F.
Constitutional Guarantees of a Corporation
1. EN BANC G.R. No. 15574 September 17, 1919
SMITH, BELL & COMPANY (LTD.), petitioner,
vs.
JOAQUIN NATIVIDAD, Collector of Customs of the port of Cebu, respondent.
Ross and Lawrence for petitioner.
Attorney-General Paredes for respondent.
MALCOLM, J.:
A writ of mandamus is prayed for by Smith, Bell & Co. (Ltd.), against Joaquin Natividad, Collector of
Customs of the port of Cebu, Philippine Islands, to compel him to issue a certificate of Philippine
registry to the petitioner for its motor vessel Bato. The Attorney-General, acting as counsel for
respondent, demurs to the petition on the general ground that it does not state facts sufficient to
constitute a cause of action. While the facts are thus admitted, and while, moreover, the pertinent
provisions of law are clear and understandable, and interpretative American jurisprudence is found in
abundance, yet the issue submitted is not lightly to be resolved. The question, flatly presented, is,
whether Act. No. 2761 of the Philippine Legislature is valid — or, more directly stated, whether the
Government of the Philippine Islands, through its Legislature, can deny the registry of vessels in its
coastwise trade to corporations having alien stockholders.
FACTS.
Smith, Bell & Co., (Ltd.), is a corporation organized and existing under the laws of the Philippine
Islands. A majority of its stockholders are British subjects. It is the owner of a motor vessel known as
the Bato built for it in the Philippine Islands in 1916, of more than fifteen tons gross The Bato was
brought to Cebu in the present year for the purpose of transporting plaintiff's merchandise between
ports in the Islands. Application was made at Cebu, the home port of the vessel, to the Collector of
Customs for a certificate of Philippine registry. The Collector refused to issue the certificate, giving as
his reason that all the stockholders of Smith, Bell & Co., Ltd., were not citizens either of the United
States or of the Philippine Islands. The instant action is the result.
LAW.
The Act of Congress of April 29, 1908, repealing the Shipping Act of April 30, 1906 but reenacting a
portion of section 3 of this Law, and still in force, provides in its section 1:
That until Congress shall have authorized the registry as vessels of the United States of
vessels owned in the Philippine Islands, the Government of the Philippine Islands is hereby
authorized to adopt, from time to time, and enforce regulations governing the transportation of
merchandise and passengers between ports or places in the Philippine Archipelago. (35 Stat.
at L., 70; Section 3912, U. S. Comp Stat. [1916]; 7 Pub. Laws, 364.)
The Act of Congress of August 29, 1916, commonly known as the Jones Law, still in force, provides in
section 3, (first paragraph, first sentence), 6, 7, 8, 10, and 31, as follows.
SEC. 3. That no law shall be enacted in said Islands which shall deprive any person of life,
liberty, or property without due process of law, or deny to any person therein the equal
protection of the laws. . . .
SEC. 6. That the laws now in force in the Philippines shall continue in force and effect, except
as altered, amended, or modified herein, until altered, amended, or repealed by the legislative
authority herein provided or by Act of Congress of the United States.
SEC. 7. That the legislative authority herein provided shall have power, when not inconsistent
with this Act, by due enactment to amend, alter modify, or repeal any law, civil or criminal,
continued in force by this Act as it may from time to time see fit
This power shall specifically extend with the limitation herein provided as to the tariff to all
laws relating to revenue provided as to the tariff to all laws relating to revenue and taxation in
effect in the Philippines.
SEC. 8. That general legislative power, except as otherwise herein provided, is hereby granted
to the Philippine Legislature, authorized by this Act.
SEC. 10. That while this Act provides that the Philippine government shall have the authority
to enact a tariff law the trade relations between the islands and the United States shall
continue to be governed exclusively by laws of the Congress of the United States: Provided,
That tariff acts or acts amendatory to the tariff of the Philippine Islands shall not become law
until they shall receive the approval of the President of the United States, nor shall any act of
the Philippine Legislature affecting immigration or the currency or coinage laws of the
Philippines become a law until it has been approved by the President of the United
States: Provided further, That the President shall approve or disapprove any act mentioned in
the foregoing proviso within six months from and after its enactment and submission for his
approval, and if not disapproved within such time it shall become a law the same as if it had
been specifically approved.
SEC. 31. That all laws or parts of laws applicable to the Philippines not in conflict with any of
the provisions of this Act are hereby continued in force and effect." (39 Stat at L., 546.)
On February 23, 1918, the Philippine Legislature enacted Act No. 2761. The first section of this law
amended section 1172 of the Administrative Code to read as follows:
SEC. 1172. Certificate of Philippine register. — Upon registration of a vessel of domestic
ownership, and of more than fifteen tons gross, a certificate of Philippine register shall be
issued for it. If the vessel is of domestic ownership and of fifteen tons gross or less, the taking
of the certificate of Philippine register shall be optional with the owner.
"Domestic ownership," as used in this section, means ownership vested in some one or more
of the following classes of persons: (a) Citizens or native inhabitants of the Philippine Islands;
(b) citizens of the United States residing in the Philippine Islands; (c) any corporation or
company composed wholly of citizens of the Philippine Islands or of the United States or of
both, created under the laws of the United States, or of any State thereof, or of thereof, or the
managing agent or master of the vessel resides in the Philippine Islands
Any vessel of more than fifteen gross tons which on February eighth, nineteen hundred and
eighteen, had a certificate of Philippine register under existing law, shall likewise be deemed a
vessel of domestic ownership so long as there shall not be any change in the ownership
thereof nor any transfer of stock of the companies or corporations owning such vessel to
person not included under the last preceding paragraph.
Sections 2 and 3 of Act No. 2761 amended sections 1176 and 1202 of the Administrative Code to read
as follows:
SEC. 1176. Investigation into character of vessel. — No application for a certificate of
Philippine register shall be approved until the collector of customs is satisfied from an
inspection of the vessel that it is engaged or destined to be engaged in legitimate trade
and that it is of domestic ownership as such ownership is defined in section eleven hundred
and seventy-two of this Code.
The collector of customs may at any time inspect a vessel or examine its owner, master, crew,
or passengers in order to ascertain whether the vessel is engaged in legitimate trade and is
entitled to have or retain the certificate of Philippine register.
 SEC. 1202. Limiting number of foreign officers and engineers on board vessels. — No
Philippine vessel operating in the coastwise trade or on the high seas shall be permitted to
have on board more than one master or one mate and one engineer who are not citizens of the
United States or of the Philippine Islands, even if they hold licenses under section one
thousand one hundred and ninety-nine hereof. No other person who is not a citizen of the
United States or of the Philippine Islands shall be an officer or a member of the crew of such
vessel. Any such vessel which fails to comply with the terms of this section shall be required
to pay an additional tonnage tax of fifty centavos per net ton per month during the
continuance of said failure.
ISSUES.
Predicated on these facts and provisions of law, the issues as above stated recur, namely, whether Act
No 2761 of the Philippine Legislature is valid in whole or in part — whether the Government of the
Philippine Islands, through its Legislature, can deny the registry of vessel in its coastwise trade to
corporations having alien stockholders .
OPINION.
