" that administration, whether principal or ancillary, certainly "extends to
by the realities of the situation. What cannot be ignored is that conduct bordering on the assets of a decedent found within the state or country where it was granted," the
wilful defiance, if it had not actually reached it, cannot without undue loss of judicial corollary being "that an administrator appointed in one state or country has no
prestige, be condoned or tolerated. For the law is not so lacking in flexibility and power over property in another state or country."6
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 It is to be noted that the scope of the power of the ancillary administrator was, in an
the strongest policy considerations. 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
It can truly be said then that the result arrived at upheld and vindicated the honor of in the country of his domicile as well as in a foreign country, administration is had in
the judiciary no less than that of the country. Through this challenged order, there is both countries. That which is granted in the jurisdiction of decedent's last domicile is
thus dispelled the atmosphere of contingent frustration brought about by the termed the principal administration, while any other administration is termed the
persistence of the domiciliary administrator to hold on to the stock certificates after ancillary administration. The reason for the latter is because a grant of
it had, as admitted, voluntarily submitted itself to the jurisdiction of the lower court 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 fact, his Honor the trial Judge knew, and does know, and it is admitted by the
has no authority in the [Philippines]. The ancillary administration is proper, whenever appellee, that the said stock certificates are in existence and are today in the
a person dies, leaving in a country other than that of his last domicile, property to be possession of the domiciliary administrator in New York."10
administered in the nature of assets of the deceased liable for his individual debts or
to be distributed among his heirs."7 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
It would follow then that the authority of the probate court to require that ancillary a refusal, persistently adhered to by the domiciliary administrator in New York, to
administrator's right to "the stock certificates covering the 33,002 shares ... standing deliver the shares of stocks of appellant corporation owned by the decedent to the
in her name in the books of [appellant] Benguet Consolidated, Inc...." be respected is ancillary administrator in the Philippines, there was nothing unreasonable or
equally beyond question. For appellant is a Philippine corporation owing full arbitrary in considering them as lost and requiring the appellant to issue new
allegiance and subject to the unrestricted jurisdiction of local courts. Its shares of certificates in lieu thereof. Thereby, the task incumbent under the law on the
stock cannot therefore be considered in any wise as immune from lawful court ancillary administrator could be discharged and his responsibility fulfilled.
orders.
Any other view would result in the compliance to a valid judicial order being made to
Our holding in Wells Fargo Bank and Union v. Collector of Internal Revenue8 finds depend on the uncontrolled discretion of the party or entity, in this case domiciled
application. "In the instant case, the actual situs of the shares of stock is in the abroad, which thus far has shown the utmost persistence in refusing to yield
Philippines, the corporation being domiciled [here]." To the force of the above obedience. Certainly, appellant would not be heard to contend in all seriousness that
undeniable proposition, not even appellant is insensible. It does not dispute it. Nor a judicial decree could be treated as a mere scrap of paper, the court issuing it being
could it successfully do so even if it were so minded. powerless to remedy its flagrant disregard.

2. In the face of such incontrovertible doctrines that argue in a rather It may be admitted of course that such alleged loss as found by the lower court did
conclusive fashion for the legality of the challenged order, how does appellant, not correspond exactly with the facts. To be more blunt, the quality of truth may be
Benguet Consolidated, Inc. propose to carry the extremely heavy burden of lacking in such a conclusion arrived at. It is to be remembered however, again to
persuasion of precisely demonstrating the contrary? It would assign as the basic borrow from Frankfurter, "that fictions which the law may rely upon in the pursuit of
error allegedly committed by the lower court its "considering as lost the stock legitimate ends have played an important part in its development."11
certificates covering 33,002 shares of Benguet belonging to the deceased Idonah
Slade Perkins, ..."9 More specifically, appellant would stress that the "lower court Speaking of the common law in its earlier period, Cardozo could state fictions "were
could not "consider as lost" the stock certificates in question when, as a matter of 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 that a contrariety exists between the above by-law and the command of a court
quasi contract, the adopted child, the constructive trust, all of flourishing vitality, to decree, the latter is to be followed.
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 It is understandable, as Cardozo pointed out, that the Constitution overrides a
from view till reflection and analysis have brought it to the light."14 statute, to which, however, the judiciary must yield deference, when appropriately
invoked and deemed applicable. It would be most highly unorthodox, however, if a
What cannot be disputed, therefore, is the at times indispensable role that fictions as corporate by-law would be accorded such a high estate in the jural order that a court
such played in the law. There should be then on the part of the appellant a further must not only take note of it but yield to its alleged controlling force.
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 The fear of appellant of a contingent liability with which it could be saddled unless
anomalous situation of a valid judicial order being disregarded with apparent the appealed order be set aside for its inconsistency with one of its by-laws does not
impunity, this is it. What is thus most obvious is that this particular alleged error does impress us. Its obedience to a lawful court order certainly constitutes a valid defense,
not carry persuasion. 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
3. Appellant Benguet Consolidated, Inc. would seek to bolster the above substance to such a fear. Gossamer possibilities of a future prejudice to appellant do
contention by its invoking one of the provisions of its by-laws which would set forth not suffice to nullify the lawful exercise of judicial authority.
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 4. What is more the view adopted by appellant Benguet Consolidated, Inc. is
ownership of such certificate or certificates of stock allegedly lost, stolen or fraught with implications at war with the basic postulates of corporate theory.
destroyed, the issuance of a new certificate or certificates would await the "final
decision by [a] court regarding the ownership [thereof]."15 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
Such reliance is misplaced. In the first place, there is no such occasion to apply such dependent on its will. As Berle so aptly stated: "Classically, a corporation was
by-law. It is admitted that the foreign domiciliary administrator did not appeal from conceived as an artificial person, owing its existence through creation by a sovereign
the order now in question. Moreover, there is likewise the express admission of power."17 As a matter of fact, the statutory language employed owes much to Chief
appellant that as far as it is concerned, "it is immaterial ... who is entitled to the Justice Marshall, who in the Dartmouth College decision defined a corporation
possession of the stock certificates ..." Even if such were not the case, it would be a precisely as "an artificial being, invisible, intangible, and existing only in
legal absurdity to impart to such a provision conclusiveness and finality. Assuming contemplation of law."18
tolerated. It is to argue that it may, when so minded, overrule the state, the source
The well-known authority Fletcher could summarize the matter thus: "A corporation of its very existence; it is to contend that what any of its governmental organs may
is not in fact and in reality a person, but the law treats it as though it were a person lawfully require could be ignored at will. So extravagant a claim cannot possibly merit
by process of fiction, or by regarding it as an artificial person distinct and separate approval.
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 5. One last point. In Viloria v. Administrator of Veterans Affairs,22 it was shown
and liberties is fixed by its charter."19 Dean Pound's terse summary, a juristic person, that in a guardianship proceedings then pending in a lower court, the United States
resulting from an association of human beings granted legal personality by the state, Veterans Administration filed a motion for the refund of a certain sum of money paid
puts the matter neatly.20 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
There is thus a rejection of Gierke's genossenchaft theory, the basic theme of which benefits according to a determination arrived at by its main office in the United
to quote from Friedmann, "is the reality of the group as a social and legal entity, States. The motion was denied. In seeking a reconsideration of such order, the
independent of state recognition and concession."21 A corporation as known to Administrator relied on an American federal statute making his decisions "final and
Philippine jurisprudence is a creature without any existence until it has received the conclusive on all questions of law or fact" precluding any other American official to
imprimatur of the state according to law. It is logically inconceivable therefore that it examine the matter anew, "except a judge or judges of the United States court."23
will have rights and privileges of a higher priority than that of its creator. More than Reconsideration was denied, and the Administrator appealed.
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. 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,
As a matter of fact, a corporation once it comes into being, following American law invoked by the appellant, make the decisions of the U.S. Veterans' Administrator
still of persuasive authority in our jurisdiction, comes more often within the ken of final and conclusive when made on claims property submitted to him for resolution;
the judiciary than the other two coordinate branches. It institutes the appropriate but they are not applicable to the present case, where the Administrator is not acting
court action to enforce its right. Correlatively, it is not immune from judicial control as a judge but as a litigant. There is a great difference between actions against the
in those instances, where a duty under the law as ascertained in an appropriate legal Administrator (which must be filed strictly in accordance with the conditions that are
proceeding is cast upon it. imposed by the Veterans' Act, including the exclusive review by United States
courts), and those actions where the Veterans' Administrator seeks a remedy from
To assert that it can choose which court order to follow and which to disregard is to our courts and submits to their jurisdiction by filing actions therein. Our attention
confer upon it not autonomy which may be conceded but license which cannot be 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. WHEREFORE, the appealed order of the Honorable Arsenio Santos, the Judge of the
That, in effect, would deprive our tribunals of judicial discretion and render them Court of First Instance, dated May 18, 1964, is affirmed. With costs against
mere subordinate instrumentalities of the Veterans' Administrator." oppositor-appelant Benguet Consolidated, Inc.

It is bad enough as the Viloria decision made patent for our judiciary to accept as
final and conclusive, determinations made by foreign governmental agencies. It is
infinitely worse if through the absence of any coercive power by our courts over
juridical persons within our jurisdiction, the force and effectivity of their orders could
be made to depend on the whim or caprice of alien entities. It is difficult to imagine
of a situation more offensive to the dignity of the bench or the honor of the country.

Yet that would be the effect, even if unintended, of the proposition to which
appellant Benguet Consolidated seems to be firmly committed as shown by its failure
to accept the validity of the order complained of; it seeks its reversal. Certainly we
must at all pains see to it that it does not succeed. The deplorable consequences
attendant on appellant prevailing attest to the necessity of negative response from
us. That is what appellant will get.

That is all then that this case presents. It is obvious why the appeal cannot succeed.
It is always easy to conjure extreme and even oppressive possibilities. That is not
decisive. It does not settle the issue. What carries weight and conviction is the result
arrived at, the just solution obtained, grounded in the soundest of legal doctrines
and distinguished by its correspondence with what a sense of realism requires. For
through the appealed order, the imperative requirement of justice according to law
is satisfied and national dignity and honor maintained.
G.R. No. L-17295 July 30, 1962 formed by Filipinos could continue to engage in the retail business until the
expiration of its term.
ANG PUE & COMPANY, ET AL., plaintiffs-appellants, vs. SECRETARY OF COMMERCE
AND INDUSTRY, defendant-appellee. 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
DIZON, J.: 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
Action for declaratory relief filed in the Court of First Instance of Iloilo by Ang Pue & amended articles were presented for registration in the Office of the Securities &
Company, Ang Pue and Tan Siong against the Secretary of Commerce and Industry to Exchange Commission on April 16, 1958, registration was refused upon the ground
secure judgment "declaring that plaintiffs could extend for five years the term of the that the extension was in violation of the aforesaid Act.
partnership pursuant to the provisions of plaintiffs' Amendment to the Article of Co-
partnership." From the decision of the lower court dismissing the action, with costs, the plaintiffs
interposed this appeal.
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 question before us is too clear to require an extended discussion. To organize a
the provisions of Republic Act No. 1180. 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
It appears that on May 1, 1953, Ang Pue and Tan Siong, both Chinese citizens, be enjoyed only under such terms as the State may deem necessary to impose. That
organized the partnership Ang Pue & Company for a term of five years from May 1, the State, through Congress, and in the manner provided by law, had the right to
1953, extendible by their mutual consent. The purpose of the partnership was "to enact Republic Act No. 1180 and to provide therein that only Filipinos and concerns
maintain the business of general merchandising, buying and selling at wholesale and wholly owned by Filipinos may engage in the retail business can not be seriously
retail, particularly of lumber, hardware and other construction materials for disputed. That this provision was clearly intended to apply to partnership already
commerce, either native or foreign." The corresponding articles of partnership existing at the time of the enactment of the law is clearly showing by its provision
(Exhibit B) were registered in the Office of the Securities & Exchange Commission on giving them the right to continue engaging in their retail business until the expiration
June 16, 1953. of their term or life.

On June 19, 1954 Republic Act No. 1180 was enacted to regulate the retail business. To argue that because the original articles of partnership provided that the partners
It provided, among other things, that, after its enactment, a partnership not wholly 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 cannot be deprived
without due process or without their consent. The agreement contain therein must
be deemed subject to the law existing at the time when the partners came to agree
regarding the extension. In the present case, as already stated, when the partners
amended the articles of partnership, the provisions of Republic Act 1180 were
already in force, and there can be not the slightest doubt that the right claimed by
appellants to extend the original term of their partnership to another five years
would be in violation of the clear intent and purpose of the law aforesaid.

