G.R. No.
L-23145 November 29, 1968  Benguet Consolidated contends mainly that the said stock certificates are in
TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased. RENATO D. TAYAG, ancillary
administrator-appellee, vs. BENGUET CONSOLIDATED, INC., oppositor-appellant.
 Idonah Slade Perkins, who died on March 27, 1960 in New York City, left
among others, two stock certificates covering 33,002 shares in Benguet
Consolidated, the certificates being in the possession of the County Trust
Company of New York, which is the domiciliary administrator of her estate.
 Lazaro A. Marquez was then appointed ancillary administrator of Perkins’
estate in the PH, and on January 22, 1963, he was substituted by Renato
Tayag.
 A dispute arose between the domiciliary administrator in New York and the
ancillary administrator in the Philippines as to which of them was entitled to
the possession of the stock certificates in question.
 On January 27, 1964, the Court of First Instance of Manila ordered County
Trust to "produce and deposit" them with the ancillary administrator or with
the Clerk of Court in order to satisfy the legitimate claims of local creditors.
 The domiciliary administrator did not comply with the order, hence, on
February 11, 1964, the ancillary administrator petitioned the court to "issue
an order declaring the certificates of the said stocks as lost."
 The court, through Judge Arsenio Santos, granted said petition. It declared as
lost, for purposes of administration and liquidation of Perkins’ Philippine
estate the certificates in question, thereby ordering for the cancellation of
the same and directing BC to issue new certificates in lieu thereof, the same
to be delivered by said corporation to either the incumbent ancillary
administrator or to the Probate Division of the Court. BC appealed.
existence, and are in the possession of the domiciliary administrator. Hence,
the stock certificates cannot be declared or considered as lost. Moreover, it
alleged that there was a failure to observe certain requirements of its by-laws
before new stock certificates could be issued.
ISSUE: WON the court is correct when it declared as “lost” the stock certificates in
question.
HELD: YES
 Such a response was called for by the realities of the situation. While there
may be an element of fiction in the said order of the lower court, that does
not suffice to call for the reversal of the order. Since there is a persistent
refusal on the part of County Trust to deliver the subject shares of stocks to
the ancillary administrator, there was nothing arbitrary in considering them
as lost and requiring BC to issue new certificates in lieu thereof. Thereby, the
task incumbent under the law on the ancillary administrator could be
discharged and his responsibility fulfilled. Any other view would result in the
compliance to a valid judicial order being made to depend on the
uncontrolled discretion of the party or entity which has persistently shown
willful defiance. An act which cannot be tolerated. Unless such a blatant
disregard by County Trust, with residence abroad, of what was previously
ordered by the court could be thus remedied, it would have entailed, insofar
as this matter was concerned, a complete paralysis of judicial authority.
 A corporation is an artificial being created by operation of law. It owes its life
to the state, its birth being purely dependent on its will. It is defined a
 corporation precisely as "an artificial being, invisible, intangible, and existing
only in contemplation of law." (CJ Marshall)
 A corporation is not in fact and in reality a person, but the law treats it as
though it were a person by process of fiction, or by regarding it as an artificial
person distinct and separate from its individual stockholders. It owes its
existence to law. It is an artificial person created by law for certain specific
purposes, the extent of whose existence, powers and liberties is fixed by its
charter." (Fletcher)
 There is thus a rejection of Genossenchaft theory, the basic theme of which
to quote from Friedmann, "is the reality of the group as a social and legal
entity, independent of state recognition and concession." A corporation as
known to Philippine jurisprudence is a creature without any existence until it
has received the imprimatur of the state according to law. It is logically
inconceivable therefore that it will have rights and privileges of a higher
priority than that of its creator. More than that, it cannot legitimately refuse
to yield obedience to acts of its state organs, certainly not excluding the
judiciary, whenever called upon to do so.
 To assert that it can choose which court order to follow and which to
disregard is to confer upon it not autonomy which may be conceded but
license which cannot be tolerated. It is to argue that it may overrule the
state, the source of its very existence. So extravagant a claim cannot possibly
merit approval.
OTHER NOTES:
 The ancillary administrator has the power to gain control and possession
of all assets of the decedent within the jurisdiction of the Philippines.
Such a power is inherent in his duty to settle her estate and satisfy the
claims of local creditors. Administration, whether principal or ancillary,
certainly "extends to the assets of a decedent found within the state or
country where it was granted," the corollary being "that an administrator
appointed in one state or country has no power over property in another
state or country." Hence, an administrator appointed in a foreign state
has no authority in the [Philippines].
 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.
 It would follow then that the authority of the probate court to require
that ancillary administrator's right to the assailed stock certificates be
respected is equally beyond question. For BC 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.
G.R. No. L-17295 July 30, 1962
ANG PUE & COMPANY, ET AL., plaintiffs-appellants, vs. SECRETARY OF COMMERCE
AND INDUSTRY, defendant-appellee.
G.R. No. L-17295 July 30, 1962

ANG PUE & COMPANY, ET AL., plaintiffs-appellants, vs. SECRETARY OF COMMERCE
AND INDUSTRY, defendant-appellee
 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. (PURPOSE OF PARTNERSHIP: retail of
lumber)
 On June 19, 1954 Republic Act No. 1180 was enacted to regulate the retail
business. It provided, among other things, that, after its enactment, a
partnership not wholly formed by Filipinos could continue to engage in the
retail business until the expiration of its term.
 On April 15, 1958 — prior to the expiration of the five-year term of the
partnership Ang Pue & Company, but after the enactment of the Republic Act
1180, the partners already amended the original articles of part ownership
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.
 Ang Pue and Tan Siong then filed an action for declaratory relief (CFI Ilo-ilo)
against the Secretary of Commerce and Industry to secure judgment
"declaring that plaintiffs could extend for five years the term of the
partnership pursuant to the provisions of plaintiffs' Amendment to the Article
of Co-partnership.”
 The lower court dismissed the action. Hence, this appeal.
ISSUE: WON the lower court is correct in not giving credence to the petition of Ang
Pue and Tan Siong.
HELD: YES
 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.
 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
cannot be seriously disputed.
 This provision was clearly intended to apply to partnership already existing at
the time of the enactment of the law is clearly showing by its provision giving
them the right to continue engaging in their retail business until the
expiration of their term or life.
 To argue that because the original articles of partnership provided that the
partners could extend the term of the partnership, the provisions of Republic
Act 1180 cannot be adversely affect appellants herein, is to erroneously
assume that the aforesaid provision constitute a property right of which the
partners cannot be deprived without due process or without their consent.
 The agreement contain therein must be deemed subject to the law existing
at the time when the partners came to agree regarding the extension. In the
present case, as already stated, when the partners amended the articles of
partnership, the provisions of Republic Act 1180 were already in force, and
there can be not the slightest doubt that the right claimed by appellants to
 extend the original term of their partnership to another five years would be
in violation of the clear intent and purpose of the law aforesaid.
G.R. No. L-19891 July 31, 1964
J.R.S. BUSINESS CORPORATION, J.R. DA SILVA (JRS PRESIDENT) and A.J. BELTRAN,
petitioners, vs.
IMPERIAL INSURANCE, INC., MACARIO M. OFILADA, Sheriff of Manila and HON.
AGUSTIN MONTESA, Judge of the Court of First Instance of Manila, respondents.
 JRS is an establishment duly franchised by the Congress of the Philippines, to
conduct a messenger and delivery express service.
 On July 12, 1961, Imperial Insurance presented with the CFI of Manila a
complaint for sum of money against JRS.
 Subsequently, the parties entered into a court-approved Compromise
Agreement, which basically provides that JRS shall pay Imperial Insurance
P61,172.32 on or before March 14, 1962. In the event that JRS fails to pay the
same on time, for any reason whatsoever, Imperia shall be entitled, as a
matter of right, to move for the execution of the decision.
 One day after the date fixed in the compromise agreement, within which the
judgment debt would be paid, but was not, Imperial Insurance, filed a
"Motion for the Insurance of a Writ of Execution".
 On May 23, 1962, a Writ of Execution was issued by the Sheriff of Manila and
on May 26, 1962, Notices of Sale were sent out for the auction of the
personal properties of JRS, including, among others, its whole capital stocks,
business name, and right of operation. The auction sale was set for June 21,
1962.
 . On June 9, JRS presented an "Urgent Petition for Postponement of Auction
Sale and for Release of Levy on its Business Name, Right to Operate, and
capital stocks, stating that it was busy negotiating for a loan with which to
pay the judgment debt; that the judgment was for money only and,
therefore, Imperial Insurance was not authorized to take over and
appropriate for its own use the business name; that the right to operate
under the franchise was not transferable and could not be considered a
personal or immovable property subject to levy and sale; and that the capital
stocks could not be levied upon and sold under execution.
 On June 20, 1962, JRS presented a pleading captioned "Very Urgent Motion
for Postponement of Public Auction Sale and for Ruling on the aforesaid
motion. In said motion, petitioners alleged that the loan they had applied for
was to be secured within the next ten days, and they would be able to
discharge the judgment debt. Respondents opposed the said motion and on
June 21, 1962, the lower court denied the motion for postponement of the
auction sale.
 In the sale, all the properties of JRS contained in the Notices of Sale were
bought for P10,000.00 by Imperial Insurance as the highest bidder.
Immediately after the sale, Imperial Insurance took possession of the
properties. Hence, the present appeal.
ISSUES: (1) whether the respondent Judge acted without or in excess of his
jurisdiction or with grave abuse of discretion in promulgating the Order of June 21,
1962, denying the motion for postponement of the scheduled sale at public auction,
of the properties of petitioner; and (2) whether the business name or trade name,
franchise (right to operate) and capital stocks of the petitioner are properties or
property rights which could be the subject of levy, execution and sale.
HELD:
The respondent Court's act of postponing the scheduled sale was within the
discretion of respondent Judge, the exercise of which, one way or the other, did not
constitute grave abuse of discretion and/or excess of jurisdiction. There was a
decision rendered and the corresponding writ of execution was issued. Respondent
Judge had jurisdiction over the matter and erroneous conclusions of law or fact, if
any, committed in the exercise of such jurisdiction are merely errors of judgment, not
correctible by certiorari (Villa Rey Transit v. Bello, et al., L-18957, April 23, 1963, and
cases cited therein.)
The corporation law, on forced sale of franchises, provides —
Any franchise granted to a corporation to collect tolls or to occupy, enjoy, or use
public property or any portion of the public domain or any right of way over public
property or the public domain, and any rights and privileges acquired under such
franchise may be levied upon and sold under execution, together with the property
necessary for the enjoyment, the exercise of the powers, and the receipt of the
proceeds of such franchise or right of way, in the same manner and with like effect as
any other property to satisfy any judgment against the corporation: Provided, That
the sale of the franchise or right of way and the property necessary for the
enjoyment, the exercise of the powers, and the receipt of the proceeds of said
franchise or right of way is especially decreed and ordered in the judgment: And
provided, further, That the sale shall not become effective until confirmed by the
court after due notice. (Sec. 56, Corporation Law.)
In the case of Gulf Refining Co. v. Cleveland Trust Co., 108 So., 158, it was held —
The first question then for decision is the meaning of the word "franchise" in the
statute.
"A franchise is a special privilege conferred by governmental authority, and which
does not belong to citizens of the country generally as a matter of common right. ...
Its meaning depends more or less upon the connection in which the word is
employed and the property and corporation to which it is applied. It may have
different significations.
"For practical purposes, franchises, so far as relating to corporations, are divisible into
(1) corporate or general franchises; and (2) special or secondary franchises. The
former is the franchise to exist as a corporation, while the latter are certain rights and
privileges conferred upon existing corporations, such as the right to use the streets of
a municipality to lay pipes or tracks, erect poles or string wires." 2 Fletcher's
Cyclopedia Corp. See. 1148; 14 C.J. p. 160; Adams v. Yazon & M. V. R. Co., 24 So. 200,
317, 28 So. 956, 77 Miss. 253, 60 L.R.A. 33 et seq.
The primary franchise of a corporation that is, the right to exist as such, is vested "in
the individuals who compose the corporation and not in the corporation itself" (14
C.J. pp. 160, 161; Adams v. Railroad, supra; 2 Fletcher's Cyclopedia Corp. Secs. 1153,
1158; 3 Thompson on Corporations 2d Ed.] Secs. 2863, 2864), and cannot be
conveyed in the absence of a legislative authority so to do (14A CJ. 543, 577; 1
Fletcher's Cyc. Corp. Sec. 1224; Memphis & L.R.R. Co. v. Berry 5 S. Ct. 299, 112 U.S.