1. Considered from a positive standpoint, there can exist no measure of doubt as to the power of the
Philippine Legislature to enact Act No. 2761. The Act of Congress of April 29, 1908, with its specific
delegation of authority to the Government of the Philippine Islands to regulate the transportation of
merchandise and passengers between ports or places therein, the liberal construction given to the
provisions of the Philippine Bill, the Act of Congress of July 1, 1902, by the courts, and the grant by
the Act of Congress of August 29, 1916, of general legislative power to the Philippine Legislature, are
certainly superabundant authority for such a law. While the Act of the local legislature may in a way be
inconsistent with the Act of Congress regulating the coasting trade of the Continental United States, yet
the general rule that only such laws of the United States have force in the Philippines as are expressly
extended thereto, and the abnegation of power by Congress in favor of the Philippine Islands would
leave no starting point for convincing argument. As a matter of fact, counsel for petitioner does not
assail legislative action from this direction (See U. S. vs. Bull [1910], 15 Phil., 7; Sinnot vs. Davenport
[1859] 22 How., 227.)
2. It is from the negative, prohibitory standpoint that counsel argues against the constitutionality of Act
No. 2761. The first paragraph of the Philippine Bill of Rights of the Philippine Bill, repeated again in
the first paragraph of the Philippine Bill of Rights as set forth in the Jones Law, provides "That no law
shall be enacted in said Islands which shall deprive any person of life, liberty, or property without due
process of law, or deny to any person therein the equal protection of the laws." Counsel says that Act
No. 2761 denies to Smith, Bell & Co., Ltd., the equal protection of the laws because it, in effect,
prohibits the corporation from owning vessels, and because classification of corporations based on the
citizenship of one or more of their stockholders is capricious, and that Act No. 2761 deprives the
corporation of its properly without due process of law because by the passage of the law company was
automatically deprived of every beneficial attribute of ownership in the Bato and left with the naked
title to a boat it could not use .
The guaranties extended by the Congress of the United States to the Philippine Islands have been used
in the same sense as like provisions found in the United States Constitution. While the "due process of
law and equal protection of the laws" clause of the Philippine Bill of Rights is couched in slightly
different words than the corresponding clause of the Fourteenth Amendment to the United States
Constitution, the first should be interpreted and given the same force and effect as the latter.
(Kepner vs. U.S. [1904], 195 U. S., 100; Sierra vs. Mortiga [1907], 204 U. S.,.470; U. S. vs. Bull
[1910], 15 Phil., 7.) The meaning of the Fourteenth Amendment has been announced in classic
decisions of the United States Supreme Court. Even at the expense of restating what is so well known,
these basic principles must again be set down in order to serve as the basis of this decision.
The guaranties of the Fourteenth Amendment and so of the first paragraph of the Philippine Bill of
Rights, are universal in their application to all person within the territorial jurisdiction, without regard
to any differences of race, color, or nationality. The word "person" includes aliens. (Yick Wo vs.
Hopkins [1886], 118 U. S., 356; Truax vs. Raich [1915], 239 U. S., 33.) Private corporations, likewise,
are "persons" within the scope of the guaranties in so far as their property is concerned. (Santa Clara
County vs. Southern Pac. R. R. Co. [1886], 118.U. S., 394; Pembina Mining Co. vs. Pennsylvania
[1888],.125 U. S., 181 Covington & L. Turnpike Road Co. vs. Sandford [1896], 164 U. S., 578.)
Classification with the end in view of providing diversity of treatment may be made among
corporations, but must be based upon some reasonable ground and not be a mere arbitrary selection
(Gulf, Colorado & Santa Fe Railway Co. vs. Ellis [1897],.165 U. S., 150.) Examples of laws held
unconstitutional because of unlawful discrimination against aliens could be cited. Generally, these
decisions relate to statutes which had attempted arbitrarily to forbid aliens to engage in ordinary kinds
of business to earn their living. (State vs. Montgomery [1900], 94 Maine, 192, peddling — but see.
Commonwealth vs. Hana [1907], 195 Mass., 262; Templar vs. Board of Examiners of Barbers [1902],
131 Mich., 254, barbers; Yick Wo vs. Hopkins [1886], 118 U. S.,.356, discrimination against Chinese;
Truax vs. Raich [1915], 239 U. S., 33; In re Parrott [1880], 1 Fed , 481; Fraser vs. McConway & Torley
Co. [1897], 82 Fed , 257; Juniata Limestone Co. vs. Fagley [1898], 187 Penn., 193, all relating to the
employment of aliens by private corporations.)
A literal application of general principles to the facts before us would, of course, cause the inevitable
deduction that Act No. 2761 is unconstitutional by reason of its denial to a corporation, some of whole
members are foreigners, of the equal protection of the laws. Like all beneficient propositions, deeper
research discloses provisos. Examples of a denial of rights to aliens notwithstanding the provisions of
the Fourteenth Amendment could be cited. (Tragesser vs.Gray [1890], 73 Md., 250, licenses to sell
spirituous liquors denied to persons not citizens of the United States; Commonwealth vs. Hana [1907],
195 Mass , 262, excluding aliens from the right to peddle; Patsone vs.Commonwealth of Pennsylvania
[1914], 232 U. S. , 138, prohibiting the killing of any wild bird or animal by any unnaturalized foreign-
born resident; Ex parte Gilleti [1915], 70 Fla., 442, discriminating in favor of citizens with reference to
the taking for private use of the common property in fish and oysters found in the public waters of the
State; Heim vs. McCall [1915], 239 U. S.,.175, and Crane vs. New York [1915], 239 U. S., 195,
limiting employment on public works by, or for, the State or a municipality to citizens of the United
States.)
One of the exceptions to the general rule, most persistent and far reaching in influence is, that neither
the Fourteenth Amendment to the United States Constitution, broad and comprehensive as it is, nor any
other amendment, "was designed to interfere with the power of the State, sometimes termed its `police
power,' to prescribe regulations to promote the health, peace, morals, education, and good order of the
people, and legislate so as to increase the industries of the State, develop its resources and add to its
wealth and prosperity. From the very necessities of society, legislation of a special character, having
these objects in view, must often be had in certain districts." (Barbier vs. Connolly [1884], 113 U.S.,
27; New Orleans Gas Co. vs. Lousiana Light Co. [1885], 115 U.S., 650.) This is the same police power
which the United States Supreme Court say "extends to so dealing with the conditions which exist in
the state as to bring out of them the greatest welfare in of its people." (Bacon vs.Walker [1907], 204
U.S., 311.) For quite similar reasons, none of the provision of the Philippine Organic Law could could
have had the effect of denying to the Government of the Philippine Islands, acting through its
Legislature, the right to exercise that most essential, insistent, and illimitable of powers, the sovereign
police power, in the promotion of the general welfare and the public interest. (U. S. vs. Toribio [1910],
15 Phil., 85; Churchill and Tait vs. Rafferty [1915], 32 Phil., 580; Rubi vs. Provincial Board of
Mindoro [1919], 39 Phil., 660.) Another notable exception permits of the regulation or distribution of
the public domain or the common property or resources of the people of the State, so that use may be
limited to its citizens. (Ex parte Gilleti [1915], 70 Fla., 442; McCready vs. Virginia [1876], 94 U. S.,
391; Patsone vs. Commonwealth of Pennsylvania [1914], 232U. S., 138.) Still another exception
permits of the limitation of employment in the construction of public works by, or for, the State or a
municipality to citizens of the United States or of the State. (Atkin vs. Kansas [1903],191 U. S., 207;
Heim vs. McCall [1915], 239 U.S., 175; Crane vs. New York [1915], 239 U. S., 195.) Even as to
classification, it is admitted that a State may classify with reference to the evil to be prevented; the
question is a practical one, dependent upon experience. (Patsone vs.Commonwealth of Pennsylvania
[1914], 232 U. S., 138.)