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


G.R. No. L-19891 July 31, 1964 2) WHEREAS, the DEFENDANTS bind themselves, jointly and severally, and hereby
promise to pay their aforementioned obligation to the PLAINTIFF at its business
J.R.S. BUSINESS CORPORATION, J.R. DA SILVA and A.J. BELTRAN, petitioners, vs. address at 301-305 Banquero St., (Ground Floor), Regina Building, Escolta, Manila,
IMPERIAL INSURANCE, INC., MACARIO M. OFILADA, Sheriff of Manila and HON. within sixty (60) days from March 16, 1962 or on or before May 14, 1962;
AGUSTIN MONTESA, Judge of the Court of First Instance of Manila, respondents.
3) WHEREAS, in the event the DEFENDANTS FAIL to pay in full the total amount of
PAREDES, J.: 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
Petitioner J. R. Da Silva, is the President of the J.R.S. Business Corporation, an shall be entitled, as a matter of right, to move for the execution of the decision to be
establishment duly franchised by the Congress of the Philippines, to conduct a rendered in the above-entitled case by this Honorable Court based on this
messenger and delivery express service. On July 12, 1961, the respondent Imperial COMPROMISE AGREEMENT.
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 On March 17, 1962, the lower court rendered judgment embodying the contents of
have submitted their Answer, the parties entered into a Compromise Agreement, the said compromise agreement, the dispositive portion of which reads —
assisted by their respective counsels, the pertinent portions of which recite:
WHEREFORE, the Court hereby approves the above-quoted compromise agreement
1) WHEREAS, the DEFENDANTS admit and confess their joint and solidary and renders judgment in accordance therewith, enjoining the parties to comply
indebtedness to the PLAINTIFF in the full sum of PESOS SIXTY ONE THOUSAND ONE faithfully and strictly with the terms and conditions thereof, without special
HUNDRED SEVENTY-TWO & 32/100 (P61,172.32), Philippine Currency, itemized as pronouncement as to costs.
follows:
Wherefore, the parties respectfully pray that the foregoing stipulation of facts be
a) Principal P50,000.00 admitted and approved by this Honorable Court, without prejudice to the parties
b) Interest at 12% per annum 5,706.14 adducing other evidence to prove their case not covered by this stipulation of facts.
c) Liquidated damages at 7% per annum 3,330.58 1äwphï1.ñët
d) Costs of suit 135.60
e) Attorney's fees 2,000.00 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 dated May 26, 1962, and June 2, 1962 (the latter notice being for the
Notices of Sale were sent out for the auction of the personal properties of the whole capital stocks of the defendant, JRS Business Corporation, the business name,
petitioner J.R.S. Business Corporation. On June 2, 1962, a Notice of Sale of the right of operation, the whole assets, furnitures and equipments, the total liabilities
"whole capital stocks of the defendants JRS Business Corporation, the business and Net Worth, books of accounts, etc., etc.), were bought by respondent Imperial
name, right of operation, the whole assets, furnitures and equipments, the total Insurance, Inc., for P10,000.00, which was the highest bid offered. Immediately after
liabilities, and Net Worth, books of accounts, etc., etc." of the petitioner corporation the sale, respondent Insurance Company took possession of the proper ties and
was, handed down. On June 9, the petitioner, thru counsel, presented an "Urgent started running the affairs and operating the business of the JRS Business
Petition for Postponement of Auction Sale and for Release of Levy on the Business Corporation. Hence, the present appeal.
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; It would seem that the matters which need determination are (1) whether the
that the judgment was for money only and, therefore, plaintiff (respondent respondent Judge acted without or in excess of his jurisdiction or with grave abuse of
Insurance Company) was not authorized to take over and appropriate for its own discretion in promulgating the Order of June 21, 1962, denying the motion for
use, the business name of the defendants; that the right to operate under the postponement of the scheduled sale at public auction, of the properties of
franchise, was not transferable and could not be considered a personal or petitioner; and (2) whether the business name or trade name, franchise (right to
immovable, property, subject to levy and sale. On June 10, 1962, a Supplemental operate) and capital stocks of the petitioner are properties or property rights which
Motion for Release of Execution, was filed by counsel of petitioner JRS Business could be the subject of levy, execution and sale.
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 The respondent Court's act of postponing the scheduled sale was within the
pleading captioned "Very Urgent Motion for Postponement of Public Auction Sale discretion of respondent Judge, the exercise of which, one way or the other, did not
and for Ruling on Motion for Release of Levy on the Business Name, Right to Operate constitute grave abuse of discretion and/or excess of jurisdiction. There was a
and Capital Stocks of JRS Business Corporation". The auction sale was set for June 21, decision rendered and the corresponding writ of execution was issued. Respondent
1962. In said motion, petitioners alleged that the loan they had applied for, was to be Judge had jurisdiction over the matter and erroneous conclusions of law or fact, if
secured within the next ten (10) days, and they would be able to discharge the any, committed in the exercise of such jurisdiction are merely errors of judgment,
judgment debt. Respondents opposed the said motion and on June 21, 1962, the not correctible by certiorari (Villa Rey Transit v. Bello, et al., L-18957, April 23, 1963,
lower court denied the motion for postponement of the auction sale. and cases cited therein.)

In the sale which was conducted in the premises of the JRS Business Corporation at The corporation law, on forced sale of franchises, provides —
1341 Perez St., Paco, Manila, all the properties of said corporation contained in the
Any franchise granted to a corporation to collect tolls or to occupy, enjoy, or use streets of a municipality to lay pipes or tracks, erect poles or string wires." 2
public property or any portion of the public domain or any right of way over public Fletcher's Cyclopedia Corp. See. 1148; 14 C.J. p. 160; Adams v. Yazon & M. V. R. Co.,
property or the public domain, and any rights and privileges acquired under such 24 So. 200, 317, 28 So. 956, 77 Miss. 253, 60 L.R.A. 33 et seq.
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 The primary franchise of a corporation that is, the right to exist as such, is vested "in
proceeds of such franchise or right of way, in the same manner and with like effect the individuals who compose the corporation and not in the corporation itself" (14
as any other property to satisfy any judgment against the corporation: Provided, That C.J. pp. 160, 161; Adams v. Railroad, supra; 2 Fletcher's Cyclopedia Corp. Secs. 1153,
the sale of the franchise or right of way and the property necessary for the 1158; 3 Thompson on Corporations 2d Ed.] Secs. 2863, 2864), and cannot be
enjoyment, the exercise of the powers, and the receipt of the proceeds of said conveyed in the absence of a legislative authority so to do (14A CJ. 543, 577; 1
franchise or right of way is especially decreed and ordered in the judgment: And Fletcher's Cyc. Corp. Sec. 1224; Memphis & L.R.R. Co. v. Berry 5 S. Ct. 299, 112 U.S.
provided, further, That the sale shall not become effective until confirmed by the 609, 28 L.E.d. 837; Vicksburg Waterworks Co. v. Vicksburg, 26 S. Ct. 660, 202 U.S.
court after due notice. (Sec. 56, Corporation Law.) 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
In the case of Gulf Refining Co. v. Cleveland Trust Co., 108 So., 158, it was held — 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,
The first question then for decision is the meaning of the word "franchise" in the supra; 14A C.J. 542, 557; 3 Thompson on Corp. [2nd Ed.] Sec. 2909), except such
statute. 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.
"A franchise is a special privilege conferred by governmental authority, and which Commercial & R.R. Bank, supra; McAllister v. Plant, 54 Miss. 106).
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 The right to operate a messenger and express delivery service, by virtue of a
employed and the property and corporation to which it is applied. It may have legislative enactment, is admittedly a secondary franchise (R.A. No. 3260, entitled
different significations. "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
"For practical purposes, franchises, so far as relating to corporations, are divisible sale on execution together and including all the property necessary for the
into (1) corporate or general franchises; and (2) special or secondary franchises. The enjoyment thereof. The law, however, indicates the procedure under which the
former is the franchise to exist as a corporation, while the latter are certain rights same (secondary franchise and the properties necessary for its enjoyment) may be
and privileges conferred upon existing corporations, such as the right to use the sold under execution. Said franchise can be sold under execution, when such sale is
especially decreed and ordered in the judgment and it becomes effective only when
the sale is confirmed by the Court after due notice (Sec. 56, Corp. Law). The
compromise agreement and the judgment based thereon, do not contain any special
decree or order making the franchise answerable for the judgment debt. The same
thing may be stated with respect to petitioner's trade name or business name and its
capital stock. Incidentally, the trade name or business name corresponds to the
initials of the President of the petitioner corporation and there can be no serious
dispute regarding the fact that a trade name or business name and capital stock are
necessarily included in the enjoyment of the franchise. Like that of a franchise, the
law mandates, that property necessary for the enjoyment of said franchise, can only
be sold to satisfy a judgment debt if the decision especially so provides. As We have
stated heretofore, no such directive appears in the decision. Moreover, a trade name
or business name cannot be sold separately from the franchise, and the capital stock
of the petitioner corporation or any other corporation, for the matter, represents the
interest and is the property of stockholders in the corporation, who can only be
deprived thereof in the manner provided by law (Therbee v. Baker, 35 N.E. Eq. [8
Stew.] 501, 505; In re Wells' Estate, 144 N.W. 174, 177, Wis. 294, cited in 6 Words
and Phrases, 109).

It, therefore, results that the inclusion of the franchise, the trade name and/or
business name and the capital stock of the petitioner corporation, in the sale of the
properties of the JRS Business Corporation, has no justification. The sale of the
properties of petitioner corporation is set aside, in so far as it authorizes the levy and
sale of its franchise, trade name and capital stocks. Without pronouncement as to
costs.
G.R. No. L-4935 May 28, 1954 claim of ownership, adverse to the entire world by defendant and his predecessor in
interest" from "time in-memorial". The answer further alleges that registration of the
J. M. TUASON & CO., INC., represented by it Managing PARTNER, GREGORIA land in dispute was obtained by plaintiff or its predecessors in interest thru "fraud or
ARANETA, INC., plaintiff-appellee, vs. QUIRINO BOLAÑOS, defendant-appellant. error and without knowledge (of) or interest either personal or thru publication to
defendant and/or predecessors in interest." The answer therefore prays that the
REYES, J.: complaint be dismissed with costs and plaintiff required to reconvey the land to
defendant or pay its value.
This is an action originally brought in the Court of First Instance of Rizal, Quezon City
Branch, to recover possesion of registered land situated in barrio Tatalon, Quezon After trial, the lower court rendered judgment for plaintiff, declaring defendant to be
City. without any right to the land in question and ordering him to restore possession
thereof to plaintiff and to pay the latter a monthly rent of P132.62 from January,
Plaintiff's complaint was amended three times with respect to the extent and 1940, until he vacates the land, and also to pay the costs.
description of the land sought to be recovered. The original complaint described the
land as a portion of a lot registered in plaintiff's name under Transfer Certificate of Appealing directly to this court because of the value of the property involved,
Title No. 37686 of the land record of Rizal Province and as containing an area of 13 defendant makes the following assignment or errors:
hectares more or less. But the complaint was amended by reducing the area of 6
hectares, more or less, after the defendant had indicated the plaintiff's surveyors the I. The trial court erred in not dismissing the case on the ground that the case was not
portion of land claimed and occupied by him. The second amendment became brought by the real property in interest.
necessary and was allowed following the testimony of plaintiff's surveyors that a II. The trial court erred in admitting the third amended complaint.
portion of the area was embraced in another certificate of title, which was plaintiff's III. The trial court erred in denying defendant's motion to strike.
Transfer Certificate of Title No. 37677. And still later, in the course of trial, after IV. The trial court erred in including in its decision land not involved in the litigation.
defendant's surveyor and witness, Quirino Feria, had testified that the area occupied V. The trial court erred in holding that the land in dispute is covered by transfer
and claimed by defendant was about 13 hectares, as shown in his Exhibit 1, plaintiff certificates of Title Nos. 37686 and 37677.
again, with the leave of court, amended its complaint to make its allegations Vl. The trial court erred in not finding that the defendant is the true and lawful owner
conform to the evidence. of the land.
VII. The trial court erred in finding that the defendant is liable to pay the plaintiff the
Defendant, in his answer, sets up prescription and title in himself thru "open, amount of P132.62 monthly from January, 1940, until he vacates the premises.
continuous, exclusive and public and notorious possession (of land in dispute) under
VIII. The trial court erred in not ordering the plaintiff to reconvey the land in litigation Sec. 4. Amendment to conform to evidence. — When issues not raised by the
to the defendant. pleadings are tried by express or implied consent of the parties, they shall be treated
in all respects, as if they had been raised in the pleadings. Such amendment of the
As to the first assigned error, there is nothing to the contention that the present pleadings as may be necessary to cause them to conform to the evidence and to
action is not brought by the real party in interest, that is, by J. M. Tuason and Co., raise these issues may be made upon motion of any party at my time, even of the
Inc. What the Rules of Court require is that an action be brought in the name of, but trial of these issues. If evidence is objected to at the trial on the ground that it is not
not necessarily by, the real party in interest. (Section 2, Rule 2.) In fact the practice is within the issues made by the pleadings, the court may allow the pleadings to be
for an attorney-at-law to bring the action, that is to file the complaint, in the name of amended and shall be so freely when the presentation of the merits of the action will
the plaintiff. That practice appears to have been followed in this case, since the be subserved thereby and the objecting party fails to satisfy the court that the
complaint is signed by the law firm of Araneta and Araneta, "counsel for plaintiff" admission of such evidence would prejudice him in maintaining his action or defense
and commences with the statement "comes now plaintiff, through its undersigned upon the merits. The court may grant a continuance to enable the objecting party to
counsel." It is true that the complaint also states that the plaintiff is "represented meet such evidence.
herein by its Managing Partner Gregorio Araneta, Inc.", another corporation, but
there is nothing against one corporation being represented by another person, Under this provision amendment is not even necessary for the purpose of rendering
natural or juridical, in a suit in court. The contention that Gregorio Araneta, Inc. can judgment on issues proved though not alleged. Thus, commenting on the provision,
not act as managing partner for plaintiff on the theory that it is illegal for two Chief Justice Moran says in this Rules of Court:
corporations to enter into a partnership is without merit, for the true rule is that
"though a corporation has no power to enter into a partnership, it may nevertheless Under this section, American courts have, under the New Federal Rules of Civil
enter into a joint venture with another where the nature of that venture is in line Procedure, ruled that where the facts shown entitled plaintiff to relief other than
with the business authorized by its charter." (Wyoming-Indiana Oil Gas Co. vs. that asked for, no amendment to the complaint is necessary, especially where
Weston, 80 A. L. R., 1043, citing 2 Fletcher Cyc. of Corp., 1082.) There is nothing in defendant has himself raised the point on which recovery is based, and that the
the record to indicate that the venture in which plaintiff is represented by Gregorio appellate court treat the pleadings as amended to conform to the evidence, although
Araneta, Inc. as "its managing partner" is not in line with the corporate business of the pleadings were not actually amended. (I Moran, Rules of Court, 1952 ed., 389-
either of them. 390.)

