Tayag vs. Benguet Consolidated, Inc. G.R. No. L-23145, Nov.
, Nov. 29, 1968 On April 15, 1958 prior to the expiration of the five-year term of the partnership Ang Pue
PRIVATE INTERNATIONAL LAW: Situs of Shares of Stock: domicile of the corporation
SUCCESSION: Ancillary Administration: 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.
SUCCESSION: Probate: Probate court has authority to issue the order enforcing the
ancillary administrator’s right to the stock certificates when the actual situs of the shares
of stocks is in the Philippines.
FACTS:
Idonah Slade Perkins, an American citizen who died in New York City, left among others,
two stock certificates issued by Benguet Consolidated, a corporation domiciled in the
Philippines. As ancillary administrator of Perkins’ estate in the Philippines, Tayag now
wants to take possession of these stock certificates but County Trust Company of New
York, the domiciliary administrator, refused to part with them. Thus, the probate court of
the Philippines was forced to issue an order declaring the stock certificates as lost and
ordering Benguet Consolidated to issue new stock certificates representing Perkins’
shares. Benguet Consolidated appealed the order, arguing that the stock certificates are
not lost as they are in existence and currently in the possession of County Trust Company
of New York.
ISSUE: Whether or not the order of the lower court is proper
HELD:
The appeal lacks merit.
Tayag, as ancillary administrator, has the power to gain control and possession of all
assets of the decedent within the jurisdiction of the Philippines.
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."
Probate court has authority to issue the order enforcing the ancillary administrator’s right
to the stock certificates when the actual situs of the shares of stocks is in the Philippines.
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 Revenue 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.
ANG PUE v. SECRETARY OF COMMERCE GR No. L-17295, Jul 30, 1962
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 Articles of
Copartnership." 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 whole-sale 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.
& Company, but after the enactment of Republic Act 1180 the partners already
mentioned amended the original articles of partnership 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 partnerships already existing at the time of the
enactment of the law is clearly shown by its provision giving them the right to continue
engaging in their retail business until the expiration of their term of 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 adversely affect
appellants herein, is to erroneously assume that the aforesaid provision constitute a
property right of which the partners can not be deprived without due process or without
their consent. The agreement contained therein must be deemed subject to the law
existing at the time when the partners come 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.
NDC AGRIX V. PHILIPPINE VETERANS BANK (PVB) GR No. 84132-33 December 10, 1990
FACTS:
The particular enactment in question is Presidential Decree No. 1717, which ordered the
rehabilitation of the Agrix Group of Companies to be administered mainly by the National
Development Company.
The law outlined the procedure for filling claims against the Agrix Companies and created
a claims committee to process these claims.
Especially relevant to this case, and noted at the outset, is section 4(1) thereof providing
that “all mortgages and other liens presently attaching to any of the assets of the
dissolved corporations are hereby extinguished.”
Earlier, the Agrix Marketing Inc. had executed in favor of private respondent Philippine
Veterans Bank a real estate mortgage dated July 7, 1978 over three parcels of land
situated in Los Baños, Laguna.
During the existence of the mortgage, Agrix went bankrupt. It was the expressed purpose
of salvaging this and the other Agrix companies that the aforementioned decree was
issued by President Marcos.
Pursuant thereto, the private respondent filed a claim with the AGRIX Claims Committee
for the payment of its loan credit. In the meantime, the New Agrix, Inc. and the National
Development Company, petitioners herein, invoking Sec. 4 (1) of the decree, filed a
petition with the Regional Trial Court of Calamba, Laguna, for the cancellation of the
mortgage lien in favor of the private respondent. For its part, the private respondent took
steps to extrajudicially foreclose the mortgage, prompting the petitioners to file a second
case with the same court to stop the foreclosure. The two cases were consolidated
After the submission by the parties of their respective pleadings, the trial court rendered
the impugned decision. Judge Francisco Ma. Guerrero annulled not only the challenged
provision, viz., Sec. 4 (1), but the entire Pres. Decree No. 1717 on the grounds that:
(1) the presidential exercise of legislative power was a violation of the principle of
separation of powers;
(2) The law impaired the obligation of contracts; and
(3) the decree violated the equal protection clause. The motion for reconsideration of this
decision having been denied, the present petition was filed.
The Court granted the petitioner's prayer for a temporary restraining order and instructed
the respondents to cease and desist from conducting a public auction sale of the lands in
question.
The petitioners contend that the private respondent is now estopped from contesting the
validity of the decree.
The Court, after noting that the petitioners had already filed their claims with the AGRIX
Claims Committee created by the decree, had simply dismissed the petition on the ground
of estoppel.
The petitioners stress that in the case at bar the private respondent also invoked the
provisions of Pres. Decree No. 1717 by filing a claim with the AGRIX Claims Committee.
Failing to get results, it sought to foreclose the real estate mortgage executed by AGRIX
in its favor, which had been extinguished by the decree. It was only when the petitioners
challenged the foreclosure on the basis of Sec. 4 (1) of the decree, that the private
respondent attacked the validity of the provision. At that stage, however, consistent with
Mendoza, the private respondent was already estopped from questioning the
constitutionality of the decree.

ISSUE:
WON Philippine Veterans Bank as creditor of Agrix is still entitled for payment without
prejudice to PD 1717.
HELD:
YES. A mortgage lien is a property right derived from contract and so comes under the
protection of Bill of rights so do interests on loans, as well as penalties and charges, which
are also vested rights once they accrue. Private property cannot simply be taken by law
from one person and given to another without just compensation and any known public
purpose. This is plain arbitrariness and is not permitted under the constitution.
The court also feels that the decree impairs the obligation of the contract between Agrix
and the private respondent without justification. While it is true that the police power is
superior to the impairment clause, the principle will apply only where the contract is so
related to the public welfare that it will be considered congenitally susceptible to change
by the legislature in the interest of greater number.
Our finding in sum, is that PD 1717 is an invalid exercise of the police power, not being in
conformity with the traditional requirements of a lawful subject and a lawful method. The
extinction of the mortgage and other liens and of the interest and other charges
pertaining to the legitimate creditors of Agrix constitutes taking without due process of
law, and this is compounded by the reduction of the secured creditors to the category of
unsecured creditors in violation of the equal protection clause. Moreover, the new
corporation being neither owned nor controlled by the government, should have been
created only by general and not special law. And in so far as the decree also interferes
with purely private agreements without any demonstrated connection with the public
interest, there is likewise an impairment of the obligation of the contract.
JRS vs Imperial Insurance 11 SCRA 634
FACTS:
Imperial Insurance Inc., filed against JRS Business Corp, an establishment duly franchised
by the Congress of the Philippines to conduct a messenger and delivery express service,
a complaint for sum of money. The parties entered into a Compromise Agreement where
defendants promised to pay their obligation in the amount of P 61,172.32 within 60 days
and should they fail to pay, Imperial Insurance shall be entitled to move for the execution
of the decision.
JRS failed to pay its judgment debt. Imperial Insurance Inc. then filed a motion for the
issuance of a Writ of Execution. A Writ of Execution was issued and Notices of Sale were
sent out for the auction of the personal properties of J.R.S. Business Corporation.
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., of the petitioner corporation was,
handed down.
JRS filed 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 the judgment was for money only. Thus, Imperial Insurance may not use the business
name of JRS Business Corp and its right to operate under the franchise is not transferable
and could not be subject to levy and sale. CFI of Manila denied the petition for
postponement.
Auction sale was conducted and all the properties of JRS Business Corporation, the
business name, right of operation, the whole assets, furnitures and equipments, the total
liabilities and net worth, books of accounts and etc. were bought by respondent Imperial
Insurance, Inc., for P10,000.00, which was the highest bid offered. 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.
ISSUE:
Won the business name or trade name, franchise (right to operate) and capital stocks of
the petitioner could be the subject of levy, execution and sale.
SC RULING:
No. 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.
TUASON VS. BOLANOS GR. No. L-4935. May 28, 1954
Facts:
Plaintiff’s complaint against defendant was to recover possession of a registered land. In
the complaint, the plaintiff is represented by its Managing Partner, Gregorio Araneta, Inc.,
another corporation. Defendant, in his answer, sets up prescription and title in himself
thru "open, continuous, exclusive and public and notorious possession under claim of
ownership, adverse to the entire world by defendant and his predecessors in interest"
from "time immemorial". 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. Defendant
appealed directly to the Supreme Court and contended, among others, 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
Issue:
Whether or not a corporation may enter into a joint venture with another corporation.
Ruling:
It is true that the complaint 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. cannot 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.
WOLFGANG AURBACH v. SANITARY WARES MANUFACTURING CORPORATION,
GR No. 75875, 1989-12-15
Facts:
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
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. 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. 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
or joint venture groups in the countries where Philippine exports were... contemplated.
On March 8, 1983, the annual stockholders' meeting was held. There were protests
against the action of the Chairman and heated arguments ensued. 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, Ernesto V. Lagdameo, Baldwin Young, Raul A. Boncan, Ernesto R. Lagdameo,
Jr., Enrique Lagdameo and George F. Lee against Luciano Salazar and Charles Chamsay.
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 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.
Issues:
"THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE RECOGNIZING THAT THE
STOCKHOLDERS OF SANIWARES ARE DIVIDED INTO TWO BLOCS, FAILS TO FULLY ENFORCE
THE BASIC INTENT OF THE AGREEMENT AND THE LAW.

Whether it was a joint venture or a corporation
Ruling:
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. 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. 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. The legal concept of a joint 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.
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.
SMITH BELL VS. NATIVIDAD 40 PHIL 136
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
(Certificate of Philippine Regitry) 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 under Act No. 2761
which provides:
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.
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.
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.
Issue: Whether the legislature through Act no. 2761 can deny registry of vessel with
foreign stockholders.
Ruling: Yes. 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.
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. Private corporations, likewise, are "persons" within the scope of
the guaranties in so far as their property is concerned. 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.
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.
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.
One of the exceptions to the general rule, most persistent and far reaching in influence
is, 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. 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." 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.
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.