To justify that portion of Act no. 2761 which permits corporations or companies to obtain a certificate
of Philippine registry only on condition that they be composed wholly of citizens of the Philippine
Islands or of the United States or both, as not infringing Philippine Organic Law, it must be done under
some one of the exceptions here mentioned This must be done, moreover, having particularly in mind
what is so often of controlling effect in this jurisdiction — our local experience and our peculiar local
conditions.
To recall a few facts in geography, within the confines of Philippine jurisdictional limits are found
more than three thousand islands. Literally, and absolutely, steamship lines are, for an Insular territory
thus situated, the arteries of commerce. If one be severed, the life-blood of the nation is lost. If on the
other hand these arteries are protected, then the security of the country and the promotion of the
general welfare is sustained. Time and again, with such conditions confronting it, has the executive
branch of the Government of the Philippine Islands, always later with the sanction of the judicial
branch, taken a firm stand with reference to the presence of undesirable foreigners. The Government
has thus assumed to act for the all-sufficient and primitive reason of the benefit and protection of its
own citizens and of the self-preservation and integrity of its dominion. (In re Patterson [1902], 1 Phil.,
93; Forbes vs.Chuoco, Tiaco and Crossfield [1910], 16 Phil., 534;.228 U.S., 549; In re McCulloch
Dick [1918], 38 Phil., 41.) Boats owned by foreigners, particularly by such solid and reputable firms as
the instant claimant, might indeed traverse the waters of the Philippines for ages without doing any
particular harm. Again, some evilminded foreigner might very easily take advantage of such lavish
hospitality to chart Philippine waters, to obtain valuable information for unfriendly foreign powers, to
stir up insurrection, or to prejudice Filipino or American commerce. Moreover, under the Spanish
portion of Philippine law, the waters within the domestic jurisdiction are deemed part of the national
domain, open to public use. (Book II, Tit. IV, Ch. I, Civil Code; Spanish Law of Waters of August 3,
1866, arts 1, 2, 3.) Common carriers which in the Philippines as in the United States and other
countries are, as Lord Hale said, "affected with a public interest," can only be permitted to use these
public waters as a privilege and under such conditions as to the representatives of the people may seem
wise. (See De Villata vs. Stanley [1915], 32 Phil., 541.)
In Patsone vs. Commonwealth of Pennsylvania ([1913], 232 U.S., 138), a case herein before
mentioned, Justice Holmes delivering the opinion of the United States Supreme Court said:
This statute makes it unlawful for any unnaturalized foreign-born resident to kill any wild bird
or animal except in defense of person or property, and `to that end' makes it unlawful for such
foreign-born person to own or be possessed of a shotgun or rifle; with a penalty of $25 and a
forfeiture of the gun or guns. The plaintiff in error was found guilty and was sentenced to pay
the abovementioned fine. The judgment was affirmed on successive appeals. (231 Pa., 46; 79
Atl., 928.) He brings the case to this court on the ground that the statute is contrary to the 14th
Amendment and also is in contravention of the treaty between the United States and Italy, to
which latter country the plaintiff in error belongs .
Under the 14th Amendment the objection is twofold; unjustifiably depriving the alien of
property, and discrimination against such aliens as a class. But the former really depends upon
the latter, since it hardly can be disputed that if the lawful object, the protection of wild life
(Geer vs. Connecticut, 161 U.S., 519; 40 L. ed., 793; 16 Sup. Ct. Rep., 600), warrants the
discrimination, the, means adopted for making it effective also might be adopted. . . .
The discrimination undoubtedly presents a more difficult question. But we start with reference
to the evil to be prevented, and that if the class discriminated against is or reasonably might be
considered to define those from whom the evil mainly is to be feared, it properly may be
picked out. A lack of abstract symmetry does not matter. The question is a practical one,
dependent upon experience. . . .
The question therefore narrows itself to whether this court can say that the legislature of
Pennsylvania was not warranted in assuming as its premise for the law that resident
unnaturalized aliens were the peculiar source of the evil that it desired to prevent.
(Barrett vs. Indiana,. 229 U.S., 26, 29; 57 L. ed., 1050, 1052; 33 Sup. Ct. Rep., 692.)
Obviously the question, so stated, is one of local experience, on which this court ought to be
very slow to declare that the state legislature was wrong in its facts (Adams vs. Milwaukee,
228 U.S., 572, 583; 57 L. ed., 971,.977; 33 Sup. Ct. Rep., 610.) If we might trust popular
speech in some states it was right; but it is enough that this court has no such knowledge of
local conditions as to be able to say that it was manifestly wrong. . . .
Judgment affirmed.
We are inclined to the view that while Smith, Bell & Co. Ltd., a corporation having alien stockholders,
is entitled to the protection afforded by the due-process of law and equal protection of the laws clause
of the Philippine Bill of Rights, nevertheless, Act No. 2761 of the Philippine Legislature, in denying to
corporations such as Smith, Bell &. Co. Ltd., the right to register vessels in the Philippines coastwise
trade, does not belong to that vicious species of class legislation which must always be condemned, but
does fall within authorized exceptions, notably, within the purview of the police power, and so does not
offend against the constitutional provision.
This opinion might well be brought to a close at this point. It occurs to us, however, that the legislative
history of the United States and the Philippine Islands, and, probably, the legislative history of other
countries, if we were to take the time to search it out, might disclose similar attempts at restriction on
the right to enter the coastwise trade, and might thus furnish valuable aid by which to ascertain and, if
possible, effectuate legislative intention.
3. The power to regulate commerce, expressly delegated to the Congress by the Constitution,
includes the power to nationalize ships built and owned in the United States by registries and
enrollments, and the recording of the muniments of title of American vessels. The Congress
"may encourage or it may entirely prohibit such commerce, and it may regulate in any way it
may see fit between these two extremes." (U.S. vs.Craig [1886], 28 Fed., 795;
Gibbons vs. Ogden [1824], 9 Wheat., 1; The Passenger Cases [1849], 7 How., 283.)
Acting within the purview of such power, the first Congress of the United States had not been long
convened before it enacted on September 1, 1789, "An Act for Registering and Clearing Vessels,
Regulating the Coasting Trade, and for other purposes." Section 1 of this law provided that for any ship
or vessel to obtain the benefits of American registry, it must belong wholly to a citizen or citizens of
the United States "and no other." (1 Stat. at L., 55.) That Act was shortly after repealed, but the same
idea was carried into the Acts of Congress of December 31, 1792 and February 18, 1793. (1 Stat. at L.,
287, 305.).Section 4 of the Act of 1792 provided that in order to obtain the registry of any vessel, an
oath shall be taken and subscribed by the owner, or by one of the owners thereof, before the officer
authorized to make such registry, declaring, "that there is no subject or citizen of any foreign prince or
state, directly or indirectly, by way of trust, confidence, or otherwise, interested in such vessel, or in the
profits or issues thereof." Section 32 of the Act of 1793 even went so far as to say "that if any licensed
ship or vessel shall be transferred to any person who is not at the time of such transfer a citizen of and
resident within the United States, ... every such vessel with her tackle, apparel, and furniture, and the
cargo found on board her, shall be forefeited." In case of alienation to a foreigner, Chief Justice
Marshall said that all the privileges of an American bottom were ipso facto forfeited. (U.S. vs. Willings
and Francis [1807], 4 Cranch, 48.) Even as late as 1873, the Attorney-General of the United States was
of the opinion that under the provisions of the Act of December 31, 1792, no vessel in which a
foreigner is directly or indirectly interested can lawfully be registered as a vessel of the United. States.
