G.R. No.
L-23145 November 29, 1968 challenged order represents a response and expresses a policy, to paraphrase
TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased. RENATO D. TAYAG,
ancillary administrator-appellee, vs. BENGUET CONSOLIDATED, INC., oppositor-
appellant.
FERNANDO, J.:
Confronted by an obstinate and adamant refusal of the domiciliary administrator,
the County Trust Company of New York, United States of America, of the estate of
the deceased Idonah Slade Perkins, who died in New York City on March 27, 1960, to
surrender to the ancillary administrator in the Philippines the stock certificates
owned by her in a Philippine corporation, Benguet Consolidated, Inc., to satisfy the
legitimate claims of local creditors, the lower court, then presided by the Honorable
Arsenio Santos, now retired, issued on May 18, 1964, an order of this tenor: "After
considering the motion of the ancillary administrator, dated February 11, 1964, as
well as the opposition filed by the Benguet Consolidated, Inc., the Court hereby (1)
considers as lost for all purposes in connection with the administration and
liquidation of the Philippine estate of Idonah Slade Perkins the stock certificates
covering the 33,002 shares of stock standing in her name in the books of the Benguet
Consolidated, Inc., (2) orders said certificates cancelled, and (3) directs said
corporation to issue new certificates in lieu thereof, the same to be delivered by said
corporation to either the incumbent ancillary administrator or to the Probate
Division of this Court."1
From such an order, an appeal was taken to this Court not by the domiciliary
administrator, the County Trust Company of New York, but by the Philippine
corporation, the Benguet Consolidated, Inc. The appeal cannot possibly prosper. The
Frankfurter, arising out of a specific problem, addressed to the attainment of specific
ends by the use of specific remedies, with full and ample support from legal
doctrines of weight and significance.
The facts will explain why. As set forth in the brief of appellant Benguet
Consolidated, Inc., Idonah Slade Perkins, who died on March 27, 1960 in New York
City, left among others, two stock certificates covering 33,002 shares of appellant,
the certificates being in the possession of the County Trust Company of New York,
which as noted, is the domiciliary administrator of the estate of the deceased.2 Then
came this portion of the appellant's brief: "On August 12, 1960, Prospero Sanidad
instituted ancillary administration proceedings in the Court of First Instance of
Manila; Lazaro A. Marquez was appointed ancillary administrator, and on January 22,
1963, he was substituted by the appellee Renato D. Tayag. A dispute arose between
the domiciary administrator in New York and the ancillary administrator in the
Philippines as to which of them was entitled to the possession of the stock
certificates in question. On January 27, 1964, the Court of First Instance of Manila
ordered the domiciliary administrator, County Trust Company, to "produce and
deposit" them with the ancillary administrator or with the Clerk of Court. The
domiciliary administrator did not comply with the order, and on February 11, 1964,
the ancillary administrator petitioned the court to "issue an order declaring the
certificate or certificates of stocks covering the 33,002 shares issued in the name of
Idonah Slade Perkins by Benguet Consolidated, Inc., be declared [or] considered as
lost."3
It is to be noted further that appellant Benguet Consolidated, Inc. admits that "it is
immaterial" as far as it is concerned as to "who is entitled to the possession of the
stock certificates in question; appellant opposed the petition of the ancillary
administrator because the said stock certificates are in existence, they are today in
the possession of the domiciliary administrator, the County Trust Company, in New
York, U.S.A...."4
It is its view, therefore, that under the circumstances, the stock certificates cannot
be declared or considered as lost. Moreover, it would allege that there was a failure
to observe certain requirements of its by-laws before new stock certificates could be
issued. Hence, its appeal.
As was made clear at the outset of this opinion, the appeal lacks merit. The
challenged order constitutes an emphatic affirmation of judicial authority sought to
be emasculated by the wilful conduct of the domiciliary administrator in refusing to
accord obedience to a court decree. How, then, can this order be stigmatized as
illegal?
As is true of many problems confronting the judiciary, such a response was called for
by the realities of the situation. What cannot be ignored is that conduct bordering on
wilful defiance, if it had not actually reached it, cannot without undue loss of judicial
prestige, be condoned or tolerated. For the law is not so lacking in flexibility and
resourcefulness as to preclude such a solution, the more so as deeper reflection
would make clear its being buttressed by indisputable principles and supported by
the strongest policy considerations.
It can truly be said then that the result arrived at upheld and vindicated the honor of
the judiciary no less than that of the country. Through this challenged order, there is
thus dispelled the atmosphere of contingent frustration brought about by the
persistence of the domiciliary administrator to hold on to the stock certificates after
it had, as admitted, voluntarily submitted itself to the jurisdiction of the lower court
by entering its appearance through counsel on June 27, 1963, and filing a petition for
relief from a previous order of March 15, 1963.
Thus did the lower court, in the order now on appeal, impart vitality and
effectiveness to what was decreed. For without it, what it had been decided would
be set at naught and nullified. Unless such a blatant disregard by the domiciliary
administrator, with residence abroad, of what was previously ordained by a court
order could be thus remedied, it would have entailed, insofar as this matter was
concerned, not a partial but a well-nigh complete paralysis of judicial authority.
1. Appellant Benguet Consolidated, Inc. did not dispute the power of the
appellee ancillary administrator to gain control and possession of all assets of the
decedent within the jurisdiction of the Philippines. Nor could it. Such a power is
inherent in his duty to settle her estate and satisfy the claims of local creditors.5 As
Justice Tuason speaking for this Court made clear, it is a "general rule universally
recognized" that administration, whether principal or ancillary, certainly "extends to
the assets of a decedent found within the state or country where it was granted," the
corollary being "that an administrator appointed in one state or country has no
power over property in another state or country."6
It is to be noted that the scope of the power of the ancillary administrator was, in an
earlier case, set forth by Justice Malcolm. Thus: "It is often necessary to have more
than one administration of an estate. When a person dies intestate owning property
in the country of his domicile as well as in a foreign country, administration is had in
both countries. That which is granted in the jurisdiction of decedent's last domicile is
termed the principal administration, while any other administration is termed the
ancillary administration. The reason for the latter is because a grant of
administration does not ex proprio vigore have any effect beyond the limits of the
country in which it is granted. Hence, an administrator appointed in a foreign state
has no authority in the [Philippines]. The ancillary administration is proper, whenever
a person dies, leaving in a country other than that of his last domicile, property to be
administered in the nature of assets of the deceased liable for his individual debts or
to be distributed among his heirs."7
It would follow then that the authority of the probate court to require that ancillary
administrator's right to "the stock certificates covering the 33,002 shares ... standing
in her name in the books of [appellant] Benguet Consolidated, Inc...." be respected is
equally beyond question. For appellant is a Philippine corporation owing full
allegiance and subject to the unrestricted jurisdiction of local courts. Its shares of
stock cannot therefore be considered in any wise as immune from lawful court
orders.
Our holding in Wells Fargo Bank and Union v. Collector of Internal Revenue8 finds
application. "In the instant case, the actual situs of the shares of stock is in the
Philippines, the corporation being domiciled [here]." To the force of the above
undeniable proposition, not even appellant is insensible. It does not dispute it. Nor
could it successfully do so even if it were so minded.
2. In the face of such incontrovertible doctrines that argue in a rather
conclusive fashion for the legality of the challenged order, how does appellant,
Benguet Consolidated, Inc. propose to carry the extremely heavy burden of
persuasion of precisely demonstrating the contrary? It would assign as the basic
error allegedly committed by the lower court its "considering as lost the stock
certificates covering 33,002 shares of Benguet belonging to the deceased Idonah
Slade Perkins, ..."9 More specifically, appellant would stress that the "lower court
could not "consider as lost" the stock certificates in question when, as a matter of
fact, his Honor the trial Judge knew, and does know, and it is admitted by the
appellee, that the said stock certificates are in existence and are today in the
possession of the domiciliary administrator in New York."10
There may be an element of fiction in the above view of the lower court. That
certainly does not suffice to call for the reversal of the appealed order. Since there is
a refusal, persistently adhered to by the domiciliary administrator in New York, to
deliver the shares of stocks of appellant corporation owned by the decedent to the
ancillary administrator in the Philippines, there was nothing unreasonable or
arbitrary in considering them as lost and requiring the appellant to issue new
certificates in lieu thereof. Thereby, the task incumbent under the law on the
ancillary administrator could be discharged and his responsibility fulfilled.
Any other view would result in the compliance to a valid judicial order being made to
depend on the uncontrolled discretion of the party or entity, in this case domiciled
abroad, which thus far has shown the utmost persistence in refusing to yield
obedience. Certainly, appellant would not be heard to contend in all seriousness that
a judicial decree could be treated as a mere scrap of paper, the court issuing it being
powerless to remedy its flagrant disregard.
It may be admitted of course that such alleged loss as found by the lower court did
not correspond exactly with the facts. To be more blunt, the quality of truth may be
lacking in such a conclusion arrived at. It is to be remembered however, again to
borrow from Frankfurter, "that fictions which the law may rely upon in the pursuit of
legitimate ends have played an important part in its development."11
Speaking of the common law in its earlier period, Cardozo could state fictions "were
devices to advance the ends of justice, [even if] clumsy and at times offensive."12
Some of them have persisted even to the present, that eminent jurist, noting "the
quasi contract, the adopted child, the constructive trust, all of flourishing vitality, to
attest the empire of "as if" today."13 He likewise noted "a class of fictions of another
order, the fiction which is a working tool of thought, but which at times hides itself
from view till reflection and analysis have brought it to the light."14
What cannot be disputed, therefore, is the at times indispensable role that fictions as
such played in the law. There should be then on the part of the appellant a further
refinement in the catholicity of its condemnation of such judicial technique. If ever
an occasion did call for the employment of a legal fiction to put an end to the
anomalous situation of a valid judicial order being disregarded with apparent
impunity, this is it. What is thus most obvious is that this particular alleged error does
not carry persuasion.
3. Appellant Benguet Consolidated, Inc. would seek to bolster the above
contention by its invoking one of the provisions of its by-laws which would set forth
the procedure to be followed in case of a lost, stolen or destroyed stock certificate; it
would stress that in the event of a contest or the pendency of an action regarding
ownership of such certificate or certificates of stock allegedly lost, stolen or
destroyed, the issuance of a new certificate or certificates would await the "final
decision by [a] court regarding the ownership [thereof]."15
Such reliance is misplaced. In the first place, there is no such occasion to apply such
by-law. It is admitted that the foreign domiciliary administrator did not appeal from
the order now in question. Moreover, there is likewise the express admission of
appellant that as far as it is concerned, "it is immaterial ... who is entitled to the
possession of the stock certificates ..." Even if such were not the case, it would be a
legal absurdity to impart to such a provision conclusiveness and finality. Assuming
that a contrariety exists between the above by-law and the command of a court
decree, the latter is to be followed.
It is understandable, as Cardozo pointed out, that the Constitution overrides a
statute, to which, however, the judiciary must yield deference, when appropriately
invoked and deemed applicable. It would be most highly unorthodox, however, if a
corporate by-law would be accorded such a high estate in the jural order that a court
must not only take note of it but yield to its alleged controlling force.
The fear of appellant of a contingent liability with which it could be saddled unless
the appealed order be set aside for its inconsistency with one of its by-laws does not
impress us. Its obedience to a lawful court order certainly constitutes a valid defense,
assuming that such apprehension of a possible court action against it could possibly
materialize. Thus far, nothing in the circumstances as they have developed gives
substance to such a fear. Gossamer possibilities of a future prejudice to appellant do
not suffice to nullify the lawful exercise of judicial authority.
4. What is more the view adopted by appellant Benguet Consolidated, Inc. is
fraught with implications at war with the basic postulates of corporate theory.
We start with the undeniable premise that, "a corporation is an artificial being
created by operation of law...."16 It owes its life to the state, its birth being purely
dependent on its will. As Berle so aptly stated: "Classically, a corporation was
conceived as an artificial person, owing its existence through creation by a sovereign
power."17 As a matter of fact, the statutory language employed owes much to Chief
Justice Marshall, who in the Dartmouth College decision defined a corporation
precisely as "an artificial being, invisible, intangible, and existing only in
contemplation of law."18

The well-known authority Fletcher could summarize the matter thus: "A corporation
is not in fact and in reality a person, but the law treats it as though it were a person
by process of fiction, or by regarding it as an artificial person distinct and separate
from its individual stockholders.... It owes its existence to law. It is an artificial person
created by law for certain specific purposes, the extent of whose existence, powers
and liberties is fixed by its charter."19 Dean Pound's terse summary, a juristic person,
resulting from an association of human beings granted legal personality by the state,
puts the matter neatly.20
There is thus a rejection of Gierke's genossenchaft theory, the basic theme of which
to quote from Friedmann, "is the reality of the group as a social and legal entity,
independent of state recognition and concession."21 A corporation as known to
Philippine jurisprudence is a creature without any existence until it has received the
imprimatur of the state according to law. It is logically inconceivable therefore that it
will have rights and privileges of a higher priority than that of its creator. More than
that, it cannot legitimately refuse to yield obedience to acts of its state organs,
certainly not excluding the judiciary, whenever called upon to do so.
As a matter of fact, a corporation once it comes into being, following American law
still of persuasive authority in our jurisdiction, comes more often within the ken of
the judiciary than the other two coordinate branches. It institutes the appropriate
court action to enforce its right. Correlatively, it is not immune from judicial control
in those instances, where a duty under the law as ascertained in an appropriate legal
proceeding is cast upon it.
To assert that it can choose which court order to follow and which to disregard is to
confer upon it not autonomy which may be conceded but license which cannot be
tolerated. It is to argue that it may, when so minded, overrule the state, the source
of its very existence; it is to contend that what any of its governmental organs may
lawfully require could be ignored at will. So extravagant a claim cannot possibly merit
approval.
5. One last point. In Viloria v. Administrator of Veterans Affairs,22 it was shown
that in a guardianship proceedings then pending in a lower court, the United States
Veterans Administration filed a motion for the refund of a certain sum of money paid
to the minor under guardianship, alleging that the lower court had previously
granted its petition to consider the deceased father as not entitled to guerilla
benefits according to a determination arrived at by its main office in the United
States. The motion was denied. In seeking a reconsideration of such order, the
Administrator relied on an American federal statute making his decisions "final and
conclusive on all questions of law or fact" precluding any other American official to
examine the matter anew, "except a judge or judges of the United States court."23
Reconsideration was denied, and the Administrator appealed.
In an opinion by Justice J.B.L. Reyes, we sustained the lower court. Thus: "We are of
the opinion that the appeal should be rejected. The provisions of the U.S. Code,
invoked by the appellant, make the decisions of the U.S. Veterans' Administrator
final and conclusive when made on claims property submitted to him for resolution;
but they are not applicable to the present case, where the Administrator is not acting
as a judge but as a litigant. There is a great difference between actions against the
Administrator (which must be filed strictly in accordance with the conditions that are
imposed by the Veterans' Act, including the exclusive review by United States
courts), and those actions where the Veterans' Administrator seeks a remedy from
our courts and submits to their jurisdiction by filing actions therein. Our attention
has not been called to any law or treaty that would make the findings of the
Veterans' Administrator, in actions where he is a party, conclusive on our courts. 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
ANG PUE & COMPANY, ET AL., plaintiffs-appellants, vs. SECRETARY OF COMMERCE
AND INDUSTRY, defendant-appellee.
DIZON, J.:
Action for declaratory relief filed in the Court of First Instance of Iloilo by Ang Pue &
Company, Ang Pue and Tan Siong against the Secretary of Commerce and Industry to
secure judgment "declaring that plaintiffs could extend for five years the term of the
partnership pursuant to the provisions of plaintiffs' Amendment to the Article of Co-
partnership."
The answer filed by the defendant alleged, in substance, that the extension for
another five years of the term of the plaintiffs' partnership would be in violation of
the provisions of Republic Act No. 1180.
It appears that on May 1, 1953, Ang Pue and Tan Siong, both Chinese citizens,
organized the partnership Ang Pue & Company for a term of five years from May 1,
1953, extendible by their mutual consent. The purpose of the partnership was "to
maintain the business of general merchandising, buying and selling at wholesale and
retail, particularly of lumber, hardware and other construction materials for
commerce, either native or foreign." The corresponding articles of partnership
(Exhibit B) were registered in the Office of the Securities & Exchange Commission on
June 16, 1953.
On June 19, 1954 Republic Act No. 1180 was enacted to regulate the retail business.
It provided, among other things, that, after its enactment, a partnership not wholly
formed by Filipinos could continue to engage in the retail business until the
expiration of its term.