Errors II, III, and IV, referring to the admission of the third amended complaint, may Our conclusion therefore is that specification of error II, III, and IV are without merit..
be answered by mere reference to section 4 of Rule 17, Rules of Court, which Let us now pass on the errors V and VI. Admitting, though his attorney, at the early
sanctions such amendment. It reads: stage of the trial, that the land in dispute "is that described or represented in Exhibit
A and in Exhibit B enclosed in red pencil with the name Quirino Bolaños," defendant by law is ineffective against a Torrens title. (Valiente vs. Judge of CFI of Tarlac,2 etc.,
later changed his lawyer and also his theory and tried to prove that the land in 45 Off. Gaz., Supp. 9, p. 43.) And it is likewise settled that the right to secure
dispute was not covered by plaintiff's certificate of title. The evidence, however, is possession under a decree of registration does not prescribed. (Francisco vs. Cruz, 43
against defendant, for it clearly establishes that plaintiff is the registered owner of Off. Gaz., 5105, 5109-5110.) A recent decision of this Court on this point is that
lot No. 4-B-3-C, situate in barrio Tatalon, Quezon City, with an area of 5,297,429.3 rendered in the case of Jose Alcantara et al., vs. Mariano et al., 92 Phil., 796. This
square meters, more or less, covered by transfer certificate of title No. 37686 of the disposes of the alleged errors V and VI.
land records of Rizal province, and of lot No. 4-B-4, situated in the same barrio,
having an area of 74,789 square meters, more or less, covered by transfer certificate As to error VII, it is claimed that `there was no evidence to sustain the finding that
of title No. 37677 of the land records of the same province, both lots having been defendant should be sentenced to pay plaintiff P132.62 monthly from January, 1940,
originally registered on July 8, 1914 under original certificate of title No. 735. The until he vacates the premises.' But it appears from the record that that reasonable
identity of the lots was established by the testimony of Antonio Manahan and compensation for the use and occupation of the premises, as stipulated at the
Magno Faustino, witnesses for plaintiff, and the identity of the portion thereof hearing was P10 a month for each hectare and that the area occupied by defendant
claimed by defendant was established by the testimony of his own witness, Quirico was 13.2619 hectares. The total rent to be paid for the area occupied should
Feria. The combined testimony of these three witnesses clearly shows that the therefore be P132.62 a month. It is appears from the testimony of J. A. Araneta and
portion claimed by defendant is made up of a part of lot 4-B-3-C and major on witness Emigdio Tanjuatco that as early as 1939 an action of ejectment had already
portion of lot 4-B-4, and is well within the area covered by the two transfer been filed against defendant. And it cannot be supposed that defendant has been
certificates of title already mentioned. This fact also appears admitted in defendant's paying rents, for he has been asserting all along that the premises in question 'have
answer to the third amended complaint. always been since time immemorial in open, continuous, exclusive and public and
notorious possession and under claim of ownership adverse to the entire world by
As the land in dispute is covered by plaintiff's Torrens certificate of title and was defendant and his predecessors in interest.' This assignment of error is thus clearly
registered in 1914, the decree of registration can no longer be impugned on the without merit.
ground of fraud, error or lack of notice to defendant, as more than one year has
already elapsed from the issuance and entry of the decree. Neither court the decree Error No. VIII is but a consequence of the other errors alleged and needs for further
be collaterally attacked by any person claiming title to, or interest in, the land prior consideration.
to the registration proceedings. (Soroñgon vs. Makalintal,1 45 Off. Gaz., 3819.) Nor
could title to that land in derogation of that of plaintiff, the registered owner, be During the pendency of this case in this Court appellant, thru other counsel, has filed
acquired by prescription or adverse possession. (Section 46, Act No. 496.) Adverse, a motion to dismiss alleging that there is pending before the Court of First Instance
notorious and continuous possession under claim of ownership for the period fixed of Rizal another action between the same parties and for the same cause and
seeking to sustain that allegation with a copy of the complaint filed in said action. But
an examination of that complaint reveals that appellant's allegation is not correct,
for the pretended identity of parties and cause of action in the two suits does not
appear. That other case is one for recovery of ownership, while the present one is for
recovery of possession. And while appellant claims that he is also involved in that
order action because it is a class suit, the complaint does not show that such is really
the case. On the contrary, it appears that the action seeks relief for each individual
plaintiff and not relief for and on behalf of others. The motion for dismissal is clearly
without merit.

Wherefore, the judgment appealed from is affirmed, with costs against the plaintiff.
G.R. No. 75875 December 15, 1989 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
WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM and CHARLES manufacturing in the Philippines and selling here and abroad vitreous china and
CHAMSAY, petitioners, vs. SANITARY WARES MANUFACTURING CORPORATOIN, sanitary wares. The parties agreed that the business operations in the Philippines
ERNESTO V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, shall be carried on by an incorporated enterprise and that the name of the
GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V. CRUZ, corporation shall initially be "Sanitary Wares Manufacturing Corporation."
respondents.
The Agreement has the following provisions relevant to the issues in these cases on
GUTIERREZ, JR., J.: the nomination and election of the directors of the corporation:

These consolidated petitions seek the review of the amended decision of the Court 3. Articles of Incorporation
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 (a) The Articles of Incorporation of the Corporation shall be substantially in the
subsequent elections for directors of Sanitary Wares Manufacturing Corporation form annexed hereto as Exhibit A and, insofar as permitted under Philippine law,
(Saniwares), American Standard Inc. (ASI) cannot nominate more than three (3) shall specifically provide for
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 (1) Cumulative voting for directors:
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, xxx xxx xxx
with cumulative voting to be allowed but without interference from ASI.
5. Management
The antecedent facts can be summarized as follows:
(a) The management of the Corporation shall be vested in a Board of Directors,
In 1961, Saniwares, a domestic corporation was incorporated for the primary which shall consist of nine individuals. As long as American-Standard shall own at
purpose of manufacturing and marketing sanitary wares. One of the incorporators, least 30% of the outstanding stock of the Corporation, three of the nine directors
Mr. Baldwin Young went abroad to look for foreign partners, European or American shall be designated by American-Standard, and the other six shall be designated by
who could help in its expansion plans. On August 15, 1962, ASI, a foreign corporation the other stockholders of the Corporation. (pp. 51 & 53, Rollo of 75875)
domiciled in Delaware, United States entered into an Agreement with Saniwares and
At the request of ASI, the agreement contained provisions designed to protect it as a and the legal advice of Saniwares' legal counsel. The following events then,
minority group, including the grant of veto powers over a number of corporate acts transpired:
and the right to designate certain officers, such as a member of the Executive
Committee whose vote was required for important corporate transactions. ... 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
Later, the 30% capital stock of ASI was increased to 40%. The corporation was also present that a vote be taken on the ruling of the Chairman. The Chairman, Baldwin
registered with the Board of Investments for availment of incentives with the Young, declared the appeal out of order and no vote on the ruling was taken. The
condition that at least 60% of the capital stock of the corporation shall be owned by Chairman then instructed the Corporate Secretary to cast all the votes present and
Philippine nationals. 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,
The joint enterprise thus entered into by the Filipino investors and the American namely, Luciano E. Salazar and Charles Chamsay. The ASI representative, Mr. Jaqua
corporation prospered. Unfortunately, with the business successes, there came a protested the decision of the Chairman and announced that all votes accruing to ASI
deterioration of the initially harmonious relations between the two groups. shares, a total of 1,329,695 (p. 27, Rollo, AC-G.R. SP No. 05617) were being
According to the Filipino group, a basic disagreement was due to their desire to cumulatively voted for the three ASI nominees and Charles Chamsay, and instructed
expand the export operations of the company to which ASI objected as it apparently the Secretary to so vote. Luciano E. Salazar and other proxy holders announced that
had other subsidiaries of joint joint venture groups in the countries where Philippine all the votes owned by and or represented by them 467,197 shares (p. 27, Rollo, AC-
exports were contemplated. On March 8, 1983, the annual stockholders' meeting G.R. SP No. 05617) were being voted cumulatively in favor of Luciano E. Salazar. The
was held. The meeting was presided by Baldwin Young. The minutes were taken by Chairman, Baldwin Young, nevertheless instructed the Secretary to cast all votes
the Secretary, Avelino Cruz. After disposing of the preliminary items in the agenda, equally in favor of the three ASI nominees, namely, Wolfgang Aurbach, John Griffin
the stockholders then proceeded to the election of the members of the board of and David Whittingham and the six originally nominated by Rogelio Vinluan, namely,
directors. The ASI group nominated three persons namely; Wolfgang Aurbach, John Ernesto Lagdameo, Sr., Raul Boncan, Ernesto Lagdameo, Jr., Enrique Lagdameo,
Griffin and David P. Whittingham. The Philippine investors nominated six, namely; George F. Lee, and Baldwin Young. The Secretary then certified for the election of
Ernesto Lagdameo, Sr., Raul A. Boncan, Ernesto R. Lagdameo, Jr., George F. Lee, and the following Wolfgang Aurbach, John Griffin, David Whittingham Ernesto Lagdameo,
Baldwin Young. Mr. Eduardo R, Ceniza then nominated Mr. Luciano E. Salazar, who in Sr., Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, Raul A. Boncan,
turn nominated Mr. Charles Chamsay. The chairman, Baldwin Young ruled the last Baldwin Young. The representative of ASI then moved to recess the meeting which
two nominations out of order on the basis of section 5 (a) of the Agreement, the was duly seconded. There was also a motion to adjourn (p. 28, Rollo, AC-G.R. SP No.
consistent practice of the parties during the past annual stockholders' meetings to 05617). This motion to adjourn was accepted by the Chairman, Baldwin Young, who
nominate only nine persons as nominees for the nine-member board of directors, announced that the motion was carried and declared the meeting adjourned.
Protests against the adjournment were registered and having been ignored, Mr. The two petitions were consolidated and tried jointly by a hearing officer who
Jaqua the ASI representative, stated that the meeting was not adjourned but only rendered a decision upholding the election of the Lagdameo Group and dismissing
recessed and that the meeting would be reconvened in the next room. The Chairman the quo warranto petition of Salazar and Chamsay. The ASI Group and Salazar
then threatened to have the stockholders who did not agree to the decision of the appealed the decision to the SEC en banc which affirmed the hearing officer's
Chairman on the casting of votes bodily thrown out. The ASI Group, Luciano E. decision.
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 The SEC decision led to the filing of two separate appeals with the Intermediate
Standard Building. The continued meeting was presided by Luciano E. Salazar, while Appellate Court by Wolfgang Aurbach, John Griffin, David Whittingham and Charles
Andres Gatmaitan acted as Secretary. On the basis of the cumulative votes cast Chamsay (docketed as AC-G.R. SP No. 05604) and by Luciano E. Salazar (docketed as
earlier in the meeting, the ASI Group nominated its four nominees; Wolfgang AC-G.R. SP No. 05617). The petitions were consolidated and the appellate court in its
Aurbach, John Griffin, David Whittingham and Charles Chamsay. Luciano E. Salazar decision ordered the remand of the case to the Securities and Exchange Commission
voted for himself, thus the said five directors were certified as elected directors by with the directive that a new stockholders' meeting of Saniwares be ordered
the Acting Secretary, Andres Gatmaitan, with the explanation that there was a tie convoked as soon as possible, under the supervision of the Commission.
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) Upon a motion for reconsideration filed by the appellees Lagdameo Group) the
appellate court (Court of Appeals) rendered the questioned amended decision.
These incidents triggered off the filing of separate petitions by the parties with the Petitioners Wolfgang Aurbach, John Griffin, David P. Whittingham and Charles
Securities and Exchange Commission (SEC). The first petition filed was for preliminary Chamsay in G.R. No. 75875 assign the following errors:
injunction by Saniwares, Emesto V. Lagdameo, Baldwin Young, Raul A. Bonean
Ernesto R. Lagdameo, Jr., Enrique Lagdameo and George F. Lee against Luciano I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED ELECTION OF
Salazar and Charles Chamsay. The case was denominated as SEC Case No. 2417. The PRIVATE RESPONDENTS AS MEMBERS OF THE BOARD OF DIRECTORS OF SANIWARES
second petition was for quo warranto and application for receivership by Wolfgang WHEN IN FACT THERE WAS NO ELECTION AT ALL.
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 II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS FROM EXERCISING
Avelino F. Cruz. The case was docketed as SEC Case No. 2718. Both sets of parties THEIR FULL VOTING RIGHTS REPRESENTED BY THE NUMBER OF SHARES IN
except for Avelino Cruz claimed to be the legitimate directors of the corporation. 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 THE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT PRIVATE
INTO THE AGREEMENT OF THE PARTIES WHICH WERE NOT THERE, WHICH ACTION IT PETITIONERS HEREIN WERE THE DULY ELECTED DIRECTORS DURING THE 8 MARCH
CANNOT LEGALLY DO. (p. 17, Rollo-75875) 1983 ANNUAL STOCKHOLDERS MEETING OF SANTWARES. (P. 24, Rollo-75951)

Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended decision on The issues raised in the petitions are interrelated, hence, they are discussed jointly.
the following grounds:
The main issue hinges on who were the duly elected directors of Saniwares for the
11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of binding contractual year 1983 during its annual stockholders' meeting held on March 8, 1983. To answer
agreements entered into by stockholders and the replacement of the conditions of this question the following factors should be determined: (1) the nature of the
such agreements with terms never contemplated by the stockholders but merely business established by the parties whether it was a joint venture or a corporation
dictated by the CA . and (2) whether or not the ASI Group may vote their additional 10% equity during
elections of Saniwares' board of directors.
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 The rule is that whether the parties to a particular contract have thereby established
group of stockholders may be illegally benefitted and guaranteed a continuing among themselves a joint venture or some other relation depends upon their actual
monopoly of the control of a corporation. (pp. 14-15, Rollo-75975-76) intention which is determined in accordance with the rules governing the
interpretation and construction of contracts. (Terminal Shares, Inc. v. Chicago, B. and
On the other hand, the petitioners in G.R. No. 75951 contend that: 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)
I
The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual
THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE RECOGNIZING THAT intention of the parties should be viewed strictly on the "Agreement" dated August
THE STOCKHOLDERS OF SANIWARES ARE DIVIDED INTO TWO BLOCKS, FAILS TO 15,1962 wherein it is clearly stated that the parties' intention was to form a
FULLY ENFORCE THE BASIC INTENT OF THE AGREEMENT AND THE LAW. corporation and not a joint venture.