609, 28 L.E.d. 837; Vicksburg Waterworks Co. v. Vicksburg, 26 S. Ct. 660, 202 U.S. 453,
50 L.E.d. 1102, 6 Ann. Cas. 253; Arthur v. Commercial & Railroad Bank, 9 Smedes &
M. 394, 48 Am. Dec. 719), but the specify or secondary franchises of a corporation
are vested in the corporation and may ordinarily be conveyed or mortgaged under a
general power granted to a corporation to dispose of its property, except such special
or secondary franchises as are charged with a public use.
The right to operate a messenger and express delivery service, by virtue of a
legislative enactment, is admittedly a secondary franchise (R.A. No. 3260, entitled
"An Act granting the JRS Business Corporation a franchise to conduct a messenger
and express service)" and, as such, under our corporation law, is subject to levy and
sale on execution together and including all the property necessary for the
enjoyment thereof. The law, however, indicates the procedure under which the same
(secondary franchise and the properties necessary for its enjoyment) may be sold
under execution. Said franchise can be sold under execution, when such sale is
especially decreed and ordered in the judgment and it becomes effective only when
the sale is confirmed by the Court after due notice (Sec. 56, Corp. Law). The
compromise agreement and the judgment based thereon, do not contain any special
decree or order making the franchise answerable for the judgment debt. The same
thing may be stated with respect to petitioner's trade name or business name and its
capital stock. Incidentally, the trade name or business name corresponds to the
initials of the President of the petitioner corporation and there can be no serious
dispute regarding the fact that a trade name or business name and capital stock are
necessarily included in the enjoyment of the franchise. Like that of a franchise, the
law mandates, that property necessary for the enjoyment of said franchise, can only
be sold to satisfy a judgment debt if the decision especially so provides. As We have
stated heretofore, no such directive appears in the decision. Moreover, a trade name
or business name cannot be sold separately from the franchise, and the capital stock
of the petitioner corporation or any other corporation, for the matter, represents the
interest and is the property of stockholders in the corporation, who can only be
deprived thereof in the manner provided by law (Therbee v. Baker, 35 N.E. Eq. [8
Stew.] 501, 505; In re Wells' Estate, 144 N.W. 174, 177, Wis. 294, cited in 6 Words and
Phrases, 109).
It, therefore, results that the inclusion of the franchise, the trade name and/or
business name and the capital stock of the petitioner corporation, in the sale of the
properties of the JRS Business Corporation, has no justification. The sale of the
properties of petitioner corporation is set aside, in so far as it authorizes the levy and
sale of its franchise, trade name and capital stocks. Without pronouncement as to
costs.
G.R. No. L-4935 May 28, 1954
J. M. TUASON & CO., INC., represented by it Managing PARTNER, GREGORIA
ARANETA, INC., plaintiff-appellee, vs. QUIRINO BOLAÑOS, defendant-appellant.
REYES, J.:
This is an action originally brought in the Court of First Instance of Rizal, Quezon City
Branch, to recover possesion of registered land situated in barrio Tatalon, Quezon
City.
Plaintiff's complaint was amended three times with respect to the extent and
description of the land sought to be recovered. The original complaint described the
land as a portion of a lot registered in plaintiff's name under Transfer Certificate of
Title No. 37686 of the land record of Rizal Province and as containing an area of 13
hectares more or less. But the complaint was amended by reducing the area of 6
hectares, more or less, after the defendant had indicated the plaintiff's surveyors the
portion of land claimed and occupied by him. The second amendment became
necessary and was allowed following the testimony of plaintiff's surveyors that a
portion of the area was embraced in another certificate of title, which was plaintiff's
Transfer Certificate of Title No. 37677. And still later, in the course of trial, after
defendant's surveyor and witness, Quirino Feria, had testified that the area occupied
and claimed by defendant was about 13 hectares, as shown in his Exhibit 1, plaintiff
again, with the leave of court, amended its complaint to make its allegations conform
to the evidence.
Defendant, in his answer, sets up prescription and title in himself thru "open,
continuous, exclusive and public and notorious possession (of land in dispute) under
claim of ownership, adverse to the entire world by defendant and his predecessor in
interest" from "time in-memorial". The answer further alleges that registration of the
land in dispute was obtained by plaintiff or its predecessors in interest thru "fraud or
error and without knowledge (of) or interest either personal or thru publication to
defendant and/or predecessors in interest." The answer therefore prays that the
complaint be dismissed with costs and plaintiff required to reconvey the land to
defendant or pay its value.
After trial, the lower court rendered judgment for plaintiff, declaring defendant to be
without any right to the land in question and ordering him to restore possession
thereof to plaintiff and to pay the latter a monthly rent of P132.62 from January,
1940, until he vacates the land, and also to pay the costs.
Appealing directly to this court because of the value of the property involved,
defendant makes the following assignment or errors:
I. The trial court erred in not dismissing the case on the ground that the case was not
brought by the real property in interest.
II. The trial court erred in admitting the third amended complaint.
III. The trial court erred in denying defendant's motion to strike.
IV. The trial court erred in including in its decision land not involved in the litigation.
V. The trial court erred in holding that the land in dispute is covered by transfer
certificates of Title Nos. 37686 and 37677.
Vl. The trial court erred in not finding that the defendant is the true and lawful owner
of the land.
VII. The trial court erred in finding that the defendant is liable to pay the plaintiff the
amount of P132.62 monthly from January, 1940, until he vacates the premises.
VIII. The trial court erred in not ordering the plaintiff to reconvey the land in litigation
to the defendant.
As to the first assigned error, there is nothing to the contention that the present
action is not brought by the real party in interest, that is, by J. M. Tuason and Co., Inc.
What the Rules of Court require is that an action be brought in the name of, but not
necessarily by, the real party in interest. (Section 2, Rule 2.) In fact the practice is for
an attorney-at-law to bring the action, that is to file the complaint, in the name of the
plaintiff. That practice appears to have been followed in this case, since the complaint
is signed by the law firm of Araneta and Araneta, "counsel for plaintiff" and
commences with the statement "comes now plaintiff, through its undersigned
counsel." It is true that the complaint also states that the plaintiff is "represented
herein by its Managing Partner Gregorio Araneta, Inc.", another corporation, but
there is nothing against one corporation being represented by another person,
natural or juridical, in a suit in court. The contention that Gregorio Araneta, Inc. can
not act as managing partner for plaintiff on the theory that it is illegal for two
corporations to enter into a partnership is without merit, for the true rule is that
"though a corporation has no power to enter into a partnership, it may nevertheless
enter into a joint venture with another where the nature of that venture is in line
with the business authorized by its charter." (Wyoming-Indiana Oil Gas Co. vs.
Weston, 80 A. L. R., 1043, citing 2 Fletcher Cyc. of Corp., 1082.) There is nothing in
the record to indicate that the venture in which plaintiff is represented by Gregorio
Araneta, Inc. as "its managing partner" is not in line with the corporate business of
either of them.
Errors II, III, and IV, referring to the admission of the third amended complaint, may
be answered by mere reference to section 4 of Rule 17, Rules of Court, which
sanctions such amendment. It reads:
Sec. 4. Amendment to conform to evidence. — When issues not raised by the
pleadings are tried by express or implied consent of the parties, they shall be treated
in all respects, as if they had been raised in the pleadings. Such amendment of the
pleadings as may be necessary to cause them to conform to the evidence and to raise
these issues may be made upon motion of any party at my time, even of the trial of
these issues. If evidence is objected to at the trial on the ground that it is not within
the issues made by the pleadings, the court may allow the pleadings to be amended
and shall be so freely when the presentation of the merits of the action will be
subserved thereby and the objecting party fails to satisfy the court that the
admission of such evidence would prejudice him in maintaining his action or defense
upon the merits. The court may grant a continuance to enable the objecting party to
meet such evidence.
Under this provision amendment is not even necessary for the purpose of rendering
judgment on issues proved though not alleged. Thus, commenting on the provision,
Chief Justice Moran says in this Rules of Court:
Under this section, American courts have, under the New Federal Rules of Civil
Procedure, ruled that where the facts shown entitled plaintiff to relief other than that
asked for, no amendment to the complaint is necessary, especially where defendant
has himself raised the point on which recovery is based, and that the appellate court
treat the pleadings as amended to conform to the evidence, although the pleadings
were not actually amended. (I Moran, Rules of Court, 1952 ed., 389-390.)
Our conclusion therefore is that specification of error II, III, and IV are without merit..
Let us now pass on the errors V and VI. Admitting, though his attorney, at the early
stage of the trial, that the land in dispute "is that described or represented in Exhibit
A and in Exhibit B enclosed in red pencil with the name Quirino Bolaños," defendant
later changed his lawyer and also his theory and tried to prove that the land in
dispute was not covered by plaintiff's certificate of title. The evidence, however, is
against defendant, for it clearly establishes that plaintiff is the registered owner of lot
No. 4-B-3-C, situate in barrio Tatalon, Quezon City, with an area of 5,297,429.3 square
meters, more or less, covered by transfer certificate of title No. 37686 of the land
records of Rizal province, and of lot No. 4-B-4, situated in the same barrio, having an
area of 74,789 square meters, more or less, covered by transfer certificate of title No.
37677 of the land records of the same province, both lots having been originally
registered on July 8, 1914 under original certificate of title No. 735. The identity of
the lots was established by the testimony of Antonio Manahan and Magno Faustino,
witnesses for plaintiff, and the identity of the portion thereof claimed by defendant
was established by the testimony of his own witness, Quirico Feria. The combined
testimony of these three witnesses clearly shows that the portion claimed by
defendant is made up of a part of lot 4-B-3-C and major on portion of lot 4-B-4, and is
well within the area covered by the two transfer certificates of title already
mentioned. This fact also appears admitted in defendant's answer to the third
amended complaint.
As the land in dispute is covered by plaintiff's Torrens certificate of title and was
registered in 1914, the decree of registration can no longer be impugned on the
ground of fraud, error or lack of notice to defendant, as more than one year has
already elapsed from the issuance and entry of the decree. Neither court the decree
be collaterally attacked by any person claiming title to, or interest in, the land prior to
the registration proceedings. (Soroñgon vs. Makalintal,1 45 Off. Gaz., 3819.) Nor
could title to that land in derogation of that of plaintiff, the registered owner, be
acquired by prescription or adverse possession. (Section 46, Act No. 496.) Adverse,
notorious and continuous possession under claim of ownership for the period fixed
by law is ineffective against a Torrens title. (Valiente vs. Judge of CFI of Tarlac,2 etc.,
45 Off. Gaz., Supp. 9, p. 43.) And it is likewise settled that the right to secure
possession under a decree of registration does not prescribed. (Francisco vs. Cruz, 43
Off. Gaz., 5105, 5109-5110.) A recent decision of this Court on this point is that
rendered in the case of Jose Alcantara et al., vs. Mariano et al., 92 Phil., 796. This
disposes of the alleged errors V and VI.
As to error VII, it is claimed that `there was no evidence to sustain the finding that
defendant should be sentenced to pay plaintiff P132.62 monthly from January, 1940,
until he vacates the premises.' But it appears from the record that that reasonable
compensation for the use and occupation of the premises, as stipulated at the
hearing was P10 a month for each hectare and that the area occupied by defendant
was 13.2619 hectares. The total rent to be paid for the area occupied should
therefore be P132.62 a month. It is appears from the testimony of J. A. Araneta and
witness Emigdio Tanjuatco that as early as 1939 an action of ejectment had already
been filed against defendant. And it cannot be supposed that defendant has been
paying rents, for he has been asserting all along that the premises in question 'have
always been since time immemorial in open, continuous, exclusive and public and
notorious possession and under claim of ownership adverse to the entire world by
defendant and his predecessors in interest.' This assignment of error is thus clearly
without merit.
Error No. VIII is but a consequence of the other errors alleged and needs for further
consideration.
During the pendency of this case in this Court appellant, thru other counsel, has filed
a motion to dismiss alleging that there is pending before the Court of First Instance of
Rizal another action between the same parties and for the same cause and seeking to
sustain that allegation with a copy of the complaint filed in said action. But an
examination of that complaint reveals that appellant's allegation is not correct, for
the pretended identity of parties and cause of action in the two suits does not
appear. That other case is one for recovery of ownership, while the present one is for
recovery of possession. And while appellant claims that he is also involved in that
order action because it is a class suit, the complaint does not show that such is really
the case. On the contrary, it appears that the action seeks relief for each individual
plaintiff and not relief for and on behalf of others. The motion for dismissal is clearly
without merit.
G.R. No. 75875 December 15, 1989
WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM and CHARLES
CHAMSAY, petitioners, vs. SANITARY WARES MANUFACTURING CORPORATOIN,
ERNESTO V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO,
GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V. CRUZ,
respondents.