On April 15, 1958 — prior to the expiration of the five-year term of the partnership
Ang Pue & Company, but after the enactment of the Republic Act 1180, the partners
already mentioned amended the original articles of part ownership (Exhibit B) so as
to extend the term of life of the partnership to another five years. When the
amended articles were presented for registration in the Office of the Securities &
Exchange Commission on April 16, 1958, registration was refused upon the ground
that the extension was in violation of the aforesaid Act.
From the decision of the lower court dismissing the action, with costs, the plaintiffs
interposed this appeal.
The question before us is too clear to require an extended discussion. To organize a
corporation or a partnership that could claim a juridical personality of its own and
transact business as such, is not a matter of absolute right but a privilege which may
be enjoyed only under such terms as the State may deem necessary to impose. That
the State, through Congress, and in the manner provided by law, had the right to
enact Republic Act No. 1180 and to provide therein that only Filipinos and concerns
wholly owned by Filipinos may engage in the retail business can not be seriously
disputed. That this provision was clearly intended to apply to partnership already
existing at the time of the enactment of the law is clearly showing by its provision
giving them the right to continue engaging in their retail business until the expiration
of their term or life.
To argue that because the original articles of partnership provided that the partners
could extend the term of the partnership, the provisions of Republic Act 1180 cannot
be adversely affect appellants herein, is to erroneously assume that the aforesaid
provision constitute a property right of which the partners 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
J.R.S. BUSINESS CORPORATION, J.R. DA SILVA and A.J. BELTRAN, petitioners, vs.
IMPERIAL INSURANCE, INC., MACARIO M. OFILADA, Sheriff of Manila and HON.
AGUSTIN MONTESA, Judge of the Court of First Instance of Manila, respondents.
PAREDES, J.:
Petitioner J. R. Da Silva, is the President of the J.R.S. Business Corporation, an
establishment duly franchised by the Congress of the Philippines, to conduct a
messenger and delivery express service. On July 12, 1961, the respondent Imperial
Insurance, Inc., presented with the CFI of Manila a complaint (Civ. Case No. 47520),
for sum of money against the petitioner corporation. After the defendants therein
have submitted their Answer, the parties entered into a Compromise Agreement,
assisted by their respective counsels, the pertinent portions of which recite:
1) WHEREAS, the DEFENDANTS admit and confess their joint and solidary
indebtedness to the PLAINTIFF in the full sum of PESOS SIXTY ONE THOUSAND ONE
HUNDRED SEVENTY-TWO & 32/100 (P61,172.32), Philippine Currency, itemized as
follows:
a) Principal P50,000.00
b) Interest at 12% per annum 5,706.14
c) Liquidated damages at 7% per annum 3,330.58
d) Costs of suit 135.60
e) Attorney's fees 2,000.00
2) WHEREAS, the DEFENDANTS bind themselves, jointly and severally, and hereby
promise to pay their aforementioned obligation to the PLAINTIFF at its business
address at 301-305 Banquero St., (Ground Floor), Regina Building, Escolta, Manila,
within sixty (60) days from March 16, 1962 or on or before May 14, 1962;
3) WHEREAS, in the event the DEFENDANTS FAIL to pay in full the total amount of
PESOS SIXTY ONE THOUSAND ONE HUNDRED SEVENTY TWO & 32/100 (P61,172.32),
Philippine Currency, for any reason whatsoever, on May 14, 1962, the PLAINTIFF
shall be entitled, as a matter of right, to move for the execution of the decision to be
rendered in the above-entitled case by this Honorable Court based on this
COMPROMISE AGREEMENT.
On March 17, 1962, the lower court rendered judgment embodying the contents of
the said compromise agreement, the dispositive portion of which reads —
WHEREFORE, the Court hereby approves the above-quoted compromise agreement
and renders judgment in accordance therewith, enjoining the parties to comply
faithfully and strictly with the terms and conditions thereof, without special
pronouncement as to costs.
Wherefore, the parties respectfully pray that the foregoing stipulation of facts be
admitted and approved by this Honorable Court, without prejudice to the parties
adducing other evidence to prove their case not covered by this stipulation of facts.
1äwphï1.ñët
On May 15, 1962, one day after the date fixed in the compromise agreement, within
which the judgment debt would be paid, but was not, respondent Imperial Insurance
Inc., filed a "Motion for the Insurance of a Writ of Execution". On May 23, 1962, a
Writ of Execution was issued by respondent Sheriff of Manila and on May 26, 1962,
Notices of Sale were sent out for the auction of the personal properties of the
petitioner J.R.S. Business Corporation. On June 2, 1962, a Notice of Sale of the
"whole capital stocks of the defendants JRS Business Corporation, the business
name, right of operation, the whole assets, furnitures and equipments, the total
liabilities, and Net Worth, books of accounts, etc., etc." of the petitioner corporation
was, handed down. On June 9, the petitioner, thru counsel, presented an "Urgent
Petition for Postponement of Auction Sale and for Release of Levy on the Business
Name and Right to Operate of Defendant JRS Business Corporation", stating that
petitioners were busy negotiating for a loan with which to pay the judgment debt;
that the judgment was for money only and, therefore, plaintiff (respondent
Insurance Company) was not authorized to take over and appropriate for its own
use, the business name of the defendants; that the right to operate under the
franchise, was not transferable and could not be considered a personal or
immovable, property, subject to levy and sale. On June 10, 1962, a Supplemental
Motion for Release of Execution, was filed by counsel of petitioner JRS Business
Corporation, claiming that the capital stocks thereof, could not be levied upon and
sold under execution. Under date of June 20, 1962, petitioner's counsel presented a
pleading captioned "Very Urgent Motion for Postponement of Public Auction Sale
and for Ruling on Motion for Release of Levy on the Business Name, Right to Operate
and Capital Stocks of JRS Business Corporation". The auction sale was set for June 21,
1962. In said motion, petitioners alleged that the loan they had applied for, was to be
secured within the next ten (10) days, and they would be able to discharge the
judgment debt. Respondents opposed the said motion and on June 21, 1962, the
lower court denied the motion for postponement of the auction sale.
In the sale which was conducted in the premises of the JRS Business Corporation at
1341 Perez St., Paco, Manila, all the properties of said corporation contained in the
Notices of Sale dated May 26, 1962, and June 2, 1962 (the latter notice being for the
whole capital stocks of the defendant, JRS Business Corporation, the business name,
right of operation, the whole assets, furnitures and equipments, the total liabilities
and Net Worth, books of accounts, etc., etc.), were bought by respondent Imperial
Insurance, Inc., for P10,000.00, which was the highest bid offered. Immediately after
the sale, respondent Insurance Company took possession of the proper ties and
started running the affairs and operating the business of the JRS Business
Corporation. Hence, the present appeal.
It would seem that the matters which need determination are (1) whether the
respondent Judge acted without or in excess of his jurisdiction or with grave abuse of
discretion in promulgating the Order of June 21, 1962, denying the motion for
postponement of the scheduled sale at public auction, of the properties of
petitioner; and (2) whether the business name or trade name, franchise (right to
operate) and capital stocks of the petitioner are properties or property rights which
could be the subject of levy, execution and sale.
The respondent Court's act of postponing the scheduled sale was within the
discretion of respondent Judge, the exercise of which, one way or the other, did not
constitute grave abuse of discretion and/or excess of jurisdiction. There was a
decision rendered and the corresponding writ of execution was issued. Respondent
Judge had jurisdiction over the matter and erroneous conclusions of law or fact, if
any, committed in the exercise of such jurisdiction are merely errors of judgment,
not correctible by certiorari (Villa Rey Transit v. Bello, et al., L-18957, April 23, 1963,
and cases cited therein.)
The corporation law, on forced sale of franchises, provides —
Any franchise granted to a corporation to collect tolls or to occupy, enjoy, or use
public property or any portion of the public domain or any right of way over public
property or the public domain, and any rights and privileges acquired under such
franchise may be levied upon and sold under execution, together with the property
necessary for the enjoyment, the exercise of the powers, and the receipt of the
proceeds of such franchise or right of way, in the same manner and with like effect
as any other property to satisfy any judgment against the corporation: Provided, That
the sale of the franchise or right of way and the property necessary for the
enjoyment, the exercise of the powers, and the receipt of the proceeds of said
franchise or right of way is especially decreed and ordered in the judgment: And
provided, further, That the sale shall not become effective until confirmed by the
court after due notice. (Sec. 56, Corporation Law.)
In the case of Gulf Refining Co. v. Cleveland Trust Co., 108 So., 158, it was held —
The first question then for decision is the meaning of the word "franchise" in the
statute.
"A franchise is a special privilege conferred by governmental authority, and which
does not belong to citizens of the country generally as a matter of common right. ...
Its meaning depends more or less upon the connection in which the word is
employed and the property and corporation to which it is applied. It may have
different significations.
"For practical purposes, franchises, so far as relating to corporations, are divisible
into (1) corporate or general franchises; and (2) special or secondary franchises. The
former is the franchise to exist as a corporation, while the latter are certain rights
and privileges conferred upon existing corporations, such as the right to use the
streets of a municipality to lay pipes or tracks, erect poles or string wires." 2
Fletcher's Cyclopedia Corp. See. 1148; 14 C.J. p. 160; Adams v. Yazon & M. V. R. Co.,
24 So. 200, 317, 28 So. 956, 77 Miss. 253, 60 L.R.A. 33 et seq.
The primary franchise of a corporation that is, the right to exist as such, is vested "in
the individuals who compose the corporation and not in the corporation itself" (14
C.J. pp. 160, 161; Adams v. Railroad, supra; 2 Fletcher's Cyclopedia Corp. Secs. 1153,
1158; 3 Thompson on Corporations 2d Ed.] Secs. 2863, 2864), and cannot be
conveyed in the absence of a legislative authority so to do (14A CJ. 543, 577; 1
Fletcher's Cyc. Corp. Sec. 1224; Memphis & L.R.R. Co. v. Berry 5 S. Ct. 299, 112 U.S.
609, 28 L.E.d. 837; Vicksburg Waterworks Co. v. Vicksburg, 26 S. Ct. 660, 202 U.S.
453, 50 L.E.d. 1102, 6 Ann. Cas. 253; Arthur v. Commercial & Railroad Bank, 9 Smedes
& M. 394, 48 Am. Dec. 719), but the specify or secondary franchises of a corporation
are vested in the corporation and may ordinarily be conveyed or mortgaged under a
general power granted to a corporation to dispose of its property (Adams v. Railroad,
supra; 14A C.J. 542, 557; 3 Thompson on Corp. [2nd Ed.] Sec. 2909), except such
special or secondary franchises as are charged with a public use (2 Fletcher's Cyc.
Corp. see. 1225; 14A C.J. 544; 3 Thompson on Corp. [2d Ed.] sec. 2908; Arthur v.
Commercial & R.R. Bank, supra; McAllister v. Plant, 54 Miss. 106).
The right to operate a messenger and express delivery service, by virtue of a
legislative enactment, is admittedly a secondary franchise (R.A. No. 3260, entitled
"An Act granting the JRS Business Corporation a franchise to conduct a messenger
and express service)" and, as such, under our corporation law, is subject to levy and
sale on execution together and including all the property necessary for the
enjoyment thereof. The law, however, indicates the procedure under which the
same (secondary franchise and the properties necessary for its enjoyment) may be
sold under execution. Said franchise can be sold under execution, when such sale is
especially decreed and ordered in the judgment and it becomes effective only when
the sale is confirmed by the Court after due notice (Sec. 56, Corp. Law). The
compromise agreement and the judgment based thereon, do not contain any special
decree or order making the franchise answerable for the judgment debt. The same
thing may be stated with respect to petitioner's trade name or business name and its
capital stock. Incidentally, the trade name or business name corresponds to the
initials of the President of the petitioner corporation and there can be no serious
dispute regarding the fact that a trade name or business name and capital stock are
necessarily included in the enjoyment of the franchise. Like that of a franchise, the
law mandates, that property necessary for the enjoyment of said franchise, can only
be sold to satisfy a judgment debt if the decision especially so provides. As We have
stated heretofore, no such directive appears in the decision. Moreover, a trade name
or business name cannot be sold separately from the franchise, and the capital stock
of the petitioner corporation or any 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
J. M. TUASON & CO., INC., represented by it Managing PARTNER, GREGORIA
ARANETA, INC., plaintiff-appellee, vs. QUIRINO BOLAÑOS, defendant-appellant.
REYES, J.:
This is an action originally brought in the Court of First Instance of Rizal, Quezon City
Branch, to recover possesion of registered land situated in barrio Tatalon, Quezon
City.
Plaintiff's complaint was amended three times with respect to the extent and
description of the land sought to be recovered. The original complaint described the
land as a portion of a lot registered in plaintiff's name under Transfer Certificate of
Title No. 37686 of the land record of Rizal Province and as containing an area of 13
hectares more or less. But the complaint was amended by reducing the area of 6
hectares, more or less, after the defendant had indicated the plaintiff's surveyors the
portion of land claimed and occupied by him. The second amendment became
necessary and was allowed following the testimony of plaintiff's surveyors that a
portion of the area was embraced in another certificate of title, which was plaintiff's
Transfer Certificate of Title No. 37677. And still later, in the course of trial, after
defendant's surveyor and witness, Quirino Feria, had testified that the area occupied
and claimed by defendant was about 13 hectares, as shown in his Exhibit 1, plaintiff
again, with the leave of court, amended its complaint to make its allegations
conform to the evidence.
Defendant, in his answer, sets up prescription and title in himself thru "open,
continuous, exclusive and public and notorious possession (of land in dispute) under
claim of ownership, adverse to the entire world by defendant and his predecessor in
interest" from "time in-memorial". The answer further alleges that registration of the
land in dispute was obtained by plaintiff or its predecessors in interest thru "fraud or
error and without knowledge (of) or interest either personal or thru publication to
defendant and/or predecessors in interest." The answer therefore prays that the
complaint be dismissed with costs and plaintiff required to reconvey the land to
defendant or pay its value.
After trial, the lower court rendered judgment for plaintiff, declaring defendant to be
without any right to the land in question and ordering him to restore possession
thereof to plaintiff and to pay the latter a monthly rent of P132.62 from January,
1940, until he vacates the land, and also to pay the costs.
Appealing directly to this court because of the value of the property involved,
defendant makes the following assignment or errors:
I. The trial court erred in not dismissing the case on the ground that the case was not
brought by the real property in interest.
II. The trial court erred in admitting the third amended complaint.
III. The trial court erred in denying defendant's motion to strike.
IV. The trial court erred in including in its decision land not involved in the litigation.
V. The trial court erred in holding that the land in dispute is covered by transfer
certificates of Title Nos. 37686 and 37677.
Vl. The trial court erred in not finding that the defendant is the true and lawful owner
of the land.
VII. The trial court erred in finding that the defendant is liable to pay the plaintiff the
amount of P132.62 monthly from January, 1940, until he vacates the premises.
VIII. The trial court erred in not ordering the plaintiff to reconvey the land in litigation
to the defendant.
As to the first assigned error, there is nothing to the contention that the present
action is not brought by the real party in interest, that is, by J. M. Tuason and Co.,
Inc. What the Rules of Court require is that an action be brought in the name of, but
not necessarily by, the real party in interest. (Section 2, Rule 2.) In fact the practice is
for an attorney-at-law to bring the action, that is to file the complaint, in the name of
the plaintiff. That practice appears to have been followed in this case, since the
complaint is signed by the law firm of Araneta and Araneta, "counsel for plaintiff"
and commences with the statement "comes now plaintiff, through its undersigned
counsel." It is true that the complaint also states that the plaintiff is "represented
herein by its Managing Partner Gregorio Araneta, Inc.", another corporation, but
there is nothing against one corporation being represented by another person,
natural or juridical, in a suit in court. The contention that Gregorio Araneta, Inc. can
not act as managing partner for plaintiff on the theory that it is illegal for two
corporations to enter into a partnership is without merit, for the true rule is that
"though a corporation has no power to enter into a partnership, it may nevertheless
enter into a joint venture with another where the nature of that venture is in line
with the business authorized by its charter." (Wyoming-Indiana Oil Gas Co. vs.
Weston, 80 A. L. R., 1043, citing 2 Fletcher Cyc. of Corp., 1082.) There is nothing in
the record to indicate that the venture in which plaintiff is represented by Gregorio
Araneta, Inc. as "its managing partner" is not in line with the corporate business of
either of them.