II They specifically mention number 16 under Miscellaneous Provisions which states:

xxx xxx xxx


Contrary to ASI Group's stand, the Lagdameo and Young Group pleaded in their
c) nothing herein contained shall be construed to constitute any of the parties Reply and Answer to Counterclaim in SEC Case No. 2417 that the Agreement failed to
hereto partners or joint venturers in respect of any transaction hereunder. (At P. 66, express the true intent of the parties, to wit:
Rollo-GR No. 75875)
xxx xxx xxx
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 4. While certain provisions of the Agreement would make it appear that the
Group on the ground that it contravenes the parol evidence rule under section 7, parties thereto disclaim being partners or joint venturers such disclaimer is directed
Rule 130 of the Revised Rules of Court. According to them, the Lagdameo and Young at third parties and is not inconsistent with, and does not preclude, the existence of
Group never pleaded in their pleading that the "Agreement" failed to express the two distinct groups of stockholders in Saniwares one of which (the Philippine
true intent of the parties. Investors) shall constitute the majority, and the other ASI shall constitute the
minority stockholder. In any event, the evident intention of the Philippine Investors
The parol evidence Rule under Rule 130 provides: 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
Evidence of written agreements-When the terms of an agreement have been the parties, the latter shall prevail over the former (Art. 1370, New Civil Code). The
reduced to writing, it is to be considered as containing all such terms, and therefore, various stipulations of a contract shall be interpreted together attributing to the
there can be, between the parties and their successors in interest, no evidence of the doubtful ones that sense which may result from all of them taken jointly (Art. 1374,
terms of the agreement other than the contents of the writing, except in the New Civil Code). Moreover, in order to judge the intention of the contracting parties,
following cases: their contemporaneous and subsequent acts shall be principally considered. (Art.
1371, New Civil Code). (Part I, Original Records, SEC Case No. 2417)
(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 It has been ruled:
issue by the pleadings.
In an action at law, where there is evidence tending to prove that the parties joined
(b) When there is an intrinsic ambiguity in the writing. 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, otherwise than through ASI's Export Marketing Services [Sec. 13 (6)]. Under the
27 Wyo, 423, 200 P 96 33 C.J. p. 871) Agreement, ASI agreed to provide technology and know-how to Saniwares and the
latter paid royalties for the same. (At p. 2).
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 xxx xxx xxx
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 It is pertinent to note that the provisions of the Agreement requiring a 7 out of 9
policy making body are all consistent with a joint venture and not with an ordinary votes of the board of directors for certain actions, in effect gave ASI (which
corporation. As stated by the SEC: 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
According to the unrebutted testimony of Mr. Baldwin Young, he negotiated the super-majority voting requirements for amendments of the articles and by-laws; and
Agreement with ASI in behalf of the Philippine nationals. He testified that ASI agreed most significantly to the issues of tms case, the provision that ASI shall designate 3
to accept the role of minority vis-a-vis the Philippine National group of investors, on out of the 9 directors and the other stockholders shall designate the other 6, clearly
the condition that the Agreement should contain provisions to protect ASI as the indicate that there are two distinct groups in Saniwares, namely ASI, which owns
minority. 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
An examination of the Agreement shows that certain provisions were included to stockholder.
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 Premises considered, we believe that under the Agreement there are two groups of
Agreement]. ASI is contractually entitled to designate a member of the Executive stockholders who established a corporation with provisions for a special contractual
Committee and the vote of this member is required for certain transactions [Sec. 3 relationship between the parties, i.e., ASI and the other stockholders. (pp. 4-5)
(b) (i)].
Section 5 (a) of the agreement uses the word "designated" and not "nominated" or
The Agreement also requires a 75% super-majority vote for the amendment of the "elected" in the selection of the nine directors on a six to three ratio. Each group is
articles and by-laws of Saniwares [Sec. 3 (a) (iv) and (b) (iii)]. ASI is also given the right assured of a fixed number of directors in the board.
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 Moreover, ASI in its communications referred to the enterprise as joint venture.
by ASI [Sec. 13 (a)] and that Saniwares should not export "Standard" products 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 2. An agreement between two or more stockholders, if in writing and signed by
or joint venturers in respect of any transaction hereunder" was merely to obviate the the parties thereto, may provide that in exercising any voting rights, the shares held
possibility of the enterprise being treated as partnership for tax purposes and by them shall be voted as therein provided, or as they may agree, or as determined
liabilities to third parties. in accordance with a procedure agreed upon by them.

Quite often, Filipino entrepreneurs in their desire to develop the industrial and Appellants contend that the above provision is included in the Corporation Code's
manufacturing capacities of a local firm are constrained to seek the technology and chapter on close corporations and Saniwares cannot be a close corporation because
marketing assistance of huge multinational corporations of the developed world. it has 95 stockholders. Firstly, although Saniwares had 95 stockholders at the time of
Arrangements are formalized where a foreign group becomes a minority owner of a the disputed stockholders meeting, these 95 stockholders are not separate from
firm in exchange for its manufacturing expertise, use of its brand names, and other each other but are divisible into groups representing a single Identifiable interest. For
such assistance. However, there is always a danger from such arrangements. The example, ASI, its nominees and lawyers count for 13 of the 95 stockholders. The
foreign group may, from the start, intend to establish its own sole or monopolistic YoungYutivo family count for another 13 stockholders, the Chamsay family for 8
operations and merely uses the joint venture arrangement to gain a foothold or test stockholders, the Santos family for 9 stockholders, the Dy family for 7 stockholders,
the Philippine waters, so to speak. Or the covetousness may come later. As the etc. If the members of one family and/or business or interest group are considered
Philippine firm enlarges its operations and becomes profitable, the foreign group as one (which, it is respectfully submitted, they should be for purposes of
undermines the local majority ownership and actively tries to completely or determining how closely held Saniwares is there were as of 8 March 1983, practically
predominantly take over the entire company. This undermining of joint ventures is only 17 stockholders of Saniwares. (Please refer to discussion in pp. 5 to 6 of
not consistent with fair dealing to say the least. To the extent that such subversive appellees' Rejoinder Memorandum dated 11 December 1984 and Annex "A"
actions can be lawfully prevented, the courts should extend protection especially in thereof).
industries where constitutional and legal requirements reserve controlling ownership
to Filipino citizens. 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-
The Lagdameo Group stated in their appellees' brief in the Court of Appeal held corporation. Surely, appellants cannot honestly claim that Saniwares is a public
issue or a widely held corporation.
In fact, the Philippine Corporation Code itself recognizes the right of stockholders to
enter into agreements regarding the exercise of their voting rights. 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
Sec. 100. Agreements by stockholders.- primarily for public issue corporations. These courts have indicated that express
arrangements between corporate joint ventures should be construed with less corporations as defined by the Code? Suppose that a corporation has twenty five
emphasis on the ordinary rules of law usually applied to corporate entities and with stockholders, and therefore cannot qualify as a close corporation under section 96,
more consideration given to the nature of the agreement between the joint can some of them enter into an agreement to vote as a unit in the election of
venturers . These American cases dealt with legal questions as to the extent to which directors? It is submitted that there is no reason for denying stockholders of
the requirements arising from the corporate form of joint venture corporations corporations other than close ones the right to enter into not voting or pooling
should control, and the courts ruled that substantial justice lay with those litigants agreements to protect their interests, as long as they do not intend to commit any
who relied on the joint venture agreement rather than the litigants who relied on the wrong, or fraud on the other stockholders not parties to the agreement. Of course,
orthodox principles of corporation law. 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
As correctly held by the SEC Hearing Officer: 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
It is said that participants in a joint venture, in organizing the joint venture deviate entirely possible that a corporation which is in fact a close corporation will not come
from the traditional pattern of corporation management. A noted authority has within the definition. In such case, its stockholders should not be precluded from
pointed out that just as in close corporations, shareholders' agreements in joint entering into contracts like voting agreements if these are otherwise valid. (Campos
venture corporations often contain provisions which do one or more of the & Lopez-Campos, op cit, p. 405)
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 In short, even assuming that sec. 5(a) of the Agreement relating to the designation or
number of directors; (3) give to the shareholders control over the selection and nomination of directors restricts the right of the Agreement's signatories to vote for
retention of employees; and (4) set up a procedure for the settlement of disputes by directors, such contractual provision, as correctly held by the SEC, is valid and
arbitration (See I O' Neal, Close Corporations, 1971 ed., Section 1.06a, pp. 15-16) binding upon the signatories thereto, which include appellants. (Rollo No. 75951, pp.
(Decision of SEC Hearing Officer, P. 16) 90-94)

Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not necessarily imply In regard to the question as to whether or not the ASI group may vote their
that agreements regarding the exercise of voting rights are allowed only in close additional equity during elections of Saniwares' board of directors, the Court of
corporations. As Campos and Lopez-Campos explain: Appeals correctly stated:

Paragraph 2 refers to pooling and voting agreements in particular. Does this As in other joint venture companies, the extent of ASI's participation in the
provision necessarily imply that these agreements can be valid only in close 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 In our decision sought to be reconsidered, we opted to uphold the second over the
by the other stockholders, i.e., the Filipino stockholders. This allocation of board first. Upon further reflection, we feel that the proper and just solution to give due
seats is obviously in consonance with the minority position of ASI. consideration to both factors suggests itself quite clearly. This Court should recognize
and uphold the division of the stockholders into two groups, and at the same time
Having entered into a well-defined contractual relationship, it is imperative that the uphold the right of the stockholders within each group to cumulative voting in the
parties should honor and adhere to their respective rights and obligations process of determining who the group's nominees would be. In practical terms, as
thereunder. Appellants seem to contend that any allocation of board seats, even in suggested by appellant Luciano E. Salazar himself, this means that if the Filipino
joint venture corporations, are null and void to the extent that such may interfere stockholders cannot agree who their six nominees will be, a vote would have to be
with the stockholder's rights to cumulative voting as provided in Section 24 of the taken among the Filipino stockholders only. During this voting, each Filipino
Corporation Code. This Court should not be prepared to hold that any agreement stockholder can cumulate his votes. ASI, however, should not be allowed to interfere
which curtails in any way cumulative voting should be struck down, even if such in the voting within the Filipino group. Otherwise, ASI would be able to designate
agreement has been freely entered into by experienced businessmen and do not more than the three directors it is allowed to designate under the Agreement, and
prejudice those who are not parties thereto. It may well be that it would be more may even be able to get a majority of the board seats, a result which is clearly
cogent to hold, as the Securities and Exchange Commission has held in the decision contrary to the contractual intent of the parties.
appealed from, that cumulative voting rights may be voluntarily waived by
stockholders who enter into special relationships with each other to pursue and Such a ruling will give effect to both the allocation of the board seats and the
implement specific purposes, as in joint venture relationships between foreign and stockholder's right to cumulative voting. Moreover, this ruling will also give due
local stockholders, so long as such agreements do not adversely affect third parties. 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
In any event, it is believed that we are not here called upon to make a general rule nationalization requirements of the Constitution and the laws if ASI is allowed to
on this question. Rather, all that needs to be done is to give life and effect to the nominate more than three directors. (Rollo-75875, pp. 38-39)
particular contractual rights and obligations which the parties have assumed for
themselves. 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
On the one hand, the clearly established minority position of ASI and the contractual Corporation Code which gives the stockholders of a corporation the right to
allocation of board seats Cannot be disregarded. On the other hand, the rights of the cumulate their votes in electing directors. Petitioner Salazar adds that this right if
stockholders to cumulative voting should also be protected. 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 would seem therefore that under Philippine law, a joint venture is a form of
provides: 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
And provided finally that the election of aliens as members of the board of directors has held that although a corporation cannot enter into a partnership contract, it may
or governing body of corporations or associations engaging in partially nationalized however engage in a joint venture with others. (At p. 12, Tuazon v. Bolanos, 95 Phil.
activities shall be allowed in proportion to their allowable participation or share in 906 [1954]) (Campos and Lopez-Campos Comments, Notes and Selected Cases,
the capital of such entities. (amendments introduced by Presidential Decree 715, Corporation Code 1981)
section 1, promulgated May 28, 1975)
Moreover, the usual rules as regards the construction and operations of contracts
The ASI Group's argument is correct within the context of Section 24 of the generally apply to a contract of joint venture.
Corporation Code. The point of query, however, is whether or not that provision is
applicable to a joint venture with clearly defined agreements: 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
The legal concept of ajoint venture is of common law origin. It has no precise legal agreement of the parties.
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 Necessarily, the appellate court was correct in upholding the agreement of the
distinguishable from the partnership, since their elements are similar community of parties as regards the allocation of director seats under Section 5 (a) of the
interest in the business, sharing of profits and losses, and a mutual right of control. "Agreement," and the right of each group of stockholders to cumulative voting in the
Blackner v. Mc Dermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P. 2d., process of determining who the group's nominees would be under Section 3 (a) (1)
1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12 289 P. 2d. 242 of the "Agreement." As pointed out by SEC, Section 5 (a) of the Agreement relates to
[1955]). The main distinction cited by most opinions in common law jurisdictions is the manner of nominating the members of the board of directors while Section 3 (a)
that the partnership contemplates a general business with some degree of (1) relates to the manner of voting for these nominees.
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 This is the proper interpretation of the Agreement of the parties as regards the
[1931]; Harmon v. Martin, 395 111. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 election of members of the board of directors.
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
To allow the ASI Group to vote their additional equity to help elect even a Filipino agreement exists considering that in limiting 3 board seats in the 9-man board of
director who would be beholden to them would obliterate their minority status as directors there are provisions already agreed upon and embodied in the parties'
agreed upon by the parties. As aptly stated by the appellate court: Agreement to protect the interests arising from the minority status of the foreign
investors.
... 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 With these findings, we the decisions of the SEC Hearing Officer and SEC which were
allowed to designate under the Agreement, and may even be able to get a majority impliedly affirmed by the appellate court declaring Messrs. Wolfgang Aurbach, John
of the board seats, a result which is clearly contrary to the contractual intent of the Griffin, David P Whittingham, Emesto V. Lagdameo, Baldwin young, Raul A. Boncan,
parties. 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.
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 On the other hand, the Lagdameo and Young Group (petitioners in G.R. No. 75951)
consideration to the issue raised by the appellees on possible violation or object to a cumulative voting during the election of the board of directors of the
circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and the enterprise as ruled by the appellate court and submits that the six (6) directors
nationalization requirements of the Constitution and the laws if ASI is allowed to allotted the Filipino stockholders should be selected by consensus pursuant to
nominate more than three directors. (At p. 39, Rollo, 75875) section 5 (a) of the Agreement which uses the word "designate" meaning "nominate,
delegate or appoint."
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 They also stress the possibility that the ASI Group might take control of the
enterprise in violation of the nationalization requirements enshrined in the enterprise if the Filipino stockholders are allowed to select their nominees separately
Constitution and circumvention of the Anti-Dummy Act. In this regard, petitioner and not as a common slot determined by the majority of their group.
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, Section 5 (a) of the Agreement which uses the word designates in the allocation of
however, that the same law also limits the election of aliens as members of the board directors should not be interpreted in isolation. This should be construed in
board of directors in proportion to their allowance participation of said entity. In the relation to section 3 (a) (1) of the Agreement. As we stated earlier, section 3(a) (1)
instant case, the foreign Group ASI was limited to designate three directors. This is relates to the manner of voting for these nominees which is cumulative voting while
the allowable participation of the ASI Group. Hence, in future dealings, this limitation section 5(a) relates to the manner of nominating the members of the board of
of six to three board seats should always be maintained as long as the joint venture
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.
G.R. No. 15574 September 17, 1919 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.,
SMITH, BELL & COMPANY (LTD.), petitioner, vs. JOAQUIN NATIVIDAD, Collector of were not citizens either of the United States or of the Philippine Islands. The instant
Customs of the port of Cebu, respondent. action is the result.