GUTIERREZ, JR., J.:
These consolidated petitions seek the review of the amended decision of the Court
of Appeals in CA-G.R. SP Nos. 05604 and 05617 which set aside the earlier decision
dated June 5, 1986, of the then Intermediate Appellate Court and directed that in all
subsequent elections for directors of Sanitary Wares Manufacturing Corporation
(Saniwares), American Standard Inc. (ASI) cannot nominate more than three (3)
directors; that the Filipino stockholders shall not interfere in ASI's choice of its three
(3) nominees; that, on the other hand, the Filipino stockholders can nominate only
six (6) candidates and in the event they cannot agree on the six (6) nominees, they
shall vote only among themselves to determine who the six (6) nominees will be,
with cumulative voting to be allowed but without interference from ASI.
The antecedent facts can be summarized as follows:
In 1961, Saniwares, a domestic corporation was incorporated for the primary purpose
of manufacturing and marketing sanitary wares. One of the incorporators, Mr.
Baldwin Young went abroad to look for foreign partners, European or American who
could help in its expansion plans. On August 15, 1962, ASI, a foreign corporation
domiciled in Delaware, United States entered into an Agreement with Saniwares and
some Filipino investors whereby ASI and the Filipino investors agreed to participate in
the ownership of an enterprise which would engage primarily in the business of
manufacturing in the Philippines and selling here and abroad vitreous china and
sanitary wares. The parties agreed that the business operations in the Philippines
shall be carried on by an incorporated enterprise and that the name of the
corporation shall initially be "Sanitary Wares Manufacturing Corporation."
The Agreement has the following provisions relevant to the issues in these cases on
the nomination and election of the directors of the corporation:
3. Articles of Incorporation
(a) The Articles of Incorporation of the Corporation shall be substantially in the
form annexed hereto as Exhibit A and, insofar as permitted under Philippine law, shall
specifically provide for
(1) Cumulative voting for directors:
xxx xxx xxx
5. Management
(a) The management of the Corporation shall be vested in a Board of Directors,
which shall consist of nine individuals. As long as American-Standard shall own at
least 30% of the outstanding stock of the Corporation, three of the nine directors
shall be designated by American-Standard, and the other six shall be designated by
the other stockholders of the Corporation. (pp. 51 & 53, Rollo of 75875)
At the request of ASI, the agreement contained provisions designed to protect it as a
minority group, including the grant of veto powers over a number of corporate acts
and the right to designate certain officers, such as a member of the Executive
Committee whose vote was required for important corporate transactions.
Later, the 30% capital stock of ASI was increased to 40%. The corporation was also
registered with the Board of Investments for availment of incentives with the
condition that at least 60% of the capital stock of the corporation shall be owned by
Philippine nationals.

The joint enterprise thus entered into by the Filipino investors and the American
corporation prospered. Unfortunately, with the business successes, there came a
deterioration of the initially harmonious relations between the two groups.
According to the Filipino group, a basic disagreement was due to their desire to
expand the export operations of the company to which ASI objected as it apparently
had other subsidiaries of joint joint venture groups in the countries where Philippine
exports were contemplated. On March 8, 1983, the annual stockholders' meeting
was held. The meeting was presided by Baldwin Young. The minutes were taken by
the Secretary, Avelino Cruz. After disposing of the preliminary items in the agenda,
the stockholders then proceeded to the election of the members of the board of
directors. The ASI group nominated three persons namely; Wolfgang Aurbach, John
Griffin and David P. Whittingham. The Philippine investors nominated six, namely;
Ernesto Lagdameo, Sr., Raul A. Boncan, Ernesto R. Lagdameo, Jr., George F. Lee, and
Baldwin Young. Mr. Eduardo R, Ceniza then nominated Mr. Luciano E. Salazar, who in
turn nominated Mr. Charles Chamsay. The chairman, Baldwin Young ruled the last
two nominations out of order on the basis of section 5 (a) of the Agreement, the
consistent practice of the parties during the past annual stockholders' meetings to
nominate only nine persons as nominees for the nine-member board of directors,
and the legal advice of Saniwares' legal counsel. The following events then,
transpired:
... There were protests against the action of the Chairman and heated arguments
ensued. An appeal was made by the ASI representative to the body of stockholders
present that a vote be taken on the ruling of the Chairman. The Chairman, Baldwin
Young, declared the appeal out of order and no vote on the ruling was taken. The
Chairman then instructed the Corporate Secretary to cast all the votes present and
represented by proxy equally for the 6 nominees of the Philippine Investors and the 3
nominees of ASI, thus effectively excluding the 2 additional persons nominated,
namely, Luciano E. Salazar and Charles Chamsay. The ASI representative, Mr. Jaqua
protested the decision of the Chairman and announced that all votes accruing to ASI
shares, a total of 1,329,695 (p. 27, Rollo, AC-G.R. SP No. 05617) were being
cumulatively voted for the three ASI nominees and Charles Chamsay, and instructed
the Secretary to so vote. Luciano E. Salazar and other proxy holders announced that
all the votes owned by and or represented by them 467,197 shares (p. 27, Rollo, AC-
G.R. SP No. 05617) were being voted cumulatively in favor of Luciano E. Salazar. The
Chairman, Baldwin Young, nevertheless instructed the Secretary to cast all votes
equally in favor of the three ASI nominees, namely, Wolfgang Aurbach, John Griffin
and David Whittingham and the six originally nominated by Rogelio Vinluan, namely,
Ernesto Lagdameo, Sr., Raul Boncan, Ernesto Lagdameo, Jr., Enrique Lagdameo,
George F. Lee, and Baldwin Young. The Secretary then certified for the election of the
following Wolfgang Aurbach, John Griffin, David Whittingham Ernesto Lagdameo, Sr.,
Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, Raul A. Boncan, Baldwin
Young. The representative of ASI then moved to recess the meeting which was duly
seconded. There was also a motion to adjourn (p. 28, Rollo, AC-G.R. SP No. 05617).
This motion to adjourn was accepted by the Chairman, Baldwin Young, who
announced that the motion was carried and declared the meeting adjourned.
Protests against the adjournment were registered and having been ignored, Mr.
Jaqua the ASI representative, stated that the meeting was not adjourned but only
recessed and that the meeting would be reconvened in the next room. The Chairman
then threatened to have the stockholders who did not agree to the decision of the
Chairman on the casting of votes bodily thrown out. The ASI Group, Luciano E.
Salazar and other stockholders, allegedly representing 53 or 54% of the shares of
Saniwares, decided to continue the meeting at the elevator lobby of the American
Standard Building. The continued meeting was presided by Luciano E. Salazar, while
Andres Gatmaitan acted as Secretary. On the basis of the cumulative votes cast
earlier in the meeting, the ASI Group nominated its four nominees; Wolfgang
Aurbach, John Griffin, David Whittingham and Charles Chamsay. Luciano E. Salazar
voted for himself, thus the said five directors were certified as elected directors by
the Acting Secretary, Andres Gatmaitan, with the explanation that there was a tie
among the other six (6) nominees for the four (4) remaining positions of directors
and that the body decided not to break the tie. (pp. 37-39, Rollo of 75975-76)
These incidents triggered off the filing of separate petitions by the parties with the
Securities and Exchange Commission (SEC). The first petition filed was for preliminary
injunction by Saniwares, Emesto V. Lagdameo, Baldwin Young, Raul A. Bonean
Ernesto R. Lagdameo, Jr., Enrique Lagdameo and George F. Lee against Luciano
Salazar and Charles Chamsay. The case was denominated as SEC Case No. 2417. The
second petition was for quo warranto and application for receivership by Wolfgang
Aurbach, John Griffin, David Whittingham, Luciano E. Salazar and Charles Chamsay
against the group of Young and Lagdameo (petitioners in SEC Case No. 2417) and
Avelino F. Cruz. The case was docketed as SEC Case No. 2718. Both sets of parties
except for Avelino Cruz claimed to be the legitimate directors of the corporation.
The two petitions were consolidated and tried jointly by a hearing officer who
rendered a decision upholding the election of the Lagdameo Group and dismissing
the quo warranto petition of Salazar and Chamsay. The ASI Group and Salazar
appealed the decision to the SEC en banc which affirmed the hearing officer's
decision.
The SEC decision led to the filing of two separate appeals with the Intermediate
Appellate Court by Wolfgang Aurbach, John Griffin, David Whittingham and Charles
Chamsay (docketed as AC-G.R. SP No. 05604) and by Luciano E. Salazar (docketed as
AC-G.R. SP No. 05617). The petitions were consolidated and the appellate court in its
decision ordered the remand of the case to the Securities and Exchange Commission
with the directive that a new stockholders' meeting of Saniwares be ordered
convoked as soon as possible, under the supervision of the Commission.
Upon a motion for reconsideration filed by the appellees Lagdameo Group) the
appellate court (Court of Appeals) rendered the questioned amended decision.
Petitioners Wolfgang Aurbach, John Griffin, David P. Whittingham and Charles
Chamsay in G.R. No. 75875 assign the following errors:
I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED ELECTION OF
PRIVATE RESPONDENTS AS MEMBERS OF THE BOARD OF DIRECTORS OF SANIWARES
WHEN IN FACT THERE WAS NO ELECTION AT ALL.
II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS FROM EXERCISING
THEIR FULL VOTING RIGHTS REPRESENTED BY THE NUMBER OF SHARES IN
SANIWARES, THUS DEPRIVING PETITIONERS AND THE CORPORATION THEY
REPRESENT OF THEIR PROPERTY RIGHTS WITHOUT DUE PROCESS OF LAW.
III. THE COURT OF APPEALS IMPOSES CONDITIONS AND READS PROVISIONS
INTO THE AGREEMENT OF THE PARTIES WHICH WERE NOT THERE, WHICH ACTION IT
CANNOT LEGALLY DO. (p. 17, Rollo-75875)
Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended decision on
the following grounds:
11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of binding contractual
agreements entered into by stockholders and the replacement of the conditions of
such agreements with terms never contemplated by the stockholders but merely
dictated by the CA .
11.2. The Amended decision would likewise sanction the deprivation of the
property rights of stockholders without due process of law in order that a favored
group of stockholders may be illegally benefitted and guaranteed a continuing
monopoly of the control of a corporation. (pp. 14-15, Rollo-75975-76)
On the other hand, the petitioners in G.R. No. 75951 contend that:
I The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual
THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE RECOGNIZING THAT
THE STOCKHOLDERS OF SANIWARES ARE DIVIDED INTO TWO BLOCKS, FAILS TO FULLY
ENFORCE THE BASIC INTENT OF THE AGREEMENT AND THE LAW.
II
THE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT PRIVATE
PETITIONERS HEREIN WERE THE DULY ELECTED DIRECTORS DURING THE 8 MARCH
1983 ANNUAL STOCKHOLDERS MEETING OF SANTWARES. (P. 24, Rollo-75951)
The issues raised in the petitions are interrelated, hence, they are discussed jointly.
The main issue hinges on who were the duly elected directors of Saniwares for the
year 1983 during its annual stockholders' meeting held on March 8, 1983. To answer
this question the following factors should be determined: (1) the nature of the
business established by the parties whether it was a joint venture or a corporation
and (2) whether or not the ASI Group may vote their additional 10% equity during
elections of Saniwares' board of directors.
The rule is that whether the parties to a particular contract have thereby established
among themselves a joint venture or some other relation depends upon their actual
intention which is determined in accordance with the rules governing the
interpretation and construction of contracts. (Terminal Shares, Inc. v. Chicago, B. and
Q.R. Co. (DC MO) 65 F Supp 678; Universal Sales Corp. v. California Press Mfg. Co. 20
Cal. 2nd 751, 128 P 2nd 668)
intention of the parties should be viewed strictly on the "Agreement" dated August
15,1962 wherein it is clearly stated that the parties' intention was to form a
corporation and not a joint venture.
They specifically mention number 16 under Miscellaneous Provisions which states:
xxx xxx xxx
c) nothing herein contained shall be construed to constitute any of the parties
hereto partners or joint venturers in respect of any transaction hereunder. (At P. 66,
Rollo-GR No. 75875)
They object to the admission of other evidence which tends to show that the parties'
agreement was to establish a joint venture presented by the Lagdameo and Young
Group on the ground that it contravenes the parol evidence rule under section 7,
Rule 130 of the Revised Rules of Court. According to them, the Lagdameo and Young
Group never pleaded in their pleading that the "Agreement" failed to express the
true intent of the parties.
The parol evidence Rule under Rule 130 provides:
Evidence of written agreements-When the terms of an agreement have been
reduced to writing, it is to be considered as containing all such terms, and therefore,
there can be, between the parties and their successors in interest, no evidence of the
terms of the agreement other than the contents of the writing, except in the
following cases:
(a) Where a mistake or imperfection of the writing, or its failure to express the
true intent and agreement of the parties or the validity of the agreement is put in
issue by the pleadings.
(b) When there is an intrinsic ambiguity in the writing.