Errors II, III, and IV, referring to the admission of the third amended complaint, may
be answered by mere reference to section 4 of Rule 17, Rules of Court, which
sanctions such amendment. It reads:
Sec. 4. Amendment to conform to evidence. — When issues not raised by the
pleadings are tried by express or implied consent of the parties, they shall be treated
in all respects, as if they had been raised in the pleadings. Such amendment of the
pleadings as may be necessary to cause them to conform to the evidence and to
raise these issues may be made upon motion of any party at my time, even of the
trial of these issues. If evidence is objected to at the trial on the ground that it is not
within the issues made by the pleadings, the court may allow the pleadings to be
amended and shall be so freely when the presentation of the merits of the action will
be subserved thereby and the objecting party fails to satisfy the court that the
admission of such evidence would prejudice him in maintaining his action or defense
upon the merits. The court may grant a continuance to enable the objecting party to
meet such evidence.
Under this provision amendment is not even necessary for the purpose of rendering
judgment on issues proved though not alleged. Thus, commenting on the provision,
Chief Justice Moran says in this Rules of Court:
Under this section, American courts have, under the New Federal Rules of Civil
Procedure, ruled that where the facts shown entitled plaintiff to relief other than
that asked for, no amendment to the complaint is necessary, especially where
defendant has himself raised the point on which recovery is based, and that the
appellate court treat the pleadings as amended to conform to the evidence, although
the pleadings were not actually amended. (I Moran, Rules of Court, 1952 ed., 389-
390.)
Our conclusion therefore is that specification of error II, III, and IV are without merit..
Let us now pass on the errors V and VI. Admitting, though his attorney, at the early
stage of the trial, that the land in dispute "is that described or represented in Exhibit
A and in Exhibit B enclosed in red pencil with the name Quirino Bolaños," defendant
later changed his lawyer and also his theory and tried to prove that the land in
dispute was not covered by plaintiff's certificate of title. The evidence, however, is
against defendant, for it clearly establishes that plaintiff is the registered owner of
lot No. 4-B-3-C, situate in barrio Tatalon, Quezon City, with an area of 5,297,429.3
square meters, more or less, covered by transfer certificate of title No. 37686 of the
land records of Rizal province, and of lot No. 4-B-4, situated in the same barrio,
having an area of 74,789 square meters, more or less, covered by transfer certificate
of title No. 37677 of the land records of the same province, both lots having been
originally registered on July 8, 1914 under original certificate of title No. 735. The
identity of the lots was established by the testimony of Antonio Manahan and
Magno Faustino, witnesses for plaintiff, and the identity of the portion thereof
claimed by defendant was established by the testimony of his own witness, Quirico
Feria. The combined testimony of these three witnesses clearly shows that the
portion claimed by defendant is made up of a part of lot 4-B-3-C and major on
portion of lot 4-B-4, and is well within the area covered by the two transfer
certificates of title already mentioned. This fact also appears admitted in defendant's
answer to the third amended complaint.
As the land in dispute is covered by plaintiff's Torrens certificate of title and was
registered in 1914, the decree of registration can no longer be impugned on the
ground of fraud, error or lack of notice to defendant, as more than one year has
already elapsed from the issuance and entry of the decree. Neither court the decree
be collaterally attacked by any person claiming title to, or interest in, the land prior
to the registration proceedings. (Soroñgon vs. Makalintal,1 45 Off. Gaz., 3819.) Nor
could title to that land in derogation of that of plaintiff, the registered owner, be
acquired by prescription or adverse possession. (Section 46, Act No. 496.) Adverse,
notorious and continuous possession under claim of ownership for the period fixed
by law is ineffective against a Torrens title. (Valiente vs. Judge of CFI of Tarlac,2 etc.,
45 Off. Gaz., Supp. 9, p. 43.) And it is likewise settled that the right to secure
possession under a decree of registration does not prescribed. (Francisco vs. Cruz, 43
Off. Gaz., 5105, 5109-5110.) A recent decision of this Court on this point is that
rendered in the case of Jose Alcantara et al., vs. Mariano et al., 92 Phil., 796. This
disposes of the alleged errors V and VI.
As to error VII, it is claimed that `there was no evidence to sustain the finding that
defendant should be sentenced to pay plaintiff P132.62 monthly from January, 1940,
until he vacates the premises.' But it appears from the record that that reasonable
compensation for the use and occupation of the premises, as stipulated at the
hearing was P10 a month for each hectare and that the area occupied by defendant
was 13.2619 hectares. The total rent to be paid for the area occupied should
therefore be P132.62 a month. It is appears from the testimony of J. A. Araneta and
witness Emigdio Tanjuatco that as early as 1939 an action of ejectment had already
been filed against defendant. And it cannot be supposed that defendant has been
paying rents, for he has been asserting all along that the premises in question 'have
always been since time immemorial in open, continuous, exclusive and public and
notorious possession and under claim of ownership adverse to the entire world by
defendant and his predecessors in interest.' This assignment of error is thus clearly
without merit.
Error No. VIII is but a consequence of the other errors alleged and needs for further
consideration.
During the pendency of this case in this Court appellant, thru other counsel, has filed
a motion to dismiss alleging that there is pending before the Court of First Instance
of Rizal another action between the same parties and for the same cause and
seeking to sustain that allegation with a copy of the complaint filed in said action. But
an examination of that complaint reveals that appellant's allegation is not correct,
for the pretended identity of parties and cause of action in the two suits does not
appear. That other case is one for recovery of ownership, while the present one is for
recovery of possession. And while appellant claims that he is also involved in that
order action because it is a class suit, the complaint does not show that such is really
the case. On the contrary, it appears that the action seeks relief for each individual
plaintiff and not relief for and on behalf of others. The motion for dismissal is clearly
without merit.

Wherefore, the judgment appealed from is affirmed, with costs against the plaintiff.
G.R. No. 75875 December 15, 1989
WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM and CHARLES
CHAMSAY, petitioners, vs. SANITARY WARES MANUFACTURING CORPORATOIN,
ERNESTO V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO,
GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V. CRUZ,
respondents.
GUTIERREZ, JR., J.:
These consolidated petitions seek the review of the amended decision of the Court
of Appeals in CA-G.R. SP Nos. 05604 and 05617 which set aside the earlier decision
dated June 5, 1986, of the then Intermediate Appellate Court and directed that in all
subsequent elections for directors of Sanitary Wares Manufacturing Corporation
(Saniwares), American Standard Inc. (ASI) cannot nominate more than three (3)
directors; that the Filipino stockholders shall not interfere in ASI's choice of its three
(3) nominees; that, on the other hand, the Filipino stockholders can nominate only
six (6) candidates and in the event they cannot agree on the six (6) nominees, they
shall vote only among themselves to determine who the six (6) nominees will be,
with cumulative voting to be allowed but without interference from ASI.
The antecedent facts can be summarized as follows:
In 1961, Saniwares, a domestic corporation was incorporated for the primary
purpose of manufacturing and marketing sanitary wares. One of the incorporators,
Mr. Baldwin Young went abroad to look for foreign partners, European or American
who could help in its expansion plans. On August 15, 1962, ASI, a foreign corporation
domiciled in Delaware, United States entered into an Agreement with Saniwares and
some Filipino investors whereby ASI and the Filipino investors agreed to participate
in the ownership of an enterprise which would engage primarily in the business of
manufacturing in the Philippines and selling here and abroad vitreous china and
sanitary wares. The parties agreed that the business operations in the Philippines
shall be carried on by an incorporated enterprise and that the name of the
corporation shall initially be "Sanitary Wares Manufacturing Corporation."
The Agreement has the following provisions relevant to the issues in these cases on
the nomination and election of the directors of the corporation:
3. Articles of Incorporation
(a) The Articles of Incorporation of the Corporation shall be substantially in the
form annexed hereto as Exhibit A and, insofar as permitted under Philippine law,
shall specifically provide for
(1) Cumulative voting for directors:
xxx xxx xxx
5. Management
(a) The management of the Corporation shall be vested in a Board of Directors,
which shall consist of nine individuals. As long as American-Standard shall own at
least 30% of the outstanding stock of the Corporation, three of the nine directors
shall be designated by American-Standard, and the other six shall be designated by
the other stockholders of the Corporation. (pp. 51 & 53, Rollo of 75875)
At the request of ASI, the agreement contained provisions designed to protect it as a
minority group, including the grant of veto powers over a number of corporate acts
and the right to designate certain officers, such as a member of the Executive
Committee whose vote was required for important corporate transactions.
Later, the 30% capital stock of ASI was increased to 40%. The corporation was also
registered with the Board of Investments for availment of incentives with the
condition that at least 60% of the capital stock of the corporation shall be owned by
Philippine nationals.
The joint enterprise thus entered into by the Filipino investors and the American
corporation prospered. Unfortunately, with the business successes, there came a
deterioration of the initially harmonious relations between the two groups.
According to the Filipino group, a basic disagreement was due to their desire to
expand the export operations of the company to which ASI objected as it apparently
had other subsidiaries of joint joint venture groups in the countries where Philippine
exports were contemplated. On March 8, 1983, the annual stockholders' meeting
was held. The meeting was presided by Baldwin Young. The minutes were taken by
the Secretary, Avelino Cruz. After disposing of the preliminary items in the agenda,
the stockholders then proceeded to the election of the members of the board of
directors. The ASI group nominated three persons namely; Wolfgang Aurbach, John
Griffin and David P. Whittingham. The Philippine investors nominated six, namely;
Ernesto Lagdameo, Sr., Raul A. Boncan, Ernesto R. Lagdameo, Jr., George F. Lee, and
Baldwin Young. Mr. Eduardo R, Ceniza then nominated Mr. Luciano E. Salazar, who in
turn nominated Mr. Charles Chamsay. The chairman, Baldwin Young ruled the last
two nominations out of order on the basis of section 5 (a) of the Agreement, the
consistent practice of the parties during the past annual stockholders' meetings to
nominate only nine persons as nominees for the nine-member board of directors,
and the legal advice of Saniwares' legal counsel. The following events then,
transpired:
... There were protests against the action of the Chairman and heated arguments
ensued. An appeal was made by the ASI representative to the body of stockholders
present that a vote be taken on the ruling of the Chairman. The Chairman, Baldwin
Young, declared the appeal out of order and no vote on the ruling was taken. The
Chairman then instructed the Corporate Secretary to cast all the votes present and
represented by proxy equally for the 6 nominees of the Philippine Investors and the
3 nominees of ASI, thus effectively excluding the 2 additional persons nominated,
namely, Luciano E. Salazar and Charles Chamsay. The ASI representative, Mr. Jaqua
protested the decision of the Chairman and announced that all votes accruing to ASI
shares, a total of 1,329,695 (p. 27, Rollo, AC-G.R. SP No. 05617) were being
cumulatively voted for the three ASI nominees and Charles Chamsay, and instructed
the Secretary to so vote. Luciano E. Salazar and other proxy holders announced that
all the votes owned by and or represented by them 467,197 shares (p. 27, Rollo, AC-
G.R. SP No. 05617) were being voted cumulatively in favor of Luciano E. Salazar. The
Chairman, Baldwin Young, nevertheless instructed the Secretary to cast all votes
equally in favor of the three ASI nominees, namely, Wolfgang Aurbach, John Griffin
and David Whittingham and the six originally nominated by Rogelio Vinluan, namely,
Ernesto Lagdameo, Sr., Raul Boncan, Ernesto Lagdameo, Jr., Enrique Lagdameo,
George F. Lee, and Baldwin Young. The Secretary then certified for the election of
the following Wolfgang Aurbach, John Griffin, David Whittingham Ernesto Lagdameo,
Sr., Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, Raul A. Boncan,
Baldwin Young. The representative of ASI then moved to recess the meeting which
was duly seconded. There was also a motion to adjourn (p. 28, Rollo, AC-G.R. SP No.
05617). This motion to adjourn was accepted by the Chairman, Baldwin Young, who
announced that the motion was carried and declared the meeting adjourned.
Protests against the adjournment were registered and having been ignored, Mr.
Jaqua the ASI representative, stated that the meeting was not adjourned but only
recessed and that the meeting would be reconvened in the next room. The Chairman
then threatened to have the stockholders who did not agree to the decision of the
Chairman on the casting of votes bodily thrown out. The ASI Group, Luciano E.
Salazar and other stockholders, allegedly representing 53 or 54% of the shares of
Saniwares, decided to continue the meeting at the elevator lobby of the American
Standard Building. The continued meeting was presided by Luciano E. Salazar, while
Andres Gatmaitan acted as Secretary. On the basis of the cumulative votes cast
earlier in the meeting, the ASI Group nominated its four nominees; Wolfgang
Aurbach, John Griffin, David Whittingham and Charles Chamsay. Luciano E. Salazar
voted for himself, thus the said five directors were certified as elected directors by
the Acting Secretary, Andres Gatmaitan, with the explanation that there was a tie
among the other six (6) nominees for the four (4) remaining positions of directors
and that the body decided not to break the tie. (pp. 37-39, Rollo of 75975-76)
These incidents triggered off the filing of separate petitions by the parties with the
Securities and Exchange Commission (SEC). The first petition filed was for preliminary
injunction by Saniwares, Emesto V. Lagdameo, Baldwin Young, Raul A. Bonean
Ernesto R. Lagdameo, Jr., Enrique Lagdameo and George F. Lee against Luciano
Salazar and Charles Chamsay. The case was denominated as SEC Case No. 2417. The
second petition was for quo warranto and application for receivership by Wolfgang
Aurbach, John Griffin, David Whittingham, Luciano E. Salazar and Charles Chamsay
against the group of Young and Lagdameo (petitioners in SEC Case No. 2417) and
Avelino F. Cruz. The case was docketed as SEC Case No. 2718. Both sets of parties
except for Avelino Cruz claimed to be the legitimate directors of the corporation.
The two petitions were consolidated and tried jointly by a hearing officer who
rendered a decision upholding the election of the Lagdameo Group and dismissing
the quo warranto petition of Salazar and Chamsay. The ASI Group and Salazar
appealed the decision to the SEC en banc which affirmed the hearing officer's
decision.
The SEC decision led to the filing of two separate appeals with the Intermediate
Appellate Court by Wolfgang Aurbach, John Griffin, David Whittingham and Charles
Chamsay (docketed as AC-G.R. SP No. 05604) and by Luciano E. Salazar (docketed as
AC-G.R. SP No. 05617). The petitions were consolidated and the appellate court in its
decision ordered the remand of the case to the Securities and Exchange Commission
with the directive that a new stockholders' meeting of Saniwares be ordered
convoked as soon as possible, under the supervision of the Commission.
Upon a motion for reconsideration filed by the appellees Lagdameo Group) the
appellate court (Court of Appeals) rendered the questioned amended decision.
Petitioners Wolfgang Aurbach, John Griffin, David P. Whittingham and Charles
Chamsay in G.R. No. 75875 assign the following errors:
I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED ELECTION OF
PRIVATE RESPONDENTS AS MEMBERS OF THE BOARD OF DIRECTORS OF SANIWARES
WHEN IN FACT THERE WAS NO ELECTION AT ALL.
II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS FROM EXERCISING
THEIR FULL VOTING RIGHTS REPRESENTED BY THE NUMBER OF SHARES IN
SANIWARES, THUS DEPRIVING PETITIONERS AND THE CORPORATION THEY
REPRESENT OF THEIR PROPERTY RIGHTS WITHOUT DUE PROCESS OF LAW.
III. THE COURT OF APPEALS IMPOSES CONDITIONS AND READS PROVISIONS
INTO THE AGREEMENT OF THE PARTIES WHICH WERE NOT THERE, WHICH ACTION IT
CANNOT LEGALLY DO. (p. 17, Rollo-75875)
Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended decision on
the following grounds:
11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of binding contractual
agreements entered into by stockholders and the replacement of the conditions of
such agreements with terms never contemplated by the stockholders but merely
dictated by the CA .
11.2. The Amended decision would likewise sanction the deprivation of the
property rights of stockholders without due process of law in order that a favored
group of stockholders may be illegally benefitted and guaranteed a continuing
monopoly of the control of a corporation. (pp. 14-15, Rollo-75975-76)
On the other hand, the petitioners in G.R. No. 75951 contend that:
I
THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE RECOGNIZING THAT
THE STOCKHOLDERS OF SANIWARES ARE DIVIDED INTO TWO BLOCKS, FAILS TO
FULLY ENFORCE THE BASIC INTENT OF THE AGREEMENT AND THE LAW.
II
THE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT PRIVATE
PETITIONERS HEREIN WERE THE DULY ELECTED DIRECTORS DURING THE 8 MARCH
1983 ANNUAL STOCKHOLDERS MEETING OF SANTWARES. (P. 24, Rollo-75951)
The issues raised in the petitions are interrelated, hence, they are discussed jointly.