MALCOLM, J.: LAW.

A writ of mandamus is prayed for by Smith, Bell & Co. (Ltd.), against Joaquin The Act of Congress of April 29, 1908, repealing the Shipping Act of April 30, 1906 but
Natividad, Collector of Customs of the port of Cebu, Philippine Islands, to compel him reenacting a portion of section 3 of this Law, and still in force, provides in its section
to issue a certificate of Philippine registry to the petitioner for its motor vessel Bato. 1:
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 That until Congress shall have authorized the registry as vessels of the United States
action. While the facts are thus admitted, and while, moreover, the pertinent of vessels owned in the Philippine Islands, the Government of the Philippine Islands
provisions of law are clear and understandable, and interpretative American is hereby authorized to adopt, from time to time, and enforce regulations governing
jurisprudence is found in abundance, yet the issue submitted is not lightly to be the transportation of merchandise and passengers between ports or places in the
resolved. The question, flatly presented, is, whether Act. No. 2761 of the Philippine Philippine Archipelago. (35 Stat. at L., 70; Section 3912, U. S. Comp Stat. [1916]; 7
Legislature is valid — or, more directly stated, whether the Government of the Pub. Laws, 364.)
Philippine Islands, through its Legislature, can deny the registry of vessels in its
coastwise trade to corporations having alien stockholders. 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
FACTS. follows.

Smith, Bell & Co., (Ltd.), is a corporation organized and existing under the laws of the SEC. 3. That no law shall be enacted in said Islands which shall deprive any person of
Philippine Islands. A majority of its stockholders are British subjects. It is the owner life, liberty, or property without due process of law, or deny to any person therein
of a motor vessel known as the Bato built for it in the Philippine Islands in 1916, of the equal protection of the laws. . . .
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. SEC. 6. That the laws now in force in the Philippines shall continue in force and
Application was made at Cebu, the home port of the vessel, to the Collector of 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 SEC. 31. That all laws or parts of laws applicable to the Philippines not in conflict with
United States. any of the provisions of this Act are hereby continued in force and effect." (39 Stat at
L., 546.)
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 On February 23, 1918, the Philippine Legislature enacted Act No. 2761. The first
law, civil or criminal, continued in force by this Act as it may from time to time see fit section of this law amended section 1172 of the Administrative Code to read as
follows:

This power shall specifically extend with the limitation herein provided as to the SEC. 1172. Certificate of Philippine register. — Upon registration of a vessel of
tariff to all laws relating to revenue provided as to the tariff to all laws relating to domestic ownership, and of more than fifteen tons gross, a certificate of Philippine
revenue and taxation in effect in the Philippines. 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
SEC. 8. That general legislative power, except as otherwise herein provided, is with the owner.
hereby granted to the Philippine Legislature, authorized by this Act.
"Domestic ownership," as used in this section, means ownership vested in some one
SEC. 10. That while this Act provides that the Philippine government shall have the or more of the following classes of persons: (a) Citizens or native inhabitants of the
authority to enact a tariff law the trade relations between the islands and the United Philippine Islands; (b) citizens of the United States residing in the Philippine Islands;
States shall continue to be governed exclusively by laws of the Congress of the (c) any corporation or company composed wholly of citizens of the Philippine Islands
United States: Provided, That tariff acts or acts amendatory to the tariff of the or of the United States or of both, created under the laws of the United States, or of
Philippine Islands shall not become law until they shall receive the approval of the any State thereof, or of thereof, or the managing agent or master of the vessel
President of the United States, nor shall any act of the Philippine Legislature affecting resides in the Philippine Islands
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 Any vessel of more than fifteen gross tons which on February eighth, nineteen
President shall approve or disapprove any act mentioned in the foregoing proviso hundred and eighteen, had a certificate of Philippine register under existing law,
within six months from and after its enactment and submission for his approval, and shall likewise be deemed a vessel of domestic ownership so long as there shall not be
if not disapproved within such time it shall become a law the same as if it had been any change in the ownership thereof nor any transfer of stock of the companies or
specifically approved. corporations owning such vessel to person not included under the last preceding
paragraph.
Predicated on these facts and provisions of law, the issues as above stated recur,
Sections 2 and 3 of Act No. 2761 amended sections 1176 and 1202 of the namely, whether Act No 2761 of the Philippine Legislature is valid in whole or in part
Administrative Code to read as follows: — whether the Government of the Philippine Islands, through its Legislature, can
deny the registry of vessel in its coastwise trade to corporations having alien
SEC. 1176. Investigation into character of vessel. — No application for a certificate of stockholders .
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 OPINION.
trade and that it is of domestic ownership as such ownership is defined in section
eleven hundred and seventy-two of this Code. 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
The collector of customs may at any time inspect a vessel or examine its owner, Congress of April 29, 1908, with its specific delegation of authority to the
master, crew, or passengers in order to ascertain whether the vessel is engaged in Government of the Philippine Islands to regulate the transportation of merchandise
legitimate trade and is entitled to have or retain the certificate of Philippine register. 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,
SEC. 1202. Limiting number of foreign officers and engineers on board vessels. — No and the grant by the Act of Congress of August 29, 1916, of general legislative power
Philippine vessel operating in the coastwise trade or on the high seas shall be to the Philippine Legislature, are certainly superabundant authority for such a law.
permitted to have on board more than one master or one mate and one engineer While the Act of the local legislature may in a way be inconsistent with the Act of
who are not citizens of the United States or of the Philippine Islands, even if they Congress regulating the coasting trade of the Continental United States, yet the
hold licenses under section one thousand one hundred and ninety-nine hereof. No general rule that only such laws of the United States have force in the Philippines as
other person who is not a citizen of the United States or of the Philippine Islands are expressly extended thereto, and the abnegation of power by Congress in favor of
shall be an officer or a member of the crew of such vessel. Any such vessel which the Philippine Islands would leave no starting point for convincing argument. As a
fails to comply with the terms of this section shall be required to pay an additional matter of fact, counsel for petitioner does not assail legislative action from this
tonnage tax of fifty centavos per net ton per month during the continuance of said direction (See U. S. vs. Bull [1910], 15 Phil., 7; Sinnot vs. Davenport [1859] 22 How.,
failure. 227.)