STONEHILL V. DIOKNO G.R. No. L-19550 June 19, 1967
Stonehill et al, herein petitioners, and the corporations they form were alleged to have
committed acts in “violation of Central Bank Laws, Tariff and Customs Laws, Internal
Revenue (Code) and Revised Penal Code.”. Respondents issued, on different dates, 42
search warrants against petitioners personally, and/or corporations for which they are
officers directing peace officers to search the persons of petitioners and premises of their
offices, warehouses and/or residences to search for personal properties “books of
accounts, financial records, vouchers, correspondence, receipts, ledgers, journals,
portfolios, credit journals, typewriters, and other documents showing all business
transactions including disbursement receipts, balance sheets and profit and loss
statements and Bobbins(cigarette wrappers)” as the subject of the offense for violations
of Central Bank Act, Tariff and Customs Laws, Internal Revenue Code, and Revised Penal
Code.
The documents, papers, and things seized under the alleged authority of the warrants in
question may be split into (2) major groups, namely:
(a) those found and seized in the offices of the aforementioned corporations and
(b) those found seized in the residences of petitioners herein.
Petitioners averred that the warrant is null and void for being violative of the constitution
and the Rules of court by:
(1) not describing with particularity the documents, books and things to be seized;
(2) money not mentioned in the warrants were seized;
(3) the warrants were issued to fish evidence for deportation cases filed against the
petitioner;
(4) the searches and seizures were made in an illegal manner; and
(5) the documents paper and cash money were not delivered to the issuing courts for
disposal in accordance with law.
The prosecution counters that the search warrants are valid and issued in accordance
with law; The defects of said warrants were cured by petitioners consent; and in any
event, the effects are admissible regardless of the irregularity.
The Court granted the petition and issued the writ of preliminary injunction. However, by
a resolution, the writ was partially lifted dissolving insofar as paper and things seized from
the offices of the corporations.
ISSUE:
WON the search warrant issued is valid.
HELD:
NO the search warrant is invalid.
The SC ruled in favor of petitioners.
The constitution protects the people’s right against unreasonable search and seizure. It
provides; (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. In the case at bar, none of these are met.
The warrant was issued from mere allegation that petitioners committed a “violation of
Central Bank 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 a 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 codes.
The warrants authorized the search for and seizure of records pertaining to all business
transactions of petitioners regardless of whether the transactions were legal or illegal.
Thus, openly contravening the explicit command of the 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. However, SC emphasized that petitioners cannot assail
the validity of the search warrant issued against their corporation because petitioners are
not the proper party.
The petitioners 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 and that the objection to an unlawful
search and seizure is purely personal and cannot be availed of by third parties.
Bache & Co Inc vs. Ruiz GR L-32409, 27 February 1971
Facts:
On 24 February 1970, Misael P. Vera, Commissioner of Internal Revenue, wrote a letter
addressed to Judge Vivencio M. Ruiz requesting the issuance of a search warrant against
Bache & Co. (Phil.), Inc. and Frederick E. Seggerman for violation of Section 46(a) of the
National Internal Revenue Code (NIRC), in relation to all other pertinent provisions
thereof, particularly Sections 53, 72, 73, 208 and 209, and authorizing Revenue Examiner
Rodolfo de Leon to make and file the application for search warrant which was attached
to the letter. In the afternoon of the following day, De Leon and his witness, Arturo
Logronio, went to the Court of First Instance (CFI) of Rizal. They brought with them the
following papers: Vera’s letter-request; an application for search warrant already filled up
but still unsigned by De Leon; an affidavit of Logronio subscribed before De Leon; a
deposition in printed form of Logronio already accomplished and signed by him but not
yet subscribed; and a search warrant already accomplished but still unsigned by Judge. At
that time the Judge was hearing a certain case; so, by means of a note, he instructed his
Deputy Clerk of Court to take the depositions of De Leon and Logronio. After the session
had adjourned, the Judge was informed that the depositions had already been taken. The
stenographer, upon request of the Judge, read to him her stenographic notes; and
thereafter, the Judge asked Logronio to take the oath and warned him that if his
deposition was found to be false and without legal basis, he could be charged for perjury.
The Judge signed de Leon’s application for search warrant and Logronio’s deposition.
Search Warrant 2-M-70 was then signed by Judge and accordingly issued. 3 days later (a
Saturday), the BIR agents served the search warrant to the corporation and Seggerman at
the offices of the corporation on Ayala Avenue, Makati, Rizal. The corporation’s lawyers
protested the search on the ground that no formal complaint or transcript of testimony
was attached to the warrant. The agents nevertheless proceeded with their search which
yielded 6 boxes of documents.
On 3 March 1970, the corporation and Seggerman filed a petition with the Court of First
Instance (CFI) of Rizal praying that the search warrant be quashed, dissolved or recalled,
that preliminary prohibitory and mandatory writs of injunction be issued, that the search
warrant be declared null and void, and that Vera, Logronio, de Leon, et. al., be ordered to
pay the corporation and Seggerman, jointly and severally, damages and attorney’s fees.
After hearing and on 29 July 1970, the court issued an order dismissing the petition for
dissolution of the search warrant. In the meantime, or on 16 April 1970, the Bureau of
Internal Revenue made tax assessments on the corporation in the total sum of
P2,594,729.97, partly, if not entirely, based on the documents thus seized.
The corporation and Seggerman filed an action for certiorari, prohibition, and mandamus.
Issue:
Whether the corporation has the right to contest the legality of the seizure of documents
from its office.
Held:
The legality of a seizure can be contested only by the party whose rights have been
impaired thereby, and that the objection to an unlawful search and seizure is purely
personal and cannot be availed of by third parties. In Stonehill, et al. vs. Diokno, et al. (GR
L-19550, 19 June 1967; 20 SCRA 383) the Supreme Court impliedly recognized the right of
a corporation to object against unreasonable searches and seizures; holding that the
corporations have their respective personalities, separate and distinct from the
personality of the corporate officers, regardless of the amount of shares of stock or the
interest of each of them in said corporations, whatever, the offices they hold therein may
be; and that the corporate officers therefore 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, 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.
The distinction between the Stonehill case and the present case is that: in the former
case, only the officers of the various corporations in whose offices documents, papers and
effects were searched and seized were the petitioners; while in the latter, the corporation
to whom the seized documents belong, and whose rights have thereby been impaired, is
itself a petitioner.
On that score, the corporation herein stands on a different footing from the corporations
in Stonehill. Moreover, herein, the search warrant was void inasmuch as First, there was
no personal examination conducted by the Judge of the complainant (De Leon) and his
witness (Logronio).
The Judge did not ask either of the two any question the answer to which could possibly
be the basis for determining whether or not there was probable cause against Bache &
Co. and Seggerman. The participation of the Judge in the proceedings which led to the
issuance of Search Warrant 2-M-70 was thus limited to listening to the stenographer’s
readings of her notes, to a few words of warning against the commission of perjury, and
to administering the oath to the complainant and his witness. This cannot be consider a
personal examination.
Second, the search warrant was issued for more than one specific offense. The search
warrant was issued for at least 4 distinct offenses under the Tax Code. The first is the
violation of Section 46(a), Section 72 and Section 73 (the filing of income tax returns),
which are interrelated. The second is the violation of Section 53 (withholding of income
taxes at source).
The third is the violation of Section 208 (unlawful pursuit of business or occupation); and
the fourth is the violation of Section 209 (failure to make a return of receipts, sales,
business or gross value of output actually removed or to pay the tax due thereon). Even
in their classification the 6 provisions are embraced in 2 different titles: Sections 46(a),
53, 72 and 73 are under Title II (Income Tax); while Sections 208 and 209 are under Title
V (Privilege Tax on Business and Occupation).
Lastly, the search warrant does not particularly describe the things to be seized. Search
Warrant No. 2-M-70 tends to defeat the major objective of the Bill of Rights, i.e., the
elimination of general warrants, for the language used therein is so all-embracing as to
include all conceivable records of the corporation, which, if seized, could possibly render
its business inoperative. Thus, Search Warrant 2-M-70 is null and void.
Bataan Shipyard Engineering Co., Inc. vs. PCGG (G.R. No. 75885 May 27, 1987)
Re: Business Organization – Corporation Law – A Corporation Cannot Invoke the Right
Against Self-Incrimination
Nature: Special Civil Action for Certiorari
Facts:
Challenged in this special civil action of certiorari and prohibition by a private corporation
known as the Bataan Shipyard and Engineering Co., Inc. are: (1) Executive Orders
Numbered 1 and 2, promulgated by President Corazon C. Aquino on February 28, 1986
and March 12, 1986, respectively, and (2) the sequestration, takeover, and other orders
issued, and acts done, in accordance with said executive orders by the Presidential
Commission on Good Government and/or its Commissioners and agents, affecting said
corporation. The sequestration order issued on April 14, 1986 was addressed to three of
the agents of the Commission, ordering them to sequester several companies among
which is Bataan Shipyard and Engineering Co., Inc. On the strength of the above
sequestration order, several letters were sent to BASECO among which is that from Mr.
Jose M. Balde, acting for the PCGG, addressed a letter dated April 18, 1986 to the
President and other officers of petitioner firm, reiterating an earlier request for the
production of certain documents. The letter closed with the warning that if the
documents were not submitted within five days, the officers would be cited for "contempt
in pursuance with Presidential Executive Order Nos. 1 and 2." BASECO contends that its
right against self-incrimination and unreasonable searches and seizures had been
transgressed by the Order of April 18, 1986 which required it "to produce corporate
records from 1973 to 1986 under pain of contempt of the Commission if it fails to do so."
BASECO prays that the Court 1) declare unconstitutional and void Executive Orders
Numbered 1 and 2; 2) annul the sequestration order dated April- 14, 1986, and all other
orders subsequently issued and acts done on the basis thereof, inclusive of the takeover
order of July 14, 1986 and the termination of the services of the BASECO executives.
Issue:
Whether or not BASECO’s right against self-incrimination and unreasonable searches and
seizures was violated.