The main issue hinges on who were the duly elected directors of Saniwares for the
year 1983 during its annual stockholders' meeting held on March 8, 1983. To answer
this question the following factors should be determined: (1) the nature of the
business established by the parties whether it was a joint venture or a corporation
and (2) whether or not the ASI Group may vote their additional 10% equity during
elections of Saniwares' board of directors.
The rule is that whether the parties to a particular contract have thereby established
among themselves a joint venture or some other relation depends upon their actual
intention which is determined in accordance with the rules governing the
interpretation and construction of contracts. (Terminal Shares, Inc. v. Chicago, B. and
Q.R. Co. (DC MO) 65 F Supp 678; Universal Sales Corp. v. California Press Mfg. Co. 20
Cal. 2nd 751, 128 P 2nd 668)
The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual
intention of the parties should be viewed strictly on the "Agreement" dated August
15,1962 wherein it is clearly stated that the parties' intention was to form a
corporation and not a joint venture.
They specifically mention number 16 under Miscellaneous Provisions which states:
xxx xxx xxx

c) nothing herein contained shall be construed to constitute any of the parties
hereto partners or joint venturers in respect of any transaction hereunder. (At P. 66,
Rollo-GR No. 75875)
They object to the admission of other evidence which tends to show that the parties'
agreement was to establish a joint venture presented by the Lagdameo and Young
Group on the ground that it contravenes the parol evidence rule under section 7,
Rule 130 of the Revised Rules of Court. According to them, the Lagdameo and Young
Group never pleaded in their pleading that the "Agreement" failed to express the
true intent of the parties.
The parol evidence Rule under Rule 130 provides:
Evidence of written agreements-When the terms of an agreement have been
reduced to writing, it is to be considered as containing all such terms, and therefore,
there can be, between the parties and their successors in interest, no evidence of the
terms of the agreement other than the contents of the writing, except in the
following cases:
(a) Where a mistake or imperfection of the writing, or its failure to express the
true intent and agreement of the parties or the validity of the agreement is put in
issue by the pleadings.
(b) When there is an intrinsic ambiguity in the writing.
Contrary to ASI Group's stand, the Lagdameo and Young Group pleaded in their
Reply and Answer to Counterclaim in SEC Case No. 2417 that the Agreement failed to
express the true intent of the parties, to wit:
xxx xxx xxx
4. While certain provisions of the Agreement would make it appear that the
parties thereto disclaim being partners or joint venturers such disclaimer is directed
at third parties and is not inconsistent with, and does not preclude, the existence of
two distinct groups of stockholders in Saniwares one of which (the Philippine
Investors) shall constitute the majority, and the other ASI shall constitute the
minority stockholder. In any event, the evident intention of the Philippine Investors
and ASI in entering into the Agreement is to enter into ajoint venture enterprise, and
if some words in the Agreement appear to be contrary to the evident intention of
the parties, the latter shall prevail over the former (Art. 1370, New Civil Code). The
various stipulations of a contract shall be interpreted together attributing to the
doubtful ones that sense which may result from all of them taken jointly (Art. 1374,
New Civil Code). Moreover, in order to judge the intention of the contracting parties,
their contemporaneous and subsequent acts shall be principally considered. (Art.
1371, New Civil Code). (Part I, Original Records, SEC Case No. 2417)
It has been ruled:
In an action at law, where there is evidence tending to prove that the parties joined
their efforts in furtherance of an enterprise for their joint profit, the question
whether they intended by their agreement to create a joint adventure, or to assume
some other relation is a question of fact for the jury. (Binder v. Kessler v 200 App.
Div. 40,192 N Y S 653; Pyroa v. Brownfield (Tex. Civ. A.) 238 SW 725; Hoge v. George,
27 Wyo, 423, 200 P 96 33 C.J. p. 871)
In the instant cases, our examination of important provisions of the Agreement as
well as the testimonial evidence presented by the Lagdameo and Young Group shows
that the parties agreed to establish a joint venture and not a corporation. The history
of the organization of Saniwares and the unusual arrangements which govern its
policy making body are all consistent with a joint venture and not with an ordinary
corporation. As stated by the SEC:
According to the unrebutted testimony of Mr. Baldwin Young, he negotiated the
Agreement with ASI in behalf of the Philippine nationals. He testified that ASI agreed
to accept the role of minority vis-a-vis the Philippine National group of investors, on
the condition that the Agreement should contain provisions to protect ASI as the
minority.
An examination of the Agreement shows that certain provisions were included to
protect the interests of ASI as the minority. For example, the vote of 7 out of 9
directors is required in certain enumerated corporate acts [Sec. 3 (b) (ii) (a) of the
Agreement]. ASI is contractually entitled to designate a member of the Executive
Committee and the vote of this member is required for certain transactions [Sec. 3
(b) (i)].
The Agreement also requires a 75% super-majority vote for the amendment of the
articles and by-laws of Saniwares [Sec. 3 (a) (iv) and (b) (iii)]. ASI is also given the right
to designate the president and plant manager [Sec. 5 (6)]. The Agreement further
provides that the sales policy of Saniwares shall be that which is normally followed
by ASI [Sec. 13 (a)] and that Saniwares should not export "Standard" products
otherwise than through ASI's Export Marketing Services [Sec. 13 (6)]. Under the
Agreement, ASI agreed to provide technology and know-how to Saniwares and the
latter paid royalties for the same. (At p. 2).
xxx xxx xxx
It is pertinent to note that the provisions of the Agreement requiring a 7 out of 9
votes of the board of directors for certain actions, in effect gave ASI (which
designates 3 directors under the Agreement) an effective veto power. Furthermore,
the grant to ASI of the right to designate certain officers of the corporation; the
super-majority voting requirements for amendments of the articles and by-laws; and
most significantly to the issues of tms case, the provision that ASI shall designate 3
out of the 9 directors and the other stockholders shall designate the other 6, clearly
indicate that there are two distinct groups in Saniwares, namely ASI, which owns
40% of the capital stock and the Philippine National stockholders who own the
balance of 60%, and that 2) ASI is given certain protections as the minority
stockholder.
Premises considered, we believe that under the Agreement there are two groups of
stockholders who established a corporation with provisions for a special contractual
relationship between the parties, i.e., ASI and the other stockholders. (pp. 4-5)
Section 5 (a) of the agreement uses the word "designated" and not "nominated" or
"elected" in the selection of the nine directors on a six to three ratio. Each group is
assured of a fixed number of directors in the board.
Moreover, ASI in its communications referred to the enterprise as joint venture.
Baldwin Young also testified that Section 16(c) of the Agreement that "Nothing
herein contained shall be construed to constitute any of the parties hereto partners
or joint venturers in respect of any transaction hereunder" was merely to obviate the
possibility of the enterprise being treated as partnership for tax purposes and
liabilities to third parties.
Quite often, Filipino entrepreneurs in their desire to develop the industrial and
manufacturing capacities of a local firm are constrained to seek the technology and
marketing assistance of huge multinational corporations of the developed world.
Arrangements are formalized where a foreign group becomes a minority owner of a
firm in exchange for its manufacturing expertise, use of its brand names, and other
such assistance. However, there is always a danger from such arrangements. The
foreign group may, from the start, intend to establish its own sole or monopolistic
operations and merely uses the joint venture arrangement to gain a foothold or test
the Philippine waters, so to speak. Or the covetousness may come later. As the
Philippine firm enlarges its operations and becomes profitable, the foreign group
undermines the local majority ownership and actively tries to completely or
predominantly take over the entire company. This undermining of joint ventures is
not consistent with fair dealing to say the least. To the extent that such subversive
actions can be lawfully prevented, the courts should extend protection especially in
industries where constitutional and legal requirements reserve controlling ownership
to Filipino citizens.
The Lagdameo Group stated in their appellees' brief in the Court of Appeal
In fact, the Philippine Corporation Code itself recognizes the right of stockholders to
enter into agreements regarding the exercise of their voting rights.
Sec. 100. Agreements by stockholders.-
2. An agreement between two or more stockholders, if in writing and signed by
the parties thereto, may provide that in exercising any voting rights, the shares held
by them shall be voted as therein provided, or as they may agree, or as determined
in accordance with a procedure agreed upon by them.
Appellants contend that the above provision is included in the Corporation Code's
chapter on close corporations and Saniwares cannot be a close corporation because
it has 95 stockholders. Firstly, although Saniwares had 95 stockholders at the time of
the disputed stockholders meeting, these 95 stockholders are not separate from
each other but are divisible into groups representing a single Identifiable interest. For
example, ASI, its nominees and lawyers count for 13 of the 95 stockholders. The
YoungYutivo family count for another 13 stockholders, the Chamsay family for 8
stockholders, the Santos family for 9 stockholders, the Dy family for 7 stockholders,
etc. If the members of one family and/or business or interest group are considered
as one (which, it is respectfully submitted, they should be for purposes of
determining how closely held Saniwares is there were as of 8 March 1983, practically
only 17 stockholders of Saniwares. (Please refer to discussion in pp. 5 to 6 of
appellees' Rejoinder Memorandum dated 11 December 1984 and Annex "A"
thereof).
Secondly, even assuming that Saniwares is technically not a close corporation
because it has more than 20 stockholders, the undeniable fact is that it is a close-
held corporation. Surely, appellants cannot honestly claim that Saniwares is a public
issue or a widely held corporation.
In the United States, many courts have taken a realistic approach to joint venture
corporations and have not rigidly applied principles of corporation law designed
primarily for public issue corporations. These courts have indicated that express
arrangements between corporate joint ventures should be construed with less
emphasis on the ordinary rules of law usually applied to corporate entities and with
more consideration given to the nature of the agreement between the joint
venturers . These American cases dealt with legal questions as to the extent to which
the requirements arising from the corporate form of joint venture corporations
should control, and the courts ruled that substantial justice lay with those litigants
who relied on the joint venture agreement rather than the litigants who relied on the
orthodox principles of corporation law.
As correctly held by the SEC Hearing Officer:
It is said that participants in a joint venture, in organizing the joint venture deviate
from the traditional pattern of corporation management. A noted authority has
pointed out that just as in close corporations, shareholders' agreements in joint
venture corporations often contain provisions which do one or more of the
following: (1) require greater than majority vote for shareholder and director action;
(2) give certain shareholders or groups of shareholders power to select a specified
number of directors; (3) give to the shareholders control over the selection and
retention of employees; and (4) set up a procedure for the settlement of disputes by
arbitration (See I O' Neal, Close Corporations, 1971 ed., Section 1.06a, pp. 15-16)
(Decision of SEC Hearing Officer, P. 16)
Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not necessarily imply
that agreements regarding the exercise of voting rights are allowed only in close
corporations. As Campos and Lopez-Campos explain:
Paragraph 2 refers to pooling and voting agreements in particular. Does this
provision necessarily imply that these agreements can be valid only in close
corporations as defined by the Code? Suppose that a corporation has twenty five
stockholders, and therefore cannot qualify as a close corporation under section 96,
can some of them enter into an agreement to vote as a unit in the election of
directors? It is submitted that there is no reason for denying stockholders of
corporations other than close ones the right to enter into not voting or pooling
agreements to protect their interests, as long as they do not intend to commit any
wrong, or fraud on the other stockholders not parties to the agreement. Of course,
voting or pooling agreements are perhaps more useful and more often resorted to in
close corporations. But they may also be found necessary even in widely held
corporations. Moreover, since the Code limits the legal meaning of close
corporations to those which comply with the requisites laid down by section 96, it is
entirely possible that a corporation which is in fact a close corporation will not come
within the definition. In such case, its stockholders should not be precluded from
entering into contracts like voting agreements if these are otherwise valid. (Campos
& Lopez-Campos, op cit, p. 405)
In short, even assuming that sec. 5(a) of the Agreement relating to the designation or
nomination of directors restricts the right of the Agreement's signatories to vote for
directors, such contractual provision, as correctly held by the SEC, is valid and
binding upon the signatories thereto, which include appellants. (Rollo No. 75951, pp.
90-94)
In regard to the question as to whether or not the ASI group may vote their
additional equity during elections of Saniwares' board of directors, the Court of
Appeals correctly stated:
As in other joint venture companies, the extent of ASI's participation in the
management of the corporation is spelled out in the Agreement. Section 5(a) hereof
says that three of the nine directors shall be designated by ASI and the remaining six
by the other stockholders, i.e., the Filipino stockholders. This allocation of board
seats is obviously in consonance with the minority position of ASI.
Having entered into a well-defined contractual relationship, it is imperative that the
parties should honor and adhere to their respective rights and obligations
thereunder. Appellants seem to contend that any allocation of board seats, even in
joint venture corporations, are null and void to the extent that such may interfere
with the stockholder's rights to cumulative voting as provided in Section 24 of the
Corporation Code. This Court should not be prepared to hold that any agreement
which curtails in any way cumulative voting should be struck down, even if such
agreement has been freely entered into by experienced businessmen and do not
prejudice those who are not parties thereto. It may well be that it would be more
cogent to hold, as the Securities and Exchange Commission has held in the decision
appealed from, that cumulative voting rights may be voluntarily waived by
stockholders who enter into special relationships with each other to pursue and
implement specific purposes, as in joint venture relationships between foreign and
local stockholders, so long as such agreements do not adversely affect third parties.
In any event, it is believed that we are not here called upon to make a general rule
on this question. Rather, all that needs to be done is to give life and effect to the
particular contractual rights and obligations which the parties have assumed for
themselves.
On the one hand, the clearly established minority position of ASI and the contractual
allocation of board seats Cannot be disregarded. On the other hand, the rights of the
stockholders to cumulative voting should also be protected.
In our decision sought to be reconsidered, we opted to uphold the second over the
first. Upon further reflection, we feel that the proper and just solution to give due
consideration to both factors suggests itself quite clearly. This Court should recognize
and uphold the division of the stockholders into two groups, and at the same time
uphold the right of the stockholders within each group to cumulative voting in the
process of determining who the group's nominees would be. In practical terms, as
suggested by appellant Luciano E. Salazar himself, this means that if the Filipino
stockholders cannot agree who their six nominees will be, a vote would have to be
taken among the Filipino stockholders only. During this voting, each Filipino
stockholder can cumulate his votes. ASI, however, should not be allowed to interfere
in the voting within the Filipino group. Otherwise, ASI would be able to designate
more than the three directors it is allowed to designate under the Agreement, and
may even be able to get a majority of the board seats, a result which is clearly
contrary to the contractual intent of the parties.
Such a ruling will give effect to both the allocation of the board seats and the
stockholder's right to cumulative voting. Moreover, this ruling will also give due
consideration to the issue raised by the appellees on possible violation or
circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and the
nationalization requirements of the Constitution and the laws if ASI is allowed to
nominate more than three directors. (Rollo-75875, pp. 38-39)
The ASI Group and petitioner Salazar, now reiterate their theory that the ASI Group
has the right to vote their additional equity pursuant to Section 24 of the
Corporation Code which gives the stockholders of a corporation the right to
cumulate their votes in electing directors. Petitioner Salazar adds that this right if
granted to the ASI Group would not necessarily mean a violation of the Anti-Dummy
Act (Commonwealth Act 108, as amended). He cites section 2-a thereof which
provides:
And provided finally that the election of aliens as members of the board of directors
or governing body of corporations or associations engaging in partially nationalized
activities shall be allowed in proportion to their allowable participation or share in
the capital of such entities. (amendments introduced by Presidential Decree 715,
section 1, promulgated May 28, 1975)
The ASI Group's argument is correct within the context of Section 24 of the
Corporation Code. The point of query, however, is whether or not that provision is
applicable to a joint venture with clearly defined agreements:
The legal concept of ajoint venture is of common law origin. It has no precise legal
definition but it has been generally understood to mean an organization formed for
some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is in fact hardly
distinguishable from the partnership, since their elements are similar community of
interest in the business, sharing of profits and losses, and a mutual right of control.
Blackner v. Mc Dermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P. 2d.,
1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12 289 P. 2d. 242
[1955]). The main distinction cited by most opinions in common law jurisdictions is
that the partnership contemplates a general business with some degree of
continuity, while the joint venture is formed for the execution of a single transaction,
and is thus of a temporary nature. (Tufts v. Mann 116 Cal. App. 170, 2 P. 2d. 500
[1931]; Harmon v. Martin, 395 111. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266
Fed. 811 [1920]). This observation is not entirely accurate in this jurisdiction, since
under the Civil Code, a partnership may be particular or universal, and a particular
partnership may have for its object a specific undertaking. (Art. 1783, Civil Code). It
would seem therefore that under Philippine law, a joint venture is a form of
partnership and should thus be governed by the law of partnerships. The Supreme
Court has however recognized a distinction between these two business forms, and
has held that although a corporation cannot enter into a partnership contract, it may
however engage in a joint venture with others. (At p. 12, Tuazon v. Bolanos, 95 Phil.