Contrary to ASI Group's stand, the Lagdameo and Young Group pleaded in their Reply
and Answer to Counterclaim in SEC Case No. 2417 that the Agreement failed to
express the true intent of the parties, to wit:
xxx xxx xxx
4. While certain provisions of the Agreement would make it appear that the
parties thereto disclaim being partners or joint venturers such disclaimer is directed
at third parties and is not inconsistent with, and does not preclude, the existence of
two distinct groups of stockholders in Saniwares one of which (the Philippine
Investors) shall constitute the majority, and the other ASI shall constitute the
minority stockholder. In any event, the evident intention of the Philippine Investors
and ASI in entering into the Agreement is to enter into ajoint venture enterprise, and
if some words in the Agreement appear to be contrary to the evident intention of the
parties, the latter shall prevail over the former (Art. 1370, New Civil Code). The
various stipulations of a contract shall be interpreted together attributing to the
doubtful ones that sense which may result from all of them taken jointly (Art. 1374,
New Civil Code). Moreover, in order to judge the intention of the contracting parties,
their contemporaneous and subsequent acts shall be principally considered. (Art.
1371, New Civil Code). (Part I, Original Records, SEC Case No. 2417)
It has been ruled:
In an action at law, where there is evidence tending to prove that the parties joined
their efforts in furtherance of an enterprise for their joint profit, the question
whether they intended by their agreement to create a joint adventure, or to assume
some other relation is a question of fact for the jury. (Binder v. Kessler v 200 App. Div.
40,192 N Y S 653; Pyroa v. Brownfield (Tex. Civ. A.) 238 SW 725; Hoge v. George, 27
Wyo, 423, 200 P 96 33 C.J. p. 871)
In the instant cases, our examination of important provisions of the Agreement as
well as the testimonial evidence presented by the Lagdameo and Young Group shows
that the parties agreed to establish a joint venture and not a corporation. The history
of the organization of Saniwares and the unusual arrangements which govern its
policy making body are all consistent with a joint venture and not with an ordinary
corporation. As stated by the SEC:
According to the unrebutted testimony of Mr. Baldwin Young, he negotiated the
Agreement with ASI in behalf of the Philippine nationals. He testified that ASI agreed
to accept the role of minority vis-a-vis the Philippine National group of investors, on
the condition that the Agreement should contain provisions to protect ASI as the
minority.
An examination of the Agreement shows that certain provisions were included to
protect the interests of ASI as the minority. For example, the vote of 7 out of 9
directors is required in certain enumerated corporate acts [Sec. 3 (b) (ii) (a) of the
Agreement]. ASI is contractually entitled to designate a member of the Executive
Committee and the vote of this member is required for certain transactions [Sec. 3
(b) (i)].
The Agreement also requires a 75% super-majority vote for the amendment of the
articles and by-laws of Saniwares [Sec. 3 (a) (iv) and (b) (iii)]. ASI is also given the right
to designate the president and plant manager [Sec. 5 (6)]. The Agreement further
provides that the sales policy of Saniwares shall be that which is normally followed by
ASI [Sec. 13 (a)] and that Saniwares should not export "Standard" products otherwise
than through ASI's Export Marketing Services [Sec. 13 (6)]. Under the Agreement, ASI
agreed to provide technology and know-how to Saniwares and the latter paid
royalties for the same. (At p. 2).
xxx xxx xxx
It is pertinent to note that the provisions of the Agreement requiring a 7 out of 9
votes of the board of directors for certain actions, in effect gave ASI (which
designates 3 directors under the Agreement) an effective veto power. Furthermore,
the grant to ASI of the right to designate certain officers of the corporation; the
super-majority voting requirements for amendments of the articles and by-laws; and
most significantly to the issues of tms case, the provision that ASI shall designate 3
out of the 9 directors and the other stockholders shall designate the other 6, clearly
indicate that there are two distinct groups in Saniwares, namely ASI, which owns 40%
of the capital stock and the Philippine National stockholders who own the balance of
60%, and that 2) ASI is given certain protections as the minority stockholder.
Premises considered, we believe that under the Agreement there are two groups of
stockholders who established a corporation with provisions for a special contractual
relationship between the parties, i.e., ASI and the other stockholders. (pp. 4-5)
Section 5 (a) of the agreement uses the word "designated" and not "nominated" or
"elected" in the selection of the nine directors on a six to three ratio. Each group is
assured of a fixed number of directors in the board.
Moreover, ASI in its communications referred to the enterprise as joint venture.
Baldwin Young also testified that Section 16(c) of the Agreement that "Nothing
herein contained shall be construed to constitute any of the parties hereto partners
or joint venturers in respect of any transaction hereunder" was merely to obviate the
possibility of the enterprise being treated as partnership for tax purposes and
liabilities to third parties.
Quite often, Filipino entrepreneurs in their desire to develop the industrial and
manufacturing capacities of a local firm are constrained to seek the technology and
marketing assistance of huge multinational corporations of the developed world.
Arrangements are formalized where a foreign group becomes a minority owner of a
firm in exchange for its manufacturing expertise, use of its brand names, and other
such assistance. However, there is always a danger from such arrangements. The
foreign group may, from the start, intend to establish its own sole or monopolistic
operations and merely uses the joint venture arrangement to gain a foothold or test
the Philippine waters, so to speak. Or the covetousness may come later. As the
Philippine firm enlarges its operations and becomes profitable, the foreign group
undermines the local majority ownership and actively tries to completely or
predominantly take over the entire company. This undermining of joint ventures is
not consistent with fair dealing to say the least. To the extent that such subversive
actions can be lawfully prevented, the courts should extend protection especially in
industries where constitutional and legal requirements reserve controlling ownership
to Filipino citizens.
The Lagdameo Group stated in their appellees' brief in the Court of Appeal
In fact, the Philippine Corporation Code itself recognizes the right of stockholders to
enter into agreements regarding the exercise of their voting rights.
Sec. 100. Agreements by stockholders.-
2. An agreement between two or more stockholders, if in writing and signed by
the parties thereto, may provide that in exercising any voting rights, the shares held
by them shall be voted as therein provided, or as they may agree, or as determined in
accordance with a procedure agreed upon by them.
Appellants contend that the above provision is included in the Corporation Code's
chapter on close corporations and Saniwares cannot be a close corporation because
it has 95 stockholders. Firstly, although Saniwares had 95 stockholders at the time of
the disputed stockholders meeting, these 95 stockholders are not separate from each
other but are divisible into groups representing a single Identifiable interest. For
example, ASI, its nominees and lawyers count for 13 of the 95 stockholders. The
YoungYutivo family count for another 13 stockholders, the Chamsay family for 8
stockholders, the Santos family for 9 stockholders, the Dy family for 7 stockholders,
etc. If the members of one family and/or business or interest group are considered as
one (which, it is respectfully submitted, they should be for purposes of determining
how closely held Saniwares is there were as of 8 March 1983, practically only 17
stockholders of Saniwares. (Please refer to discussion in pp. 5 to 6 of appellees'
Rejoinder Memorandum dated 11 December 1984 and Annex "A" thereof).
Secondly, even assuming that Saniwares is technically not a close corporation
because it has more than 20 stockholders, the undeniable fact is that it is a close-held
corporation. Surely, appellants cannot honestly claim that Saniwares is a public issue
or a widely held corporation.
In the United States, many courts have taken a realistic approach to joint venture
corporations and have not rigidly applied principles of corporation law designed
primarily for public issue corporations. These courts have indicated that express
arrangements between corporate joint ventures should be construed with less
emphasis on the ordinary rules of law usually applied to corporate entities and with
more consideration given to the nature of the agreement between the joint
venturers . These American cases dealt with legal questions as to the extent to which
the requirements arising from the corporate form of joint venture corporations
should control, and the courts ruled that substantial justice lay with those litigants
who relied on the joint venture agreement rather than the litigants who relied on the
orthodox principles of corporation law.
As correctly held by the SEC Hearing Officer:
It is said that participants in a joint venture, in organizing the joint venture deviate
from the traditional pattern of corporation management. A noted authority has
pointed out that just as in close corporations, shareholders' agreements in joint
venture corporations often contain provisions which do one or more of the following:
(1) require greater than majority vote for shareholder and director action; (2) give
certain shareholders or groups of shareholders power to select a specified number of
directors; (3) give to the shareholders control over the selection and retention of
employees; and (4) set up a procedure for the settlement of disputes by arbitration
(See I O' Neal, Close Corporations, 1971 ed., Section 1.06a, pp. 15-16) (Decision of
SEC Hearing Officer, P. 16)
Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not necessarily imply
that agreements regarding the exercise of voting rights are allowed only in close
corporations. As Campos and Lopez-Campos explain:
Paragraph 2 refers to pooling and voting agreements in particular. Does this provision
necessarily imply that these agreements can be valid only in close corporations as
defined by the Code? Suppose that a corporation has twenty five stockholders, and
therefore cannot qualify as a close corporation under section 96, can some of them
enter into an agreement to vote as a unit in the election of directors? It is submitted
that there is no reason for denying stockholders of corporations other than close
ones the right to enter into not voting or pooling agreements to protect their
interests, as long as they do not intend to commit any wrong, or fraud on the other
stockholders not parties to the agreement. Of course, voting or pooling agreements
are perhaps more useful and more often resorted to in close corporations. But they
may also be found necessary even in widely held corporations. Moreover, since the
Code limits the legal meaning of close corporations to those which comply with the
requisites laid down by section 96, it is entirely possible that a corporation which is in
fact a close corporation will not come within the definition. In such case, its
stockholders should not be precluded from entering into contracts like voting
agreements if these are otherwise valid. (Campos & Lopez-Campos, op cit, p. 405)
In short, even assuming that sec. 5(a) of the Agreement relating to the designation or
nomination of directors restricts the right of the Agreement's signatories to vote for
directors, such contractual provision, as correctly held by the SEC, is valid and binding
upon the signatories thereto, which include appellants. (Rollo No. 75951, pp. 90-94)
In regard to the question as to whether or not the ASI group may vote their
additional equity during elections of Saniwares' board of directors, the Court of
Appeals correctly stated:
As in other joint venture companies, the extent of ASI's participation in the
management of the corporation is spelled out in the Agreement. Section 5(a) hereof
says that three of the nine directors shall be designated by ASI and the remaining six
by the other stockholders, i.e., the Filipino stockholders. This allocation of board
seats is obviously in consonance with the minority position of ASI.
Having entered into a well-defined contractual relationship, it is imperative that the
parties should honor and adhere to their respective rights and obligations
thereunder. Appellants seem to contend that any allocation of board seats, even in
joint venture corporations, are null and void to the extent that such may interfere
with the stockholder's rights to cumulative voting as provided in Section 24 of the
Corporation Code. This Court should not be prepared to hold that any agreement
which curtails in any way cumulative voting should be struck down, even if such
agreement has been freely entered into by experienced businessmen and do not
prejudice those who are not parties thereto. It may well be that it would be more
cogent to hold, as the Securities and Exchange Commission has held in the decision
appealed from, that cumulative voting rights may be voluntarily waived by
stockholders who enter into special relationships with each other to pursue and
implement specific purposes, as in joint venture relationships between foreign and
local stockholders, so long as such agreements do not adversely affect third parties.
In any event, it is believed that we are not here called upon to make a general rule on
this question. Rather, all that needs to be done is to give life and effect to the
particular contractual rights and obligations which the parties have assumed for
themselves.
On the one hand, the clearly established minority position of ASI and the contractual
allocation of board seats Cannot be disregarded. On the other hand, the rights of the
stockholders to cumulative voting should also be protected.
In our decision sought to be reconsidered, we opted to uphold the second over the
first. Upon further reflection, we feel that the proper and just solution to give due
consideration to both factors suggests itself quite clearly. This Court should recognize
and uphold the division of the stockholders into two groups, and at the same time
uphold the right of the stockholders within each group to cumulative voting in the
process of determining who the group's nominees would be. In practical terms, as
suggested by appellant Luciano E. Salazar himself, this means that if the Filipino
stockholders cannot agree who their six nominees will be, a vote would have to be
taken among the Filipino stockholders only. During this voting, each Filipino
stockholder can cumulate his votes. ASI, however, should not be allowed to interfere
in the voting within the Filipino group. Otherwise, ASI would be able to designate
more than the three directors it is allowed to designate under the Agreement, and
may even be able to get a majority of the board seats, a result which is clearly
contrary to the contractual intent of the parties.