ISSUES. 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 the scope of the guaranties in so far as their property is concerned. (Santa Clara
Islands which shall deprive any person of life, liberty, or property without due County vs. Southern Pac. R. R. Co. [1886], 118.U. S., 394; Pembina Mining Co. vs.
process of law, or deny to any person therein the equal protection of the laws." Pennsylvania [1888],.125 U. S., 181 Covington & L. Turnpike Road Co. vs. Sandford
Counsel says that Act No. 2761 denies to Smith, Bell & Co., Ltd., the equal protection [1896], 164 U. S., 578.) Classification with the end in view of providing diversity of
of the laws because it, in effect, prohibits the corporation from owning vessels, and treatment may be made among corporations, but must be based upon some
because classification of corporations based on the citizenship of one or more of reasonable ground and not be a mere arbitrary selection (Gulf, Colorado & Santa Fe
their stockholders is capricious, and that Act No. 2761 deprives the corporation of its Railway Co. vs. Ellis [1897],.165 U. S., 150.) Examples of laws held unconstitutional
properly without due process of law because by the passage of the law company was because of unlawful discrimination against aliens could be cited. Generally, these
automatically deprived of every beneficial attribute of ownership in the Bato and left decisions relate to statutes which had attempted arbitrarily to forbid aliens to
with the naked title to a boat it could not use . engage in ordinary kinds of business to earn their living. (State vs. Montgomery
[1900], 94 Maine, 192, peddling — but see. Commonwealth vs. Hana [1907], 195
The guaranties extended by the Congress of the United States to the Philippine Mass., 262; Templar vs. Board of Examiners of Barbers [1902], 131 Mich., 254,
Islands have been used in the same sense as like provisions found in the United barbers; Yick Wo vs. Hopkins [1886], 118 U. S.,.356, discrimination against Chinese;
States Constitution. While the "due process of law and equal protection of the laws" Truax vs. Raich [1915], 239 U. S., 33; In re Parrott [1880], 1 Fed , 481; Fraser vs.
clause of the Philippine Bill of Rights is couched in slightly different words than the McConway & Torley Co. [1897], 82 Fed , 257; Juniata Limestone Co. vs. Fagley [1898],
corresponding clause of the Fourteenth Amendment to the United States 187 Penn., 193, all relating to the employment of aliens by private corporations.)
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. A literal application of general principles to the facts before us would, of course,
S.,.470; U. S. vs. Bull [1910], 15 Phil., 7.) The meaning of the Fourteenth Amendment cause the inevitable deduction that Act No. 2761 is unconstitutional by reason of its
has been announced in classic decisions of the United States Supreme Court. Even at denial to a corporation, some of whole members are foreigners, of the equal
the expense of restating what is so well known, these basic principles must again be protection of the laws. Like all beneficient propositions, deeper research discloses
set down in order to serve as the basis of this decision. 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,
The guaranties of the Fourteenth Amendment and so of the first paragraph of the licenses to sell spirituous liquors denied to persons not citizens of the United States;
Philippine Bill of Rights, are universal in their application to all person within the Commonwealth vs. Hana [1907], 195 Mass , 262, excluding aliens from the right to
territorial jurisdiction, without regard to any differences of race, color, or nationality. peddle; Patsone vs. Commonwealth of Pennsylvania [1914], 232 U. S. , 138,
The word "person" includes aliens. (Yick Wo vs. Hopkins [1886], 118 U. S., 356; Truax prohibiting the killing of any wild bird or animal by any unnaturalized foreign-born
vs. Raich [1915], 239 U. S., 33.) Private corporations, likewise, are "persons" within 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 232U. S., 138.) Still another exception permits of the limitation of employment in the
found in the public waters of the State; Heim vs. McCall [1915], 239 U. S.,.175, and construction of public works by, or for, the State or a municipality to citizens of the
Crane vs. New York [1915], 239 U. S., 195, limiting employment on public works by, United States or of the State. (Atkin vs. Kansas [1903],191 U. S., 207; Heim vs. McCall
or for, the State or a municipality to citizens of the United States.) [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
One of the exceptions to the general rule, most persistent and far reaching in prevented; the question is a practical one, dependent upon experience. (Patsone vs.
influence is, that neither the Fourteenth Amendment to the United States Commonwealth of Pennsylvania [1914], 232 U. S., 138.)
Constitution, broad and comprehensive as it is, nor any other amendment, "was
designed to interfere with the power of the State, sometimes termed its `police To justify that portion of Act no. 2761 which permits corporations or companies to
power,' to prescribe regulations to promote the health, peace, morals, education, obtain a certificate of Philippine registry only on condition that they be composed
and good order of the people, and legislate so as to increase the industries of the wholly of citizens of the Philippine Islands or of the United States or both, as not
State, develop its resources and add to its wealth and prosperity. From the very infringing Philippine Organic Law, it must be done under some one of the exceptions
necessities of society, legislation of a special character, having these objects in view, here mentioned This must be done, moreover, having particularly in mind what is so
must often be had in certain districts." (Barbier vs. Connolly [1884], 113 U.S., 27; often of controlling effect in this jurisdiction — our local experience and our peculiar
New Orleans Gas Co. vs. Lousiana Light Co. [1885], 115 U.S., 650.) This is the same local conditions.
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 To recall a few facts in geography, within the confines of Philippine jurisdictional
of its people." (Bacon vs. Walker [1907], 204 U.S., 311.) For quite similar reasons, limits are found more than three thousand islands. Literally, and absolutely,
none of the provision of the Philippine Organic Law could could have had the effect steamship lines are, for an Insular territory thus situated, the arteries of commerce.
of denying to the Government of the Philippine Islands, acting through its If one be severed, the life-blood of the nation is lost. If on the other hand these
Legislature, the right to exercise that most essential, insistent, and illimitable of arteries are protected, then the security of the country and the promotion of the
powers, the sovereign police power, in the promotion of the general welfare and the general welfare is sustained. Time and again, with such conditions confronting it, has
public interest. (U. S. vs. Toribio [1910], 15 Phil., 85; Churchill and Tait vs. Rafferty the executive branch of the Government of the Philippine Islands, always later with
[1915], 32 Phil., 580; Rubi vs. Provincial Board of Mindoro [1919], 39 Phil., 660.) the sanction of the judicial branch, taken a firm stand with reference to the presence
Another notable exception permits of the regulation or distribution of the public of undesirable foreigners. The Government has thus assumed to act for the all-
domain or the common property or resources of the people of the State, so that use sufficient and primitive reason of the benefit and protection of its own citizens and
may be limited to its citizens. (Ex parte Gilleti [1915], 70 Fla., 442; McCready vs. of the self-preservation and integrity of its dominion. (In re Patterson [1902], 1 Phil.,
Virginia [1876], 94 U. S., 391; Patsone vs. Commonwealth of Pennsylvania [1914], 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 Under the 14th Amendment the objection is twofold; unjustifiably depriving the
solid and reputable firms as the instant claimant, might indeed traverse the waters of alien of property, and discrimination against such aliens as a class. But the former
the Philippines for ages without doing any particular harm. Again, some evilminded really depends upon the latter, since it hardly can be disputed that if the lawful
foreigner might very easily take advantage of such lavish hospitality to chart object, the protection of wild life (Geer vs. Connecticut, 161 U.S., 519; 40 L. ed., 793;
Philippine waters, to obtain valuable information for unfriendly foreign powers, to 16 Sup. Ct. Rep., 600), warrants the discrimination, the, means adopted for making it
stir up insurrection, or to prejudice Filipino or American commerce. Moreover, under effective also might be adopted. . . .
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 The discrimination undoubtedly presents a more difficult question. But we start with
Code; Spanish Law of Waters of August 3, 1866, arts 1, 2, 3.) Common carriers which reference to the evil to be prevented, and that if the class discriminated against is or
in the Philippines as in the United States and other countries are, as Lord Hale said, reasonably might be considered to define those from whom the evil mainly is to be
"affected with a public interest," can only be permitted to use these public waters as feared, it properly may be picked out. A lack of abstract symmetry does not matter.
a privilege and under such conditions as to the representatives of the people may The question is a practical one, dependent upon experience. . . .
seem wise. (See De Villata vs. Stanley [1915], 32 Phil., 541.)
The question therefore narrows itself to whether this court can say that the
In Patsone vs. Commonwealth of Pennsylvania ([1913], 232 U.S., 138), a case herein legislature of Pennsylvania was not warranted in assuming as its premise for the law
before mentioned, Justice Holmes delivering the opinion of the United States that resident unnaturalized aliens were the peculiar source of the evil that it desired
Supreme Court said: to prevent. (Barrett vs. Indiana,. 229 U.S., 26, 29; 57 L. ed., 1050, 1052; 33 Sup. Ct.
Rep., 692.)
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 Obviously the question, so stated, is one of local experience, on which this court
it unlawful for such foreign-born person to own or be possessed of a shotgun or rifle; ought to be very slow to declare that the state legislature was wrong in its facts
with a penalty of $25 and a forfeiture of the gun or guns. The plaintiff in error was (Adams vs. Milwaukee, 228 U.S., 572, 583; 57 L. ed., 971,.977; 33 Sup. Ct. Rep., 610.)
found guilty and was sentenced to pay the abovementioned fine. The judgment was If we might trust popular speech in some states it was right; but it is enough that this
affirmed on successive appeals. (231 Pa., 46; 79 Atl., 928.) He brings the case to this court has no such knowledge of local conditions as to be able to say that it was
court on the ground that the statute is contrary to the 14th Amendment and also is manifestly wrong. . . .
in contravention of the treaty between the United States and Italy, to which latter
country the plaintiff in error belongs . Judgment affirmed.
We are inclined to the view that while Smith, Bell & Co. Ltd., a corporation having benefits of American registry, it must belong wholly to a citizen or citizens of the
alien stockholders, is entitled to the protection afforded by the due-process of law United States "and no other." (1 Stat. at L., 55.) That Act was shortly after repealed,
and equal protection of the laws clause of the Philippine Bill of Rights, nevertheless, but the same idea was carried into the Acts of Congress of December 31, 1792 and
Act No. 2761 of the Philippine Legislature, in denying to corporations such as Smith, February 18, 1793. (1 Stat. at L., 287, 305.).Section 4 of the Act of 1792 provided that
Bell &. Co. Ltd., the right to register vessels in the Philippines coastwise trade, does in order to obtain the registry of any vessel, an oath shall be taken and subscribed by
not belong to that vicious species of class legislation which must always be the owner, or by one of the owners thereof, before the officer authorized to make
condemned, but does fall within authorized exceptions, notably, within the purview such registry, declaring, "that there is no subject or citizen of any foreign prince or
of the police power, and so does not offend against the constitutional provision. 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
This opinion might well be brought to a close at this point. It occurs to us, however, went so far as to say "that if any licensed ship or vessel shall be transferred to any
that the legislative history of the United States and the Philippine Islands, and, person who is not at the time of such transfer a citizen of and resident within the
probably, the legislative history of other countries, if we were to take the time to United States, ... every such vessel with her tackle, apparel, and furniture, and the
search it out, might disclose similar attempts at restriction on the right to enter the cargo found on board her, shall be forefeited." In case of alienation to a foreigner,
coastwise trade, and might thus furnish valuable aid by which to ascertain and, if Chief Justice Marshall said that all the privileges of an American bottom were ipso
possible, effectuate legislative intention. facto forfeited. (U.S. vs. Willings and Francis [1807], 4 Cranch, 48.) Even as late as
1873, the Attorney-General of the United States was of the opinion that under the
3. The power to regulate commerce, expressly delegated to the Congress by provisions of the Act of December 31, 1792, no vessel in which a foreigner is directly
the Constitution, includes the power to nationalize ships built and owned in the or indirectly interested can lawfully be registered as a vessel of the United. States.
United States by registries and enrollments, and the recording of the muniments of (14 Op. Atty.-Gen. [U.S.], 340.)
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 These laws continued in force without contest, although possibly the Act of March 3,
extremes." (U.S. vs. Craig [1886], 28 Fed., 795; Gibbons vs. Ogden [1824], 9 Wheat., 1825, may have affected them, until amended by the Act of May 28, 1896 (29 Stat. at
1; The Passenger Cases [1849], 7 How., 283.) 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
Acting within the purview of such power, the first Congress of the United States had of the states thereof. The law, as amended, made possible the deduction that a
not been long convened before it enacted on September 1, 1789, "An Act for vessel belonging to a domestic corporation was entitled to registry or enrollment
Registering and Clearing Vessels, Regulating the Coasting Trade, and for other even though some stock of the company be owned by aliens. The right of ownership
purposes." Section 1 of this law provided that for any ship or vessel to obtain the 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. intention of the United States Congress in passing navigation or tariff laws on
Arnaud [1846], 9 Q. B., 806; 29 Op. Atty.-Gen. [U.S.],188.) 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
On American occupation of the Philippines, the new government found a substantive American ship-owners exclusive privileges. (Old Dominion Steamship Co. vs. Virginia
law in operation in the Islands with a civil law history which it wisely continued in [1905], 198 U.S., 299; Kent's Commentaries, Vol. 3, p. 139.)
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 In the concurring opinion of Justice Johnson in Gibbons vs. Ogden ([1824], 9 Wheat.,
nation. When the Philippine Commission came to enact the Customs Administrative 1) is found the following:
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 Licensing acts, in fact, in legislation, are universally restraining acts; as, for example,
States or by native inhabitants of the Philippine Islands (Sec. 117.) Two years later, acts licensing gaming houses, retailers of spirituous liquors, etc. The act, in this
the same body reverted to the existing Congressional law by permitting certification instance, is distinctly of that character, and forms part of an extensive system, the
to be issued to a citizen of the United States or to a corporation or company created object of which is to encourage American shipping, and place them on an equal
under the laws of the United States or of any state thereof or of the Philippine footing with the shipping of other nations. Almost every commercial nation reserves
Islands (Act No. 1235, sec. 3.) The two administration codes repeated the same to its own subjects a monopoly of its coasting trade; and a countervailing privilege in
provisions with the necessary amplification of inclusion of citizens or native favor of American shipping is contemplated, in the whole legislation of the United
inhabitants of the Philippine Islands (Adm. Code of 1916, sec. 1345; Adm. Code of States on this subject. It is not to give the vessel an American character, that the
1917, sec. 1172). And now Act No. 2761 has returned to the restrictive idea of the license is granted; that effect has been correctly attributed to the act of her
original Customs Administrative Act which in turn was merely a reflection of the enrollment. But it is to confer on her American privileges, as contradistinguished
statutory language of the first American Congress. from foreign; and to preserve the. Government from fraud by foreigners, in
surreptitiously intruding themselves into the American commercial marine, as well as
Provisions such as those in Act No. 2761, which deny to foreigners the right to a frauds upon the revenue in the trade coastwise, that this whole system is projected.
certificate of Philippine registry, are thus found not to be as radical as a first reading
would make them appear. 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
Without any subterfuge, the apparent purpose of the Philippine Legislature is seen to and trade, it decreed, could only be carried on by citizens of the United States. If the
be to enact an anti-alien shipping act. The ultimate purpose of the Legislature is to representatives of the American people acted in this patriotic manner to advance the
encourage Philippine ship-building. This, without doubt, has, likewise, been 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 Philippine Islands, and to citizens of the United States, does not violate the
power, with the prime motive of safeguarding the country and of promoting its provisions of paragraph 1 of section 3 of the Act of Congress of August 29, 1916 No
prosperity? Quite similarly, the Philippine Legislature made up entirely of Filipinos, treaty right relied upon Act No. 2761 of the Philippine Legislature is held valid and
representing the mandate of the Filipino people and the guardian of their rights, constitutional .
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 petition for a writ of mandamus is denied, with costs against the petitioner. So
the common property exclusively by its citizens and the citizens of the United States, ordered.
and protection for the common good of the people. Who can say, therefore,
especially can a court, that with all the facts and circumstances affecting the Filipino
people before it, the Philippine Legislature has erred in the enactment of Act No.
2761?

Surely, the members of the judiciary are not expected to live apart from active life, in
monastic seclusion amidst dusty tomes and ancient records, but, as keen spectators
of passing events and alive to the dictates of the general — the national — welfare,
can incline the scales of their decisions in favor of that solution which will most
effectively promote the public policy. All the presumption is in favor of the
constitutionally of the law and without good and strong reasons, courts should not
attempt to nullify the action of the Legislature. "In construing a statute enacted by
the Philippine Commission (Legislature), we deem it our duty not to give it a
construction which would be repugnant to an Act of Congress, if the language of the
statute is fairly susceptible of another construction not in conflict with the higher
law." (In re Guariña [1913], 24. Phil., 36; U.S. vs. Ten Yu [1912], 24 Phil., 1.) That is
the true construction which will best carry legislative intention into effect.

With full consciousness of the importance of the question, we nevertheless are


clearly of the opinion that the limitation of domestic ownership for purposes of
obtaining a certificate of Philippine registry in the coastwise trade to citizens of the
G.R. No. L-19550 June 19, 1967
Books of accounts, financial records, vouchers, correspondence, receipts, ledgers,
HARRY S. STONEHILL, ROBERT P. BROOKS, JOHN J. BROOKS and KARL BECK, journals, portfolios, credit journals, typewriters, and other documents and/or papers
petitioners, showing all business transactions including disbursements receipts, balance sheets
vs. and profit and loss statements and Bobbins (cigarette wrappers).
HON. JOSE W. DIOKNO, in his capacity as SECRETARY OF JUSTICE; JOSE LUKBAN, in
his capacity as Acting Director, National Bureau of Investigation; SPECIAL as "the subject of the offense; stolen or embezzled and proceeds or fruits of the
PROSECUTORS PEDRO D. CENZON, EFREN I. PLANA and MANUEL VILLAREAL, JR. and offense," or "used or intended to be used as the means of committing the offense,"
ASST. FISCAL MANASES G. REYES; JUDGE AMADO ROAN, Municipal Court of Manila; which is described in the applications adverted to above as "violation of Central Bank
JUDGE ROMAN CANSINO, Municipal Court of Manila; JUDGE HERMOGENES CALUAG, Laws, Tariff and Customs Laws, Internal Revenue (Code) and the Revised Penal
Court of First Instance of Rizal-Quezon City Branch, and JUDGE DAMIAN JIMENEZ, Code."
Municipal Court of Quezon City, respondents.
Alleging that the aforementioned search warrants are null and void, as contravening
Paredes, Poblador, Cruz and Nazareno and Meer, Meer and Meer and Juan T. David the Constitution and the Rules of Court — because, inter alia: (1) they do not
for petitioners. describe with particularity the documents, books and things to be seized; (2) cash
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Pacifico P. money, not mentioned in the warrants, were actually seized; (3) the warrants were
de Castro, Assistant Solicitor General Frine C. Zaballero, Solicitor Camilo D. Quiason issued to fish evidence against the aforementioned petitioners in deportation cases
and Solicitor C. Padua for respondents. filed against them; (4) the searches and seizures were made in an illegal manner; and
(5) the documents, papers and cash money seized were not delivered to the courts
CONCEPCION, C.J.: 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,
Upon application of the officers of the government named on the margin1 — prohibition, mandamus and injunction, and prayed that, pending final disposition of
hereinafter referred to as Respondents-Prosecutors — several judges2 — hereinafter the present case, a writ of preliminary injunction be issued restraining Respondents-
referred to as Respondents-Judges — issued, on different dates,3 a total of 42 search Prosecutors, their agents and /or representatives from using the effects seized as
warrants against petitioners herein4 and/or the corporations of which they were aforementioned or any copies thereof, in the deportation cases already adverted to,
officers,5 directed to the any peace officer, to search the persons above-named and that, in due course, thereafter, decision be rendered quashing the contested
and/or the premises of their offices, warehouses and/or residences, and to seize and search warrants and declaring the same null and void, and commanding the
take possession of the following personal property to wit: 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, have been impaired thereby,9 and that the objection to an unlawful search and
things and cash moneys seized or confiscated under the search warrants in question. 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
In their answer, respondents-prosecutors alleged, 6 (1) that the contested search documents, papers and things seized from the offices and premises of the
warrants are valid and have been issued in accordance with law; (2) that the defects corporations adverted to above, since the right to object to the admission of said
of said warrants, if any, were cured by petitioners' consent; and (3) that, in any papers in evidence belongs exclusively to the corporations, to whom the seized
event, the effects seized are admissible in evidence against herein petitioners, effects belong, and may not be invoked by the corporate officers in proceedings
regardless of the alleged illegality of the aforementioned searches and seizures. against them in their individual capacity. 11 Indeed, it has been held:

On March 22, 1962, this Court issued the writ of preliminary injunction prayed for in . . . that the Government's action in gaining possession of papers belonging to the
the petition. However, by resolution dated June 29, 1962, the writ was partially lifted corporation did not relate to nor did it affect the personal defendants. If these
or dissolved, insofar as the papers, documents and things seized from the offices of papers were unlawfully seized and thereby the constitutional rights of or any one
the corporations above mentioned are concerned; but, the injunction was were invaded, they were the rights of the corporation and not the rights of the other
maintained as regards the papers, documents and things found and seized in the defendants. Next, it is clear that a question of the lawfulness of a seizure can be
residences of petitioners herein.7 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
Thus, the documents, papers, and things seized under the alleged authority of the had not been seized or the privacy of whose homes had not been disturbed; nor
warrants in question may be split into two (2) major groups, namely: (a) those found could they claim for themselves the benefits of the Fourth Amendment, when its
and seized in the offices of the aforementioned corporations, and (b) those found violation, if any, was with reference to the rights of another. Remus vs. United States
and seized in the residences of petitioners herein. (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
As regards the first group, we hold that petitioners herein have no cause of action to personal defendants but embraces only the corporation whose property was taken. .
assail the legality of the contested warrants and of the seizures made in pursuance . . (A Guckenheimer & Bros. Co. vs. United States, [1925] 3 F. 2d. 786, 789, Emphasis
thereof, for the simple reason that said corporations have their respective supplied.)
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 With respect to the documents, papers and things seized in the residences of
corporations, and whatever the offices they hold therein may be.8 Indeed, it is well petitioners herein, the aforementioned resolution of June 29, 1962, lifted the writ of
settled that the legality of a seizure can be contested only by the party whose rights preliminary injunction previously issued by this Court, 12 thereby, in effect,
restraining herein Respondents-Prosecutors from using them in evidence against Customs Laws, Internal Revenue (Code) and Revised Penal Code." In other words, no
petitioners herein. specific offense had been alleged in said applications. The averments thereof with
respect to the offense committed were abstract. As a consequence, it was impossible
In connection with said documents, papers and things, two (2) important questions for the judges who issued the warrants to have found the existence of probable
need be settled, namely: (1) whether the search warrants in question, and the cause, for the same presupposes the introduction of competent proof that the party
searches and seizures made under the authority thereof, are valid or not, and (2) if against whom it is sought has performed particular acts, or committed specific
the answer to the preceding question is in the negative, whether said documents, omissions, violating a given provision of our criminal laws. As a matter of fact, the
papers and things may be used in evidence against petitioners herein.1äwphï1.ñët 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
Petitioners maintain that the aforementioned search warrants are in the nature of "violation of Central Bank Laws, Tariff and Customs Laws, Internal Revenue (Code)
general warrants and that accordingly, the seizures effected upon the authority there and Revised Penal Code," — as alleged in the aforementioned applications —
of are null and void. In this connection, the Constitution 13 provides: without reference to any determinate provision of said laws or

The right of the people to be secure in their persons, houses, papers, and effects To uphold the validity of the warrants in question would be to wipe out completely
against unreasonable searches and seizures shall not be violated, and no warrants one of the most fundamental rights guaranteed in our Constitution, for it would
shall issue but upon probable cause, to be determined by the judge after place the sanctity of the domicile and the privacy of communication and
examination under oath or affirmation of the complainant and the witnesses he may correspondence at the mercy of the whims caprice or passion of peace officers. This
produce, and particularly describing the place to be searched, and the persons or is precisely the evil sought to be remedied by the constitutional provision above
things to be seized. 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
Two points must be stressed in connection with this constitutional mandate, namely: the minority is likely to wrest it, even though by legal means.
(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 Such is the seriousness of the irregularities committed in connection with the
particularly describe the things to be seized. 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
None of these requirements has been complied with in the contested warrants. Revised Rules of Court 15 that "a search warrant shall not issue but upon probable
Indeed, the same were issued upon applications stating that the natural and juridical cause in connection with one specific offense." Not satisfied with this qualification,
person therein named had committed a "violation of Central Ban Laws, Tariff and
the Court added thereto a paragraph, directing that "no search warrant shall issue unreasonable searches and seizures is protected by means other than the exclusion
for more than one specific offense." 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
The grave violation of the Constitution made in the application for the contested search warrant and against those assisting in the execution of an illegal search, their
search warrants was compounded by the description therein made of the effects to criminal punishment, resistance, without liability to an unlawful seizure, and such
be searched for and seized, to wit: other legal remedies as may be provided by other laws.

Books of accounts, financial records, vouchers, journals, correspondence, receipts, However, most common law jurisdictions have already given up this approach and
ledgers, portfolios, credit journals, typewriters, and other documents and/or papers eventually adopted the exclusionary rule, realizing that this is the only practical
showing all business transactions including disbursement receipts, balance sheets means of enforcing the constitutional injunction against unreasonable searches and
and related profit and loss statements. seizures. In the language of Judge Learned Hand:

Thus, the warrants authorized the search for and seizure of records pertaining to all As we understand it, the reason for the exclusion of evidence competent as such,
business transactions of petitioners herein, regardless of whether the transactions which has been unlawfully acquired, is that exclusion is the only practical way of
were legal or illegal. The warrants sanctioned the seizure of all records of the enforcing the constitutional privilege. In earlier times the action of trespass against
petitioners and the aforementioned corporations, whatever their nature, thus the offending official may have been protection enough; but that is true no longer.
openly contravening the explicit command of our Bill of Rights — that the things to Only in case the prosecution which itself controls the seizing officials, knows that it
be seized be particularly described — as well as tending to defeat its major objective: cannot profit by their wrong will that wrong be repressed.18
the elimination of general warrants.
In fact, over thirty (30) years before, the Federal Supreme Court had already
Relying upon Moncado vs. People's Court (80 Phil. 1), Respondents-Prosecutors declared:
maintain that, even if the searches and seizures under consideration were
unconstitutional, the documents, papers and things thus seized are admissible in If letters and private documents can thus be seized and held and used in evidence
evidence against petitioners herein. Upon mature deliberation, however, we are against a citizen accused of an offense, the protection of the 4th Amendment,
unanimously of the opinion that the position taken in the Moncado case must be declaring his rights to be secure against such searches and seizures, is of no value,
abandoned. Said position was in line with the American common law rule, that the and, so far as those thus placed are concerned, might as well be stricken from the
criminal should not be allowed to go free merely "because the constable has Constitution. The efforts of the courts and their officials to bring the guilty to
blundered," 16 upon the theory that the constitutional prohibition against 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 evidence seized in violation of its provisions. Even Wolf "stoutly adhered" to that
in their embodiment in the fundamental law of the land.19 proposition. The right to when conceded operatively enforceable against the States,
was not susceptible of destruction by avulsion of the sanction upon which its
This view was, not only reiterated, but, also, broadened in subsequent decisions on protection and enjoyment had always been deemed dependent under the Boyd,
the same Federal Court. 20 After reviewing previous decisions thereon, said Court Weeks and Silverthorne Cases. Therefore, in extending the substantive protections of
held, in Mapp vs. Ohio (supra.): due process to all constitutionally unreasonable searches — state or federal — it was
logically and constitutionally necessarily that the exclusion doctrine — an essential
. . . Today we once again examine the Wolf's constitutional documentation of the part of the right to privacy — be also insisted upon as an essential ingredient of the
right of privacy free from unreasonable state intrusion, and after its dozen years on right newly recognized by the Wolf Case. In short, the admission of the new
our books, are led by it to close the only courtroom door remaining open to evidence constitutional Right by Wolf could not tolerate denial of its most important
secured by official lawlessness in flagrant abuse of that basic right, reserved to all constitutional privilege, namely, the exclusion of the evidence which an accused had
persons as a specific guarantee against that very same unlawful conduct. We hold been forced to give by reason of the unlawful seizure. To hold otherwise is to grant
that all evidence obtained by searches and seizures in violation of the Constitution is, the right but in reality to withhold its privilege and enjoyment. Only last year the
by that same authority, inadmissible in a State. 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
Since the Fourth Amendment's right of privacy has been declared enforceable — by removing the incentive to disregard it" . . . .
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 The ignoble shortcut to conviction left open to the State tends to destroy the entire
Federal Government. Were it otherwise, then just as without the Weeks rule the system of constitutional restraints on which the liberties of the people rest. Having
assurance against unreasonable federal searches and seizures would be "a form of once recognized that the right to privacy embodied in the Fourth Amendment is
words," valueless and underserving of mention in a perpetual charter of inestimable enforceable against the States, and that the right to be secure against rude invasions
human liberties, so too, without that rule the freedom from state invasions of of privacy by state officers is, therefore constitutional in origin, we can no longer
privacy would be so ephemeral and so neatly severed from its conceptual nexus with permit that right to remain an empty promise. Because it is enforceable in the same
the freedom from all brutish means of coercing evidence as not to permit this Court's manner and to like effect as other basic rights secured by its Due Process Clause, we
high regard as a freedom "implicit in the concept of ordered liberty." At the time that can no longer permit it to be revocable at the whim of any police officer who, in the
the Court held in Wolf that the amendment was applicable to the States through the name of law enforcement itself, chooses to suspend its enjoyment. Our decision,
Due Process Clause, the cases of this Court as we have seen, had steadfastly held founded on reason and truth, gives to the individual no more than that which the
that as to federal officers the Fourth Amendment included the exclusion of 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 Apartments, House No. 2008, Dewey Boulevard, House No. 1436, Colorado Street,
the true administration of justice. (emphasis ours.) and Room No. 304 of the Army-Navy Club, should be included among the premises
considered in said Resolution as residences of herein petitioners, Harry S. Stonehill,
Indeed, the non-exclusionary rule is contrary, not only to the letter, but also, to the Robert P. Brook, John J. Brooks and Karl Beck, respectively, and that, furthermore,
spirit of the constitutional injunction against unreasonable searches and seizures. To the records, papers and other effects seized in the offices of the corporations above
be sure, if the applicant for a search warrant has competent evidence to establish referred to include personal belongings of said petitioners and other effects under
probable cause of the commission of a given crime by the party against whom the their exclusive possession and control, for the exclusion of which they have a
warrant is intended, then there is no reason why the applicant should not comply standing under the latest rulings of the federal courts of federal courts of the United
with the requirements of the fundamental law. Upon the other hand, if he has no States. 22
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 We note, however, that petitioners' theory, regarding their alleged possession of and
possible explanation (not justification) for its issuance is the necessity of fishing control over the aforementioned records, papers and effects, and the alleged
evidence of the commission of a crime. But, then, this fishing expedition is indicative "personal" nature thereof, has Been Advanced, not in their petition or amended
of the absence of evidence to establish a probable cause. 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
Moreover, the theory that the criminal prosecution of those who secure an illegal readjustment of that followed in said petitions, to suit the approach intimated in the
search warrant and/or make unreasonable searches or seizures would suffice to Resolution sought to be reconsidered and amended. Then, too, some of the
protect the constitutional guarantee under consideration, overlooks the fact that affidavits or copies of alleged affidavits attached to said motion for reconsideration,
violations thereof are, in general, committed By agents of the party in power, for, or submitted in support thereof, contain either inconsistent allegations, or
certainly, those belonging to the minority could not possibly abuse a power they do allegations inconsistent with the theory now advanced by petitioners herein.
not have. Regardless of the handicap under which the minority usually — but,
understandably — finds itself in prosecuting agents of the majority, one must not Upon the other hand, we are not satisfied that the allegations of said petitions said
lose sight of the fact that the psychological and moral effect of the possibility 21 of motion for reconsideration, and the contents of the aforementioned affidavits and
securing their conviction, is watered down by the pardoning power of the party for other papers submitted in support of said motion, have sufficiently established the
whose benefit the illegality had been committed. 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
In their Motion for Reconsideration and Amendment of the Resolution of this Court rate, we do not deem it necessary to express our opinion thereon, it being best to
dated June 29, 1962, petitioners allege that Rooms Nos. 81 and 91 of Carmen leave the matter open for determination in appropriate cases in the future.
2. All the searches and seizures conducted under the authority of the said search
We hold, therefore, that the doctrine adopted in the Moncado case must be, as it is warrants were consequently illegal;
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; 3. The non-exclusionary rule enunciated in Moncado vs. People, 80 Phil. 1, should be,
that the searches and seizures therein made are illegal; that the writ of preliminary and is declared, abandoned;
injunction heretofore issued, in connection with the documents, papers and other
effects thus seized in said residences of herein petitioners is hereby made 4. The search warrants served at the three residences of the petitioners are expressly
permanent; that the writs prayed for are granted, insofar as the documents, papers declared null and void the searches and seizures therein made are expressly declared
and other effects so seized in the aforementioned residences are concerned; that the illegal; and the writ of preliminary injunction heretofore issued against the use of the
aforementioned motion for Reconsideration and Amendment should be, as it is documents, papers and effect seized in the said residences is made permanent; and
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- 5. Reasoning that the petitioners have not in their pleadings satisfactorily
nine (29) places, offices and other premises enumerated in the same Resolution, demonstrated that they have legal standing to move for the suppression of the
without special pronouncement as to costs. documents, papers and effects seized in the places other than the three residences
adverted to above, the opinion written by the Chief Justice refrains from expressly
It is so ordered. declaring as null and void the such warrants served at such other places and as illegal
the searches and seizures made therein, and leaves "the matter open for
CASTRO, J., concurring and dissenting: determination in appropriate cases in the future."