Held:
No. The order to produce documents was issued upon the authority of Section 3 (e) of
Executive Order No. 1, treating of the PCGG's power to "issue subpoenas requiring * * the
production of such books, papers, contracts, records, statements of accounts and other
documents as may be material to the investigation conducted by the Commission. It is
elementary that the right against self-incrimination has no application to juridical
persons. While an individual may lawfully refuse to answer incriminating questions unless
protected by an immunity statute, it does not follow that a corporation, vested with
special privileges and franchises, may refuse to show its hand when charged with an
abuse of such privileges. Corporations are not entitled to all of the constitutional
protections, which private individuals have. They are not at all within the privilege against
self-incrimination; although this court more than once has said that the privilege runs very
closely with the 4th Amendment's Search and Seizure provisions. It is also settled that an
officer of the company cannot refuse to produce its records in its possession upon the
plea that they will either incriminate him or may incriminate it." The corporation is a
creature of the state. It is presumed to be incorporated for the benefit of the public. It
received certain special privileges and franchises, and holds them subject to the laws of
the state and the limitations of its charter. It’s powers are limited by law. It can make no
contract not authorized by its charter. Its rights to act as a corporation are only preserved
to it so long as it obeys the laws of its creation. There is a reserve right in the legislature
to investigate its contracts and find out whether it has exceeded its powers. It would be
a strange anomaly to hold that a state, having chartered a corporation to make use of
certain franchises, could not, in the exercise of sovereignty, inquire how these franchises
had been employed, and whether they had been abused, and demand the production of
the corporate books and papers for that purpose. The defense amounts to this, that an
officer of the corporation which is charged with a criminal violation of the statute may
plead the criminality of such corporation as a refusal to produce its books. To state this
proposition is to answer it. While an individual may lawfully refuse to answer
incriminating questions unless protected by an immunity statute, it does not follow that
a corporation, vested with special privileges and franchises may refuse to show its hand
when charged with an abuse of such privileges. (Wilson v. United States, 55 Law Ed., 771,
780 [emphasis, the Solicitor General's]) The constitutional safeguard against
unreasonable searches and seizures finds no application to the case at bar either. There
has been no search undertaken by any agent or representative of the PCGG, and of course
no seizure on the occasion thereof.
National Coal Company vs Collector of Internal Revenue
GR No. L-22619 December 2, 1924
Facts: The plaintiff corporation was created on the 10th day of March 1917, by Act No.
2705, for the purpose of developing the coal industry in the Philippine Islands , in harmony
with the general plan of the government to encourage the development of natural
resources of the country, and to provide facilities therefore. By the said act, the company
was granted the general powers of a corporation and such other powers as may be
necessary to enable it to prosecute the business of developing coal deposits in the
Philippine Islands of mining, extracting, transporting, and selling the coal contained in said
deposits. By the same law, the government of the Philippine Islands is made the majority
stockholder, evidently in order to ensure proper government supervision and control and
thus to place the government in a position to render all possible encouragement,
assistance, and help in the prosecution and furtherance of the company’s business. On
May 14, 1917, two months after the passage of Act no. 2705, creating the national coal
company, the Philippine legislature passed Act 2719, “to provide for the leasing and
development of coal lands in the Philippine islands.” On October 18, 1917, upon petition
of the national coal company, the governor-general, by proclamation no. 39, withdrew
from settlement, entry, sale or other deposition, all coal-bearing public lands within the
province of Zamboanga, Department of Mindanao and Sulu, and the island of Polillo,
Province of Tayabas. Almost immediately after the issuance of said proclamation the
national coal company took possession of the coal lands within the said reservation with
an area of about 400 hectares, without any further formality, contract of lease. Of the
30,000 shares of stock issued by the company, the government of the Philippine islands
is the owner of 29,809 shares, that is, of 99 1/3 per centum of the whole capital stock.
Issue: Whether or not plaintiff is a private corporation.
Held: Yes. The plaintiff is a private corporation. The mere fact that the government
happens to the majority stockholder does not make it a public corporation. Act 2705, as
amended by Act 2822, makes it subject to all the provisions of the corporation law, in so
far as they are not inconsistent with said act. No provisions of Act 2705 are found to be
inconsistent with the provisions of the corporation law. As a private corporation, it has no
greater rights, powers or privileges than any other corporation which might be organized
for the same purpose under the corporation law, and certainly it was not the intention of
the legislature to give it a preference or right or privilege over other legitimate private
corporations in the mining of coal. While it is true that said proclamation no. 39 withdrew
from settlement entry, sale or other disposition of coal-bearing public lands within the
province of Zamboanga, and the islands of Polillo, it made no provision for the occupation
and operation by the plaintiff, to the exclusion of other persons or corporations who
might under proper permission, enter upon to operate the coal mines.
PHILIPPINE SOCIETY FOR THE PREVENTION OF CRUELTY TO ANIMALS vs. COA. G.R. No.
169752 September 25, 2007
FACTS:
The petitioner was incorporated as a juridical entity over one hundred years ago by virtue
of Act No. 1285, enacted on January 19, 1905, by the Philippine Commission. The
petitioner, at the time it was created, was composed of animal aficionados and animal
propagandists. The objects of the petitioner, as stated in Section 2 of its charter, shall be
to enforce laws relating to cruelty inflicted upon animals or the protection of animals in
the Philippine Islands, and generally, to do and perform all things which may tend in any
way to alleviate the suffering of animals and promote their welfare. At the time of the
enactment of Act No. 1285, the original Corporation Law, Act No. 1459, was not yet in
existence. Act No. 1285 antedated both the Corporation Law and the constitution of the
SEC. For the purpose of enhancing its powers in promoting animal welfare and enforcing
laws for the protection of animals, the petitioner was initially imbued under its charter
with the power to apprehend violators of animal welfare laws. In addition, the petitioner
was to share 1/2 of the fines imposed and collected through its efforts for violations of
the laws related thereto.
Subsequently, however, the power to make arrests as well as the privilege to retain a
portion of the fines collected for violation of animal-related laws were recalled by virtue
of C.A. No. 148. Whereas, the cruel treatment of animals is now an offense against the
State, penalized under our statutes, which the Government is duty bound to enforce;
When the COA was to perform an audit on them they refuse to do so, by the reason that
they are a private entity and not under the said commission. It argued that COA covers
only government entities. On the other hand the COA decided that it is a government
entity.
ISSUE: WON the said petitioner is a private entity.
RULING:
YES. First, the Court agrees with the petitioner that the “charter test” cannot be applied.
Essentially, the “charter test” provides that the test to determine whether a corporation
is government owned or controlled, or private in nature is simple. Is it created by its own
charter for the exercise of a public function, or by incorporation under the general
corporation law? Those with special charters are government corporations subject to its
provisions, and its employees are under the jurisdiction of the CSC, and are compulsory
members of the GSIS. And since the “charter test” had been introduced by the 1935
Constitution and not earlier, it follows that the test cannot apply to the petitioner, which
was incorporated by virtue of Act No. 1285, enacted on January 19, 1905. Settled is the
rule that laws in general have no retroactive effect, unless the contrary is provided. All
statutes are to be construed as having only a prospective operation, unless the purpose
and intention of the legislature to give them a retrospective effect is expressly declared
or is necessarily implied from the language used. In case of doubt, the doubt must be
resolved against the retrospective effect.
Second, a reading of petitioner’s charter shows that it is not subject to control or
supervision by any agency of the State, unlike GOCCs. No government representative sits
on the board of trustees of the petitioner. Like all private corporations, the successors of
its members are determined voluntarily and solely by the petitioner in accordance with
its by-laws, and may exercise those powers generally accorded to private corporations,
such as the powers to hold property, to sue and be sued, to use a common seal, and so
forth. It may adopt by-laws for its internal operations: the petitioner shall be managed
or operated by its officers “in accordance with its by-laws in force.”
Third. The employees of the petitioner are registered and covered by the SSS at the
latter’s initiative, and not through the GSIS, which should be the case if the employees
are considered government employees. This is another indication of petitioner’s nature
as a private entity.
Fourth. The respondents contend that the petitioner is a “body politic” because its
primary purpose is to secure the protection and welfare of animals which, in turn,
redounds to the public good. This argument, is not tenable. The fact that a certain
juridical entity is impressed with public interest does not, by that circumstance alone,
make the entity a public corporation, inasmuch as a corporation may be private although
its charter contains provisions of a public character, incorporated solely for the public
good. This class of corporations may be considered quasi-public corporations, which are
private corporations that render public service, supply public wants, or pursue other
eleemosynary objectives. While purposely organized for the gain or benefit of its
members, they are required by law to discharge functions for the public benefit.
Examples of these corporations are utility, railroad, warehouse, telegraph, telephone,
water supply corporations and transportation companies. It must be stressed that a
quasi-public corporation is a species of private corporations, but the qualifying factor is
the type of service the former renders to the public: if it performs a public service, then it
becomes a quasi-public corporation. Authorities are of the view that the purpose alone
of the corporation cannot be taken as a safe guide, for the fact is that almost all
corporations are nowadays created to promote the interest, good, or convenience of the
public. A bank, for example, is a private corporation; yet, it is created for a public benefit.
Private schools and universities are likewise private corporations; and yet, they are
rendering public service. Private hospitals and wards are charged with heavy social
responsibilities. More so with all common carriers. On the other hand, there may exist a
public corporation even if it is endowed with gifts or donations from private individuals.
The true criterion, therefore, to determine whether a corporation is public or private is
found in the totality of the relation of the corporation to the State. If the corporation is
created by the State as the latter’s own agency or instrumentality to help it in carrying
out its governmental functions, then that corporation is considered public; otherwise, it
is private. Applying the above test, provinces, chartered cities, and barangays can best
exemplify public corporations. They are created by the State as its own device and agency
for the accomplishment of parts of its own public works.
Fifth. The respondents argue that since the charter of the petitioner requires the latter
to render periodic reports to the Civil Governor, whose functions have been inherited by
the President, the petitioner is, therefore, a government instrumentality.