Such a ruling will give effect to both the allocation of the board seats and the
stockholder's right to cumulative voting. Moreover, this ruling will also give due
consideration to the issue raised by the appellees on possible violation or
circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and the
nationalization requirements of the Constitution and the laws if ASI is allowed to
nominate more than three directors. (Rollo-75875, pp. 38-39)
The ASI Group and petitioner Salazar, now reiterate their theory that the ASI Group
has the right to vote their additional equity pursuant to Section 24 of the Corporation
Code which gives the stockholders of a corporation the right to cumulate their votes
in electing directors. Petitioner Salazar adds that this right if granted to the ASI Group
would not necessarily mean a violation of the Anti-Dummy Act (Commonwealth Act
108, as amended). He cites section 2-a thereof which provides:
And provided finally that the election of aliens as members of the board of directors
or governing body of corporations or associations engaging in partially nationalized
activities shall be allowed in proportion to their allowable participation or share in
the capital of such entities. (amendments introduced by Presidential Decree 715,
section 1, promulgated May 28, 1975)
The ASI Group's argument is correct within the context of Section 24 of the
Corporation Code. The point of query, however, is whether or not that provision is
applicable to a joint venture with clearly defined agreements:
The legal concept of ajoint venture is of common law origin. It has no precise legal
definition but it has been generally understood to mean an organization formed for
some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is in fact hardly
distinguishable from the partnership, since their elements are similar community of
interest in the business, sharing of profits and losses, and a mutual right of control.
Blackner v. Mc Dermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P. 2d., 1043
[1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12 289 P. 2d. 242 [1955]). The
main distinction cited by most opinions in common law jurisdictions is that the
partnership contemplates a general business with some degree of continuity, while
the joint venture is formed for the execution of a single transaction, and is thus of a
temporary nature. (Tufts v. Mann 116 Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v.
Martin, 395 111. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]).
This observation is not entirely accurate in this jurisdiction, since under the Civil
Code, a partnership may be particular or universal, and a particular partnership may
have for its object a specific undertaking. (Art. 1783, Civil Code). It would seem
therefore that under Philippine law, a joint venture is a form of partnership and
should thus be governed by the law of partnerships. The Supreme Court has however
recognized a distinction between these two business forms, and has held that
although a corporation cannot enter into a partnership contract, it may however
engage in a joint venture with others. (At p. 12, Tuazon v. Bolanos, 95 Phil. 906
[1954]) (Campos and Lopez-Campos Comments, Notes and Selected Cases,
Corporation Code 1981)
Moreover, the usual rules as regards the construction and operations of contracts
generally apply to a contract of joint venture.
Bearing these principles in mind, the correct view would be that the resolution of the
question of whether or not the ASI Group may vote their additional equity lies in the
agreement of the parties.
Necessarily, the appellate court was correct in upholding the agreement of the
parties as regards the allocation of director seats under Section 5 (a) of the
"Agreement," and the right of each group of stockholders to cumulative voting in the
process of determining who the group's nominees would be under Section 3 (a) (1) of
the "Agreement." As pointed out by SEC, Section 5 (a) of the Agreement relates to
the manner of nominating the members of the board of directors while Section 3 (a)
(1) relates to the manner of voting for these nominees.
This is the proper interpretation of the Agreement of the parties as regards the
election of members of the board of directors.
To allow the ASI Group to vote their additional equity to help elect even a Filipino
director who would be beholden to them would obliterate their minority status as
agreed upon by the parties. As aptly stated by the appellate court:
... ASI, however, should not be allowed to interfere in the voting within the Filipino
group. Otherwise, ASI would be able to designate more than the three directors it is
allowed to designate under the Agreement, and may even be able to get a majority
of the board seats, a result which is clearly contrary to the contractual intent of the
parties.
Such a ruling will give effect to both the allocation of the board seats and the
stockholder's right to cumulative voting. Moreover, this ruling will also give due
consideration to the issue raised by the appellees on possible violation or
circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and the
nationalization requirements of the Constitution and the laws if ASI is allowed to
nominate more than three directors. (At p. 39, Rollo, 75875)
Equally important as the consideration of the contractual intent of the parties is the
consideration as regards the possible domination by the foreign investors of the
enterprise in violation of the nationalization requirements enshrined in the
Constitution and circumvention of the Anti-Dummy Act. In this regard, petitioner
Salazar's position is that the Anti-Dummy Act allows the ASI group to elect board
directors in proportion to their share in the capital of the entity. It is to be noted,
however, that the same law also limits the election of aliens as members of the board
of directors in proportion to their allowance participation of said entity. In the instant
case, the foreign Group ASI was limited to designate three directors. This is the
allowable participation of the ASI Group. Hence, in future dealings, this limitation of
six to three board seats should always be maintained as long as the joint venture
agreement exists considering that in limiting 3 board seats in the 9-man board of
directors there are provisions already agreed upon and embodied in the parties'
Agreement to protect the interests arising from the minority status of the foreign
investors.
With these findings, we the decisions of the SEC Hearing Officer and SEC which were
impliedly affirmed by the appellate court declaring Messrs. Wolfgang Aurbach, John
Griffin, David P Whittingham, Emesto V. Lagdameo, Baldwin young, Raul A. Boncan,
Emesto V. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee as the duly elected
directors of Saniwares at the March 8,1983 annual stockholders' meeting.
On the other hand, the Lagdameo and Young Group (petitioners in G.R. No. 75951)
object to a cumulative voting during the election of the board of directors of the
enterprise as ruled by the appellate court and submits that the six (6) directors
allotted the Filipino stockholders should be selected by consensus pursuant to
section 5 (a) of the Agreement which uses the word "designate" meaning "nominate,
delegate or appoint."
They also stress the possibility that the ASI Group might take control of the enterprise
if the Filipino stockholders are allowed to select their nominees separately and not as
a common slot determined by the majority of their group.
Section 5 (a) of the Agreement which uses the word designates in the allocation of
board directors should not be interpreted in isolation. This should be construed in
relation to section 3 (a) (1) of the Agreement. As we stated earlier, section 3(a) (1)
relates to the manner of voting for these nominees which is cumulative voting while
section 5(a) relates to the manner of nominating the members of the board of
directors. The petitioners in G.R. No. 75951 agreed to this procedure, hence, they
cannot now impugn its legality.
The insinuation that the ASI Group may be able to control the enterprise under the
cumulative voting procedure cannot, however, be ignored. The validity of the
cumulative voting procedure is dependent on the directors thus elected being
genuine members of the Filipino group, not voters whose interest is to increase the
ASI share in the management of Saniwares. The joint venture character of the
enterprise must always be taken into account, so long as the company exists under its
original agreement. Cumulative voting may not be used as a device to enable ASI to
achieve stealthily or indirectly what they cannot accomplish openly. There are
substantial safeguards in the Agreement which are intended to preserve the majority
status of the Filipino investors as well as to maintain the minority status of the
foreign investors group as earlier discussed. They should be maintained.
WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are DISMISSED
and the petition in G.R. No. 75951 is partly GRANTED. The amended decision of the
Court of Appeals is MODIFIED in that Messrs. Wolfgang Aurbach John Griffin, David
Whittingham Emesto V. Lagdameo, Baldwin Young, Raul A. Boncan, Ernesto R.
Lagdameo, Jr., Enrique Lagdameo, and George F. Lee are declared as the duly elected
directors of Saniwares at the March 8,1983 annual stockholders' meeting. In all other
respects, the questioned decision is AFFIRMED.
G.R. No. 15574 September 17, 1919
SMITH, BELL & COMPANY (LTD.), petitioner, vs. JOAQUIN NATIVIDAD, Collector of
Customs of the port of Cebu, respondent.
ISSUE: WON the Government of the Philippine Islands, through its Legislature, can
deny the registry of vessels in its coastwise trade to corporations having alien
stockholders.
FACTS:
Smith, Bell & Co., (Ltd.), is a corporation organized and existing under the laws of the
Philippine Islands. A majority of its stockholders are British subjects. It is the owner of
a motor vessel known as the Bato built for it in the Philippine Islands in 1916, of more
than fifteen tons gross The Bato was brought to Cebu in the present year for the
purpose of transporting plaintiff's merchandise between ports in the Islands.
Application was made at Cebu, the home port of the vessel, to the Collector of
Customs for a certificate of Philippine registry. The Collector refused to issue the
certificate, giving as his reason that all the stockholders of Smith, Bell & Co., Ltd.,
were not citizens either of the United States or of the Philippine Islands. The instant
action is the result.
LAW.
The Act of Congress of April 29, 1908, repealing the Shipping Act of April 30, 1906 but
reenacting a portion of section 3 of this Law, and still in force, provides in its section
1:
That until Congress shall have authorized the registry as vessels of the United States
of vessels owned in the Philippine Islands, the Government of the Philippine Islands
is hereby authorized to adopt, from time to time, and enforce regulations governing
the transportation of merchandise and passengers between ports or places in the
Philippine Archipelago. (35 Stat. at L., 70; Section 3912, U. S. Comp Stat. [1916]; 7
Pub. Laws, 364.)
The Act of Congress of August 29, 1916, commonly known as the Jones Law, still in
force, provides in section 3, (first paragraph, first sentence), 6, 7, 8, 10, and 31, as
follows.
SEC. 3. That no law shall be enacted in said Islands which shall deprive any person of
life, liberty, or property without due process of law, or deny to any person therein the
equal protection of the laws. . . .
SEC. 6. That the laws now in force in the Philippines shall continue in force and
effect, except as altered, amended, or modified herein, until altered, amended, or
repealed by the legislative authority herein provided or by Act of Congress of the
United States.
SEC. 7. That the legislative authority herein provided shall have power, when not
inconsistent with this Act, by due enactment to amend, alter modify, or repeal any
law, civil or criminal, continued in force by this Act as it may from time to time see fit
This power shall specifically extend with the limitation herein provided as to the tariff
to all laws relating to revenue provided as to the tariff to all laws relating to revenue
and taxation in effect in the Philippines.
SEC. 8. That general legislative power, except as otherwise herein provided, is hereby
granted to the Philippine Legislature, authorized by this Act.
SEC. 10.That while this Act provides that the Philippine government shall have the
authority to enact a tariff law the trade relations between the islands and the United
States shall continue to be governed exclusively by laws of the Congress of the United
States: Provided, That tariff acts or acts amendatory to the tariff of the Philippine
Islands shall not become law until they shall receive the approval of the President of
the United States, nor shall any act of the Philippine Legislature affecting immigration
or the currency or coinage laws of the Philippines become a law until it has been
approved by the President of the United States: Provided further, That the President
shall approve or disapprove any act mentioned in the foregoing proviso within six
months from and after its enactment and submission for his approval, and if not
disapproved within such time it shall become a law the same as if it had been
specifically approved.
SEC. 31.That all laws or parts of laws applicable to the Philippines not in conflict with
any of the provisions of this Act are hereby continued in force and effect." (39 Stat at
L., 546.)
On February 23, 1918, the Philippine Legislature enacted Act No. 2761. The first
section of this law amended section 1172 of the Administrative Code to read as
follows:
SEC. 1172. Certificate of Philippine register. — Upon registration of a vessel of
domestic ownership, and of more than fifteen tons gross, a certificate of Philippine
register shall be issued for it. If the vessel is of domestic ownership and of fifteen tons
gross or less, the taking of the certificate of Philippine register shall be optional with
the owner.
"Domestic ownership," as used in this section, means ownership vested in some one
or more of the following classes of persons: (a) Citizens or native inhabitants of the
Philippine Islands; (b) citizens of the United States residing in the Philippine Islands;
(c) any corporation or company composed wholly of citizens of the Philippine Islands
or of the United States or of both, created under the laws of the United States, or of
any State thereof, or of thereof, or the managing agent or master of the vessel
resides in the Philippine Islands
Any vessel of more than fifteen gross tons which on February eighth, nineteen
hundred and eighteen, had a certificate of Philippine register under existing law, shall
likewise be deemed a vessel of domestic ownership so long as there shall not be any
change in the ownership thereof nor any transfer of stock of the companies or
corporations owning such vessel to person not included under the last preceding
paragraph.
Sections 2 and 3 of Act No. 2761 amended sections 1176 and 1202 of the
Administrative Code to read as follows:
SEC. 1176. Investigation into character of vessel. — No application for a certificate of
Philippine register shall be approved until the collector of customs is satisfied from an
inspection of the vessel that it is engaged or destined to be engaged in legitimate
trade and that it is of domestic ownership as such ownership is defined in section
eleven hundred and seventy-two of this Code.
The collector of customs may at any time inspect a vessel or examine its owner,
master, crew, or passengers in order to ascertain whether the vessel is engaged in
legitimate trade and is entitled to have or retain the certificate of Philippine register.
SEC. 1202. Limiting number of foreign officers and engineers on board vessels. — No
Philippine vessel operating in the coastwise trade or on the high seas shall be
permitted to have on board more than one master or one mate and one engineer
who are not citizens of the United States or of the Philippine Islands, even if they
hold licenses under section one thousand one hundred and ninety-nine hereof. No
other person who is not a citizen of the United States or of the Philippine Islands shall
be an officer or a member of the crew of such vessel. Any such vessel which fails to
comply with the terms of this section shall be required to pay an additional tonnage
tax of fifty centavos per net ton per month during the continuance of said failure.
ISSUES.