906 [1954]) (Campos and Lopez-Campos Comments, Notes and Selected Cases,
Corporation Code 1981)
Moreover, the usual rules as regards the construction and operations of contracts
generally apply to a contract of joint venture.
Bearing these principles in mind, the correct view would be that the resolution of the
question of whether or not the ASI Group may vote their additional equity lies in the
agreement of the parties.
Necessarily, the appellate court was correct in upholding the agreement of the
parties as regards the allocation of director seats under Section 5 (a) of the
"Agreement," and the right of each group of stockholders to cumulative voting in the
process of determining who the group's nominees would be under Section 3 (a) (1)
of the "Agreement." As pointed out by SEC, Section 5 (a) of the Agreement relates to
the manner of nominating the members of the board of directors while Section 3 (a)
(1) relates to the manner of voting for these nominees.
This is the proper interpretation of the Agreement of the parties as regards the
election of members of the board of directors.
To allow the ASI Group to vote their additional equity to help elect even a Filipino
director who would be beholden to them would obliterate their minority status as
agreed upon by the parties. As aptly stated by the appellate court:
... ASI, however, should not be allowed to interfere in the voting within the Filipino
group. Otherwise, ASI would be able to designate more than the three directors it is
allowed to designate under the Agreement, and may even be able to get a majority
of the board seats, a result which is clearly contrary to the contractual intent of the
parties.
Such a ruling will give effect to both the allocation of the board seats and the
stockholder's right to cumulative voting. Moreover, this ruling will also give due
consideration to the issue raised by the appellees on possible violation or
circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and the
nationalization requirements of the Constitution and the laws if ASI is allowed to
nominate more than three directors. (At p. 39, Rollo, 75875)
Equally important as the consideration of the contractual intent of the parties is the
consideration as regards the possible domination by the foreign investors of the
enterprise in violation of the nationalization requirements enshrined in the
Constitution and circumvention of the Anti-Dummy Act. In this regard, petitioner
Salazar's position is that the Anti-Dummy Act allows the ASI group to elect board
directors in proportion to their share in the capital of the entity. It is to be noted,
however, that the same law also limits the election of aliens as members of the
board of directors in proportion to their allowance participation of said entity. In the
instant case, the foreign Group ASI was limited to designate three directors. This is
the allowable participation of the ASI Group. Hence, in future dealings, this limitation
of six to three board seats should always be maintained as long as the joint venture
agreement exists considering that in limiting 3 board seats in the 9-man board of
directors there are provisions already agreed upon and embodied in the parties'
Agreement to protect the interests arising from the minority status of the foreign
investors.
With these findings, we the decisions of the SEC Hearing Officer and SEC which were
impliedly affirmed by the appellate court declaring Messrs. Wolfgang Aurbach, John
Griffin, David P Whittingham, Emesto V. Lagdameo, Baldwin young, Raul A. Boncan,
Emesto V. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee as the duly elected
directors of Saniwares at the March 8,1983 annual stockholders' meeting.
On the other hand, the Lagdameo and Young Group (petitioners in G.R. No. 75951)
object to a cumulative voting during the election of the board of directors of the
enterprise as ruled by the appellate court and submits that the six (6) directors
allotted the Filipino stockholders should be selected by consensus pursuant to
section 5 (a) of the Agreement which uses the word "designate" meaning "nominate,
delegate or appoint."
They also stress the possibility that the ASI Group might take control of the
enterprise if the Filipino stockholders are allowed to select their nominees separately
and not as a common slot determined by the majority of their group.
Section 5 (a) of the Agreement which uses the word designates in the allocation of
board directors should not be interpreted in isolation. This should be construed in
relation to section 3 (a) (1) of the Agreement. As we stated earlier, section 3(a) (1)
relates to the manner of voting for these nominees which is cumulative voting while
section 5(a) relates to the manner of nominating the members of the board of
directors. The petitioners in G.R. No. 75951 agreed to this procedure, hence, they
cannot now impugn its legality.

The insinuation that the ASI Group may be able to control the enterprise under the
cumulative voting procedure cannot, however, be ignored. The validity of the
cumulative voting procedure is dependent on the directors thus elected being
genuine members of the Filipino group, not voters whose interest is to increase the
ASI share in the management of Saniwares. The joint venture character of the
enterprise must always be taken into account, so long as the company exists under
its original agreement. Cumulative voting may not be used as a device to enable ASI
to achieve stealthily or indirectly what they cannot accomplish openly. There are
substantial safeguards in the Agreement which are intended to preserve the majority
status of the Filipino investors as well as to maintain the minority status of the
foreign investors group as earlier discussed. They should be maintained.

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

SO ORDERED.
G.R. No. 15574 September 17, 1919
SMITH, BELL & COMPANY (LTD.), petitioner, vs. JOAQUIN NATIVIDAD, Collector of
Customs of the port of Cebu, respondent.
MALCOLM, J.:
A writ of mandamus is prayed for by Smith, Bell & Co. (Ltd.), against Joaquin
Natividad, Collector of Customs of the port of Cebu, Philippine Islands, to compel him
to issue a certificate of Philippine registry to the petitioner for its motor vessel Bato.
The Attorney-General, acting as counsel for respondent, demurs to the petition on
the general ground that it does not state facts sufficient to constitute a cause of
action. While the facts are thus admitted, and while, moreover, the pertinent
provisions of law are clear and understandable, and interpretative American
jurisprudence is found in abundance, yet the issue submitted is not lightly to be
resolved. The question, flatly presented, is, whether Act. No. 2761 of the Philippine
Legislature is valid — or, more directly stated, whether the Government of the
Philippine Islands, through its Legislature, can deny the registry of vessels in its
coastwise trade to corporations having alien stockholders.
FACTS.
Smith, Bell & Co., (Ltd.), is a corporation organized and existing under the laws of the
Philippine Islands. A majority of its stockholders are British subjects. It is the owner
of a motor vessel known as the Bato built for it in the Philippine Islands in 1916, of
more than fifteen tons gross The Bato was brought to Cebu in the present year for
the purpose of transporting plaintiff's merchandise between ports in the Islands.
Application was made at Cebu, the home port of the vessel, to the Collector of
Customs for a certificate of Philippine registry. The Collector refused to issue the
certificate, giving as his reason that all the stockholders of Smith, Bell & Co., Ltd.,
were not citizens either of the United States or of the Philippine Islands. The instant
action is the result.
LAW.
The Act of Congress of April 29, 1908, repealing the Shipping Act of April 30, 1906 but
reenacting a portion of section 3 of this Law, and still in force, provides in its section
1:
That until Congress shall have authorized the registry as vessels of the United States
of vessels owned in the Philippine Islands, the Government of the Philippine Islands
is hereby authorized to adopt, from time to time, and enforce regulations governing
the transportation of merchandise and passengers between ports or places in the
Philippine Archipelago. (35 Stat. at L., 70; Section 3912, U. S. Comp Stat. [1916]; 7
Pub. Laws, 364.)
The Act of Congress of August 29, 1916, commonly known as the Jones Law, still in
force, provides in section 3, (first paragraph, first sentence), 6, 7, 8, 10, and 31, as
follows.
SEC. 3. That no law shall be enacted in said Islands which shall deprive any person of
life, liberty, or property without due process of law, or deny to any person therein
the equal protection of the laws. . . .
SEC. 6. That the laws now in force in the Philippines shall continue in force and
effect, except as altered, amended, or modified herein, until altered, amended, or
repealed by the legislative authority herein provided or by Act of Congress of the
United States.
SEC. 7. That the legislative authority herein provided shall have power, when not
inconsistent with this Act, by due enactment to amend, alter modify, or repeal any
law, civil or criminal, continued in force by this Act as it may from time to time see fit
This power shall specifically extend with the limitation herein provided as to the
tariff to all laws relating to revenue provided as to the tariff to all laws relating to
revenue and taxation in effect in the Philippines.
SEC. 8. That general legislative power, except as otherwise herein provided, is
hereby granted to the Philippine Legislature, authorized by this Act.
SEC. 10. That while this Act provides that the Philippine government shall have the
authority to enact a tariff law the trade relations between the islands and the United
States shall continue to be governed exclusively by laws of the Congress of the
United States: Provided, That tariff acts or acts amendatory to the tariff of the
Philippine Islands shall not become law until they shall receive the approval of the
President of the United States, nor shall any act of the Philippine Legislature affecting
immigration or the currency or coinage laws of the Philippines become a law until it
has been approved by the President of the United States: Provided further, That the
President shall approve or disapprove any act mentioned in the foregoing proviso
within six months from and after its enactment and submission for his approval, and
if not disapproved within such time it shall become a law the same as if it had been
specifically approved.
SEC. 31. That all laws or parts of laws applicable to the Philippines not in conflict with
any of the provisions of this Act are hereby continued in force and effect." (39 Stat at
L., 546.)
On February 23, 1918, the Philippine Legislature enacted Act No. 2761. The first
section of this law amended section 1172 of the Administrative Code to read as
follows:
SEC. 1172. Certificate of Philippine register. — Upon registration of a vessel of
domestic ownership, and of more than fifteen tons gross, a certificate of Philippine
register shall be issued for it. If the vessel is of domestic ownership and of fifteen
tons gross or less, the taking of the certificate of Philippine register shall be optional
with the owner.
"Domestic ownership," as used in this section, means ownership vested in some one
or more of the following classes of persons: (a) Citizens or native inhabitants of the
Philippine Islands; (b) citizens of the United States residing in the Philippine Islands;
(c) any corporation or company composed wholly of citizens of the Philippine Islands
or of the United States or of both, created under the laws of the United States, or of
any State thereof, or of thereof, or the managing agent or master of the vessel
resides in the Philippine Islands
Any vessel of more than fifteen gross tons which on February eighth, nineteen
hundred and eighteen, had a certificate of Philippine register under existing law,
shall likewise be deemed a vessel of domestic ownership so long as there shall not be
any change in the ownership thereof nor any transfer of stock of the companies or
corporations owning such vessel to person not included under the last preceding
paragraph.

Sections 2 and 3 of Act No. 2761 amended sections 1176 and 1202 of the
Administrative Code to read as follows:
SEC. 1176. Investigation into character of vessel. — No application for a certificate of
Philippine register shall be approved until the collector of customs is satisfied from
an inspection of the vessel that it is engaged or destined to be engaged in legitimate
trade and that it is of domestic ownership as such ownership is defined in section
eleven hundred and seventy-two of this Code.
The collector of customs may at any time inspect a vessel or examine its owner,
master, crew, or passengers in order to ascertain whether the vessel is engaged in
legitimate trade and is entitled to have or retain the certificate of Philippine register.
SEC. 1202. Limiting number of foreign officers and engineers on board vessels. — No
Philippine vessel operating in the coastwise trade or on the high seas shall be
permitted to have on board more than one master or one mate and one engineer
who are not citizens of the United States or of the Philippine Islands, even if they
hold licenses under section one thousand one hundred and ninety-nine hereof. No
other person who is not a citizen of the United States or of the Philippine Islands
shall be an officer or a member of the crew of such vessel. Any such vessel which
fails to comply with the terms of this section shall be required to pay an additional
tonnage tax of fifty centavos per net ton per month during the continuance of said
failure.
ISSUES.
Predicated on these facts and provisions of law, the issues as above stated recur,
namely, whether Act No 2761 of the Philippine Legislature is valid in whole or in part
— whether the Government of the Philippine Islands, through its Legislature, can
deny the registry of vessel in its coastwise trade to corporations having alien
stockholders .
OPINION.
1. Considered from a positive standpoint, there can exist no measure of doubt
as to the power of the Philippine Legislature to enact Act No. 2761. The Act of
Congress of April 29, 1908, with its specific delegation of authority to the
Government of the Philippine Islands to regulate the transportation of merchandise
and passengers between ports or places therein, the liberal construction given to the
provisions of the Philippine Bill, the Act of Congress of July 1, 1902, by the courts,
and the grant by the Act of Congress of August 29, 1916, of general legislative power
to the Philippine Legislature, are certainly superabundant authority for such a law.
While the Act of the local legislature may in a way be inconsistent with the Act of
Congress regulating the coasting trade of the Continental United States, yet the
general rule that only such laws of the United States have force in the Philippines as
are expressly extended thereto, and the abnegation of power by Congress in favor of
the Philippine Islands would leave no starting point for convincing argument. As a
matter of fact, counsel for petitioner does not assail legislative action from this
direction (See U. S. vs. Bull [1910], 15 Phil., 7; Sinnot vs. Davenport [1859] 22 How.,
227.)
2. It is from the negative, prohibitory standpoint that counsel argues against
the constitutionality of Act No. 2761. The first paragraph of the Philippine Bill of
Rights of the Philippine Bill, repeated again in the first paragraph of the Philippine Bill
of Rights as set forth in the Jones Law, provides "That no law shall be enacted in said
Islands which shall deprive any person of life, liberty, or property without due
process of law, or deny to any person therein the equal protection of the laws."
Counsel says that Act No. 2761 denies to Smith, Bell & Co., Ltd., the equal protection
of the laws because it, in effect, prohibits the corporation from owning vessels, and
because classification of corporations based on the citizenship of one or more of
their stockholders is capricious, and that Act No. 2761 deprives the corporation of its
properly without due process of law because by the passage of the law company was
automatically deprived of every beneficial attribute of ownership in the Bato and left
with the naked title to a boat it could not use .
The guaranties extended by the Congress of the United States to the Philippine
Islands have been used in the same sense as like provisions found in the United
States Constitution. While the "due process of law and equal protection of the laws"
clause of the Philippine Bill of Rights is couched in slightly different words than the
corresponding clause of the Fourteenth Amendment to the United States
Constitution, the first should be interpreted and given the same force and effect as
the latter. (Kepner vs. U.S. [1904], 195 U. S., 100; Sierra vs. Mortiga [1907], 204 U.
S.,.470; U. S. vs. Bull [1910], 15 Phil., 7.) The meaning of the Fourteenth Amendment
has been announced in classic decisions of the United States Supreme Court. Even at
the expense of restating what is so well known, these basic principles must again be
set down in order to serve as the basis of this decision.
The guaranties of the Fourteenth Amendment and so of the first paragraph of the
Philippine Bill of Rights, are universal in their application to all person within the
territorial jurisdiction, without regard to any differences of race, color, or nationality.
The word "person" includes aliens. (Yick Wo vs. Hopkins [1886], 118 U. S., 356; Truax
vs. Raich [1915], 239 U. S., 33.) Private corporations, likewise, are "persons" within
the scope of the guaranties in so far as their property is concerned. (Santa Clara
County vs. Southern Pac. R. R. Co. [1886], 118.U. S., 394; Pembina Mining Co. vs.
Pennsylvania [1888],.125 U. S., 181 Covington & L. Turnpike Road Co. vs. Sandford
[1896], 164 U. S., 578.) Classification with the end in view of providing diversity of
treatment may be made among corporations, but must be based upon some
reasonable ground and not be a mere arbitrary selection (Gulf, Colorado & Santa Fe
Railway Co. vs. Ellis [1897],.165 U. S., 150.) Examples of laws held unconstitutional
because of unlawful discrimination against aliens could be cited. Generally, these
decisions relate to statutes which had attempted arbitrarily to forbid aliens to
engage in ordinary kinds of business to earn their living. (State vs. Montgomery
[1900], 94 Maine, 192, peddling — but see. Commonwealth vs. Hana [1907], 195
Mass., 262; Templar vs. Board of Examiners of Barbers [1902], 131 Mich., 254,
barbers; Yick Wo vs. Hopkins [1886], 118 U. S.,.356, discrimination against Chinese;
Truax vs. Raich [1915], 239 U. S., 33; In re Parrott [1880], 1 Fed , 481; Fraser vs.
McConway & Torley Co. [1897], 82 Fed , 257; Juniata Limestone Co. vs. Fagley [1898],
187 Penn., 193, all relating to the employment of aliens by private corporations.)
A literal application of general principles to the facts before us would, of course,
cause the inevitable deduction that Act No. 2761 is unconstitutional by reason of its
denial to a corporation, some of whole members are foreigners, of the equal
protection of the laws. Like all beneficient propositions, deeper research discloses
provisos. Examples of a denial of rights to aliens notwithstanding the provisions of
the Fourteenth Amendment could be cited. (Tragesser vs. Gray [1890], 73 Md., 250,
licenses to sell spirituous liquors denied to persons not citizens of the United States;
Commonwealth vs. Hana [1907], 195 Mass , 262, excluding aliens from the right to
peddle; Patsone vs. Commonwealth of Pennsylvania [1914], 232 U. S. , 138,
prohibiting the killing of any wild bird or animal by any unnaturalized foreign-born
resident; Ex parte Gilleti [1915], 70 Fla., 442, discriminating in favor of citizens with
reference to the taking for private use of the common property in fish and oysters
found in the public waters of the State; Heim vs. McCall [1915], 239 U. S.,.175, and
Crane vs. New York [1915], 239 U. S., 195, limiting employment on public works by,
or for, the State or a municipality to citizens of the United States.)