This contention is inconclusive. By virtue of the fiction that all corporations owe their
very existence and powers to the State, the reportorial requirement is applicable to all
corporations of whatever nature, whether they are public, quasi-public, or private
corporations—as creatures of the State, there is a reserved right in the legislature to
investigate the activities of a corporation to determine whether it acted within its powers.
In other words, the reportorial requirement is the principal means by which the State may
see to it that its creature acted according to the powers and functions conferred upon it.
THE REGISTER OF DEEDS OF RIZAL vs. UNG SIU SI TEMPLE
G.R. No. L-6776 May 21, 1955
FACTS: The Register of Deeds for the province of Rizal refused to accept for record a deed
of donation executed in due form on January 22, 1953, by Jesus Dy, a Filipino citizen,
conveying a parcel of residential land, in Caloocan, Rizal, known as lot No. 2, block 48-D,
PSD-4212, G.L.R.O. Record No. 11267, in favor of the unregistered religious organization
“Ung Siu Si Temple”, operating through three trustees all of Chinese nationality. The
donation was duly accepted by Yu Juan, of Chinese nationality, founder and deaconess of
the Temple, acting in representation and in behalf of the latter and its trustees.
CFI upheld the action of the Rizal Register of Deeds. Basis: sections 1 and 5 of Article XIII
of the Constitution of the Philippines limiting the acquisition of land in the Philippines to
its citizens, or to corporations or associations at least sixty per centum of the capital stock
of which is owned by such citizens adopted after the enactment of said Act No. 271, and
the decision of the Supreme Court in the case of Krivenko vs. the Register of Deeds of
Manila, the deed of donation in question should not be admitted for admitted for
registration.
Not satisfied with the ruling of the Court of First Instance, counsel for the donee Uy Siu Si
Temple has appealed to this Court, claiming: (1) that the acquisition of the land in
question, for religious purposes, is authorized and permitted by Act No. 271 of the old
Philippine Commission, providing as follows:
SECTION 1. It shall be lawful for all religious associations, of whatever sort or
denomination, whether incorporated in the Philippine Islands or in the name of other
country, or not incorporated at all, to hold land in the Philippine Islands upon which to
build churches, parsonages, or educational or charitable institutions.
SEC. 2. Such religious institutions, if not incorporated, shall hold the land in the name of
three Trustees for the use of such associations; . . .. (Printed Rec. App. p. 5.)
and (2) that the refusal of the Register of Deeds violates the freedom of religion clause of
our Constitution [Art. III, Sec. 1(7)].
ISSUE: whether a deed of donation of a parcel of land executed in favor of a religious
organization whose founder, trustees and administrator are Chinese citizens should be
registered or not.
HELD:
The provisions of Act No. 271 of the old Philippine Commission must be deemed repealed
since the Constitution was enacted, in so far as incompatible therewith. In providing that,
— ISSUE:
Save in cases of hereditary succession, no private agricultural land shall be transferred or
assigned except to individuals, corporations or associations qualified to acquire or hold
lands of the public domain in the Philippines. The Constitution makes no exception in
favor of religious associations.
The fact that the appellant religious organization has no capital stock does not suffice to
escape the Constitutional inhibition, since it is admitted that its members are of foreign
nationality. To permit religious associations controlled by non-Filipinos to acquire
agricultural lands would be to drive the opening wedge to revive alien religious land
holdings in this country.
The resolution appealed from is affirmed, with costs against appellant.
The act of the Register of Deeds is proper. The Constitution makes no exception in favor of
religious associations. Neither is there any such saving found in sections 1 and 2 of Art. 13
restricting the acquisition of public agricultural lands and other natural resources to
“corporations or associations atleast sixty per centum of the capital of which is owned by
such citizens”. The fact that the appellant religious organization has no capital stock does
not suffice to escape the Constitutional inhibition, since it is admitted that its members
are of foreign nationality. The purpose of the sixty per centum requirement is obviously to
ensure that corporations or associations allowed to acquire agricultural land or to exploit
natural resources shall be controlled by Filipinos; and the spirit of the Constitution
demands that in the absence of capital stock, the controlling membership should be
composed of Filipino Citizens.
People v. Quasha (1953) G.R. No. L-6055 June 12, 1953
FACTS:
William H. Quasha, a member of the Philippine bar, committed a crime of falsification of
a public and commercial document for causing it to appear that Arsenio Baylon, a Filipino
citizen, had subscribed to and was the owner of 60.005 % of the subscribed capital stock
of Pacific Airways Corp. (Pacific) when in reality the money paid belongs to an American
citizen whose name did not appear in the article of incorporation, to circumvent the
constitutional mandate that no corp shall be authorize to operate as a public utility in the
Philippines unless 60% of its capital stock is owned by Filipinos.
Found guilty after trial and sentenced to a term of imprisonment and a fine, Quasha
appealed to this Court
Primary purpose: to carry on the business of a common carrier by air, land or water
Baylon did not have the controlling vote because of the difference in voting power
between the preferred shares and the common shares
ISSUE: For a corporation to be entitled to operate a public utility is it necessary that it be
organized with 60 per cent of its capital owned by Filipinos from the start?
HELD: No. For a corporation to be entitled to operate a public utility it is not necessary
that it be organized with 60 per cent of its capital owned by Filipinos from the start. A
corporation formed with capital that is entirely alien may subsequently change the
nationality of its capital through transfer of shares to Filipino citizens. Conversely, a
corporation originally formed with Filipino capital may subsequently change the national
status of said capital through transfer of shares to foreigners. What need is there then for
a corporation that intends to operate a public utility to have, at the time of its formation,
60 per cent of its capital owned by Filipinos alone? That condition may anytime be
attained thru the necessary transfer of stocks. The moment for determining whether a
corporation is entitled to operate as a public utility is when it applies for a franchise,
certificate, or any other form of authorization for that purpose. And that can be done
after the corporation has already come into being and not while it is still being formed.
And at that moment, the corporation must show that it has complied not only with the
requirement of the Constitution as to the nationality of its capital, but also with the
requirements of the Civil Aviation Law if it is a common carrier by air, the Revised
Administrative Code if it is a common carrier by water, and the Public Service Law if it is a
common carrier by land or other kind of public service.
FILIPINAS COMPANIA DE SEGUROS vs. CHRISTERN HUENEFELD and CO., INC. 89 Phil 54
FACTS:
On October 1, 1941, the respondent corporation, Christern Huenefeld and Co., Inc., after
payment of corresponding premium, obtained from the petitioner, Filipinas Cia de
Seguros fire policy covering merchandise contained in a building located at Binondo,
Manila. On February 27, 1942 or during the Japanese military occupation, the building
and insured merchandise were burned. In due time, the respondent submitted to the
petitioner its claim under the policy. The petitioner refused to pay the claim on the ground
that the policy in favor of the respondent that ceased to be a force on the date the United
States declared war against Germany, the respondent corporation (through organized
under and by virtue of the laws of Philippines) being controlled by German subjects and
the petitioner being a company under American jurisdiction when said policy was issued
on October 1, 1941. The theory of the petitioner is that the insured merchandise was
burned after the policy issued in 1941 had ceased to be effective because the outbreak
of the war between United States and Germany on December 10, 1941, and that the
payment made by the petitioner to the respondent corporation during the Japanese
military occupation was under pressure.
Whether or not the respondent corporation is a corporation of public enemy.
RULING:
Since the majority of stockholders of the respondent corporation were German subjects,
the respondent became an enemy of the state upon the outbreak of the war between US
and Germany. The English and American cases relied upon by the Court of Appeals lost in
force upon the latest decision of the Supreme Court of US in which the control test has
adopted. Since World War I, the determination of enemy nationality of corporations has
been discussed in many countries, belligerent and neutral. A corporation was subject to
enemy legislation when it was controlled by enemies, namely managed under the
influence of individuals or corporations themselves considered as enemies…
The Philippine Insurance Law (Act No 2427, as amended), in Section 8, provides that
“anyone except a public enemy may be insured”. It stands to reason that an insurance
policy ceases to be allowable as soon as an insured becomes a public enemy. The
respondent having an enemy corporation on December 10, 1941, the insurance policy
issued in its favor on October 1, 1941, by the petitioner had ceased to be valid and
enforceable, and since the insured good were burned during the war, the respondent was
not entitled to any indemnity under said policy from the petitioner. However, elementary
rule of justice (in the absence of specific provisions in the Insurance Law) require that the
premium paid by the respondent for the period covered by its policy from December 11,
1941, should be returned by the petitioner.
FACTS:
Christern Huenefeld Corporation bought a fire insurance policy from Filipinas Compania
de Seguros to cover merchandise contained in a building. During the Japanese military
occupation, this same merchandise and the building were burned, so Huenefeld filed a
claim under the policy. Filipinas Compania refused to pay, alleging that the policy had
ceased to be in force when the US declared war against Germany. Filipinas Compania
contended that Huenefeld, although organized and created under Philippine laws, is a
German subject, and hence, a public enemy, since majority of its stockholders are
Germans. On the other hand, Filipinas Compania is under American jurisdiction. However,
the Director of Bureau of Financing, Philippine Executive Commission ordered Filipinas
Compania to pay, so Filipinas Compania did pay. The case at bar is about the recovery of
that sum paid.
ISSUES:
W/N Christern Huenefeld is a German subject because majority of its stockholders are
under German jurisdiction, despite the fact that it was organized and created under
Philippine laws. If so, W/N the fire insurance policy is enforceable against an enemy state
HELD:
The Court of Appeals ruled that a private corporation is a citizen of the country or state
by and under the laws of which it was created or organized. It rejected the theory that
nationality of a private corporation is determined by the character or citizenship of its
controlling stockholders. But the Supreme Court held that Christern Huenefeld is an
enemy corporation since majority of its stockholders are German subjects. The two
American cases relied up by the Court of Appeals have lost their force in view of a newer
case where the control test was adopted. The Philippine Insurance Law provides that
anyone, except a public enemy, may be insured. It stands to reason that an insurance
policy ceases to be allowable as soon as the insured becomes a public enemy.