(14 Op. Atty.-Gen. [U.S.], 340.)
These laws continued in force without contest, although possibly the Act of March 3, 1825, may have
affected them, until amended by the Act of May 28, 1896 (29 Stat. at L., 188) which extended the
privileges of registry from vessels wholly owned by a citizen or citizens of the United States to
corporations created under the laws of any of the states thereof. The law, as amended, made possible
the deduction that a vessel belonging to a domestic corporation was entitled to registry or enrollment
even though some stock of the company be owned by aliens. The right of ownership of stock in a
corporation was thereafter distinct from the right to hold the property by the corporation
(Humphreys vs. McKissock [1890], 140 U.S., 304; Queen vs. Arnaud [1846], 9 Q. B., 806; 29 Op.
Atty.-Gen. [U.S.],188.)
On American occupation of the Philippines, the new government found a substantive law in operation
in the Islands with a civil law history which it wisely continued in force Article fifteen of the Spanish
Code of Commerce permitted any foreigner to engage in Philippine trade if he had legal capacity to do
so under the laws of his nation. When the Philippine Commission came to enact the Customs
Administrative Act (No. 355) in 1902, it returned to the old American policy of limiting the protection
and flag of the United States to vessels owned by citizens of the United States or by native inhabitants
of the Philippine Islands (Sec. 117.) Two years later, the same body reverted to the existing
Congressional law by permitting certification to be issued to a citizen of the United States or to a
corporation or company created under the laws of the United States or of any state thereof or of the
Philippine Islands (Act No. 1235, sec. 3.) The two administration codes repeated the same provisions
with the necessary amplification of inclusion of citizens or native inhabitants of the Philippine Islands
(Adm. Code of 1916, sec. 1345; Adm. Code of 1917, sec. 1172). And now Act No. 2761 has returned
to the restrictive idea of the original Customs Administrative Act which in turn was merely a reflection
of the statutory language of the first American Congress.
Provisions such as those in Act No. 2761, which deny to foreigners the right to a certificate of
Philippine registry, are thus found not to be as radical as a first reading would make them appear.
Without any subterfuge, the apparent purpose of the Philippine Legislature is seen to be to enact an
anti-alien shipping act. The ultimate purpose of the Legislature is to encourage Philippine ship-
building. This, without doubt, has, likewise, been the intention of the United States Congress in
passing navigation or tariff laws on different occasions. The object of such a law, the United States
Supreme Court once said, was to encourage American trade, navigation, and ship-building by giving
American ship-owners exclusive privileges. (Old Dominion Steamship Co. vs.Virginia [1905], 198
U.S., 299; Kent's Commentaries, Vol. 3, p. 139.)
In the concurring opinion of Justice Johnson in Gibbons vs. Ogden ([1824], 9 Wheat., 1) is found the
following:
Licensing acts, in fact, in legislation, are universally restraining acts; as, for example, acts
licensing gaming houses, retailers of spirituous liquors, etc. The act, in this instance, is
distinctly of that character, and forms part of an extensive system, the object of which is to
encourage American shipping, and place them on an equal footing with the shipping of other
nations. Almost every commercial nation reserves to its own subjects a monopoly of its
coasting trade; and a countervailing privilege in favor of American shipping is contemplated,
in the whole legislation of the United States on this subject. It is not to give the vessel an
American character, that the license is granted; that effect has been correctly attributed to the
act of her enrollment. But it is to confer on her American privileges, as contradistinguished
from foreign; and to preserve the. Government from fraud by foreigners, in surreptitiously
intruding themselves into the American commercial marine, as well as frauds upon the
revenue in the trade coastwise, that this whole system is projected.
The United States Congress in assuming its grave responsibility of legislating wisely for a new country
did so imbued with a spirit of Americanism. Domestic navigation and trade, it decreed, could only be
carried on by citizens of the United States. If the representatives of the American people acted in this
patriotic manner to advance the national policy, and if their action was accepted without protest in the
courts, who can say that they did not enact such beneficial laws under the all-pervading police 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.
Xxxxxxxxxxxxxxxxxxxxxxxx
2. EN BANC
G.R. No. L-19550 June 19, 1967
HARRY S. STONEHILL, ROBERT P. BROOKS, JOHN J. BROOKS and KARL
BECK, petitioners,
vs.
HON. JOSE W. DIOKNO, in his capacity as SECRETARY OF JUSTICE; JOSE LUKBAN, in
his capacity as Acting Director, National Bureau of Investigation; SPECIAL PROSECUTORS
PEDRO D. CENZON, EFREN I. PLANA and MANUEL VILLAREAL, JR. and ASST. FISCAL
MANASES G. REYES; JUDGE AMADO ROAN, Municipal Court of Manila; JUDGE ROMAN
CANSINO, Municipal Court of Manila; JUDGE HERMOGENES CALUAG, Court of First
Instance of Rizal-Quezon City Branch, and JUDGE DAMIAN JIMENEZ, Municipal Court of
Quezon City, respondents.
Paredes, Poblador, Cruz and Nazareno and Meer, Meer and Meer and Juan T. David for petitioners.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Pacifico P. de Castro,
Assistant Solicitor General Frine C. Zaballero, Solicitor Camilo D. Quiason and Solicitor C. Padua
for respondents.
CONCEPCION, C.J.:
1
Upon application of the officers of the government named on the margin — hereinafter referred to as
Respondents-Prosecutors — several judges2 — hereinafter referred to as Respondents-Judges —
issued, on different dates,3 a total of 42 search warrants against petitioners herein 4 and/or the
corporations of which they were officers, 5 directed to the any peace officer, to search the persons
above-named and/or the premises of their offices, warehouses and/or residences, and to seize and take
possession of the following personal property to wit:
Books of accounts, financial records, vouchers, correspondence, receipts, ledgers, journals,
portfolios, credit journals, typewriters, and other documents and/or papers showing all
business transactions including disbursements receipts, balance sheets and profit and loss
statements and Bobbins (cigarette wrappers).
as "the subject of the offense; stolen or embezzled and proceeds or fruits of the offense," or "used or
intended to be used as the means of committing the offense," which is described in the applications
adverted to above as "violation of Central Bank Laws, Tariff and Customs Laws, Internal Revenue
(Code) and the Revised Penal Code."
Alleging that the aforementioned search warrants are null and void, as contravening the Constitution
and the Rules of Court — because, inter alia: (1) they do not describe with particularity the
documents, books and things to be seized; (2) cash money, not mentioned in the warrants, were
actually seized; (3) the warrants were issued to fish evidence against the aforementioned petitioners in
deportation cases filed against them; (4) the searches and seizures were made in an illegal manner; and
(5) the documents, papers and cash money seized 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 13provides:
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. 20After reviewing previous decisions thereon, said Court held, in Mapp vs. Ohio (supra.):
. . . Today we once again examine the Wolf's constitutional documentation of the right of
privacy free from unreasonable state intrusion, and after its dozen years on our books, are led
by it to close the only courtroom door remaining open to evidence secured by official
lawlessness in flagrant abuse of that basic right, reserved to all persons as a specific guarantee
against that very same unlawful conduct. We hold that all evidence obtained by searches and
seizures in violation of the Constitution is, by that same authority, inadmissible in a State.