One of the exceptions to the general rule, most persistent and far reaching in
influence is, that neither the Fourteenth Amendment to the United States
Constitution, broad and comprehensive as it is, nor any other amendment, "was
designed to interfere with the power of the State, sometimes termed its `police
power,' to prescribe regulations to promote the health, peace, morals, education,
and good order of the people, and legislate so as to increase the industries of the
State, develop its resources and add to its wealth and prosperity. From the very
necessities of society, legislation of a special character, having these objects in view,
must often be had in certain districts." (Barbier vs. Connolly [1884], 113 U.S., 27;
New Orleans Gas Co. vs. Lousiana Light Co. [1885], 115 U.S., 650.) This is the same
police power which the United States Supreme Court say "extends to so dealing with
the conditions which exist in the state as to bring out of them the greatest welfare in
of its people." (Bacon vs. Walker [1907], 204 U.S., 311.) For quite similar reasons,
none of the provision of the Philippine Organic Law could could have had the effect
of denying to the Government of the Philippine Islands, acting through its
Legislature, the right to exercise that most essential, insistent, and illimitable of
powers, the sovereign police power, in the promotion of the general welfare and the
public interest. (U. S. vs. Toribio [1910], 15 Phil., 85; Churchill and Tait vs. Rafferty
[1915], 32 Phil., 580; Rubi vs. Provincial Board of Mindoro [1919], 39 Phil., 660.)
Another notable exception permits of the regulation or distribution of the public
domain or the common property or resources of the people of the State, so that use
may be limited to its citizens. (Ex parte Gilleti [1915], 70 Fla., 442; McCready vs.
Virginia [1876], 94 U. S., 391; Patsone vs. Commonwealth of Pennsylvania [1914],
232U. S., 138.) Still another exception permits of the limitation of employment in the
construction of public works by, or for, the State or a municipality to citizens of the
United States or of the State. (Atkin vs. Kansas [1903],191 U. S., 207; Heim vs. McCall
[1915], 239 U.S., 175; Crane vs. New York [1915], 239 U. S., 195.) Even as to
classification, it is admitted that a State may classify with reference to the evil to be
prevented; the question is a practical one, dependent upon experience. (Patsone vs.
Commonwealth of Pennsylvania [1914], 232 U. S., 138.)
To justify that portion of Act no. 2761 which permits corporations or companies to
obtain a certificate of Philippine registry only on condition that they be composed
wholly of citizens of the Philippine Islands or of the United States or both, as not
infringing Philippine Organic Law, it must be done under some one of the exceptions
here mentioned This must be done, moreover, having particularly in mind what is so
often of controlling effect in this jurisdiction — our local experience and our peculiar
local conditions.
To recall a few facts in geography, within the confines of Philippine jurisdictional
limits are found more than three thousand islands. Literally, and absolutely,
steamship lines are, for an Insular territory thus situated, the arteries of commerce.
If one be severed, the life-blood of the nation is lost. If on the other hand these
arteries are protected, then the security of the country and the promotion of the
general welfare is sustained. Time and again, with such conditions confronting it, has
the executive branch of the Government of the Philippine Islands, always later with
the sanction of the judicial branch, taken a firm stand with reference to the presence
of undesirable foreigners. The Government has thus assumed to act for the all-
sufficient and primitive reason of the benefit and protection of its own citizens and
of the self-preservation and integrity of its dominion. (In re Patterson [1902], 1 Phil.,
93; Forbes vs. Chuoco, Tiaco and Crossfield [1910], 16 Phil., 534;.228 U.S., 549; In re
McCulloch Dick [1918], 38 Phil., 41.) Boats owned by foreigners, particularly by such
solid and reputable firms as the instant claimant, might indeed traverse the waters of
the Philippines for ages without doing any particular harm. Again, some evilminded
foreigner might very easily take advantage of such lavish hospitality to chart
Philippine waters, to obtain valuable information for unfriendly foreign powers, to
stir up insurrection, or to prejudice Filipino or American commerce. Moreover, under
the Spanish portion of Philippine law, the waters within the domestic jurisdiction are
deemed part of the national domain, open to public use. (Book II, Tit. IV, Ch. I, Civil
Code; Spanish Law of Waters of August 3, 1866, arts 1, 2, 3.) Common carriers which
in the Philippines as in the United States and other countries are, as Lord Hale said,
"affected with a public interest," can only be permitted to use these public waters as
a privilege and under such conditions as to the representatives of the people may
seem wise. (See De Villata vs. Stanley [1915], 32 Phil., 541.)
In Patsone vs. Commonwealth of Pennsylvania ([1913], 232 U.S., 138), a case herein
before mentioned, Justice Holmes delivering the opinion of the United States
Supreme Court said:
This statute makes it unlawful for any unnaturalized foreign-born resident to kill any
wild bird or animal except in defense of person or property, and `to that end' makes
it unlawful for such foreign-born person to own or be possessed of a shotgun or rifle;
with a penalty of $25 and a forfeiture of the gun or guns. The plaintiff in error was
found guilty and was sentenced to pay the abovementioned fine. The judgment was
affirmed on successive appeals. (231 Pa., 46; 79 Atl., 928.) He brings the case to this
court on the ground that the statute is contrary to the 14th Amendment and also is
in contravention of the treaty between the United States and Italy, to which latter
country the plaintiff in error belongs .
Under the 14th Amendment the objection is twofold; unjustifiably depriving the
alien of property, and discrimination against such aliens as a class. But the former
really depends upon the latter, since it hardly can be disputed that if the lawful
object, the protection of wild life (Geer vs. Connecticut, 161 U.S., 519; 40 L. ed., 793;
16 Sup. Ct. Rep., 600), warrants the discrimination, the, means adopted for making it
effective also might be adopted. . . .
The discrimination undoubtedly presents a more difficult question. But we start with
reference to the evil to be prevented, and that if the class discriminated against is or
reasonably might be considered to define those from whom the evil mainly is to be
feared, it properly may be picked out. A lack of abstract symmetry does not matter.
The question is a practical one, dependent upon experience. . . .
The question therefore narrows itself to whether this court can say that the
legislature of Pennsylvania was not warranted in assuming as its premise for the law
that resident unnaturalized aliens were the peculiar source of the evil that it desired
to prevent. (Barrett vs. Indiana,. 229 U.S., 26, 29; 57 L. ed., 1050, 1052; 33 Sup. Ct.
Rep., 692.)
Obviously the question, so stated, is one of local experience, on which this court
ought to be very slow to declare that the state legislature was wrong in its facts
(Adams vs. Milwaukee, 228 U.S., 572, 583; 57 L. ed., 971,.977; 33 Sup. Ct. Rep., 610.)
If we might trust popular speech in some states it was right; but it is enough that this
court has no such knowledge of local conditions as to be able to say that it was
manifestly wrong. . . .
Judgment affirmed.
We are inclined to the view that while Smith, Bell & Co. Ltd., a corporation having
alien stockholders, is entitled to the protection afforded by the due-process of law
and equal protection of the laws clause of the Philippine Bill of Rights, nevertheless,
Act No. 2761 of the Philippine Legislature, in denying to corporations such as Smith,
Bell &. Co. Ltd., the right to register vessels in the Philippines coastwise trade, does
not belong to that vicious species of class legislation which must always be
condemned, but does fall within authorized exceptions, notably, within the purview
of the police power, and so does not offend against the constitutional provision.
This opinion might well be brought to a close at this point. It occurs to us, however,
that the legislative history of the United States and the Philippine Islands, and,
probably, the legislative history of other countries, if we were to take the time to
search it out, might disclose similar attempts at restriction on the right to enter the
coastwise trade, and might thus furnish valuable aid by which to ascertain and, if
possible, effectuate legislative intention.
3. The power to regulate commerce, expressly delegated to the Congress by
the Constitution, includes the power to nationalize ships built and owned in the
United States by registries and enrollments, and the recording of the muniments of
title of American vessels. The Congress "may encourage or it may entirely prohibit
such commerce, and it may regulate in any way it may see fit between these two
extremes." (U.S. vs. Craig [1886], 28 Fed., 795; Gibbons vs. Ogden [1824], 9 Wheat.,
1; The Passenger Cases [1849], 7 How., 283.)
Acting within the purview of such power, the first Congress of the United States had
not been long convened before it enacted on September 1, 1789, "An Act for
Registering and Clearing Vessels, Regulating the Coasting Trade, and for other
purposes." Section 1 of this law provided that for any ship or vessel to obtain the
benefits of American registry, it must belong wholly to a citizen or citizens of the
United States "and no other." (1 Stat. at L., 55.) That Act was shortly after repealed,
but the same idea was carried into the Acts of Congress of December 31, 1792 and
February 18, 1793. (1 Stat. at L., 287, 305.).Section 4 of the Act of 1792 provided that
in order to obtain the registry of any vessel, an oath shall be taken and subscribed by
the owner, or by one of the owners thereof, before the officer authorized to make
such registry, declaring, "that there is no subject or citizen of any foreign prince or
state, directly or indirectly, by way of trust, confidence, or otherwise, interested in
such vessel, or in the profits or issues thereof." Section 32 of the Act of 1793 even
went so far as to say "that if any licensed ship or vessel shall be transferred to any
person who is not at the time of such transfer a citizen of and resident within the
United States, ... every such vessel with her tackle, apparel, and furniture, and the
cargo found on board her, shall be forefeited." In case of alienation to a foreigner,
Chief Justice Marshall said that all the privileges of an American bottom were ipso
facto forfeited. (U.S. vs. Willings and Francis [1807], 4 Cranch, 48.) Even as late as
1873, the Attorney-General of the United States was of the opinion that under the
provisions of the Act of December 31, 1792, no vessel in which a foreigner is directly
or indirectly interested can lawfully be registered as a vessel of the United. States.
(14 Op. Atty.-Gen. [U.S.], 340.)
These laws continued in force without contest, although possibly the Act of March 3,
1825, may have affected them, until amended by the Act of May 28, 1896 (29 Stat. at
L., 188) which extended the privileges of registry from vessels wholly owned by a
citizen or citizens of the United States to corporations created under the laws of any
of the states thereof. The law, as amended, made possible the deduction that a
vessel belonging to a domestic corporation was entitled to registry or enrollment
even though some stock of the company be owned by aliens. The right of ownership
of stock in a corporation was thereafter distinct from the right to hold the property
by the corporation (Humphreys vs. McKissock [1890], 140 U.S., 304; Queen vs.
Arnaud [1846], 9 Q. B., 806; 29 Op. Atty.-Gen. [U.S.],188.)
On American occupation of the Philippines, the new government found a substantive
law in operation in the Islands with a civil law history which it wisely continued in
force Article fifteen of the Spanish Code of Commerce permitted any foreigner to
engage in Philippine trade if he had legal capacity to do so under the laws of his
nation. When the Philippine Commission came to enact the Customs Administrative
Act (No. 355) in 1902, it returned to the old American policy of limiting the
protection and flag of the United States to vessels owned by citizens of the United
States or by native inhabitants of the Philippine Islands (Sec. 117.) Two years later,
the same body reverted to the existing Congressional law by permitting certification
to be issued to a citizen of the United States or to a corporation or company created
under the laws of the United States or of any state thereof or of the Philippine
Islands (Act No. 1235, sec. 3.) The two administration codes repeated the same
provisions with the necessary amplification of inclusion of citizens or native
inhabitants of the Philippine Islands (Adm. Code of 1916, sec. 1345; Adm. Code of
1917, sec. 1172). And now Act No. 2761 has returned to the restrictive idea of the
original Customs Administrative Act which in turn was merely a reflection of the
statutory language of the first American Congress.
Provisions such as those in Act No. 2761, which deny to foreigners the right to a
certificate of Philippine registry, are thus found not to be as radical as a first reading
would make them appear.
Without any subterfuge, the apparent purpose of the Philippine Legislature is seen to
be to enact an anti-alien shipping act. The ultimate purpose of the Legislature is to
encourage Philippine ship-building. This, without doubt, has, likewise, been the
intention of the United States Congress in passing navigation or tariff laws on
different occasions. The object of such a law, the United States Supreme Court once
said, was to encourage American trade, navigation, and ship-building by giving
American ship-owners exclusive privileges. (Old Dominion Steamship Co. vs. Virginia
[1905], 198 U.S., 299; Kent's Commentaries, Vol. 3, p. 139.)
In the concurring opinion of Justice Johnson in Gibbons vs. Ogden ([1824], 9 Wheat.,
1) is found the following:
Licensing acts, in fact, in legislation, are universally restraining acts; as, for example,
acts licensing gaming houses, retailers of spirituous liquors, etc. The act, in this
instance, is distinctly of that character, and forms part of an extensive system, the
object of which is to encourage American shipping, and place them on an equal
footing with the shipping of other nations. Almost every commercial nation reserves
to its own subjects a monopoly of its coasting trade; and a countervailing privilege in
favor of American shipping is contemplated, in the whole legislation of the United
States on this subject. It is not to give the vessel an American character, that the
license is granted; that effect has been correctly attributed to the act of her
enrollment. But it is to confer on her American privileges, as contradistinguished
from foreign; and to preserve the. Government from fraud by foreigners, in
surreptitiously intruding themselves into the American commercial marine, as well as
frauds upon the revenue in the trade coastwise, that this whole system is projected.
The United States Congress in assuming its grave responsibility of legislating wisely
for a new country did so imbued with a spirit of Americanism. Domestic navigation
and trade, it decreed, could only be carried on by citizens of the United States. If the
representatives of the American people acted in this patriotic manner to advance the
national policy, and if their action was accepted without protest in the courts, who
can say that they did not enact such beneficial laws under the all-pervading police 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
HARRY S. STONEHILL, ROBERT P. BROOKS, JOHN J. BROOKS and KARL BECK,
petitioners,
vs.
HON. JOSE W. DIOKNO, in his capacity as SECRETARY OF JUSTICE; JOSE LUKBAN, in
his capacity as Acting Director, National Bureau of Investigation; SPECIAL
PROSECUTORS PEDRO D. CENZON, EFREN I. PLANA and MANUEL VILLAREAL, JR. and
ASST. FISCAL MANASES G. REYES; JUDGE AMADO ROAN, Municipal Court of Manila;
JUDGE ROMAN CANSINO, Municipal Court of Manila; JUDGE HERMOGENES CALUAG,
Court of First Instance of Rizal-Quezon City Branch, and JUDGE DAMIAN JIMENEZ,
Municipal Court of Quezon City, respondents.
Paredes, Poblador, Cruz and Nazareno and Meer, Meer and Meer and Juan T. David
for petitioners.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Pacifico P.
de Castro, Assistant Solicitor General Frine C. Zaballero, Solicitor Camilo D. Quiason
and Solicitor C. Padua for respondents.
CONCEPCION, C.J.:
Upon application of the officers of the government named on the margin1 —
hereinafter referred to as Respondents-Prosecutors — several judges2 — hereinafter
referred to as Respondents-Judges — issued, on different dates,3 a total of 42 search
warrants against petitioners herein4 and/or the corporations of which they were
officers,5 directed to the any peace officer, to search the persons above-named
and/or the premises of their offices, warehouses and/or residences, and to seize and
take possession of the following personal property to wit:
Books of accounts, financial records, vouchers, correspondence, receipts, ledgers,
journals, portfolios, credit journals, typewriters, and other documents and/or papers
showing all business transactions including disbursements receipts, balance sheets
and profit and loss statements and Bobbins (cigarette wrappers).
as "the subject of the offense; stolen or embezzled and proceeds or fruits of the
offense," or "used or intended to be used as the means of committing the offense,"
which is described in the applications adverted to above as "violation of Central Bank
Laws, Tariff and Customs Laws, Internal Revenue (Code) and the Revised Penal
Code."