Since Christern Huenefeld became a public enemy on Dec. 10, 1941, then the policy has
ceased to be enforcible and therefore Huenefeld is not entitled to indemnity. However,
elementary rules of justice require that the premium paid from Dec. 11, 1941 should be
returned.
Thus, Filipinas Compania is allowed to recover the sum paid but only its equivalent in
actual Philippine currency, minus the premium that Huenefeld paid after Dec. 11.
Narra Nickel Mining and Dev’t Corp., et al. v. Redmont Consolidated Mines Corp., G.R.
No. 195580, 21 April 2014
FACTS:
Redmont Consolidated Mines, Inc. (Redmont) filed before the Panel of Arbitrators (POA)
of the DENR separate petitions for denial of McArthur Mining, Inc. (McArthur), Tesoro
and Mining and Development, Inc. (Tesoro), and Narra Nickel Mining and Development
Corporation (Narra) applications Mineral Production Sharing Agreement (MPSA) on the
ground that they are not “qualified persons” and thus disqualified from engaging in
mining activities through MPSAs reserved only for Filipino citizens. McArthur Mining, Inc.,
is composed, among others, by Madridejos Mining Corporation (Filipino) owning 5,997
out of 10,000 shares, and MBMI Resources, Inc. (Canadian) owning 3,998 out of 10,000
shares; MBMI also owns 3,331 out of 10,000 shares of Madridejos Mining Corporation;
Tesoro and Mining and Development, Inc., is composed, among others, by Sara Marie
Mining, Inc. (Filipino) owning 5,997 out of 10,000 shares, and MBMI Resources, Inc.
(Canadian) owning 3,998 out of 10,000 shares; MBMI also owns 3,331 out of 10,000
shares of Sara Marie Mining, Inc.;
Narra Nickel Mining and Development Corporation, is composed, among others, by
Patricia Louise Mining & Development Corporation (Filipino) owning 5,997 out of 10,000
shares, and MBMI Resources, Inc. (Canadian) owning 3,998 out of 10,000 shares; MBMI
also owns 3,396 out of 10,000 shares of Patricia Louise Mining & Development
Corporation;
ISSUES:
(1) Is the Grandfather Rule applicable?
(2) Whether McArthur, Tesoro and Narra are Filipino nationals.
RULINGS
(1) YES.
The instant case presents a situation which exhibits a scheme employed by stockholders
to circumvent the law, creating a cloud of doubt in the Court’s mind. To determine,
therefore, the actual participation, direct or indirect, of MBMI, the grandfather rule must
be used.
The Strict Rule or the Grandfather Rule pertains to the portion in Paragraph 7 of the 1967
SEC Rules which states, “but if the percentage of Filipino ownership in the corporation or
partnership is less than 60%, only the number of shares corresponding to such percentage
shall be counted as of Philippine nationality.” Under the Strict Rule or Grandfather Rule
Proper, the combined totals in the Investing Corporation and the Investee Corporation
must be traced (i.e., “grandfathered”) to determine the total percentage of Filipino
ownership.
(2) NO.
[P]etitioners McArthur, Tesoro and Narra are not Filipino since MBMI, a 100% Canadian
corporation, owns 60% or more of their equity interests. Such conclusion is derived from
grandfathering petitioners’ corporate owners. xxx Noticeably, the ownership of the
“layered” corporations boils down to xxx group wherein MBMI has joint venture
agreements with, practically exercising majority control over the corporations
mentioned. In effect, whether looking at the capital structure or the underlying
relationships between and among the corporations, petitioners are NOT Filipino nationals
and must be considered foreign since 60% or more of their capital stocks or equity
interests are owned by MBMI.
Roman Catholic Apostolic Administrator of Davao, Inc. v. The LRC and the Register of
Deeds of Davao City, G.R. No. L-8451, December 20,1957
Facts: On October 4, 1954, Mateo L. Rodis, a Filipino citizen and resident of the City of
Davao, executed a deed of sale of a parcel of land located in the same city covered by
Transfer Certificate No. 2263, in favor of the Roman Catholic Apostolic Administrator of
Davao Inc.,(RCADI) is corporation sole organized and existing in accordance with
Philippine Laws, with Msgr. Clovis Thibault, a Canadian citizen, as actual incumbent.
Registry of Deeds Davao (RD) required RCADI to submit affidavit declaring that 60% of its
members were Filipino Citizens. As the RD entertained some doubts as to the
registerability of the deed of sale, the matter was referred to the Land Registration
Commissioner (LRC) en consulta for resolution. LRC hold that pursuant to provisions of
sections 1 and 5 of Article XII of the Philippine Constitution, RCADI is not qualified to
acquire land in the Philippines in the absence of proof that at leat 60% of the capital,
properties or assets of the RCADI is actually owned or controlled by Filipino citizens. LRC
also denied the registration of the Deed of Sale in the absence of proof of compliance
with such requisite. RCADI’s Motion for Reconsideration was denied. Aggrieved, the latter
filed a petition for mandamus.
Issue:
Whether or not the Universal Roman Catholic Apostolic Church in the Philippines, or
better still, the corporation sole named the Roman Catholic Apostolic Administrator of
Davao, Inc., is qualified to acquire private agricultural lands in the Philippines pursuant to
the provisions of Article XIII of the Constitution.
Ruling:
RCADI is qualified.
While it is true and We have to concede that in the profession of their faith, the Roman
Pontiff is the supreme head; that in the religious matters, in the exercise of their belief,
the Catholic congregation of the faithful throughout the world seeks the guidance and
direction of their Spiritual Father in the Vatican, yet it cannot be said that there is a merger
of personalities resultant therein. Neither can it be said that the political and civil rights
of the faithful, inherent or acquired under the laws of their country, are affected by that
relationship with the Pope. The fact that the Roman Catholic Church in almost every
country springs from that society that saw its beginning in Europe and the fact that the
clergy of this faith derive their authorities and receive orders from the Holy See do not
give or bestow the citizenship of the Pope upon these branches. Citizenship is a political
right which cannot be acquired by a sort of “radiation”. We have to realize that although
there is a fraternity among all the catholic countries and the dioceses therein all over the
globe, the universality that the word “catholic” implies, merely characterize their faith, a
uniformity in the practice and the interpretation of their dogma and in the exercise of
their belief, but certainly they are separate and independent from one another in
jurisdiction, governed by different laws under which they are incorporated, and entirely
independent on the others in the management and ownership of their temporalities. To
allow theory that the Roman Catholic Churches all over the world follow the citizenship
of their Supreme Head, the Pontifical Father, would lead to the absurdity of finding the
citizens of a country who embrace the Catholic faith and become members of that
religious society, likewise citizens of the Vatican or of Italy. And this is more so if We
consider that the Pope himself may be an Italian or national of any other country of the
world. The same thing be said with regard to the nationality or citizenship of the
corporation sole created under the laws of the Philippines, which is not altered by the
change of citizenship of the incumbent bishops or head of said corporation sole.
We must therefore, declare that although a branch of the Universal Roman Catholic
Apostolic Church, every Roman Catholic Church in different countries, if it exercises its
mission and is lawfully incorporated in accordance with the laws of the country where it
is located, is considered an entity or person with all the rights and privileges granted to
such artificial being under the laws of that country, separate and distinct from the
personality of the Roman Pontiff or the Holy See, without prejudice to its religious
relations with the latter which are governed by the Canon Law or their rules and
regulations.
It has been shown before that: (1) the corporation sole, unlike the ordinary corporations
which are formed by no less than 5 incorporators, is composed of only one persons,
usually the head or bishop of the diocese, a unit which is not subject to expansion for the
purpose of determining any percentage whatsoever; (2) the corporation sole is only the
administrator and not the owner of the temporalities located in the territory comprised
by said corporation sole; (3) such temporalities are administered for and on behalf of the
faithful residing in the diocese or territory of the corporation sole; and (4) the latter, as
such, has no nationality and the citizenship of the incumbent Ordinary has nothing to do
with the operation, management or administration of the corporation sole, nor effects
the citizenship of the faithful connected with their respective dioceses or corporation
sole.
In view of these peculiarities of the corporation sole, it would seem obvious that when
the specific provision of the Constitution invoked by respondent Commissioner (section
1, Art. XIII), was under consideration, the framers of the same did not have in mind or
overlooked this particular form of corporation. If this were so, as the facts and
circumstances already indicated tend to prove it to be so, then the inescapable conclusion
would be that this requirement of at least 60 per cent of Filipino capital was never
intended to apply to corporations sole, and the existence or not a vested right becomes
unquestionably immaterial.
THE COLLECTOR OF INTERNAL REVENUE, petitioner, vs. THE CLUB FILIPINO, INC. DE
CEBU, respondent. G.R. No. L-12719 May 31, 1962
FACTS: The Club owns and operates a club house, a bowling alley, a golf course (on a lot
leased from the government), and a bar-restaurant where it sells wines and liquors, soft
drinks, meals and short orders to its members and their guests. The bar-restaurant was a
necessary incident to the operation of the club and its golf-course. The club is operated
mainly with funds derived from membership fees and dues. Whatever profits it had, were
used to defray its overhead expenses and to improve its golf-course. In 1951. as a result
of a capital surplus, arising from the re-valuation of its real properties, the value or price
of which increased, the Club declared stock dividends; but no actual cash dividends were
distributed to the stockholders. In 1952, a BIR agent discovered that the Club has never
paid percentage tax on the gross receipts of its bar and restaurant. CIR assessed against
and demanded from the Club taxes allegedly due.
ISSUE: WON Club Filipino is liable for the taxes (WON it is a stock corporation)
HELD: No (it is non-stock)
The Club was organized to develop and cultivate sports of all class and denomination for
the healthful recreation and entertainment of its stockholders and members. There was
in fact, no cash dividend distribution to its stockholders and whatever was derived on
retail from its bar and restaurants used were to defray its overhead expenses and to
improve its golf course.
For a stock corporation to exist, 2 requisites must be complied with:
(1) A capital stock divided into shares
(2) An authority to distribute to the holders of such shares, dividends or allotments of the
surplus profits on the basis of shares held.