Since the Fourth Amendment's right of privacy has been declared enforceable against the
States through the Due Process Clause of the Fourteenth, it is enforceable against them by the
same sanction of exclusion as it used against the Federal Government. Were it otherwise, then
just as without the Weeks rule the assurance against unreasonable federal searches and
seizures would be "a form of words," valueless and underserving of mention in a perpetual
charter of inestimable human liberties, 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.
Xxxxxxxxxxxxxxxxxxxxxxxx
3. EN BANC
[G.R. No. L-32409. February 27, 1971.]
BACHE & CO. (PHIL.), INC. and FREDERICK E. SEGGERMAN, Petitioners, v. HON.
JUDGE VIVENCIO M. RUIZ, MISAEL P. VERA, in his capacity as Commissioner of Internal
Revenue, ARTURO LOGRONIO, RODOLFO DE LEON, GAVINO VELASQUEZ, MIMIR
DELLOSA, NICANOR ALCORDO, JOHN DOE, JOHN DOE, JOHN DOE, and JOHN
DOE, Respondents.
San Juan, Africa, Gonzales & San Agustin, for Petitioners.
Solicitor General Felix Q. Antonio, Assistant Solicitor General Crispin V . Bautista, Solicitor
Pedro A. Ramirez and Special Attorney Jaime M. Maza for Respondents.
DECISION
VILLAMOR, J.:
This is an original action of certiorari, prohibition and mandamus, with prayer for a writ of
preliminary mandatory and prohibitory injunction. In their petition Bache & Co. (Phil.), Inc., a
corporation duly organized and existing under the laws of the Philippines, and its President, Frederick
E. Seggerman, pray this Court to declare null and void Search Warrant No. 2-M-70 issued by
respondent Judge on February 25, 1970; to order respondents to desist from enforcing the same and/or
keeping the documents, papers and effects seized by virtue thereof, as well as from enforcing the tax
assessments on petitioner corporation alleged by petitioners to have been made on the basis of the said
documents, papers and effects, and to order the return of the latter to petitioners. We gave due course to
the petition but did not issue the writ of preliminary injunction prayed for therein.
The pertinent facts of this case, as gathered from record, are as follows:chanrob1es virtual 1aw library
On February 24, 1970, respondent Misael P. Vera, Commissioner of Internal Revenue, wrote a letter
addressed to respondent Judge Vivencio M. Ruiz requesting the issuance of a search warrant against
petitioners for violation of Section 46(a) of the National Internal Revenue Code, in relation to all other
pertinent provisions thereof, particularly Sections 53, 72, 73, 208 and 209, and authorizing Revenue
Examiner Rodolfo de Leon, one of herein respondents, to make and file the application for search
warrant which was attached to the letter.
In the afternoon of the following day, February 25, 1970, respondent De Leon and his witness,
respondent Arturo Logronio, went to the Court of First Instance of Rizal. They brought with them the
following papers: respondent Vera’s aforesaid letter-request; an application for search warrant already
filled up but still unsigned by respondent De Leon; an affidavit of respondent Logronio subscribed
before respondent De Leon; a deposition in printed form of respondent Logronio already accomplished
and signed by him but not yet subscribed; and a search warrant already accomplished but still unsigned
by respondent Judge.
At that time respondent Judge was hearing a certain case; so, by means of a note, he instructed his
Deputy Clerk of Court to take the depositions of respondents De Leon and Logronio. After the session
had adjourned, respondent Judge was informed that the depositions had already been taken. The
stenographer, upon request of respondent Judge, read to him her stenographic notes; and thereafter,
respondent Judge asked respondent Logronio to take the oath and warned him that if his deposition
was found to be false and without legal basis, he could be charged for perjury. Respondent Judge par. 3, of the Constitution, and by Secs. 3 and 4, Rule 126 of the Revised Rules of Court, should be
signed respondent de Leon’s application for search warrant and respondent Logronio’s deposition, conducted by the judge himself and not by others. The phrase "which shall be determined by the judge
Search Warrant No. 2-M-70 was then sign by respondent Judge and accordingly issued. after examination under oath or affirmation of the complainant and the witnesses he may produce,"
appearing in the said constitutional provision, was introduced by Delegate Francisco as an amendment
Three days later, or on February 28, 1970, which was a Saturday, the BIR agents served the search to the draft submitted by the Sub-Committee of Seven. The following discussion in the Constitutional
warrant petitioners at the offices of petitioner corporation on Ayala Avenue, Makati, Rizal. Petitioners’ Convention (Laurel, Proceedings of the Philippine Constitutional Convention, Vol. III, pp. 755-757) is
lawyers protested the search on the ground that no formal complaint or transcript of testimony was enlightening:jgc:chanrobles.com.ph
attached to the warrant. The agents nevertheless proceeded with their search which yielded six boxes
of documents. "SR. ORENSE. Vamos a dejar compañero los piropos y vamos al grano.

On March 3, 1970, petitioners filed a petition with the Court of First Instance of Rizal praying that the
search warrant be quashed, dissolved or recalled, that preliminary prohibitory and mandatory writs of
injunction be issued, that the search warrant be declared null and void, and that the respondents be
ordered to pay petitioners, jointly and severally, damages and attorney’s fees. On March 18, 1970, the
respondents, thru the Solicitor General, filed an answer to the petition. After hearing, the court,
presided over by respondent Judge, issued on July 29, 1970, an order dismissing the petition for
dissolution of the search warrant. In the meantime, or on April 16, 1970, the Bureau of Internal
Revenue made tax assessments on petitioner corporation in the total sum of P2,594,729.97, partly, if
not entirely, based on the documents thus seized. Petitioners came to this Court.
The petition should be granted for the following reasons:chanrob1es virtual 1aw library
1. Respondent Judge failed to personally examine the complainant and his witness.
En los casos de una necesidad de actuar inmediatamente para que no se frusten los fines de la justicia
mediante el registro inmediato y la incautacion del cuerpo del delito, no cree Su Señoria que causaria
cierta demora el procedimiento apuntado en su enmienda en tal forma que podria frustrar los fines de
la justicia o si Su Señoria encuentra un remedio para esto casos con el fin de compaginar los fines de la
justicia con los derechos del individuo en su persona, bienes etcetera, etcetera.
"SR. FRANCISCO. No puedo ver en la practica el caso hipottico que Su Señoria pregunta por la
siguiente razon: el que solicita un mandamiento de registro tiene que hacerlo por escrito y ese escrito
no aparecer en la Mesa del Juez sin que alguien vaya el juez a presentar ese escrito o peticion de
sucuestro. Esa persona que presenta el registro puede ser el mismo denunciante o alguna persona que
solicita dicho mandamiento de registro. Ahora toda la enmienda en esos casos consiste en que haya
peticion de registro y el juez no se atendra solamente a sea peticion sino que el juez examiner a ese
denunciante y si tiene testigos tambin examiner a los testigos.

The pertinent provisions of the Constitution of the Philippines and of the Revised Rules of Court "SR. ORENSE. No cree Su Señoria que el tomar le declaracion de ese denunciante por escrito siempre
are:jgc:chanrobles.com.ph requeriria algun tiempo?.