From my analysis of the opinion written by Chief Justice Roberto Concepcion and It is precisely the position taken by the Chief Justice summarized in the immediately
from the import of the deliberations of the Court on this case, I gather the following preceding paragraph (numbered 5) with which I am not in accord.
distinct conclusions:
I do not share his reluctance or unwillingness to expressly declare, at this time, the
1. All the search warrants served by the National Bureau of Investigation in this case nullity of the search warrants served at places other than the three residences, and
are general warrants and are therefore proscribed by, and in violation of, paragraph the illegibility of the searches and seizures conducted under the authority thereof. In
3 of section 1 of Article III (Bill of Rights) of the Constitution; 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 and seizure, may be summarized as follows; (a) ownership of documents, papers and
this case are admittedly general, blanket and roving warrants and are therefore effects gives "standing;" (b) ownership and/or control or possession — actual or
admittedly and indisputably outlawed by the Constitution; and the searches and constructive — of premises searched gives "standing"; and (c) the "aggrieved
seizures made were therefore unlawful. That the petitioners, let us assume in gratia person" doctrine where the search warrant and the sworn application for search
argumente, have no legal standing to ask for the suppression of the papers, things warrant are "primarily" directed solely and exclusively against the "aggrieved
and effects seized from places other than their residences, to my mind, cannot in any person," gives "standing."
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 An examination of the search warrants in this case will readily show that, excepting
not the petitioners possess legal standing the said warrants are void and remain void, three, all were directed against the petitioners personally. In some of them, the
and the searches and seizures were illegal and remain illegal. No inference can be petitioners were named personally, followed by the designation, "the President
drawn from the words of the Constitution that "legal standing" or the lack of it is a and/or General Manager" of the particular corporation. The three warrants excepted
determinant of the nullity or validity of a search warrant or of the lawfulness or named three corporate defendants. But the "office/house/warehouse/premises"
illegality of a search or seizure. mentioned in the said three warrants were also the same
"office/house/warehouse/premises" declared to be owned by or under the control
On the question of legal standing, I am of the conviction that, upon the pleadings of the petitioners in all the other search warrants directed against the petitioners
submitted to this Court the petitioners have the requisite legal standing to move for and/or "the President and/or General Manager" of the particular corporation. (see
the suppression and return of the documents, papers and effects that were seized pages 5-24 of Petitioners' Reply of April 2, 1962). The searches and seizures were to
from places other than their family residences. be made, and were actually made, in the "office/house/warehouse/premises"
owned by or under the control of the petitioners.
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 Ownership of matters seized gives "standing."
judicial construction and interpretation of the said constitutional provision, our
courts have invariably regarded as doctrinal the pronouncement made on the Fourth Ownership of the properties seized alone entitles the petitioners to bring a motion to
Amendment by federal courts, especially the Federal Supreme Court and the Federal return and suppress, and gives them standing as persons aggrieved by an unlawful
Circuit Courts of Appeals. 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
The U.S. doctrines and pertinent cases on standing to move for the suppression or defendant); Henzel vs. United States, 296 F. 2d. 650, 652-53 (5th Cir. 1961), (personal
return of documents, papers and effects which are the fruits of an unlawful search 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 Control of premises searched gives "standing."
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 Independent of ownership or other personal interest in the records and documents
owned by nor in exclusive possession of the defendant). 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
In a very recent case (decided by the U.S. Supreme Court on December 12, 1966), it proprietary and leasehold interests have been sufficiently set forth in their motion
was held that under the constitutional provision against unlawful searches and for reconsideration and need not be recounted here, except to emphasize that the
seizures, a person places himself or his property within a constitutionally protected petitioners paid rent, directly or indirectly, for practically all the premises searched
area, be it his home or his office, his hotel room or his automobile: (Room 91, 84 Carmen Apts; Room 304, Army & Navy Club; Premises 2008, Dewey
Boulevard; 1436 Colorado Street); maintained personal offices within the corporate
Where the argument falls is in its misapprehension of the fundamental nature and offices (IBMC, USTC); had made improvements or furnished such offices; or had paid
scope of Fourth Amendment protection. What the Fourth Amendment protects is for the filing cabinets in which the papers were stored (Room 204, Army & Navy
the security a man relies upon when he places himself or his property within a Club); and individually, or through their respective spouses, owned the controlling
constitutionally protected area, be it his home or his office, his hotel room or his stock of the corporations involved. The petitioners' proprietary interest in most, if
automobile. There he is protected from unwarranted governmental intrusion. And not all, of the premises searched therefore independently gives them standing to
when he puts some thing in his filing cabinet, in his desk drawer, or in his pocket, he move for the return and suppression of the books, papers and affects seized
has the right to know it will be secure from an unreasonable search or an therefrom.
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 In Jones vs. United States, supra, the U.S. Supreme Court delineated the nature and
private papers in Gouled, or the surreptitious electronic surveilance in Silverman. extent of the interest in the searched premises necessary to maintain a motion to
Countless other cases which have come to this Court over the years have involved a suppress. After reviewing what it considered to be the unduly technical standard of
myriad of differing factual contexts in which the protections of the Fourth the then prevailing circuit court decisions, the Supreme Court said (362 U.S. 266):
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 We do not lightly depart from this course of decisions by the lower courts. We are
situations to which the Fourth Amendment may be applicable. (Hoffa vs. U.S., 87 S. persuaded, however, that it is unnecessarily and ill-advised to import into the law
Ct. 408 (December 12, 1966). See also U.S. vs. Jeffers, 342 U.S. 48, 72 S. Ct. 93 surrounding the constitutional right to be free from unreasonable searches and
(November 13, 1951). (Emphasis supplied). 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, Robert Jackson joined by Justice Felix Frankfurter, advanced the view that "even a
has been shaped by distinctions whose validity is largely historical. Even in the area guest may expect the shelter of the rooftree he is under against criminal intrusion."
from which they derive, due consideration has led to the discarding of those This view finally became the official view of the U.S. Supreme Court and was
distinctions in the homeland of the common law. See Occupiers' Liability Act, 1957, 5 articulated in United States vs. Jeffers, 432 U.S 48 (1951). Nine years later, in 1960, in
and 6 Eliz. 2, c. 31, carrying out Law Reform Committee, Third Report, Cmd. 9305. Jones vs. Unite States, 362 U.S. 257, 267, the U.S. Supreme Court went a step
Distinctions such as those between "lessee", "licensee," "invitee," "guest," often only further. Jones was a mere guest in the apartment unlawfully searched but the Court
of gossamer strength, ought not be determinative in fashioning procedures nonetheless declared that the exclusionary rule protected him as well. The concept
ultimately referable to constitutional safeguards. See also Chapman vs. United of "person aggrieved by an unlawful search and seizure" was enlarged to include
States, 354 U.S. 610, 616-17 (1961). "anyone legitimately on premise where the search occurs."

It has never been held that a person with requisite interest in the premises searched Shortly after the U.S. Supreme Court's Jones decision the U.S. Court of Appeals for
must own the property seized in order to have standing in a motion to return and the Fifth Circuit held that the defendant organizer, sole stockholder and president of
suppress. In Alioto vs. United States, 216 F. Supp. 48 (1963), a Bookkeeper for several a corporation had standing in a mail fraud prosecution against him to demand the
corporations from whose apartment the corporate records were seized successfully return and suppression of corporate property. Henzel vs. United States, 296 F 2d
moved for their return. In United States vs. Antonelli, Fireworks Co., 53 F. Supp. 870, 650, 652 (5th Cir. 1961), supra. The court conclude that the defendant had standing
873 (W D. N. Y. 1943), the corporation's president successfully moved for the return on two independent grounds: First — he had a sufficient interest in the property
and suppression is to him of both personal and corporate documents seized from his seized, and second — he had an adequate interest in the premises searched (just like
home during the course of an illegal search: 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
The lawful possession by Antonelli of documents and property, "either his own or the Jones, the court observed:
corporation's was entitled to protection against unreasonable search and seizure.
Under the circumstances in the case at bar, the search and seizure were Jones clearly tells us, therefore, what is not required qualify one as a "person
unreasonable and unlawful. The motion for the return of seized article and the aggrieved by an unlawful search and seizure." It tells us that appellant should not
suppression of the evidence so obtained should be granted. (Emphasis supplied). 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
Time was when only a person who had property in interest in either the place ownership or possession of the books and records or a substantial possessory
searched or the articles seize had the necessary standing to invoke the protection of interest in the invade premises . . . (Henzel vs. United States, 296 F. 2d at 651). .
the exclusionary rule. But in MacDonald vs. Unite States, 335 U.S. 461 (1948), Justice
Henzel was soon followed by Villano vs. United States, 310 F. 2d 680, 683, (10th Cir. The latest United States decision squarely in point is United States vs. Birrell, 242 F.
1962). In Villano, police officers seized two notebooks from a desk in the defendant's Supp. 191 (1965, U.S.D.C. S.D.N.Y.). The defendant had stored with an attorney
place of employment; the defendant did not claim ownership of either; he asserted certain files and papers, which attorney, by the name of Dunn, was not, at the time
that several employees (including himself) used the notebooks. The Court held that of the seizing of the records, Birrell's attorney. * Dunn, in turn, had stored most of
the employee had a protected interest and that there also was an invasion of the records at his home in the country and on a farm which, according to Dunn's
privacy. Both Henzel and Villano considered also the fact that the search and seizure affidavit, was under his (Dunn's) "control and management." The papers turned out
were "directed at" the moving defendant. Henzel vs. United States, 296 F. 2d at 682; to be private, personal and business papers together with corporate books and
Villano vs. United States, 310 F. 2d at 683. 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,
In a case in which an attorney closed his law office, placed his files in storage and the search in Birrell was held invalid by the court which held that even though Birrell
went to Puerto Rico, the Court of Appeals for the Eighth Circuit recognized his did not own the premises where the records were stored, he had "standing" to move
standing to move to quash as unreasonable search and seizure under the Fourth for the return of all the papers and properties seized. The court, relying on Jones vs.
Amendment of the U.S. Constitution a grand jury subpoena duces tecum directed to U.S., supra; U.S. vs. Antonelli Fireworks Co., 53 F. Supp. 870, Aff'd 155 F. 2d 631:
the custodian of his files. The Government contended that the petitioner had no Henzel vs. U.S., supra; and Schwimmer vs. U.S., supra, pointed out that
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 It is overwhelmingly established that the searches here in question were directed
rejected the contention, holding that 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
Schwimmer legally had such possession, control and unrelinquished personal rights having been used "in committing a violation of Title 18, United States Code, Section
in the books and papers as not to enable the question of unreasonable search and 1341, by the use of the mails by one Lowell M. Birrell, . . ." The second search
seizure to be escaped through the mere procedural device of compelling a third- warrant was captioned: "United States of America vs. Lowell M. Birrell. (p. 198)
party naked possessor to produce and deliver them. Schwimmer vs. United States,
232 F. 2d 855, 861 (8th Cir. 1956). Possession (actual or constructive), no less than ownership, gives standing to move
to suppress. Such was the rule even before Jones. (p. 199)
Aggrieved person doctrine where the search warrant s primarily directed against said
person gives "standing." 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 should be: (a) personal or private papers of the petitioners were they were
U.S. 48, 72 S. Ct. 93, 96 L. Ed. 459 (1951). 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
The ruling in the Birrell case was reaffirmed on motion for reargument; the United search and in the sworn applications filed in securing the void search warrants and
States did not appeal from this decision. The factual situation in Birrell is strikingly (b) purely corporate papers belonging to corporations. Under such categorization or
similar to the case of the present petitioners; as in Birrell, many personal and grouping, the determination of which unlawfully seized papers, documents and
corporate papers were seized from premises not petitioners' family residences; as in things are personal/private of the petitioners or purely corporate papers will have to
Birrell, the searches were "PRIMARILY DIRECTED SOLETY AND EXCLUSIVELY" against be left to the lower courts which issued the void search warrants in ultimately
the petitioners. Still both types of documents were suppressed in Birrell because of effecting the suppression and/or return of the said documents.
the illegal search. In the case at bar, the petitioners connection with the premises
raided is much closer than in Birrell. And as unequivocally indicated by the authorities above cited, the petitioners
likewise have clear legal standing to move for the suppression of purely corporate
Thus, the petitioners have full standing to move for the quashing of all the warrants papers as "President and/or General Manager" of the corporations involved as
regardless whether these were directed against residences in the narrow sense of specifically mentioned in the void search warrants.
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 Finally, I must articulate my persuasion that although the cases cited in my
capacity or under their personal control. disquisition were criminal prosecutions, the great clauses of the constitutional
proscription on illegal searches and seizures do not withhold the mantle of their
Prescinding a from the foregoing, this Court, at all events, should order the return to protection from cases not criminal in origin or nature.
the petitioners all personal and 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