In the case at bar, nowhere in the AOI or by-laws of Club Filipino could be found an
authority for the distribution of its dividends or surplus profits. Strictly speaking, it cannot,
therefore, be considered a stock corporation, within the contemplation of the
corporation law.
The fact that the capital stock of the respondent Club is divided into shares, does not
detract from the finding of the trial court that it is not engaged in the business of operator
of bar and restaurant. What is determinative of whether or not the Club is engaged in
such business is its object or purpose, as stated in its articles and by-laws. It is a familiar
rule that the actual purpose is not controlled by the corporate form or by the commercial
aspect of the business prosecuted, but may be shown by extrinsic evidence, including the
by-laws and the method of operation.
It is conceded that the Club derived profit from the operation of its bar and restaurant,
but such fact does not necessarily convert it into a profit-making enterprise. The bar and
restaurant are necessary adjuncts of the Club to foster its purposes and the profits derived
therefrom are necessarily incidental to the primary object of developing and cultivating
sports for the healthful recreation and entertainment of the stockholders and members.
That a Club makes some profit, does not make it a profit-making Club. As has been
remarked a club should always strive, whenever possible, to have surplus.
CAGAYAN FISHING DEVELOPMENT CO., INC., vs.TEODORO SANDIKO G.R. No. 43350
December 23, 1937
FACTS: Manuel Tabora is the registered owner of four parcels of land and he wanted to
build a Fishery. He loaned from PNB P8,000 and to guarantee the payment of the loan, he
mortgaged the said parcels of land. Three subsequent mortgages were executed in favor
of the same bank and to Severina Buzon, whom Tabora is indebted to. Tabora sold the
four parcels of land to the plaintiff company, said to be under process of incorporation,
in consideration of one peso (P1) subject to the mortgages in favor of PNB and Severina
Buzon and, to the condition that the certificate of title to said lands shall not be
transferred to the name of the plaintiff company until the latter has fully and completely
paid Tabora’s indebtedness to PNB. The articles of incorporation were filed and the
company sold the parcels of land to Sandiko on the reciprocal obligation that Sandiko will
shoulder the three mortgages. A deed of sale executed before a notary public by the
terms of which the plaintiff sold, ceded and transferred to the defendant all its rights,
titles and interest in and to the four parcels of land. He executed a promissory note that
he shall be 25,300 after a year with interest and on the promissory notes, the parcels
were mortgage as security. A promissory note for P25,300 was drawn by the defendant
in favor of the plaintiff, payable after one year from the date thereof. Further, a deed of
mortgage executed before a notary public in accordance with which the four parcels of
land were given as security for the payment of the said promissory note. All these three
instruments were dated February 15, 1932. Sandiko failed to pay, thus the action for
payment. The lower court held that deed of sale was invalid.
The corporation filed a motion for reconsideration.
ISSUE:
1.Whether Cagayan Fishing Dev’t. has juridical capacity to enter into the contract.
2. Can promoters of a corporation act as agents of a corporation?
RULING:
1.
The transfer made by Tabora to the Cagayan Fishing Development Co., Inc., plaintiff
herein, was effected on May 31, 1930 and the actual incorporation of said company was
effected later on October 22, 1930. In other words, the transfer was made almost five
months before the incorporation of the company.
A duly organized corporation has the power to purchase and hold such real property as
the purposes for which such corporation was formed may permit and for this purpose
may enter into such contracts as may be necessary. But before a corporation may be said
to be lawfully organized, many things have to be done. Among other things, the law
requires the filing of articles of incorporation. Although there is a presumption that all the
requirements of law have been complied with, in the case before us it can not be denied
that the plaintiff was not yet incorporated when it entered into the contract of sale.
The contract itself referred to the plaintiff as “una sociedad en vias de incorporacion.” It
was not even a de facto corporation at the time. Not being in legal existence then, it did
not possess juridical capacity to enter into the contract.
“Corporations are creatures of the law, and can only come into existence in the manner
prescribed by law. As has already been stated, general laws authorizing the formation of
corporations are general offers to any persons who may bring themselves within their
provisions; and if conditions precedent are prescribed in the statute, or certain acts are
required to be done, they are terms of the offer, and must be complied with substantially
before legal corporate existence can be acquired.”
“That a corporation should have a full and complete organization and existence as an
entity before it can enter into any kind of a contract or transact any business, would seem
to be self evident. . . . A corporation, until organized, has no being, franchises or faculties.
Nor do those engaged in bringing it into being have any power to bind it by contract,
unless so authorized by the charter. Until organized as authorized by the charter there is
not a corporation, nor does it possess franchises or faculties for it or others to exercise,
until it acquires a complete existence.”
2.
The contract here was entered into not only between Manuel Tabora and a non-existent
corporation but between Manuel Tabora as owner of four parcels of land on the one hand
and the same Manuel Tabora, his wife and others, as mere promoters of a corporation on
the other hand. For reasons that are self-evident, these promoters could not have acted
as agents for a projected corporation since that which had no legal existence could have
no agent. A corporation, until organized, has no life and therefore no faculties. It is, as it
were, a child in ventre sa mere. This is not saying that under no circumstances may the
acts of promoters of a corporation be ratified by the corporation if and when
subsequently organized. There are, of course, exceptions , but under the peculiar facts
and circumstances of the present case we decline to extend the doctrine of ratification
which would result in the commission of injustice or fraud to the candid and unwary.
The transfer by Manuel Tabora to the Cagayan Fishing Development Company, Inc. was
null because at the time it was effected the corporation was non-existent, we deem it
unnecessary to discuss this point.
RIZAL LIGHT & ICE CO., INC. vs. THE MUNICIPALITY OF MORONG, RIZAL and THE PUBLIC
SERVICE COMMISSION G.R. No. L-20993.September 28, 1968
FACTS: The bulk of petitioner's arguments assailing the personality of Morong Electric
dwells on the proposition that since a franchise is a contract, 23 at least two competent
parties are necessary to the execution thereof, and parties are not competent except
when they are in being. Hence, it is contended that until a corporation has come into
being, in this jurisdiction, by the issuance of a certificate of incorporation by the Securities
and Exchange Commission (SEC) it cannot enter into any contract as a corporation.
The certificate of incorporation of the Morong Electric was issued by the SEC on October
17, 1962, so only from that date, not before, did it acquire juridical personality and legal
existence. Petitioner concludes that the franchise granted to Morong Electric on May 6,
1962 when it was not yet in esse is null and void and cannot be the subject of the
Commission's consideration. On the other hand, Morong Electric argues, and to which
argument the Commission agrees, that it was a de facto corporation at the time the
franchise was granted and, as such, it was not incapacitated to enter into any contract or
to apply for and accept a franchise. Not having been incapacitated, Morong Electric
maintains that the franchise granted to it is valid and the approval or disapproval thereof
can be properly determined by the Commission.
ISSUE: Whether the lack or corporate existence on the part of Morong rendered the
franchise valid.
RULING: YES. The incorporation of (Morong) and its acceptance of the franchise as shown
by this action in prosecuting the application filed with the Commission for approval of
said franchise, not only perfected a contract between the municipality and Morong but
also cured the deficiency pointed out by the petition. The fact that Morong did not have
a corporate existence on the day the franchise was granted does not render the franchise
invalid, as Morong later obtained its certificate of incorporation and accepted the
franchise. The two decisions of the Public Service Commission, appealed from, should be,
as they are hereby affirmed, with costs in the two cases against petitioner Rizal Light &
Ice Co., Inc.
FERMIN Z. CARAM, JR. and ROSA O. DE CARAM, petitioners vs. THE HONORABLE COURT
OF APPEALS and ALBERTO V. ARELLANO, respondents. G.R. No. L-48627 June 30, 1987
Doctrine: A bona fide corporation is liable for its corporate acts as duly authorized by its
officers and directors.
Facts: Respondent Alberto Arellano was contracted by Barretto and Garcia(Walang
binigay na first names sa case, damn you Justice Cruz!) to do a project study and other
technical services in forming a corporation, which was later on named Filipinas Orient
Airways. The project study was presented by Barretto and Garcia to the Carams. After
seeing the project study, the Carams were convinced to invest and become stockholders
of the said company. The case involves the collection of the unpaid compensation for
Arellano’s services. The CA decided that the Carams were jointly and severally liable to
Arellano stating that: “It was on the basis of this study that defendant corporation was
actually organized and rendered operational. Defendants Garcia and Caram, and Barretto
became members of the Board and/or officers of defendant corporation. Thus, not only
the defendant corporation but all the other defendants who were involved in the
preparatory stages of the incorporation, who caused the preparation and/or benefited
from the project study and the technical services of plaintiff must be liable”.
Hence this petition.
Issue/s: WON the CA was correct in holding the Carams liable?
Held: The Court held that the Carams were not liable.
The petitioners were not involved in the initial stages of the organization of the airline,
which were being directed by Barretto as the main promoter. It was he who was putting
all the pieces together, so to speak. The petitioners were merely among the financiers
whose interest was to be invited and who were in fact persuaded, on the strength of the
project study, to invest in the proposed airline. Significantly, there was no showing that
the Filipinas Orient Airways was a fictitious corporation and did not have a separate
juridical personality, to justify making the petitioners, as principal stockholders thereof,
responsible for its obligations. As a bona fide corporation, the Filipinas Orient Airways
should alone be liable for its corporate acts as duly authorized by its officers and directors.
In the light of these circumstances, we hold that the petitioners cannot be held personally
liable for the compensation claimed by the private respondent for the services performed
by him in the organization of the corporation. To repeat, the petitioners did not contract
such services. It was only the results of such services that Barretto and Garcia presented
to them and which persuaded them to invest in the proposed airline. The most that can
be said is that they benefited from such services, but that surely is no justification to hold
them personally liable therefor. Otherwise, all the other stockholders of the corporation,
including those who came in later, and regardless of the amount of their share holdings,
would be equally and personally liable also with the petitioners for the claims of the
private respondent.
Dispositive Portion:
WHEREFORE, the petition is granted. The petitioners are declared not liable under the
challenged decision, which is hereby modified accordingly. It is so ordered.