"(3) The right of the people to be secure in their persons, houses, papers and effects against "SR. FRANCISCO. Seria cuestio de un par de horas, pero por otro lado minimizamos en todo lo
unreasonable searches and seizures shall not be violated, and no warrants shall issue but upon probable posible las vejaciones injustas con la expedicion arbitraria de los mandamientos de registro. Creo que
cause, to be determined by the judge after examination under oath or affirmation of the complainant entre dos males debemos escoger. el menor.
and the witnesses he may produce, and particularly describing the place to be searched, and the persons
or things to be seized." (Art. III, Sec. 1, Constitution.) x x x

"SEC. 3. Requisites for issuing search warrant. — A search warrant shall not issue but upon probable
cause in connection with one specific offense to be determined by the judge or justice of the peace "MR. LAUREL. . . . The reason why we are in favor of this amendment is because we are
after examination under oath or affirmation of the complainant and the witnesses he may produce, and incorporating in our constitution something of a fundamental character. Now, before a judge could
particularly describing the place to be searched and the persons or things to be seized. issue a search warrant, he must be under the obligation to examine personally under oath the
complainant and if he has any witness, the witnesses that he may produce . . ."cralaw virtua1aw library
"No search warrant shall issue for more than one specific offense.
The implementing rule in the Revised Rules of Court, Sec. 4, Rule 126, is more emphatic and candid,
"SEC. 4. Examination of the applicant. — The judge or justice of the peace must, before issuing the for it requires the judge, before issuing a search warrant, to "personally examine on oath or affirmation
warrant, personally examine on oath or affirmation the complainant and any witnesses he may produce the complainant and any witnesses he may produce . . ."cralaw virtua1aw library
and take their depositions in writing, and attach them to the record, in addition to any affidavits
presented to him." (Rule 126, Revised Rules of Court.) Personal examination by the judge of the complainant and his witnesses is necessary to enable him to
determine the existence or non-existence of a probable cause, pursuant to Art. III, Sec. 1, par. 3, of the
The examination of the complainant and the witnesses he may produce, required by Art. III, Sec. 1, Constitution, and Sec. 3, Rule 126 of the Revised Rules of Court, both of which prohibit the issuance
of warrants except "upon probable cause." The determination of whether or not a probable cause exists Constitution and the rules require a personal examination by the judge. It was precisely on account of
calls for the exercise of judgment after a judicial appraisal of facts and should not be allowed to be the intention of the delegates to the Constitutional Convention to make it a duty of the issuing judge to
delegated in the absence of any rule to the contrary. personally examine the complainant and his witnesses that the question of how much time would be
consumed by the judge in examining them came up before the Convention, as can be seen from the
In the case at bar, no personal examination at all was conducted by respondent Judge of the record of the proceedings quoted above. The reading of the stenographic notes to respondent Judge did
complainant (respondent De Leon) and his witness (respondent Logronio). While it is true that the not constitute sufficient compliance with the constitutional mandate and the rule; for by that manner
complainant’s application for search warrant and the witness’ printed-form deposition were subscribed respondent Judge did not have the opportunity to observe the demeanor of the complainant and his
and sworn to before respondent Judge, the latter did not ask either of the two any question the answer witness, and to propound initial and follow-up questions which the judicial mind, on account of its
to which could possibly be the basis for determining whether or not there was probable cause against training, was in the best position to conceive. These were important in arriving at a sound inference on
herein petitioners. Indeed, the participants seem to have attached so little significance to the matter that the all-important question of whether or not there was probable cause.
notes of the proceedings before respondent Judge were not even taken. At this juncture it may be well
to recall the salient facts. The transcript of stenographic notes (pp. 61-76, April 1, 1970, Annex J-2 of 2. The search warrant was issued for more than one specific offense.
the Petition) taken at the hearing of this case in the court below shows that per instruction of
respondent Judge, Mr. Eleodoro V. Gonzales, Special Deputy Clerk of Court, took the depositions of Search Warrant No. 2-M-70 was issued for" [v]iolation of Sec. 46(a) of the National Internal Revenue
the complainant and his witness, and that stenographic notes thereof were taken by Mrs. Gaspar. At Code in relation to all other pertinent provisions thereof particularly Secs. 53, 72, 73, 208 and 209."
that time respondent Judge was at the sala hearing a case. After respondent Judge was through with the The question is: Was the said search warrant issued "in connection with one specific offense," as
hearing, Deputy Clerk Gonzales, stenographer Gaspar, complainant De Leon and witness Logronio required by Sec. 3, Rule 126?
went to respondent Judge’s chamber and informed the Judge that they had finished the depositions.
Respondent Judge then requested the stenographer to read to him her stenographic notes. Special To arrive at the correct answer it is essential to examine closely the provisions of the Tax Code referred
Deputy Clerk Gonzales testified as follows:jgc:chanrobles.com.ph to above. Thus we find the following:chanrob1es virtual 1aw library

"A And after finishing reading the stenographic notes, the Honorable Judge requested or instructed Sec. 46(a) requires the filing of income tax returns by corporations.
them, requested Mr. Logronio to raise his hand and warned him if his deposition will be found to be
false and without legal basis, he can be charged criminally for perjury. The Honorable Court told Mr. Sec. 53 requires the withholding of income taxes at source.
Logronio whether he affirms the facts contained in his deposition and the affidavit executed before Mr.
Rodolfo de Leon. Sec. 72 imposes surcharges for failure to render income tax returns and for rendering false and
fraudulent returns.
"Q And thereafter?
Sec. 73 provides the penalty for failure to pay the income tax, to make a return or to supply the
"A And thereafter, he signed the deposition of Mr. Logronio. information required under the Tax Code.

"Q Who is this he? Sec. 208 penalizes" [a]ny person who distills, rectifies, repacks, compounds, or manufactures any
article subject to a specific tax, without having paid the privilege tax therefore, or who aids or abets in
"A The Honorable Judge. the conduct of illicit distilling, rectifying, compounding, or illicit manufacture of any article subject to
specific tax . . .," and provides that in the case of a corporation, partnership, or association, the official
"Q The deposition or the affidavit? and/or employee who caused the violation shall be responsible.

"A The affidavit, Your Honor."cralaw virtua1aw library Sec. 209 penalizes the failure to make a return of receipts, sales, business, or gross value of output
removed, or to pay the tax due thereon.
Thereafter, respondent Judge signed the search warrant.
The search warrant in question was issued for at least four distinct offenses under the Tax Code. The
The participation of respondent Judge in the proceedings which led to the issuance of Search Warrant first is the violation of Sec. 46(a), Sec. 72 and Sec. 73 (the filing of income tax returns), which are
No. 2-M-70 was thus limited to listening to the stenographer’s readings of her notes, to a few words of interrelated. The second is the violation of Sec. 53 (withholding of income taxes at source). The third is
warning against the commission of perjury, and to administering the oath to the complainant and his the violation of Sec. 208 (unlawful pursuit of business or occupation); and the fourth is the violation of
witness. This cannot be consider a personal examination. If there was an examination at all of the Sec. 209 (failure to make a return of receipts, sales, business or gross value of output actually removed
complainant and his witness, it was the one conducted by the Deputy Clerk of Court. But, as stated, the or to pay the tax due thereon). Even in their classification the six above-mentioned provisions are
embraced in two different titles: Secs. 46(a), 53, 72 and 73 are under Title II (Income Tax); while Secs. transactions of petitioners herein, regardless of whether the transactions were legal or illegal. The
208 and 209 are under Title V (Privilege Tax on Business and Occupation). 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
Respondents argue that Stonehill, Et. Al. v. Diokno, Et Al., L-19550, June 19, 1967 (20 SCRA 383), is things to be seized be particularly described — as well as tending to defeat its major objective: the
not applicable, because there the search warrants were issued for "violation of Central Bank Laws, elimination of general warrants."cralaw virtua1aw library
Internal Revenue (Code) and Revised Penal Code;" whereas, here Search Warrant No 2-M-70 was
issued for violation of only one code, i.e., the National Internal Revenue Code. The distinction more While the term "all business transactions" does not appear in Search Warrant No. 2-M-70, the said
apparent than real, because it was precisely on account of the Stonehill incident, which occurred warrant nevertheless tends to defeat the major objective of the Bill of Rights, i.e., the elimination of
sometime before the present Rules of Court took effect on January 1, 1964, that this Court amended the general warrants, for the language used therein is so all-embracing as to include all conceivable records
former rule by inserting therein the phrase "in connection with one specific offense," and adding the of petitioner corporation, which, if seized, could possibly render its business inoperative.