Alleging that the aforementioned search warrants are null and void, as contravening
the Constitution and the Rules of Court — because, inter alia: (1) they do not
describe with particularity the documents, books and things to be seized; (2) cash
money, not mentioned in the warrants, were actually seized; (3) the warrants were
issued to fish evidence against the aforementioned petitioners in deportation cases
filed against them; (4) the searches and seizures were made in an illegal manner; and
(5) the documents, papers and cash money seized were not delivered to the courts
that issued the warrants, to be disposed of in accordance with law — on March 20,
1962, said petitioners filed with the Supreme Court this original action for certiorari,
prohibition, mandamus and injunction, and prayed that, pending final disposition of
the present case, a writ of preliminary injunction be issued restraining Respondents-
Prosecutors, their agents and /or representatives from using the effects seized as
aforementioned or any copies thereof, in the deportation cases already adverted to,
and that, in due course, thereafter, decision be rendered quashing the contested
search warrants and declaring the same null and void, and commanding the
respondents, their agents or representatives to return to petitioners herein, in
accordance with Section 3, Rule 67, of the Rules of Court, the documents, papers,
things and cash moneys seized or confiscated under the search warrants in question.
In their answer, respondents-prosecutors alleged, 6 (1) that the contested search
warrants are valid and have been issued in accordance with law; (2) that the defects
of said warrants, if any, were cured by petitioners' consent; and (3) that, in any
event, the effects seized are admissible in evidence against herein petitioners,
regardless of the alleged illegality of the aforementioned searches and seizures.
On March 22, 1962, this Court issued the writ of preliminary injunction prayed for in
the petition. However, by resolution dated June 29, 1962, the writ was partially lifted
or dissolved, insofar as the papers, documents and things seized from the offices of
the corporations above mentioned are concerned; but, the injunction was
maintained as regards the papers, documents and things found and seized in the
residences of petitioners herein.7
Thus, the documents, papers, and things seized under the alleged authority of the
warrants in question may be split into two (2) major groups, namely: (a) those found
and seized in the offices of the aforementioned corporations, and (b) those found
and seized in the residences of petitioners herein.
As regards the first group, we hold that petitioners herein have no cause of action to
assail the legality of the contested warrants and of the seizures made in pursuance
thereof, for the simple reason that said corporations have their respective
personalities, separate and distinct from the personality of herein petitioners,
regardless of the amount of shares of stock or of the interest of each of them in said
corporations, and whatever the offices they hold therein may be.8 Indeed, it is well
settled that the legality of a seizure can be contested only by the party whose rights
have been impaired thereby,9 and that the objection to an unlawful search and
seizure is purely personal and cannot be availed of by third parties. 10 Consequently,
petitioners herein may not validly object to the use in evidence against them of the
documents, papers and things seized from the offices and premises of the
corporations adverted to above, since the right to object to the admission of said
papers in evidence belongs exclusively to the corporations, to whom the seized
effects belong, and may not be invoked by the corporate officers in proceedings
against them in their individual capacity. 11 Indeed, it has been held:
. . . that the Government's action in gaining possession of papers belonging to the
corporation did not relate to nor did it affect the personal defendants. If these
papers were unlawfully seized and thereby the constitutional rights of or any one
were invaded, they were the rights of the corporation and not the rights of the other
defendants. Next, it is clear that a question of the lawfulness of a seizure can be
raised only by one whose rights have been invaded. Certainly, such a seizure, if
unlawful, could not affect the constitutional rights of defendants whose property
had not been seized or the privacy of whose homes had not been disturbed; nor
could they claim for themselves the benefits of the Fourth Amendment, when its
violation, if any, was with reference to the rights of another. Remus vs. United States
(C.C.A.)291 F. 501, 511. It follows, therefore, that the question of the admissibility of
the evidence based on an alleged unlawful search and seizure does not extend to the
personal defendants but embraces only the corporation whose property was taken. .
. . (A Guckenheimer & Bros. Co. vs. United States, [1925] 3 F. 2d. 786, 789, Emphasis
supplied.)
With respect to the documents, papers and things seized in the residences of
petitioners herein, the aforementioned resolution of June 29, 1962, lifted the writ of
preliminary injunction previously issued by this Court, 12 thereby, in effect,
restraining herein Respondents-Prosecutors from using them in evidence against
petitioners herein.
In connection with said documents, papers and things, two (2) important questions
need be settled, namely: (1) whether the search warrants in question, and the
searches and seizures made under the authority thereof, are valid or not, and (2) if
the answer to the preceding question is in the negative, whether said documents,
papers and things may be used in evidence against petitioners herein.1äwphï1.ñët
Petitioners maintain that the aforementioned search warrants are in the nature of
general warrants and that accordingly, the seizures effected upon the authority there
of are null and void. In this connection, the Constitution 13 provides:
The right of the people to be secure in their persons, houses, papers, and effects
against unreasonable searches and seizures shall not be violated, and no warrants
shall issue but upon probable cause, to be determined by the judge after
examination under oath or affirmation of the complainant and the witnesses he may
produce, and particularly describing the place to be searched, and the persons or
things to be seized.
Two points must be stressed in connection with this constitutional mandate, namely:
(1) that no warrant shall issue but upon probable cause, to be determined by the
judge in the manner set forth in said provision; and (2) that the warrant shall
particularly describe the things to be seized.
None of these requirements has been complied with in the contested warrants.
Indeed, the same were issued upon applications stating that the natural and juridical
person therein named had committed a "violation of Central Ban Laws, Tariff and
Customs Laws, Internal Revenue (Code) and Revised Penal Code." In other words, no
specific offense had been alleged in said applications. The averments thereof with
respect to the offense committed were abstract. As a consequence, it was impossible
for the judges who issued the warrants to have found the existence of probable
cause, for the same presupposes the introduction of competent proof that the party
against whom it is sought has performed particular acts, or committed specific
omissions, violating a given provision of our criminal laws. As a matter of fact, the
applications involved in this case do not allege any specific acts performed by herein
petitioners. It would be the legal heresy, of the highest order, to convict anybody of a
"violation of Central Bank Laws, Tariff and Customs Laws, Internal Revenue (Code)
and Revised Penal Code," — as alleged in the aforementioned applications —
without reference to any determinate provision of said laws or
To uphold the validity of the warrants in question would be to wipe out completely
one of the most fundamental rights guaranteed in our Constitution, for it would
place the sanctity of the domicile and the privacy of communication and
correspondence at the mercy of the whims caprice or passion of peace officers. This
is precisely the evil sought to be remedied by the constitutional provision above
quoted — to outlaw the so-called general warrants. It is not difficult to imagine what
would happen, in times of keen political strife, when the party in power feels that
the minority is likely to wrest it, even though by legal means.
Such is the seriousness of the irregularities committed in connection with the
disputed search warrants, that this Court deemed it fit to amend Section 3 of Rule
122 of the former Rules of Court 14 by providing in its counterpart, under the
Revised Rules of Court 15 that "a search warrant shall not issue but upon probable
cause in connection with one specific offense." Not satisfied with this qualification,
the Court added thereto a paragraph, directing that "no search warrant shall issue
for more than one specific offense."
The grave violation of the Constitution made in the application for the contested
search warrants was compounded by the description therein made of the effects to
be searched for and seized, to wit:
Books of accounts, financial records, vouchers, journals, correspondence, receipts,
ledgers, portfolios, credit journals, typewriters, and other documents and/or papers
showing all business transactions including disbursement receipts, balance sheets
and related profit and loss statements.
Thus, the warrants authorized the search for and seizure of records pertaining to all
business transactions of petitioners herein, regardless of whether the transactions
were legal or illegal. The warrants sanctioned the seizure of all records of the
petitioners and the aforementioned corporations, whatever their nature, thus
openly contravening the explicit command of our Bill of Rights — that the things to
be seized be particularly described — as well as tending to defeat its major objective:
the elimination of general warrants.
Relying upon Moncado vs. People's Court (80 Phil. 1), Respondents-Prosecutors
maintain that, even if the searches and seizures under consideration were
unconstitutional, the documents, papers and things thus seized are admissible in
evidence against petitioners herein. Upon mature deliberation, however, we are
unanimously of the opinion that the position taken in the Moncado case must be
abandoned. Said position was in line with the American common law rule, that the
criminal should not be allowed to go free merely "because the constable has
blundered," 16 upon the theory that the constitutional prohibition against
unreasonable searches and seizures is protected by means other than the exclusion
of evidence unlawfully obtained, 17 such as the common-law action for damages
against the searching officer, against the party who procured the issuance of the
search warrant and against those assisting in the execution of an illegal search, their
criminal punishment, resistance, without liability to an unlawful seizure, and such
other legal remedies as may be provided by other laws.
However, most common law jurisdictions have already given up this approach and
eventually adopted the exclusionary rule, realizing that this is the only practical
means of enforcing the constitutional injunction against unreasonable searches and
seizures. In the language of Judge Learned Hand:
As we understand it, the reason for the exclusion of evidence competent as such,
which has been unlawfully acquired, is that exclusion is the only practical way of
enforcing the constitutional privilege. In earlier times the action of trespass against
the offending official may have been protection enough; but that is true no longer.
Only in case the prosecution which itself controls the seizing officials, knows that it
cannot profit by their wrong will that wrong be repressed.18
In fact, over thirty (30) years before, the Federal Supreme Court had already
declared:
If letters and private documents can thus be seized and held and used in evidence
against a citizen accused of an offense, the protection of the 4th Amendment,
declaring his rights to be secure against such searches and seizures, is of no value,
and, so far as those thus placed are concerned, might as well be stricken from the
Constitution. The efforts of the courts and their officials to bring the guilty to
punishment, praiseworthy as they are, are not to be aided by the sacrifice of those
great principles established by years of endeavor and suffering which have resulted
in their embodiment in the fundamental law of the land.19
This view was, not only reiterated, but, also, broadened in subsequent decisions on
the same Federal Court. 20 After reviewing previous decisions thereon, said Court
held, in Mapp vs. Ohio (supra.):
. . . Today we once again examine the Wolf's constitutional documentation of the
right of privacy free from unreasonable state intrusion, and after its dozen years on
our books, are led by it to close the only courtroom door remaining open to evidence
secured by official lawlessness in flagrant abuse of that basic right, reserved to all
persons as a specific guarantee against that very same unlawful conduct. We hold
that all evidence obtained by searches and seizures in violation of the Constitution is,
by that same authority, inadmissible in a State.
Since the Fourth Amendment's right of privacy has been declared enforceable
against the States through the Due Process Clause of the Fourteenth, it is
enforceable against them by the same sanction of exclusion as it used against the
Federal Government. Were it otherwise, then just as without the Weeks rule the
assurance against unreasonable federal searches and seizures would be "a form of
words," valueless and underserving of mention in a perpetual charter of inestimable
human liberties, so too, without that rule the freedom from state invasions of
privacy would be so ephemeral and so neatly severed from its conceptual nexus with
the freedom from all brutish means of coercing evidence as not to permit this Court's
high regard as a freedom "implicit in the concept of ordered liberty." At the time that
the Court held in Wolf that the amendment was applicable to the States through the
Due Process Clause, the cases of this Court as we have seen, had steadfastly held
that as to federal officers the Fourth Amendment included the exclusion of the
evidence seized in violation of its provisions. Even Wolf "stoutly adhered" to that
proposition. The right to when conceded operatively enforceable against the States,
was not susceptible of destruction by avulsion of the sanction upon which its
protection and enjoyment had always been deemed dependent under the Boyd,
Weeks and Silverthorne Cases. Therefore, in extending the substantive protections of
due process to all constitutionally unreasonable searches — state or federal — it was
logically and constitutionally necessarily that the exclusion doctrine — an essential
part of the right to privacy — be also insisted upon as an essential ingredient of the
right newly recognized by the Wolf Case. In short, the admission of the new
constitutional Right by Wolf could not tolerate denial of its most important
constitutional privilege, namely, the exclusion of the evidence which an accused had
been forced to give by reason of the unlawful seizure. To hold otherwise is to grant
the right but in reality to withhold its privilege and enjoyment. Only last year the
Court itself recognized that the purpose of the exclusionary rule to "is to deter — to
compel respect for the constitutional guaranty in the only effectively available way
— by removing the incentive to disregard it" . . . .
The ignoble shortcut to conviction left open to the State tends to destroy the entire
system of constitutional restraints on which the liberties of the people rest. Having
once recognized that the right to privacy embodied in the Fourth Amendment is
enforceable against the States, and that the right to be secure against rude invasions
of privacy by state officers is, therefore constitutional in origin, we can no longer
permit that right to remain an empty promise. Because it is enforceable in the same
manner and to like effect as other basic rights secured by its Due Process Clause, we
can no longer permit it to be revocable at the whim of any police officer who, in the
name of law enforcement itself, chooses to suspend its enjoyment. Our decision,
founded on reason and truth, gives to the individual no more than that which the
Constitution guarantees him to the police officer no less than that to which honest
law enforcement is entitled, and, to the courts, that judicial integrity so necessary in
the true administration of justice. (emphasis ours.)
Indeed, the non-exclusionary rule is contrary, not only to the letter, but also, to the
spirit of the constitutional injunction against unreasonable searches and seizures. To
be sure, if the applicant for a search warrant has competent evidence to establish
probable cause of the commission of a given crime by the party against whom the
warrant is intended, then there is no reason why the applicant should not comply
with the requirements of the fundamental law. Upon the other hand, if he has no
such competent evidence, then it is not possible for the Judge to find that there is
probable cause, and, hence, no justification for the issuance of the warrant. The only
possible explanation (not justification) for its issuance is the necessity of fishing
evidence of the commission of a crime. But, then, this fishing expedition is indicative
of the absence of evidence to establish a probable cause.
Moreover, the theory that the criminal prosecution of those who secure an illegal
search warrant and/or make unreasonable searches or seizures would suffice to
protect the constitutional guarantee under consideration, overlooks the fact that
violations thereof are, in general, committed By agents of the party in power, for,
certainly, those belonging to the minority could not possibly abuse a power they do
not have. Regardless of the handicap under which the minority usually — but,
understandably — finds itself in prosecuting agents of the majority, one must not
lose sight of the fact that the psychological and moral effect of the possibility 21 of
securing their conviction, is watered down by the pardoning power of the party for
whose benefit the illegality had been committed.
In their Motion for Reconsideration and Amendment of the Resolution of this Court
dated June 29, 1962, petitioners allege that Rooms Nos. 81 and 91 of Carmen
Apartments, House No. 2008, Dewey Boulevard, House No. 1436, Colorado Street,
and Room No. 304 of the Army-Navy Club, should be included among the premises
considered in said Resolution as residences of herein petitioners, Harry S. Stonehill,
Robert P. Brook, John J. Brooks and Karl Beck, respectively, and that, furthermore,
the records, papers and other effects seized in the offices of the corporations above
referred to include personal belongings of said petitioners and other effects under
their exclusive possession and control, for the exclusion of which they have a
standing under the latest rulings of the federal courts of federal courts of the United
States. 22
We note, however, that petitioners' theory, regarding their alleged possession of and
control over the aforementioned records, papers and effects, and the alleged
"personal" nature thereof, has Been Advanced, not in their petition or amended
petition herein, but in the Motion for Reconsideration and Amendment of the
Resolution of June 29, 1962. In other words, said theory would appear to be
readjustment of that followed in said petitions, to suit the approach intimated in the
Resolution sought to be reconsidered and amended. Then, too, some of the
affidavits or copies of alleged affidavits attached to said motion for reconsideration,
or submitted in support thereof, contain either inconsistent allegations, or
allegations inconsistent with the theory now advanced by petitioners herein.
Upon the other hand, we are not satisfied that the allegations of said petitions said
motion for reconsideration, and the contents of the aforementioned affidavits and
other papers submitted in support of said motion, have sufficiently established the
facts or conditions contemplated in the cases relied upon by the petitioners; to
warrant application of the views therein expressed, should we agree thereto. At any
rate, we do not deem it necessary to express our opinion thereon, it being best to
leave the matter open for determination in appropriate cases in the future.

We hold, therefore, that the doctrine adopted in the Moncado case must be, as it is
hereby, abandoned; that the warrants for the search of three (3) residences of
herein petitioners, as specified in the Resolution of June 29, 1962, are null and void;
that the searches and seizures therein made are illegal; that the writ of preliminary
injunction heretofore issued, in connection with the documents, papers and other
effects thus seized in said residences of herein petitioners is hereby made
permanent; that the writs prayed for are granted, insofar as the documents, papers
and other effects so seized in the aforementioned residences are concerned; that the
aforementioned motion for Reconsideration and Amendment should be, as it is
hereby, denied; and that the petition herein is dismissed and the writs prayed for
denied, as regards the documents, papers and other effects seized in the twenty-
nine (29) places, offices and other premises enumerated in the same Resolution,
without special pronouncement as to costs.
It is so ordered.