Predicated on these facts and provisions of law, the issues as above stated recur,
namely, whether Act No 2761 of the Philippine Legislature is valid in whole or in part
— whether the Government of the Philippine Islands, through its Legislature, can
deny the registry of vessel in its coastwise trade to corporations having alien
stockholders .
OPINION.
1. Considered from a positive standpoint, there can exist no measure of doubt
as to the power of the Philippine Legislature to enact Act No. 2761. The Act of
Congress of April 29, 1908, with its specific delegation of authority to the
Government of the Philippine Islands to regulate the transportation of merchandise
and passengers between ports or places therein, the liberal construction given to the
provisions of the Philippine Bill, the Act of Congress of July 1, 1902, by the courts, and
the grant by the Act of Congress of August 29, 1916, of general legislative power to
the Philippine Legislature, are certainly superabundant authority for such a law.
While the Act of the local legislature may in a way be inconsistent with the Act of
Congress regulating the coasting trade of the Continental United States, yet the
general rule that only such laws of the United States have force in the Philippines as
are expressly extended thereto, and the abnegation of power by Congress in favor of
the Philippine Islands would leave no starting point for convincing argument. As a
matter of fact, counsel for petitioner does not assail legislative action from this
direction (See U. S. vs. Bull [1910], 15 Phil., 7; Sinnot vs. Davenport [1859] 22 How.,
227.)
2. It is from the negative, prohibitory standpoint that counsel argues against the
constitutionality of Act No. 2761. The first paragraph of the Philippine Bill of Rights of
the Philippine Bill, repeated again in the first paragraph of the Philippine Bill of Rights
as set forth in the Jones Law, provides "That no law shall be enacted in said Islands
which shall deprive any person of life, liberty, or property without due process of law,
or deny to any person therein the equal protection of the laws." Counsel says that Act
No. 2761 denies to Smith, Bell & Co., Ltd., the equal protection of the laws because it,
in effect, prohibits the corporation from owning vessels, and because classification of
corporations based on the citizenship of one or more of their stockholders is
capricious, and that Act No. 2761 deprives the corporation of its properly without
due process of law because by the passage of the law company was automatically
deprived of every beneficial attribute of ownership in the Bato and left with the
naked title to a boat it could not use .
The guaranties extended by the Congress of the United States to the Philippine
Islands have been used in the same sense as like provisions found in the United
States Constitution. While the "due process of law and equal protection of the laws"
clause of the Philippine Bill of Rights is couched in slightly different words than the
corresponding clause of the Fourteenth Amendment to the United States
Constitution, the first should be interpreted and given the same force and effect as
the latter. (Kepner vs. U.S. [1904], 195 U. S., 100; Sierra vs. Mortiga [1907], 204 U.
S.,.470; U. S. vs. Bull [1910], 15 Phil., 7.) The meaning of the Fourteenth Amendment
has been announced in classic decisions of the United States Supreme Court. Even at
the expense of restating what is so well known, these basic principles must again be
set down in order to serve as the basis of this decision.
The guaranties of the Fourteenth Amendment and so of the first paragraph of the
Philippine Bill of Rights, are universal in their application to all person within the
territorial jurisdiction, without regard to any differences of race, color, or nationality.
The word "person" includes aliens. (Yick Wo vs. Hopkins [1886], 118 U. S., 356; Truax
vs. Raich [1915], 239 U. S., 33.) Private corporations, likewise, are "persons" within
the scope of the guaranties in so far as their property is concerned. (Santa Clara
County vs. Southern Pac. R. R. Co. [1886], 118.U. S., 394; Pembina Mining Co. vs.
Pennsylvania [1888],.125 U. S., 181 Covington & L. Turnpike Road Co. vs. Sandford
[1896], 164 U. S., 578.) Classification with the end in view of providing diversity of
treatment may be made among corporations, but must be based upon some
reasonable ground and not be a mere arbitrary selection (Gulf, Colorado & Santa Fe
Railway Co. vs. Ellis [1897],.165 U. S., 150.) Examples of laws held unconstitutional
because of unlawful discrimination against aliens could be cited. Generally, these
decisions relate to statutes which had attempted arbitrarily to forbid aliens to engage
in ordinary kinds of business to earn their living. (State vs. Montgomery [1900], 94
Maine, 192, peddling — but see. Commonwealth vs. Hana [1907], 195 Mass., 262;
Templar vs. Board of Examiners of Barbers [1902], 131 Mich., 254, barbers; Yick Wo
vs. Hopkins [1886], 118 U. S.,.356, discrimination against Chinese; Truax vs. Raich
[1915], 239 U. S., 33; In re Parrott [1880], 1 Fed , 481; Fraser vs. McConway & Torley
Co. [1897], 82 Fed , 257; Juniata Limestone Co. vs. Fagley [1898], 187 Penn., 193, all
relating to the employment of aliens by private corporations.)
A literal application of general principles to the facts before us would, of course,
cause the inevitable deduction that Act No. 2761 is unconstitutional by reason of its
denial to a corporation, some of whole members are foreigners, of the equal
protection of the laws. Like all beneficient propositions, deeper research discloses
provisos. Examples of a denial of rights to aliens notwithstanding the provisions of
the Fourteenth Amendment could be cited. (Tragesser vs. Gray [1890], 73 Md., 250,
licenses to sell spirituous liquors denied to persons not citizens of the United States;
Commonwealth vs. Hana [1907], 195 Mass , 262, excluding aliens from the right to
peddle; Patsone vs. Commonwealth of Pennsylvania [1914], 232 U. S. , 138,
prohibiting the killing of any wild bird or animal by any unnaturalized foreign-born
resident; Ex parte Gilleti [1915], 70 Fla., 442, discriminating in favor of citizens with
reference to the taking for private use of the common property in fish and oysters
found in the public waters of the State; Heim vs. McCall [1915], 239 U. S.,.175, and
Crane vs. New York [1915], 239 U. S., 195, limiting employment on public works by, or
for, the State or a municipality to citizens of the United States.)
One of the exceptions to the general rule, most persistent and far reaching in
influence is, that neither the Fourteenth Amendment to the United States
Constitution, broad and comprehensive as it is, nor any other amendment, "was
designed to interfere with the power of the State, sometimes termed its `police
power,' to prescribe regulations to promote the health, peace, morals, education,
and good order of the people, and legislate so as to increase the industries of the
State, develop its resources and add to its wealth and prosperity. From the very
necessities of society, legislation of a special character, having these objects in view,
must often be had in certain districts." (Barbier vs. Connolly [1884], 113 U.S., 27; New
Orleans Gas Co. vs. Lousiana Light Co. [1885], 115 U.S., 650.) This is the same police
power which the United States Supreme Court say "extends to so dealing with the
conditions which exist in the state as to bring out of them the greatest welfare in of
its people." (Bacon vs. Walker [1907], 204 U.S., 311.) For quite similar reasons, none
of the provision of the Philippine Organic Law could could have had the effect of
denying to the Government of the Philippine Islands, acting through its Legislature,
the right to exercise that most essential, insistent, and illimitable of powers, the
sovereign police power, in the promotion of the general welfare and the public
interest. (U. S. vs. Toribio [1910], 15 Phil., 85; Churchill and Tait vs. Rafferty [1915], 32
Phil., 580; Rubi vs. Provincial Board of Mindoro [1919], 39 Phil., 660.) Another
notable exception permits of the regulation or distribution of the public domain or
the common property or resources of the people of the State, so that use may be
limited to its citizens. Still another exception permits of the limitation of employment
in the construction of public works by, or for, the State or a municipality to citizens of
the United States or of the State. Even as to classification, it is admitted that a State
may classify with reference to the evil to be prevented; the question is a practical
one, dependent upon experience.
To justify that portion of Act no. 2761 which permits corporations or companies to
obtain a certificate of Philippine registry only on condition that they be composed
wholly of citizens of the Philippine Islands or of the United States or both, as not
infringing Philippine Organic Law, it must be done under some one of the exceptions
here mentioned This must be done, moreover, having particularly in mind what is so
often of controlling effect in this jurisdiction — our local experience and our peculiar
local conditions.
To recall a few facts in geography, within the confines of Philippine jurisdictional
limits are found more than three thousand islands. Literally, and absolutely,
steamship lines are, for an Insular territory thus situated, the arteries of commerce. If
one be severed, the life-blood of the nation is lost. If on the other hand these arteries
are protected, then the security of the country and the promotion of the general
welfare is sustained. Time and again, with such conditions confronting it, has the
executive branch of the Government of the Philippine Islands, always later with the
sanction of the judicial branch, taken a firm stand with reference to the presence of
undesirable foreigners. The Government has thus assumed to act for the all-sufficient
and primitive reason of the benefit and protection of its own citizens and of the self-
preservation and integrity of its dominion. (In re Patterson [1902], 1 Phil., 93; Forbes
vs. Chuoco, Tiaco and Crossfield [1910], 16 Phil., 534;.228 U.S., 549; In re McCulloch
Dick [1918], 38 Phil., 41.) Boats owned by foreigners, particularly by such solid and
reputable firms as the instant claimant, might indeed traverse the waters of the
Philippines for ages without doing any particular harm. Again, some evilminded
foreigner might very easily take advantage of such lavish hospitality to chart
Philippine waters, to obtain valuable information for unfriendly foreign powers, to stir
up insurrection, or to prejudice Filipino or American commerce. Moreover, under the
Spanish portion of Philippine law, the waters within the domestic jurisdiction are
deemed part of the national domain, open to public use. (Book II, Tit. IV, Ch. I, Civil
Code; Spanish Law of Waters of August 3, 1866, arts 1, 2, 3.) Common carriers which
in the Philippines as in the United States and other countries are, as Lord Hale said,
"affected with a public interest," can only be permitted to use these public waters as
a privilege and under such conditions as to the representatives of the people may
seem wise.
In Patsone vs. Commonwealth of Pennsylvania ([1913], 232 U.S., 138), a case herein
before mentioned, Justice Holmes delivering the opinion of the United States
Supreme Court said:
This statute makes it unlawful for any unnaturalized foreign-born resident to kill any
wild bird or animal except in defense of person or property, and `to that end' makes it
unlawful for such foreign-born person to own or be possessed of a shotgun or rifle;
with a penalty of $25 and a forfeiture of the gun or guns. The plaintiff in error was
found guilty and was sentenced to pay the abovementioned fine. The judgment was
affirmed on successive appeals. (231 Pa., 46; 79 Atl., 928.) He brings the case to this
court on the ground that the statute is contrary to the 14th Amendment and also is in
contravention of the treaty between the United States and Italy, to which latter
country the plaintiff in error belongs .
Under the 14th Amendment the objection is twofold; unjustifiably depriving the alien
of property, and discrimination against such aliens as a class. But the former really
depends upon the latter, since it hardly can be disputed that if the lawful object, the
protection of wild life, warrants the discrimination, the, means adopted for making it
effective also might be adopted. . . .
The discrimination undoubtedly presents a more difficult question. But we start with
reference to the evil to be prevented, and that if the class discriminated against is or
reasonably might be considered to define those from whom the evil mainly is to be
feared, it properly may be picked out. A lack of abstract symmetry does not matter.
The question is a practical one, dependent upon experience. . . .
The question therefore narrows itself to whether this court can say that the
legislature of Pennsylvania was not warranted in assuming as its premise for the law
that resident unnaturalized aliens were the peculiar source of the evil that it desired
to prevent.
Obviously the question, so stated, is one of local experience, on which this court
ought to be very slow to declare that the state legislature was wrong in its facts. If we
might trust popular speech in some states it was right; but it is enough that this court
has no such knowledge of local conditions as to be able to say that it was manifestly
wrong. . . .
Judgment affirmed.
We are inclined to the view that while Smith, Bell & Co. Ltd., a corporation having
alien stockholders, is entitled to the protection afforded by the due-process of law
and equal protection of the laws clause of the Philippine Bill of Rights, nevertheless,
Act No. 2761 of the Philippine Legislature, in denying to corporations such as Smith,
Bell &. Co. Ltd., the right to register vessels in the Philippines coastwise trade, does
not belong to that vicious species of class legislation which must always be
condemned, but does fall within authorized exceptions, notably, within the purview
of the police power, and so does not offend against the constitutional provision.
This opinion might well be brought to a close at this point. It occurs to us, however,
that the legislative history of the United States and the Philippine Islands, and,
probably, the legislative history of other countries, if we were to take the time to
search it out, might disclose similar attempts at restriction on the right to enter the
coastwise trade, and might thus furnish valuable aid by which to ascertain and, if
possible, effectuate legislative intention.
3. The power to regulate commerce, expressly delegated to the Congress by the
Constitution, includes the power to nationalize ships built and owned in the United
States by registries and enrollments, and the recording of the muniments of title of
American vessels. The Congress "may encourage or it may entirely prohibit such
commerce, and it may regulate in any way it may see fit between these two
extremes." (U.S. vs. Craig [1886], 28 Fed., 795; Gibbons vs. Ogden [1824], 9 Wheat.,
1; The Passenger Cases [1849], 7 How., 283.)