sentence "No search warrant shall issue for more than one specific offense," in what is now Sec. 3,
Rule 126. Thus we said in Stonehill:jgc:chanrobles.com.ph In Uy Kheytin, Et. Al. v. Villareal, etc., Et Al., 42 Phil. 886, 896, this Court had occasion to explain the
purpose of the requirement that the warrant should particularly describe the place to be searched and
"Such is the seriousness of the irregularities committed in connection with the disputed search the things to be seized, to wit:jgc:chanrobles.com.ph
warrants, that this Court deemed it fit to amend Section 3 of Rule 122 of the former Rules of Court that
‘a search warrant shall not issue but upon probable cause in connection with one specific offense.’ Not ". . . Both the Jones Law (sec. 3) and General Orders No. 58 (sec. 97) specifically require that a search
satisfied with this qualification, the Court added thereto a paragraph, directing that ‘no search warrant warrant should particularly describe the place to be searched and the things to be seized. The evident
shall issue for more than one specific offense.’" purpose and intent of this requirement is to limit the things to be seized to those, and only those,
particularly described in the search warrant — to leave the officers of the law with no discretion
3. The search warrant does not particularly describe the things to be seized. regarding what articles they shall seize, to the end that ‘unreasonable searches and seizures’ may not be
made, — that abuses may not be committed. That this is the correct interpretation of this constitutional
The documents, papers and effects sought to be seized are described in Search Warrant No. 2-M-70 in provision is borne out by American authorities."cralaw virtua1aw library
this manner:jgc:chanrobles.com.ph
The purpose as thus explained could, surely and effectively, be defeated under the search warrant
"Unregistered and private books of accounts (ledgers, journals, columnars, receipts and disbursements issued in this case.
books, customers ledgers); receipts for payments received; certificates of stocks and securities;
contracts, promissory notes and deeds of sale; telex and coded messages; business communications, A search warrant may be said to particularly describe the things to be seized when the description
accounting and business records; checks and check stubs; records of bank deposits and withdrawals; therein is as specific as the circumstances will ordinarily allow (People v. Rubio; 57 Phil. 384); or
and records of foreign remittances, covering the years 1966 to 1970."cralaw virtua1aw library when the description expresses a conclusion of fact — not of law — by which the warrant officer may
be guided in making the search and seizure (idem., dissent of Abad Santos, J.,); or when the things
The description does not meet the requirement in Art III, Sec. 1, of the Constitution, and of Sec. 3, described are limited to those which bear direct relation to the offense for which the warrant is being
Rule 126 of the Revised Rules of Court, that the warrant should particularly describe the things to be issued (Sec. 2, Rule 126, Revised Rules of Court). The herein search warrant does not conform to any
seized. of the foregoing tests. If the articles desired to be seized have any direct relation to an offense
committed, the applicant must necessarily have some evidence, other than those articles, to prove the
In Stonehill, this Court, speaking thru Mr. Chief Justice Roberto Concepcion, said offense; and the articles subject of search and seizure should come in handy merely to strengthen
said:jgc:chanrobles.com.ph such evidence. In this event, the description contained in the herein disputed warrant should have
mentioned, at least, the dates, amounts, persons, and other pertinent data regarding the receipts of
"The grave violation of the Constitution made in the application for the contested search warrants was payments, certificates of stocks and securities, contracts, promissory notes, deeds of sale, messages and
compounded by the description therein made of the effects to be searched for and seized, to communications, checks, bank deposits and withdrawals, records of foreign remittances, among others,
wit:chanrob1es virtual 1aw library enumerated in the warrant.

‘Books of accounts, financial records, vouchers, journals, correspondence, receipts, ledgers, portfolios,
credit journals, typewriters, and other documents and/or paper showing all business transactions
including 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
Respondents contend that certiorari does not lie because petitioners failed to file a motion for
reconsideration of respondent Judge’s order of July 29, 1970. The contention is without merit. In the
first place, when the questions raised before this Court are the same as those which were squarely
raised in and passed upon by the court below, the filing of a motion for reconsideration in said court
before certiorari can be instituted in this Court is no longer a prerequisite. (Pajo, etc., Et. Al. v. Ago, Et
Al., 108 Phil., 905). In the second place, the rule requiring the filing of a motion for reconsideration In the Stonehill case only the officers of the various corporations in whose offices documents, papers
before an application for a writ of certiorari can be entertained was never intended to be applied and effects were searched and seized were the petitioners. In the case at bar, the corporation to whom
without considering the circumstances. (Matutina v. Buslon, Et Al., 109 Phil., 140.) In the case at bar the seized documents belong, and whose rights have thereby been impaired, is itself a petitioner. On
time is of the essence in view of the tax assessments sought to be enforced by respondent officers of that score, petitioner corporation here stands on a different footing from the corporations in Stonehill.
the Bureau of Internal Revenue against petitioner corporation, On account of which immediate and
more direct action becomes necessary. (Matute v. Court of Appeals, Et Al., 26 SCRA 768.) Lastly, the The tax assessments referred to earlier in this opinion were, if not entirely — as claimed by petitioners
rule does not apply where, as in this case, the deprivation of petitioners’ fundamental right to due — at least partly — as in effect admitted by respondents — based on the documents seized by virtue of
process taints the proceeding against them in the court below not only with irregularity but also with Search Warrant No. 2-M-70. Furthermore, the fact that the assessments were made some one and one-
nullity. (Matute v. Court of Appeals, Et Al., supra.) half months after the search and seizure on February 25, 1970, is a strong indication that the
documents thus seized served as basis for the assessments. Those assessments should therefore not be
It is next contended by respondents that a corporation is not entitled to protection against unreasonable enforced.
search and seizures. Again, we find no merit in the contention.
PREMISES CONSIDERED, the petition is granted. Accordingly, Search Warrant No. 2-M-70 issued
"Although, for the reasons above stated, we are of the opinion that an officer of a corporation which is by respondent Judge is declared null and void; respondents are permanently enjoined from enforcing
charged with a violation of a statute of the state of its creation, or of an act of Congress passed in the the said search warrant; the documents, papers and effects seized thereunder are ordered to be returned
exercise of its constitutional powers, cannot refuse to produce the books and papers of such to petitioners; and respondent officials the Bureau of Internal Revenue and their representatives are
corporation, we do not wish to be understood as holding that a corporation is not entitled to immunity, permanently enjoined from enforcing the assessments mentioned in Annex "G" of the present petition,
under the 4th Amendment, against unreasonable searches and seizures. A corporation is, after all, but as well as other assessments based on the documents, papers and effects seized under the search
an association of individuals under an assumed name and with a distinct legal entity. In organizing warrant herein nullified, and from using the same against petitioners in any criminal or other
itself as a collective body it waives no constitutional immunities appropriate to such body. Its property proceeding. No pronouncement as to costs.
cannot be taken without compensation. It can only be proceeded against by due process of law, and is
protected, under the 14th Amendment, against unlawful discrimination . . ." (Hale v. Henkel, 201 U.S. Xxxxxxxxxxxxxxxxxxxxxxxx
43, 50 L. ed. 652.)