Trillana vs Quezon College, G. R. No. L-5003, June 27, 1953
PARAS, C.J.:
Damasa Crisostomo sent the following letter to the Board of Trustees of the Quezon
College:
June 1, 1948
"THE BOARD OF TRUSTEES
"Quezon College
"Manila
"Gentlemen:
"Please enter my subscription to dalawang daan (200) shares of your capital stock with a
par value of P100 each. Enclosed you will find (Babayaran kong lahat pagkatapos na ako
ay makapagpahuli ng isda) pesos as my initial payment and the balance payable in
accordance with law and the rules and regulations of the Quezon College. I hereby agree
to shoulder the expenses connected with said shares of stock. I further submit myself to
all lawful demands, decisions or directives of the Board of Trustees of the Quezon College
and all its duly constituted officers or authorities (ang nasa itaas ay binasa at ipinaliwanag
sa akin sa wikang tagalog na aking nalalaman).
"Very respectfully,
"(Sgd.) DAMASA CRISOSTOMO
Signature of subscriber
"Nilagdaan sa aming harapan:
"JOSE CRISOSTOMO
"EDUARDO CRISOSTOMO"
Damasa Crisostomo died on October 26, 1948. As no payment appears to have been
made on the subscription mentioned in the foregoing letter, the Quezon College, Inc.
presented a claim before the Court of First Instance of Bulacan in her testate proceeding,
for the collection of the sum of P20,000, representing the value of the subscription to the
capital stock of the Quezon College, Inc. This claim was opposed by the administrator of
the estate, and the Court of First Instance of Bulacan, after hearing, issued an order
dismissing the claim of the Quezon College, Inc., on the ground that the subscription in
question was neither registered in nor authorized by the Securities and Exchange
Commission. From this order the Quezon College, Inc. has appealed.
It is not necessary for us to discuss at length appellant's various assignments of error
relating to the propriety of the ground relied upon by the trial court, since, as pointed out
in the brief for the administrator and appellee, there are other decisive considerations
which, though not touched by the lower court, amply sustained the appealed order.
It appears that the application sent by Damasa Crisostomo to the Quezon College, Inc.
was written on a general form indicating that an applicant will enclose an amount as initial
payment and will pay the balance in accordance with law and the rules or regulations of
the College. On the other hand, in the letter actually sent by Damasa Crisostomo, the
latter (who requested that her subscription for 200 shares be entered) not only did not
enclose any initial payment but stated that "babayaran kong lahat pagkatapos na ako ay
makapagpahuli ng isda." There is nothing in the record to show that the Quezon College,
Inc. accepted the term of payment suggested by Damasa Crisostomo, or that if there was
an acceptance the same came to her knowledge during her lifetime. As the application
of Damasa Crisostomo is obviously at variance with the terms evidenced in the form letter
issued by the Quezon College, Inc., there was absolute necessity on the part of the College
to express its agreement to Damasa's offer in order to bind the latter. Conversely, said
acceptance was essential, because it would be unfair to immediately obligate the Quezon
College, Inc. under Damasa's promise to pay the price of the subscription after she had
caused fish to be caught. In other words, the relation between Damasa Crisostomo and
the Quezon College, Inc. had only thus reached the preliminary stage whereby the latter
offered its stock for subscription on the terms stated in the form letter, and Damasa
applied for subscription fixing her own plan of payment,-a relation, in the absence as in
the present case of acceptance by the Quezon College, Inc. of the counter offer of Damasa
Crisostomo, that had not ripened into an enforceable contract.
Indeed, the need for express acceptance on the part of the Quezon College, Inc. becomes
the more imperative, in view of the proposal of Damasa Crisostomo to pay the value of
the subscription after she had harvested fish, a condition obviously dependent upon her
sole will and, therefore, facultative in nature, rendering the obligation void, under article
1115 of the old Civil Code which provides as follows: "If the fulfillment of the condition
should depend upon the exclusive will of the debtor, the conditional obligation shall be
void. If it should depend upon chance, or upon the will of a third person, the obligation
shall produce all its effects in accordance with the provisions of this code." It cannot be
argued that the condition solely is void, because it would have served to create the
obligation to pay, unlike a case, exemplified by Osmeña vs. Rama (14 Phil., 99), wherein
only the potestative condition was held void because it referred merely to the fulfillment
of an already existing indebtedness.
In the case of Taylor vs. Uy Tieng Piao et al. (43 Phil., 873, 879), this Court already held
that "a condition, facultative as to the debtor, is obnoxious to the first sentence contained
in article 1115 and renders the whole obligation void."
Wherefore, the appealed order is affirmed, and it is so ordered with costs against the
appellant.
SOFRONIO T. BAYLA ET AL. v. SILANG TRAFFIC CO., GR No. 48195 & 48196, 1942-05-01
Facts: Petitioners in G. R. No. 48195 instituted this action in the Court of First Instance of
Cavite against the respondent Silang Traffic Co., Inc. (cross-petitioner in G. R. No. 43196),
to recover certain sums of money which they had paid severally to the... corporation on
account of shares of stock they individually agreed to take and pay for under certain
specified terms and conditions, of which the following, referring to the petitioner Josefa
Naval, is typical:
That the subscriber promises to pay personally or by his duly authorized agent to the
seller at the Municipality of Silang, Province of Cavite, Philippine Islands, the sum of one
thousand five hundred pesos (P1,500), Philippine currency, at purchase price of FIFTEEN
(15) shares... of capital stock, and purchase price to be paid as follows, to wit: five (5%)
per cent upon the execution of the contract, the receipt whereof is hereby acknowledged
and confessed, and the remainder in installment of five per cent, payable within the first
month of each and... every quarter thereafter, commencing on the 1st day of July, 1935,
with interest on deferred payments at the rate of Six (6%) per cent per annum until paid.
"That the said subscriber further agrees that if he fails to pay any of said installment when
due, or to perform any of the aforesaid conditions, or if said shares shall be attached or
levied upon by creditors of the said subscriber, then the said shares are to revert to the...
seller and the payments already made are to be forfeited in favor of said seller, and the
latter may then take possession, without resorting to court proceedings.
The respondent corporation set up the following defenses: (1) That the above-quoted
resolution is not applicable to the petitioners Sofronio T. Bayla, Josefa Naval, and Paz
Toledo because on the date thereof "their subscribed shares of stock had already
automatically reverted to... the defendant, and the installments paid by them had already
been forfeited"; and (2) that said resolution of August 1, 1937, was revoked and canceled
by a subsequent resolution of the board of directors of the defendant corporation dated
August 22, 1937.
The trial court absolved the defendant from the complaint and declared canceled
(forfeited) in favor of the defendant the shares of stock in question. It held that the
resolution of August 1, 1937, was null and void, citing Velasco vs. Poizat (37 Phil.
802), wherein this Court held that "a corporation has no legal capacity to release an
original subscriber to its capital stock from the obligation to pay for his shares; and any
agreement to this effect is invalid." Plaintiffs below appealed to the Court of Appeals,...
which modified the judgment of the trial court as follows
Issues: Petitioners insist that they have the right to recover the amounts involved under
the resolution of August 1, 1937, while the respondent and cross-petitioner on its part
contends that said... amounts have been automatically forfeited and the shares of stock
have reverted to the corporation under the agreement hereinabove quoted
Ruling: The parties litigant, the trial court, and the Court of Appeals have interpreted or
considered the said agreement as a contract of subscription to the capital stock of the
respondent corporation. It should be noted, however, that said agreement is entitled
"Agreement for
Installment Sale of Shares in the Silang Traffic Company, Inc."; that while the purchaser is
designated as "subscriber," the corporation is described as "seller"; that the agreement
was entered into on March 30, 1935, long after the incorporation and organization of
the... corporation, which took place in 1927; and that the price of the stock was payable
in quarterly installments spread over a period of five years. It also appears that in civil
case No. 3125 of the Court of First Instance of Cavite mentioned in the resolution of
August 1,... 1937, the right of the corporation to sell the shares of stock to the persons
named in said resolution (including the herein petitioners) was impugned by the plaintiffs
in said case, who claimed a preferred right to buy said shares.
It seems clear from the terms of the contracts in question that they are contracts of sale
and not of subscription.
The lower courts erred in overlooking the distinction between subscription and purchase
Wherefore, the judgment of the Court of Appeals is hereby reversed and another
judgment will be entered against the defendant Silang Traffic Co., Inc., ordering it to pay
to the plaintiffs.
Philippine Trust Company vs. Marciano Rivera GR No. L-19761 January 29, 1923
Facts: Action instituted on November 21, 1921 in the CFI of Manila by Phil. Trust Co.
against Marciano Rivera. The case was for recovery of balance iao P22,500.00, alleged
due upon defendant’s subscription to the capital amount of insolvent La Cooperativa
Naval Filipina. CFI ruled in favor of the plaintiff, hence the appeal of the defendant. The
reason for the failure of Mr. Rivera to pay his 450 subscription or iao 45,000.00 (par value
is P100) is that not long after the cooperative has been incorporated, a stockholder
meeting occurred, at which a resolution was adopted to effect that the capital should be
reduced 50% and the subscribers released from obligation to pay any unpaid balance in
excess of 50% of their subscription. After which, certificates of full payment were released
to the respective subscribers one-half of his fully paid original subscription. It does not
appear that the acts was done correlating to the formalities prescribed in Sec.17 of the
Corporation Law (Act No. 1459). In time, the company went bankrupt and went into the
hands of Phil. Trust Co, as assignee in bankruptcy.
Issue: Whether or not the releasing of 50% of the subscription and issuance of full
payment for one-half of his fully paid original subscription is valid.
Ruling: No. It is not valid.
A corporation has no power to release an original subscriber to its capital stock from the
obligation of paying for his shares, without a valuable consideration for such release; and
as against the creditors a reduction of the capital stock can take place only in the manner
and under the conditions prescribed by the statute or the charter or the articles of
incorporation. Moreover, strict compliance with the statutory regulations is necessary.