Acting within the purview of such power, the first Congress of the United States had
not been long convened before it enacted on September 1, 1789, "An Act for
Registering and Clearing Vessels, Regulating the Coasting Trade, and for other
purposes." Section 1 of this law provided that for any ship or vessel to obtain the
benefits of American registry, it must belong wholly to a citizen or citizens of the
United States "and no other." (1 Stat. at L., 55.) That Act was shortly after repealed,
but the same idea was carried into the Acts of Congress of December 31, 1792 and
February 18, 1793. (1 Stat. at L., 287, 305.).Section 4 of the Act of 1792 provided that
in order to obtain the registry of any vessel, an oath shall be taken and subscribed by
the owner, or by one of the owners thereof, before the officer authorized to make
such registry, declaring, "that there is no subject or citizen of any foreign prince or
state, directly or indirectly, by way of trust, confidence, or otherwise, interested in
such vessel, or in the profits or issues thereof." Section 32 of the Act of 1793 even
went so far as to say "that if any licensed ship or vessel shall be transferred to any
person who is not at the time of such transfer a citizen of and resident within the
United States, ... every such vessel with her tackle, apparel, and furniture, and the
cargo found on board her, shall be forefeited." In case of alienation to a foreigner,
Chief Justice Marshall said that all the privileges of an American bottom were ipso
facto forfeited. Even as late as 1873, the Attorney-General of the United States was of
the opinion that under the provisions of the Act of December 31, 1792, no vessel in
which a foreigner is directly or indirectly interested can lawfully be registered as a
vessel of the United States.
These laws continued in force without contest, although possibly the Act of March 3,
1825, may have affected them, until amended by the Act of May 28, 1896 (29 Stat. at
L., 188) which extended the privileges of registry from vessels wholly owned by a
citizen or citizens of the United States to corporations created under the laws of any
of the states thereof. The law, as amended, made possible the deduction that a vessel
belonging to a domestic corporation was entitled to registry or enrollment even
though some stock of the company be owned by aliens. The right of ownership of
stock in a corporation was thereafter distinct from the right to hold the property by
the corporation (Humphreys vs. McKissock [1890], 140 U.S., 304; Queen vs. Arnaud
[1846], 9 Q. B., 806; 29 Op. Atty.-Gen. [U.S.],188.)
On American occupation of the Philippines, the new government found a substantive
law in operation in the Islands with a civil law history which it wisely continued in
force Article fifteen of the Spanish Code of Commerce permitted any foreigner to
engage in Philippine trade if he had legal capacity to do so under the laws of his
nation. When the Philippine Commission came to enact the Customs Administrative
Act (No. 355) in 1902, it returned to the old American policy of limiting the protection
and flag of the United States to vessels owned by citizens of the United States or by
native inhabitants of the Philippine Islands (Sec. 117.) Two years later, the same body
reverted to the existing Congressional law by permitting certification to be issued to a
citizen of the United States or to a corporation or company created under the laws of
the United States or of any state thereof or of the Philippine Islands (Act No. 1235,
sec. 3.) The two administration codes repeated the same provisions with the
necessary amplification of inclusion of citizens or native inhabitants of the Philippine
Islands (Adm. Code of 1916, sec. 1345; Adm. Code of 1917, sec. 1172). And now Act
No. 2761 has returned to the restrictive idea of the original Customs Administrative
Act which in turn was merely a reflection of the statutory language of the first
American Congress.
Provisions such as those in Act No. 2761, which deny to foreigners the right to a
certificate of Philippine registry, are thus found not to be as radical as a first reading
would make them appear.
Without any subterfuge, the apparent purpose of the Philippine Legislature is seen to
be to enact an anti-alien shipping act. The ultimate purpose of the Legislature is to
encourage Philippine ship-building. This, without doubt, has, likewise, been the
intention of the United States Congress in passing navigation or tariff laws on
different occasions. The object of such a law, the United States Supreme Court once
said, was to encourage American trade, navigation, and ship-building by giving
American ship-owners exclusive privileges. (Old Dominion Steamship Co. vs. Virginia
[1905], 198 U.S., 299; Kent's Commentaries, Vol. 3, p. 139.)
In the concurring opinion of Justice Johnson in Gibbons vs. Ogden ([1824], 9 Wheat.,
1) is found the following:
Licensing acts, in fact, in legislation, are universally restraining acts; as, for example,
acts licensing gaming houses, retailers of spirituous liquors, etc. The act, in this
instance, is distinctly of that character, and forms part of an extensive system, the
object of which is to encourage American shipping, and place them on an equal
footing with the shipping of other nations. Almost every commercial nation reserves
to its own subjects a monopoly of its coasting trade; and a countervailing privilege in
favor of American shipping is contemplated, in the whole legislation of the United
States on this subject. It is not to give the vessel an American character, that the
license is granted; that effect has been correctly attributed to the act of her
enrollment. But it is to confer on her American privileges, as contradistinguished
from foreign; and to preserve the. Government from fraud by foreigners, in
surreptitiously intruding themselves into the American commercial marine, as well as
frauds upon the revenue in the trade coastwise, that this whole system is projected.
The United States Congress in assuming its grave responsibility of legislating wisely
for a new country did so imbued with a spirit of Americanism. Domestic navigation
and trade, it decreed, could only be carried on by citizens of the United States. If the
representatives of the American people acted in this patriotic manner to advance the
national policy, and if their action was accepted without protest in the courts, who
can say that they did not enact such beneficial laws under the all-pervading police
power, with the prime motive of safeguarding the country and of promoting its
prosperity? Quite similarly, the Philippine Legislature made up entirely of Filipinos,
representing the mandate of the Filipino people and the guardian of their rights,
acting under practically autonomous powers, and imbued with a strong sense of
Philippinism, has desired for these Islands safety from foreign interlopers, the use of
the common property exclusively by its citizens and the citizens of the United States,
and protection for the common good of the people. Who can say, therefore,
especially can a court, that with all the facts and circumstances affecting the Filipino
people before it, the Philippine Legislature has erred in the enactment of Act No.
2761?
Surely, the members of the judiciary are not expected to live apart from active life, in
monastic seclusion amidst dusty tomes and ancient records, but, as keen spectators
of passing events and alive to the dictates of the general — the national — welfare,
can incline the scales of their decisions in favor of that solution which will most
effectively promote the public policy. All the presumption is in favor of the
constitutionally of the law and without good and strong reasons, courts should not
attempt to nullify the action of the Legislature. "In construing a statute enacted by
the Philippine Commission (Legislature), we deem it our duty not to give it a
construction which would be repugnant to an Act of Congress, if the language of the
statute is fairly susceptible of another construction not in conflict with the higher
law." (In re Guariña [1913], 24. Phil., 36; U.S. vs. Ten Yu [1912], 24 Phil., 1.) That is the
true construction which will best carry legislative intention into effect.
With full consciousness of the importance of the question, we nevertheless are
clearly of the opinion that the limitation of domestic ownership for purposes of
obtaining a certificate of Philippine registry in the coastwise trade to citizens of the
Philippine Islands, and to citizens of the United States, does not violate the provisions
of paragraph 1 of section 3 of the Act of Congress of August 29, 1916 No treaty right
relied upon Act No. 2761 of the Philippine Legislature is held valid and constitutional .
The petition for a writ of mandamus is denied, with costs against the petitioner. So
ordered.
G.R. No. L-19550 June 19, 1967
HARRY S. STONEHILL, ROBERT P. BROOKS, JOHN J. BROOKS and KARL BECK,
petitioners, vs. HON. JOSE W. DIOKNO et al, respondents.
Upon application of the officers of the government named on the margin1 —
hereinafter referred to as Respondents-Prosecutors — several judges2 — hereinafter
referred to as Respondents-Judges — issued, on different dates,3 a total of 42 search
warrants against petitioners herein4 and/or the corporations of which they were
officers,5 directed to the any peace officer, to search the persons above-named
and/or the premises of their offices, warehouses and/or residences, and to seize and
take possession of the following personal property to wit:
Books of accounts, financial records, vouchers, correspondence, receipts, ledgers,
journals, portfolios, credit journals, typewriters, and other documents and/or papers
showing all business transactions including disbursements receipts, balance sheets
and profit and loss statements and Bobbins (cigarette wrappers).
as "the subject of the offense; stolen or embezzled and proceeds or fruits of the
offense," or "used or intended to be used as the means of committing the offense,"
which is described in the applications adverted to above as "violation of Central Bank
Laws, Tariff and Customs Laws, Internal Revenue (Code) and the Revised Penal Code."
Alleging that the aforementioned search warrants are null and void, as contravening
the Constitution and the Rules of Court — because, inter alia: (1) they do not
describe with particularity the documents, books and things to be seized; (2) cash
money, not mentioned in the warrants, were actually seized; (3) the warrants were
issued to fish evidence against the aforementioned petitioners in deportation cases
filed against them; (4) the searches and seizures were made in an illegal manner; and
(5) the documents, papers and cash money seized were not delivered to the courts
that issued the warrants, to be disposed of in accordance with law — on March 20,
1962, said petitioners filed with the Supreme Court this original action for certiorari,
prohibition, mandamus and injunction, and prayed that, pending final disposition of
the present case, a writ of preliminary injunction be issued restraining Respondents-
Prosecutors, their agents and /or representatives from using the effects seized as
aforementioned or any copies thereof, in the deportation cases already adverted to,
and that, in due course, thereafter, decision be rendered quashing the contested
search warrants and declaring the same null and void, and commanding the
respondents, their agents or representatives to return to petitioners herein, in
accordance with Section 3, Rule 67, of the Rules of Court, the documents, papers,
things and cash moneys seized or confiscated under the search warrants in question.
In their answer, respondents-prosecutors alleged, 6 (1) that the contested search
warrants are valid and have been issued in accordance with law; (2) that the defects
of said warrants, if any, were cured by petitioners' consent; and (3) that, in any event,
the effects seized are admissible in evidence against herein petitioners, regardless of
the alleged illegality of the aforementioned searches and seizures.
On March 22, 1962, this Court issued the writ of preliminary injunction prayed for in
the petition. However, by resolution dated June 29, 1962, the writ was partially lifted
or dissolved, insofar as the papers, documents and things seized from the offices of
the corporations above mentioned are concerned; but, the injunction was
maintained as regards the papers, documents and things found and seized in the
residences of petitioners herein.7
Thus, the documents, papers, and things seized under the alleged authority of the
warrants in question may be split into two (2) major groups, namely: (a) those found
and seized in the offices of the aforementioned corporations, and (b) those found
and seized in the residences of petitioners herein.
As regards the first group, we hold that petitioners herein have no cause of action to
assail the legality of the contested warrants and of the seizures made in pursuance
thereof, for the simple reason that said corporations have their respective
personalities, separate and distinct from the personality of herein petitioners,
regardless of the amount of shares of stock or of the interest of each of them in said
corporations, and whatever the offices they hold therein may be.8 Indeed, it is well
settled that the legality of a seizure can be contested only by the party whose rights
have been impaired thereby,9 and that the objection to an unlawful search and
seizure is purely personal and cannot be availed of by third parties. 10 Consequently,
petitioners herein may not validly object to the use in evidence against them of the
documents, papers and things seized from the offices and premises of the
corporations adverted to above, since the right to object to the admission of said
papers in evidence belongs exclusively to the corporations, to whom the seized
effects belong, and may not be invoked by the corporate officers in proceedings
against them in their individual capacity. 11 Indeed, it has been held:
. . . that the Government's action in gaining possession of papers belonging to the
corporation did not relate to nor did it affect the personal defendants. If these papers
were unlawfully seized and thereby the constitutional rights of or any one were
invaded, they were the rights of the corporation and not the rights of the other
defendants. Next, it is clear that a question of the lawfulness of a seizure can be
raised only by one whose rights have been invaded. Certainly, such a seizure, if
unlawful, could not affect the constitutional rights of defendants whose property had
not been seized or the privacy of whose homes had not been disturbed; nor could
they claim for themselves the benefits of the Fourth Amendment, when its violation,
if any, was with reference to the rights of another. Remus vs. United States
(C.C.A.)291 F. 501, 511. It follows, therefore, that the question of the admissibility of
the evidence based on an alleged unlawful search and seizure does not extend to the
personal defendants but embraces only the corporation whose property was
taken. . . . (A Guckenheimer & Bros. Co. vs. United States, [1925] 3 F. 2d. 786, 789,
Emphasis supplied.)
With respect to the documents, papers and things seized in the residences of
petitioners herein, the aforementioned resolution of June 29, 1962, lifted the writ of
preliminary injunction previously issued by this Court, 12 thereby, in effect,
restraining herein Respondents-Prosecutors from using them in evidence against
petitioners herein.