CASTRO, J., concurring and dissenting:
From my analysis of the opinion written by Chief Justice Roberto Concepcion and
from the import of the deliberations of the Court on this case, I gather the following
distinct conclusions:
1. All the search warrants served by the National Bureau of Investigation in this case
are general warrants and are therefore proscribed by, and in violation of, paragraph
3 of section 1 of Article III (Bill of Rights) of the Constitution;
2. All the searches and seizures conducted under the authority of the said search
warrants were consequently illegal;
3. The non-exclusionary rule enunciated in Moncado vs. People, 80 Phil. 1, should be,
and is declared, abandoned;
4. The search warrants served at the three residences of the petitioners are expressly
declared null and void the searches and seizures therein made are expressly declared
illegal; and the writ of preliminary injunction heretofore issued against the use of the
documents, papers and effect seized in the said residences is made permanent; and
5. Reasoning that the petitioners have not in their pleadings satisfactorily
demonstrated that they have legal standing to move for the suppression of the
documents, papers and effects seized in the places other than the three residences
adverted to above, the opinion written by the Chief Justice refrains from expressly
declaring as null and void the such warrants served at such other places and as illegal
the searches and seizures made therein, and leaves "the matter open for
determination in appropriate cases in the future."
It is precisely the position taken by the Chief Justice summarized in the immediately
preceding paragraph (numbered 5) with which I am not in accord.
I do not share his reluctance or unwillingness to expressly declare, at this time, the
nullity of the search warrants served at places other than the three residences, and
the illegibility of the searches and seizures conducted under the authority thereof. In
my view even the exacerbating passions and prejudices inordinately generated by
the environmental political and moral developments of this case should not deter
this Court from forthrightly laying down the law not only for this case but as well for
future cases and future generations. All the search warrants, without exception, in
this case are admittedly general, blanket and roving warrants and are therefore
admittedly and indisputably outlawed by the Constitution; and the searches and
seizures made were therefore unlawful. That the petitioners, let us assume in gratia
argumente, have no legal standing to ask for the suppression of the papers, things
and effects seized from places other than their residences, to my mind, cannot in any
manner affect, alter or otherwise modify the intrinsic nullity of the search warrants
and the intrinsic illegality of the searches and seizures made thereunder. Whether or
not the petitioners possess legal standing the said warrants are void and remain void,
and the searches and seizures were illegal and remain illegal. No inference can be
drawn from the words of the Constitution that "legal standing" or the lack of it is a
determinant of the nullity or validity of a search warrant or of the lawfulness or
illegality of a search or seizure.
On the question of legal standing, I am of the conviction that, upon the pleadings
submitted to this Court the petitioners have the requisite legal standing to move for
the suppression and return of the documents, papers and effects that were seized
from places other than their family residences.
Our constitutional provision on searches and seizures was derived almost verbatim
from the Fourth Amendment to the United States Constitution. In the many years of
judicial construction and interpretation of the said constitutional provision, our
courts have invariably regarded as doctrinal the pronouncement made on the Fourth
Amendment by federal courts, especially the Federal Supreme Court and the Federal
Circuit Courts of Appeals.
The U.S. doctrines and pertinent cases on standing to move for the suppression or
return of documents, papers and effects which are the fruits of an unlawful search
and seizure, may be summarized as follows; (a) ownership of documents, papers and
effects gives "standing;" (b) ownership and/or control or possession — actual or
constructive — of premises searched gives "standing"; and (c) the "aggrieved
person" doctrine where the search warrant and the sworn application for search
warrant are "primarily" directed solely and exclusively against the "aggrieved
person," gives "standing."
An examination of the search warrants in this case will readily show that, excepting
three, all were directed against the petitioners personally. In some of them, the
petitioners were named personally, followed by the designation, "the President
and/or General Manager" of the particular corporation. The three warrants excepted
named three corporate defendants. But the "office/house/warehouse/premises"
mentioned in the said three warrants were also the same
"office/house/warehouse/premises" declared to be owned by or under the control
of the petitioners in all the other search warrants directed against the petitioners
and/or "the President and/or General Manager" of the particular corporation. (see
pages 5-24 of Petitioners' Reply of April 2, 1962). The searches and seizures were to
be made, and were actually made, in the "office/house/warehouse/premises"
owned by or under the control of the petitioners.
Ownership of matters seized gives "standing."
Ownership of the properties seized alone entitles the petitioners to bring a motion to
return and suppress, and gives them standing as persons aggrieved by an unlawful
search and seizure regardless of their location at the time of seizure. Jones vs. United
States, 362 U.S. 257, 261 (1960) (narcotics stored in the apartment of a friend of the
defendant); Henzel vs. United States, 296 F. 2d. 650, 652-53 (5th Cir. 1961), (personal
and corporate papers of corporation of which the defendant was president), United
States vs. Jeffers, 342 U.S. 48 (1951) (narcotics seized in an apartment not belonging
to the defendant); Pielow vs. United States, 8 F. 2d 492, 493 (9th Cir. 1925) (books
seized from the defendant's sister but belonging to the defendant); Cf. Villano vs.
United States, 310 F. 2d 680, 683 (10th Cir. 1962) (papers seized in desk neither
owned by nor in exclusive possession of the defendant).
In a very recent case (decided by the U.S. Supreme Court on December 12, 1966), it
was held that under the constitutional provision against unlawful searches and
seizures, a person places himself or his property within a constitutionally protected
area, be it his home or his office, his hotel room or his automobile:
Where the argument falls is in its misapprehension of the fundamental nature and
scope of Fourth Amendment protection. What the Fourth Amendment protects is
the security a man relies upon when he places himself or his property within a
constitutionally protected area, be it his home or his office, his hotel room or his
automobile. There he is protected from unwarranted governmental intrusion. And
when he puts some thing in his filing cabinet, in his desk drawer, or in his pocket, he
has the right to know it will be secure from an unreasonable search or an
unreasonable seizure. So it was that the Fourth Amendment could not tolerate the
warrantless search of the hotel room in Jeffers, the purloining of the petitioner's
private papers in Gouled, or the surreptitious electronic surveilance in Silverman.
Countless other cases which have come to this Court over the years have involved a
myriad of differing factual contexts in which the protections of the Fourth
Amendment have been appropriately invoked. No doubt, the future will bring
countless others. By nothing we say here do we either foresee or foreclose factual
situations to which the Fourth Amendment may be applicable. (Hoffa vs. U.S., 87 S.
Ct. 408 (December 12, 1966). See also U.S. vs. Jeffers, 342 U.S. 48, 72 S. Ct. 93
(November 13, 1951). (Emphasis supplied).
Control of premises searched gives "standing."
Independent of ownership or other personal interest in the records and documents
seized, the petitioners have standing to move for return and suppression by virtue of
their proprietary or leasehold interest in many of the premises searched. These
proprietary and leasehold interests have been sufficiently set forth in their motion
for reconsideration and need not be recounted here, except to emphasize that the
petitioners paid rent, directly or indirectly, for practically all the premises searched
(Room 91, 84 Carmen Apts; Room 304, Army & Navy Club; Premises 2008, Dewey
Boulevard; 1436 Colorado Street); maintained personal offices within the corporate
offices (IBMC, USTC); had made improvements or furnished such offices; or had paid
for the filing cabinets in which the papers were stored (Room 204, Army & Navy
Club); and individually, or through their respective spouses, owned the controlling
stock of the corporations involved. The petitioners' proprietary interest in most, if
not all, of the premises searched therefore independently gives them standing to
move for the return and suppression of the books, papers and affects seized
therefrom.
In Jones vs. United States, supra, the U.S. Supreme Court delineated the nature and
extent of the interest in the searched premises necessary to maintain a motion to
suppress. After reviewing what it considered to be the unduly technical standard of
the then prevailing circuit court decisions, the Supreme Court said (362 U.S. 266):
We do not lightly depart from this course of decisions by the lower courts. We are
persuaded, however, that it is unnecessarily and ill-advised to import into the law
surrounding the constitutional right to be free from unreasonable searches and
seizures subtle distinctions, developed and refined by the common law in evolving
the body of private property law which, more than almost any other branch of law,
has been shaped by distinctions whose validity is largely historical. Even in the area
from which they derive, due consideration has led to the discarding of those
distinctions in the homeland of the common law. See Occupiers' Liability Act, 1957, 5
and 6 Eliz. 2, c. 31, carrying out Law Reform Committee, Third Report, Cmd. 9305.
Distinctions such as those between "lessee", "licensee," "invitee," "guest," often only
of gossamer strength, ought not be determinative in fashioning procedures
ultimately referable to constitutional safeguards. See also Chapman vs. United
States, 354 U.S. 610, 616-17 (1961).
It has never been held that a person with requisite interest in the premises searched
must own the property seized in order to have standing in a motion to return and
suppress. In Alioto vs. United States, 216 F. Supp. 48 (1963), a Bookkeeper for several
corporations from whose apartment the corporate records were seized successfully
moved for their return. In United States vs. Antonelli, Fireworks Co., 53 F. Supp. 870,
873 (W D. N. Y. 1943), the corporation's president successfully moved for the return
and suppression is to him of both personal and corporate documents seized from his
home during the course of an illegal search:
The lawful possession by Antonelli of documents and property, "either his own or the
corporation's was entitled to protection against unreasonable search and seizure.
Under the circumstances in the case at bar, the search and seizure were
unreasonable and unlawful. The motion for the return of seized article and the
suppression of the evidence so obtained should be granted. (Emphasis supplied).
Time was when only a person who had property in interest in either the place
searched or the articles seize had the necessary standing to invoke the protection of
the exclusionary rule. But in MacDonald vs. Unite States, 335 U.S. 461 (1948), Justice
Robert Jackson joined by Justice Felix Frankfurter, advanced the view that "even a
guest may expect the shelter of the rooftree he is under against criminal intrusion."
This view finally became the official view of the U.S. Supreme Court and was
articulated in United States vs. Jeffers, 432 U.S 48 (1951). Nine years later, in 1960, in
Jones vs. Unite States, 362 U.S. 257, 267, the U.S. Supreme Court went a step
further. Jones was a mere guest in the apartment unlawfully searched but the Court
nonetheless declared that the exclusionary rule protected him as well. The concept
of "person aggrieved by an unlawful search and seizure" was enlarged to include
"anyone legitimately on premise where the search occurs."
Shortly after the U.S. Supreme Court's Jones decision the U.S. Court of Appeals for
the Fifth Circuit held that the defendant organizer, sole stockholder and president of
a corporation had standing in a mail fraud prosecution against him to demand the
return and suppression of corporate property. Henzel vs. United States, 296 F 2d
650, 652 (5th Cir. 1961), supra. The court conclude that the defendant had standing
on two independent grounds: First — he had a sufficient interest in the property
seized, and second — he had an adequate interest in the premises searched (just like
in the case at bar). A postal inspector had unlawfully searched the corporation'
premises and had seized most of the corporation's book and records. Looking to
Jones, the court observed:
Jones clearly tells us, therefore, what is not required qualify one as a "person
aggrieved by an unlawful search and seizure." It tells us that appellant should not
have been precluded from objecting to the Postal Inspector's search and seizure of
the corporation's books and records merely because the appellant did not show
ownership or possession of the books and records or a substantial possessory
interest in the invade premises . . . (Henzel vs. United States, 296 F. 2d at 651). .
Henzel was soon followed by Villano vs. United States, 310 F. 2d 680, 683, (10th Cir.
1962). In Villano, police officers seized two notebooks from a desk in the defendant's
place of employment; the defendant did not claim ownership of either; he asserted
that several employees (including himself) used the notebooks. The Court held that
the employee had a protected interest and that there also was an invasion of
privacy. Both Henzel and Villano considered also the fact that the search and seizure
were "directed at" the moving defendant. Henzel vs. United States, 296 F. 2d at 682;
Villano vs. United States, 310 F. 2d at 683.
In a case in which an attorney closed his law office, placed his files in storage and
went to Puerto Rico, the Court of Appeals for the Eighth Circuit recognized his
standing to move to quash as unreasonable search and seizure under the Fourth
Amendment of the U.S. Constitution a grand jury subpoena duces tecum directed to
the custodian of his files. The Government contended that the petitioner had no
standing because the books and papers were physically in the possession of the
custodian, and because the subpoena was directed against the custodian. The court
rejected the contention, holding that
Schwimmer legally had such possession, control and unrelinquished personal rights
in the books and papers as not to enable the question of unreasonable search and
seizure to be escaped through the mere procedural device of compelling a third-
party naked possessor to produce and deliver them. Schwimmer vs. United States,
232 F. 2d 855, 861 (8th Cir. 1956).
Aggrieved person doctrine where the search warrant s primarily directed against said
person gives "standing."
The latest United States decision squarely in point is United States vs. Birrell, 242 F.
Supp. 191 (1965, U.S.D.C. S.D.N.Y.). The defendant had stored with an attorney
certain files and papers, which attorney, by the name of Dunn, was not, at the time
of the seizing of the records, Birrell's attorney. * Dunn, in turn, had stored most of
the records at his home in the country and on a farm which, according to Dunn's
affidavit, was under his (Dunn's) "control and management." The papers turned out
to be private, personal and business papers together with corporate books and
records of certain unnamed corporations in which Birrell did not even claim
ownership. (All of these type records were seized in the case at bar). Nevertheless,
the search in Birrell was held invalid by the court which held that even though Birrell
did not own the premises where the records were stored, he had "standing" to move
for the return of all the papers and properties seized. The court, relying on Jones vs.
U.S., supra; U.S. vs. Antonelli Fireworks Co., 53 F. Supp. 870, Aff'd 155 F. 2d 631:
Henzel vs. U.S., supra; and Schwimmer vs. U.S., supra, pointed out that
It is overwhelmingly established that the searches here in question were directed
solely and exclusively against Birrell. The only person suggested in the papers as
having violated the law was Birrell. The first search warrant described the records as
having been used "in committing a violation of Title 18, United States Code, Section
1341, by the use of the mails by one Lowell M. Birrell, . . ." The second search
warrant was captioned: "United States of America vs. Lowell M. Birrell. (p. 198)
Possession (actual or constructive), no less than ownership, gives standing to move
to suppress. Such was the rule even before Jones. (p. 199)
If, as thus indicated Birrell had at least constructive possession of the records stored
with Dunn, it matters not whether he had any interest in the premises searched. See
also Jeffers v. United States, 88 U.S. Appl. D.C. 58, 187 F. 2d 498 (1950), affirmed 432
U.S. 48, 72 S. Ct. 93, 96 L. Ed. 459 (1951).
The ruling in the Birrell case was reaffirmed on motion for reargument; the United
States did not appeal from this decision. The factual situation in Birrell is strikingly
similar to the case of the present petitioners; as in Birrell, many personal and
corporate papers were seized from premises not petitioners' family residences; as in
Birrell, the searches were "PRIMARILY DIRECTED SOLETY AND EXCLUSIVELY" against
the petitioners. Still both types of documents were suppressed in Birrell because of
the illegal search. In the case at bar, the petitioners connection with the premises
raided is much closer than in Birrell.
Thus, the petitioners have full standing to move for the quashing of all the warrants
regardless whether these were directed against residences in the narrow sense of
the word, as long as the documents were personal papers of the petitioners or (to
the extent that they were corporate papers) were held by them in a personal
capacity or under their personal control.
Prescinding a from the foregoing, this Court, at all events, should order the return to
the petitioners all personal and private papers and effects seized, no matter where
these were seized, whether from their residences or corporate offices or any other
place or places. The uncontradicted sworn statements of the petitioners in their,
various pleadings submitted to this Court indisputably show that amongst the things
seized from the corporate offices and other places were personal and private papers
and effects belonging to the petitioners.
If there should be any categorization of the documents, papers and things which
where the objects of the unlawful searches and seizures, I submit that the grouping
should be: (a) personal or private papers of the petitioners were they were
unlawfully seized, be it their family residences offices, warehouses and/or premises
owned and/or possessed (actually or constructively) by them as shown in all the
search and in the sworn applications filed in securing the void search warrants and
(b) purely corporate papers belonging to corporations. Under such categorization or
grouping, the determination of which unlawfully seized papers, documents and
things are personal/private of the petitioners or purely corporate papers will have to
be left to the lower courts which issued the void search warrants in ultimately
effecting the suppression and/or return of the said documents.
And as unequivocally indicated by the authorities above cited, the petitioners
likewise have clear legal standing to move for the suppression of purely corporate
papers as "President and/or General Manager" of the corporations involved as
specifically mentioned in the void search warrants.
Finally, I must articulate my persuasion that although the cases cited in my
disquisition were criminal prosecutions, the great clauses of the constitutional
proscription on illegal searches and seizures do not withhold the mantle of their
protection from cases not criminal in origin or nature.