In the case before us, the resolution releasing the shareholders from their obligation to
pay 50% of their respective subscriptions was an attempted withdrawal of so much capital
from the fund upon which the company’s creditors were entitled ultimately to rely and,
having been effected without compliance with the statutory requirements, was wholly
ineffectual.
Corporation Law (Act No. 1459)
Section 17. No corporation shall increase or diminish its capital stock, or incur, create, or
increase any bonded indebtedness unless, at a stockholders' meeting regularly called for
the purpose, two-thirds of the entire corporate capital stock subscribed shall favor the
increase or diminution of the capital stock, or a majority of the subscribed capital stock
shall favor the incurring, creating, or increasing of any bonded indebtedness. Written or
printed notice of the proposed increase or diminution of the capital stock or of the
incurring, creating, or increasing of any bonded indebtedness and of the time and place
of the stockholders' meeting at which the proposed increase or diminution of the capital
stock or the incurring, creating, or increasing of any bonded indebtedness is to be
considered must be addressed to each stockholder at his place of residence as shown by
the books of the corporation and registered and deposited so addressed in the post-office
with postage prepaid.
A certificate in duplicate must be signed by a majority of the directors of the corporation
and countersigned by the chairman and secretary of the stockholders' meeting showing
compliance with the requirements of this section, the amount of the increase or
diminution of the capital stock, or the bonded indebtedness to be incurred, created, or
increased, the actual indebtedness of the corporation on the day of the meeting, the
amount of stock represented at the meeting, and the vote authorizing the increase or
diminution of the capital stock or the incurring, creating, or increasing of any bonded
indebtedness. One of the duplicate certificates shall be kept on file in the office of the
corporation and the other shall be filed in the office of the Chief of the Division of
Archives, Patents, Copyrights, and Trade-Marks of the Executive Bureau and attached by
him to the original articles of incorporation. From and after the filing of the duplicate
certificate with the chief of the said division the capital stock shall stand increased or
diminished and the incurring, creating, or increasing of any bonded indebtedness
authorized as the certificate may declare. The Chief of the said Division of Archives,
Patents, Copyrights, and Trade-Marks shall be entitled to collect the sum of twenty pesos
for filing said duplicate certificate.
VELASCO VS. POIZAT G.R. No. L-11528
FACTS: The plaintiff, as assignee in insolvency of "The Philippine Chemical Product
Company" (Ltd.) is seeking to recover of the defendant, Jean M. Poizat, the sum of P1,500,
upon a subscription made by him to the corporate stock of said company. It appears that
the corporation in question was originally organized by several residents of the city of
Manila, where the company had its principal place of business, with a capital of P50,000,
divided into 500 shares. The defendant subscribed for 20 shares of the stock of the
company, an paid in upon his subscription the sum of P500, the par value of 5 shares .
The action was brought to recover the amount subscribed upon the remaining shares. It
appears that the defendant was a stock holder in the company from the inception of the
enterprise, and for sometime acted as its treasurer and manager. While serving in this
capacity he called in and collected all subscriptions to the capital stock of the company,
except the aforesaid 15 shares subscribed by himself and another 15 shares owned by
Jose R. Infante.
A meeting of the board of directors of the company was held at which a majority of the
stock was presented. Upon this occasion two resolutions were adopted. The first was a
proposal that the directors, or shareholders, of the company should make good by new
subscriptions, in proportion to their respective holdings, 15 shares which had been
surrendered by Infante. It seems that this shareholder had already paid 25 per cent of his
subscription upon 20 shares, leaving 15 shares unpaid for, and an understanding had been
reached by him and the management by which he was to be released from the obligation
of his subscription, it being understood that what he had already paid should not be
refunded. Accordingly the directors present at this meeting subscribed P1,200 toward
taking up his shares, leaving a deficiency of P300 to be recovered by voluntary
subscriptions from stockholders not present at the meeting. The other proposition was o
the effect that Juan [Jean] M. Poizat, who was absent, should be required to pay the
amount of his subscription upon the 15 shares for which he was still indebted to the
company. The resolution further provided that, in case he should refuse to make such
payment, the management of the corporation should be authorized to undertake judicial
proceedings against him. When notification of this resolution reached Poizat through the
mail it evoked from him a manifestation of surprise and pain, which found expression in
a letter written by him in reply, dated July 27, 1914, and addressed to Velasco, as
treasurer and administrator. In this letter Poizat states that he had been given to
understand by some member of the board of directors that he was to be relieved from
his subscription upon the terms conceded to Infante. The company soon went into
voluntary insolvency, Velasco being named as the assignee. At the hearing of the Court of
First Instance, judgment was rendered in favor of the defendant, and the complaint was
dismissed. From this action the plaintiff has appealed.
ISSUE: WON Poizat is liable upon this subscription?
HELD: Poizat is liable upon his subscription. Section 36 of the Corporation Law clearly
recognizes that a stock subscription is subsisting liability from the time the subscription is
made, since it requires the subscriber to pay interest quarterly from that date unless he
is relieved from such liability by the by-laws of the corporation. The subscriber is as much
bound to pay the amount of the share subscribed by him as he would be to pay any other
debt, and the right of the company to demand payment is no less incontestable. The
provisions of the Corporation Law (Act No. 1459) given recognition of two remedies for
the enforcement of stock subscriptions. The first and most special remedy given by the
statute consists in permitting the corporation to put up the unpaid stock for sale and
dispose of it for the account of the delinquent subscriber. In this case the provisions of
section 38 to 48, inclusive, of the Corporation Law are applicable and must be followed.
Nothing in this Act shall prevent the directors from collecting, by action in any court of
proper jurisdiction, the amount due on any unpaid subscription, together with accrued
interest and costs and expenses incurred. The assignee of the insolvent corporation
succeeds to all the corporate rights of action vested in the corporation prior to its
insolvency; and the assignee therefore has the same freedom with respect to suing upon
the stock subscription as the directors themselves would have had under section 49 above
cited. There is another reason why the present plaintiff must prevail in this case. That
reason is this: When insolvency supervenes upon a corporation and the court assumes
jurisdiction to wind up, all unpaid stock subscriptions become payable on demand, and
are at once recoverable in an action instituted by the assignee or receiver appointed by
the court. It is now quite well settled that when the corporation becomes insolvent, with
proceedings instituted by creditors to wind up and distribute its assets, no call or
assessment is necessary before the institution of suits to collect unpaid balances on
subscription. It evidently cannot be permitted that a subscriber should escape from his
lawful obligation by reason of the failure of the officers of the corporation to perform
their duty in making a call; and when the original model of making the call becomes
impracticable, the obligation must be treated as due upon demand. The better doctrine
is that when insolvency supervenes all unpaid subscriptions become at once due and
enforceable.
The circumstance that the board of directors in their meeting of July 13, 1914, resolved
to release Infante from his obligation upon a subscription for 15 shares is no wise
prejudicial to the right of the corporation or its assignee to recover from Poizat upon a
subscription made by him. In releasing Infante the board transcended its powers, and he
no doubt still remained liable on such of his shares as were not taken up and paid for by
other persons.The general doctrine is that the corporation has no legal capacity to release
an original subscriber to its capital stock from the obligation of paying for his shares, in
whole or in part.The suggestion contained in Poizat's letter of July 27, 1914, to the effect
that he understood that he was to be relieved upon the same terms as Infante is, for the
same reason, of no merit as matter of defense, even if an agreement to that effect had
been duly proved.

PHILIPPINE NATIONAL BANK, plaintiff vs. BITULOK SAWMILL INC., defendant G.R. Nos.
L-24177-85 June 29, 1968

FACTS: The Philippine Lumber Distributing Agency, Inc., according to the lower court,
"was organized sometime in the early part of 1947 upon the initiative and insistence of
the late President Manuel Roxas of the Republic of the Philippines who for the purpose,
had called several conferences between him and the subscribers and organizers of the
Philippine Lumber Distributing Agency, Inc." The purpose was praiseworthy, to insure a
steady supply of lumber, which could be sold at reasonable prices to enable the war
sufferers to rehabilitate their devastated homes. At the beginning, the lumber producers
were reluctant to organize the cooperative agency as they believed that it would not be
easy to eliminate from the retail trade the alien middlemen who had been in this business
from time immemorial, but because the late President Roxas made it clear that such a
cooperative agency would not be successful without a substantial working capital which
the lumber producers could not entirely shoulder, and as an inducement he promised and
agreed to finance the agency by making the Government invest P9.00 by way of
counterpart for every peso that the members would invest therein." Accordingly, "the
late President Roxas instructed the Hon. Emilio Abello, then Executive Secretary and
Chairman of the Board of Directors of the Philippine National Bank, for the latter to grant
said agency an overdraft in the original sum of P250,000.00 which was later increased to
P350,000.00, which was approved by said Board of Directors of the Philippine National
Bank on July 28, 1947, payable on or before April 30, 1958, with interest at the rate of 6%
per annum, and secured by the chattel mortgages on the stock of lumber of said agency."
The Philippine Government did not invest the P9.00 for every peso coming from
defendant lumber producers. The loan extended to the Philippine Lumber Distributing
Agency by the Philippine National Bank was not paid.

ISSUE: Whether or not the non-compliance with a plain statutory command, considering
the persuasiveness of the plea that defendants-appellees would "not have subscribed to
the capital stock" of the Philippine Lumber Distributing Agency "were it not for the
assurance of the then President of the Republic that the Government would back it up by
investing P9.00 for every peso" subscribed, a condition which was not fulfilled, such
commitment not having been complied with, be justified.

RULING: NO. It would be unwarranted to ascribe to the late President Roxas the view that
the payment of the stock subscriptions, as thus required by law, could be condoned in the
event that the counterpart fund to be invested by the Government would not be
available. Even if such were the case, however, and such a promise were in fact made, to
further the laudable purpose to which the proposed corporation would be devoted and
the possibility that the lumber producers would lose money in the process, still the plain
and specific wording of the applicable legal provision as interpreted by this Court must be
controlling. It is a well-settled principle that with all the vast powers lodged in the
Executive, he is still devoid of the prerogative of suspending the operation of any statute
or any of its terms.