In connection with said documents, papers and things, two (2) important questions
need be settled, namely: (1) whether the search warrants in question, and the
searches and seizures made under the authority thereof, are valid or not, and (2) if
the answer to the preceding question is in the negative, whether said documents,
papers and things may be used in evidence against petitioners herein.1äwphï1.ñët
Petitioners maintain that the aforementioned search warrants are in the nature of
general warrants and that accordingly, the seizures effected upon the authority there
of are null and void. In this connection, the Constitution 13 provides:
The right of the people to be secure in their persons, houses, papers, and effects
against unreasonable searches and seizures shall not be violated, and no warrants
shall issue but upon probable cause, to be determined by the judge after examination
under oath or affirmation of the complainant and the witnesses he may produce, and
particularly describing the place to be searched, and the persons or things to be
seized.
Two points must be stressed in connection with this constitutional mandate, namely:
(1) that no warrant shall issue but upon probable cause, to be determined by the
judge in the manner set forth in said provision; and (2) that the warrant shall
particularly describe the things to be seized.
None of these requirements has been complied with in the contested warrants.
Indeed, the same were issued upon applications stating that the natural and juridical
person therein named had committed a "violation of Central Ban Laws, Tariff and
Customs Laws, Internal Revenue (Code) and Revised Penal Code." In other words, no
specific offense had been alleged in said applications. The averments thereof with
respect to the offense committed were abstract. As a consequence, it was impossible
for the judges who issued the warrants to have found the existence of probable
cause, for the same presupposes the introduction of competent proof that the party
against whom it is sought has performed particular acts, or committed specific
omissions, violating a given provision of our criminal laws. As a matter of fact, the
applications involved in this case do not allege any specific acts performed by herein
petitioners. It would be the legal heresy, of the highest order, to convict anybody of a
"violation of Central Bank Laws, Tariff and Customs Laws, Internal Revenue (Code)
and Revised Penal Code," — as alleged in the aforementioned applications — without
reference to any determinate provision of said laws or
To uphold the validity of the warrants in question would be to wipe out completely
one of the most fundamental rights guaranteed in our Constitution, for it would place
the sanctity of the domicile and the privacy of communication and correspondence
at the mercy of the whims caprice or passion of peace officers. This is precisely the
evil sought to be remedied by the constitutional provision above quoted — to outlaw
the so-called general warrants. It is not difficult to imagine what would happen, in
times of keen political strife, when the party in power feels that the minority is likely
to wrest it, even though by legal means.
Such is the seriousness of the irregularities committed in connection with the
disputed search warrants, that this Court deemed it fit to amend Section 3 of Rule
122 of the former Rules of Court 14 by providing in its counterpart, under the Revised
Rules of Court 15 that "a search warrant shall not issue but upon probable cause in
connection with one specific offense." Not satisfied with this qualification, the Court
added thereto a paragraph, directing that "no search warrant shall issue for more
than one specific offense."
The grave violation of the Constitution made in the application for the contested
search warrants was compounded by the description therein made of the effects to
be searched for and seized, to wit:
Books of accounts, financial records, vouchers, journals, correspondence, receipts,
ledgers, portfolios, credit journals, typewriters, and other documents and/or papers
showing all business transactions including disbursement receipts, balance sheets
and related profit and loss statements.
Thus, the warrants authorized the search for and seizure of records pertaining to all
business transactions of petitioners herein, regardless of whether the transactions
were legal or illegal. The warrants sanctioned the seizure of all records of the
petitioners and the aforementioned corporations, whatever their nature, thus openly
contravening the explicit command of our Bill of Rights — that the things to be seized
be particularly described — as well as tending to defeat its major objective: the
elimination of general warrants.
Relying upon Moncado vs. People's Court (80 Phil. 1), Respondents-Prosecutors
maintain that, even if the searches and seizures under consideration were
unconstitutional, the documents, papers and things thus seized are admissible in
evidence against petitioners herein. Upon mature deliberation, however, we are
unanimously of the opinion that the position taken in the Moncado case must be
abandoned. Said position was in line with the American common law rule, that the
criminal should not be allowed to go free merely "because the constable has
blundered," 16 upon the theory that the constitutional prohibition against
unreasonable searches and seizures is protected by means other than the exclusion
of evidence unlawfully obtained, 17 such as the common-law action for damages
against the searching officer, against the party who procured the issuance of the
search warrant and against those assisting in the execution of an illegal search, their
criminal punishment, resistance, without liability to an unlawful seizure, and such
other legal remedies as may be provided by other laws.
However, most common law jurisdictions have already given up this approach and
eventually adopted the exclusionary rule, realizing that this is the only practical
means of enforcing the constitutional injunction against unreasonable searches and
seizures. In the language of Judge Learned Hand:
As we understand it, the reason for the exclusion of evidence competent as such,
which has been unlawfully acquired, is that exclusion is the only practical way of
enforcing the constitutional privilege. In earlier times the action of trespass against
the offending official may have been protection enough; but that is true no longer.
Only in case the prosecution which itself controls the seizing officials, knows that it
cannot profit by their wrong will that wrong be repressed.18
In fact, over thirty (30) years before, the Federal Supreme Court had already
declared:
If letters and private documents can thus be seized and held and used in evidence
against a citizen accused of an offense, the protection of the 4th Amendment,
declaring his rights to be secure against such searches and seizures, is of no value,
and, so far as those thus placed are concerned, might as well be stricken from the
Constitution. The efforts of the courts and their officials to bring the guilty to
punishment, praiseworthy as they are, are not to be aided by the sacrifice of those
great principles established by years of endeavor and suffering which have resulted in
their embodiment in the fundamental law of the land.19
This view was, not only reiterated, but, also, broadened in subsequent decisions on
the same Federal Court. 20 After reviewing previous decisions thereon, said Court
held, in Mapp vs. Ohio (supra.):
. . . Today we once again examine the Wolf's constitutional documentation of the
right of privacy free from unreasonable state intrusion, and after its dozen years on
our books, are led by it to close the only courtroom door remaining open to evidence
secured by official lawlessness in flagrant abuse of that basic right, reserved to all
persons as a specific guarantee against that very same unlawful conduct. We hold
that all evidence obtained by searches and seizures in violation of the Constitution is,
by that same authority, inadmissible in a State.
Since the Fourth Amendment's right of privacy has been declared enforceable against
the States through the Due Process Clause of the Fourteenth, it is enforceable against
them by the same sanction of exclusion as it used against the Federal Government.
Were it otherwise, then just as without the Weeks rule the assurance against
unreasonable federal searches and seizures would be "a form of words," valueless
and underserving of mention in a perpetual charter of inestimable human liberties,
so too, without that rule the freedom from state invasions of privacy would be so
ephemeral and so neatly severed from its conceptual nexus with the freedom from
all brutish means of coercing evidence as not to permit this Court's high regard as a
freedom "implicit in the concept of ordered liberty." At the time that the Court held
in Wolf that the amendment was applicable to the States through the Due Process
Clause, the cases of this Court as we have seen, had steadfastly held that as to
federal officers the Fourth Amendment included the exclusion of the evidence seized
in violation of its provisions. Even Wolf "stoutly adhered" to that proposition. The
right to when conceded operatively enforceable against the States, was not
susceptible of destruction by avulsion of the sanction upon which its protection and
enjoyment had always been deemed dependent under the Boyd, Weeks and
Silverthorne Cases. Therefore, in extending the substantive protections of due
process to all constitutionally unreasonable searches — state or federal — it was
logically and constitutionally necessarily that the exclusion doctrine — an essential
part of the right to privacy — be also insisted upon as an essential ingredient of the
right newly recognized by the Wolf Case. In short, the admission of the new
constitutional Right by Wolf could not tolerate denial of its most important
constitutional privilege, namely, the exclusion of the evidence which an accused had
been forced to give by reason of the unlawful seizure. To hold otherwise is to grant
the right but in reality to withhold its privilege and enjoyment. Only last year the
Court itself recognized that the purpose of the exclusionary rule to "is to deter — to
compel respect for the constitutional guaranty in the only effectively available way —
by removing the incentive to disregard it" . . . .
The ignoble shortcut to conviction left open to the State tends to destroy the entire
system of constitutional restraints on which the liberties of the people rest. Having
once recognized that the right to privacy embodied in the Fourth Amendment is
enforceable against the States, and that the right to be secure against rude invasions
of privacy by state officers is, therefore constitutional in origin, we can no longer
permit that right to remain an empty promise. Because it is enforceable in the same
manner and to like effect as other basic rights secured by its Due Process Clause, we
can no longer permit it to be revocable at the whim of any police officer who, in the
name of law enforcement itself, chooses to suspend its enjoyment. Our decision,
founded on reason and truth, gives to the individual no more than that which the
Constitution guarantees him to the police officer no less than that to which honest
law enforcement is entitled, and, to the courts, that judicial integrity so necessary in
the true administration of justice. (emphasis ours.)
Indeed, the non-exclusionary rule is contrary, not only to the letter, but also, to the
spirit of the constitutional injunction against unreasonable searches and seizures. To
be sure, if the applicant for a search warrant has competent evidence to establish
probable cause of the commission of a given crime by the party against whom the
warrant is intended, then there is no reason why the applicant should not comply
with the requirements of the fundamental law. Upon the other hand, if he has no
such competent evidence, then it is not possible for the Judge to find that there is
probable cause, and, hence, no justification for the issuance of the warrant. The only
possible explanation (not justification) for its issuance is the necessity of fishing
evidence of the commission of a crime. But, then, this fishing expedition is indicative
of the absence of evidence to establish a probable cause.
Moreover, the theory that the criminal prosecution of those who secure an illegal
search warrant and/or make unreasonable searches or seizures would suffice to
protect the constitutional guarantee under consideration, overlooks the fact that
violations thereof are, in general, committed By agents of the party in power, for,
certainly, those belonging to the minority could not possibly abuse a power they do
not have. Regardless of the handicap under which the minority usually — but,
understandably — finds itself in prosecuting agents of the majority, one must not
lose sight of the fact that the psychological and moral effect of the possibility 21 of
securing their conviction, is watered down by the pardoning power of the party for
whose benefit the illegality had been committed.
In their Motion for Reconsideration and Amendment of the Resolution of this Court
dated June 29, 1962, petitioners allege that Rooms Nos. 81 and 91 of Carmen
Apartments, House No. 2008, Dewey Boulevard, House No. 1436, Colorado Street,
and Room No. 304 of the Army-Navy Club, should be included among the premises
considered in said Resolution as residences of herein petitioners, Harry S. Stonehill,
Robert P. Brook, John J. Brooks and Karl Beck, respectively, and that, furthermore, the
records, papers and other effects seized in the offices of the corporations above
referred to include personal belongings of said petitioners and other effects under
their exclusive possession and control, for the exclusion of which they have a
standing under the latest rulings of the federal courts of federal courts of the United
States. 22
We note, however, that petitioners' theory, regarding their alleged possession of and
control over the aforementioned records, papers and effects, and the alleged
"personal" nature thereof, has Been Advanced, not in their petition or amended
petition herein, but in the Motion for Reconsideration and Amendment of the
Resolution of June 29, 1962. In other words, said theory would appear to be
readjustment of that followed in said petitions, to suit the approach intimated in the
Resolution sought to be reconsidered and amended. Then, too, some of the affidavits
or copies of alleged affidavits attached to said motion for reconsideration, or
submitted in support thereof, contain either inconsistent allegations, or allegations
inconsistent with the theory now advanced by petitioners herein.
Upon the other hand, we are not satisfied that the allegations of said petitions said
motion for reconsideration, and the contents of the aforementioned affidavits and
other papers submitted in support of said motion, have sufficiently established the
facts or conditions contemplated in the cases relied upon by the petitioners; to
warrant application of the views therein expressed, should we agree thereto. At any
rate, we do not deem it necessary to express our opinion thereon, it being best to
leave the matter open for determination in appropriate cases in the future.

We hold, therefore, that the doctrine adopted in the Moncado case must be, as it is
hereby, abandoned; that the warrants for the search of three (3) residences of herein
petitioners, as specified in the Resolution of June 29, 1962, are null and void; that the
searches and seizures therein made are illegal; that the writ of preliminary injunction
heretofore issued, in connection with the documents, papers and other effects thus
seized in said residences of herein petitioners is hereby made permanent; that the
writs prayed for are granted, insofar as the documents, papers and other effects so
seized in the aforementioned residences are concerned; that the aforementioned
motion for Reconsideration and Amendment should be, as it is hereby, denied; and
that the petition herein is dismissed and the writs prayed for denied, as regards the
documents, papers and other effects seized in the twenty-nine (29) places, offices
and other premises enumerated in the same Resolution, without special
pronouncement as to costs.