4. SECOND DIVISION
"In Linn v. United States, 163 C.C.A. 470, 251 Fed. 476, 480, it was thought that a different rule
applied to a corporation, the ground that it was not privileged from producing its books and papers. But
the rights of a corporation against unlawful search and seizure are to be protected even if the same G.R. No. L-27155 May 18, 1978
result might have been achieved in a lawful way." (Silverthorne Lumber Company, Et. Al. v. United
States of America, 251 U.S. 385, 64 L. ed. 319.) PHILIPPINE NATIONAL BANK, petitioner,
vs.
In Stonehill, Et. Al. v. Diokno, Et Al., supra, this Court impliedly recognized the right of a corporation THE COURT OF APPEALS, RITA GUECO TAPNIO, CECILIO GUECO and THE
to object against unreasonable searches and seizures, thus:jgc:chanrobles.com.ph PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC., respondents.

"As regards the first group, we hold that petitioners herein have no cause of action to assail the legality Medina, Locsin, Coruña, & Sumbillo for petitioner.
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 Manuel Lim & Associates for private respondents.
petitioners, regardless of the amount of shares of stock or the interest of each of them in said
corporations, whatever, the offices they hold therein may be. Indeed, it is well settled that the legality
of a seizure can be contested only by the party whose rights have been impaired thereby, and that the
objection to an unlawful search and seizure is purely personal and cannot be availed of by third parties.
Consequently, petitioners herein may not validly object to the use in evidence against them of the ANTONIO, J.:
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 Certiorari to review the decision of the Court of Appeals which affirmed the judgment of the Court of
corporations, to whom the seized effects belong, and may not be invoked by the corporate officers in First Instance of Manila in Civil Case No. 34185, ordering petitioner, as third-party defendant, to pay
proceedings against them in their individual capacity . . ."cralaw virtua1aw library respondent Rita Gueco Tapnio, as third-party plaintiff, the sum of P2,379.71, plus 12% interest per
annum from September 19, 1957 until the same is fully paid, P200.00 attorney's fees and costs, the
same amounts which Rita Gueco Tapnio was ordered to pay the Philippine American General
Insurance Co., Inc., to be paid directly to the Philippine American General Insurance Co., Inc. in full
satisfaction of the judgment rendered against Rita Gueco Tapnio in favor of the former; plus P500.00
attorney's fees for Rita Gueco Tapnio and costs. The basic action is the complaint filed by Philamgen
(Philippine American General Insurance Co., Inc.) as surety against Rita Gueco Tapnio and Cecilio
Gueco, for the recovery of the sum of P2,379.71 paid by Philamgen to the Philippine National Bank on
behalf of respondents Tapnio and Gueco, pursuant to an indemnity agreement. Petitioner Bank was
made third-party defendant by Tapnio and Gueco on the theory that their failure to pay the debt was
due to the fault or negligence of petitioner.
The facts as found by the respondent Court of Appeals, in affirming the decision of the Court of First
Instance of Manila, are quoted hereunder:
Plaintiff executed its Bond, Exh. A, with defendant Rita Gueco Tapnio as principal,
in favor of the Philippine National Bank Branch at San Fernando, Pampanga, to
guarantee the payment of defendant Rita Gueco Tapnio's account with said Bank. In
turn, to guarantee the payment of whatever amount the bonding company would pay
to the Philippine National Bank, both defendants executed the indemnity agreement,
Exh. B. Under the terms and conditions of this indemnity agreement, whatever
amount the plaintiff would pay would earn interest at the rate of 12% per annum,
plus attorney's fees in the amount of 15 % of the whole amount due in case of court
litigation.
The original amount of the bond was for P4,000.00; but the amount was later
reduced to P2,000.00.
It is not disputed that defendant Rita Gueco Tapnio was indebted to the bank in the
sum of P2,000.00, plus accumulated interests unpaid, which she failed to pay despite
demands. The Bank wrote a letter of demand to plaintiff, as per Exh. C; whereupon,
plaintiff paid the bank on September 18, 1957, the full amount due and owing in the
sum of P2,379.91, for and on account of defendant Rita Gueco's obligation (Exhs. D
and D-1).
Plaintiff, in turn, made several demands, both verbal and written, upon defendants
(Exhs. E and F), but to no avail.
Defendant Rita Gueco Tapnio admitted all the foregoing facts. She claims, however,
when demand was made upon her by plaintiff for her to pay her debt to the Bank,
that she told the Plaintiff that she did not consider herself to be indebted to the Bank
at all because she had an agreement with one Jacobo-Nazon whereby she had leased
to the latter her unused export sugar quota for the 1956-1957 agricultural year,
consisting of 1,000 piculs at the rate of P2.80 per picul, or for a total of P2,800.00,
which was already in excess of her obligation guaranteed by plaintiff's bond, Exh. A.
This lease agreement, according to her, was with the knowledge of the bank. But the
Bank has placed obstacles to the consummation of the lease, and the delay caused by
said obstacles forced 'Nazon to rescind the lease contract. Thus, Rita Gueco Tapnio
filed her third-party complaint against the Bank to recover from the latter any and all
sums of money which may be adjudged against her and in favor of the plaitiff plus
moral damages, attorney's fees and costs.
Insofar as the contentions of the parties herein are concerned, we quote with
approval the following findings of the lower court based on the evidence presented at
the trial of the case:
It has been established during the trial that Mrs. Tapnio had an
export sugar quota of 1,000 piculs for the agricultural year 1956-
1957 which she did not need. She agreed to allow Mr. Jacobo C.
Tuazon to use said quota for the consideration of P2,500.00 (Exh.
"4"-Gueco). This agreement was called a contract of lease of sugar
allotment.
At the time of the agreement, Mrs. Tapnio was indebted to the
Philippine National Bank at San Fernando, Pampanga. Her
indebtedness was known as a crop loan and was secured by a
mortgage on her standing crop including her sugar quota allocation
for the agricultural year corresponding to said standing crop. This
arrangement was necessary in order that when Mrs. Tapnio
harvests, the P.N.B., having a lien on the crop, may effectively
enforce collection against her. Her sugar cannot be exported
without sugar quota allotment Sometimes, however, a planter
harvest less sugar than her quota, so her excess quota is utilized by
another who pays her for its use. This is the arrangement entered
into between Mrs. Tapnio and Mr. Tuazon regarding the former's
excess quota for 1956-1957 (Exh. "4"-Gueco).
Since the quota was mortgaged to the P.N.B., the contract of lease
had to be approved by said Bank, The same was submitted to the
branch manager at San Fernando, Pampanga. The latter required
the parties to raise the consideration of P2.80 per picul or a total of
P2,800.00 (Exh. "2-Gueco") informing them that "the minimum
lease rental acceptable to the Bank, is P2.80 per picul." In a letter
addressed to the branch manager on August 10, 1956, Mr. Tuazon
informed the manager that he was agreeable to raising the
consideration to P2.80 per picul. He further informed the manager
that he was ready to pay said amount as the funds were in his
folder which was kept in the bank.
Explaining the meaning of Tuazon's statement as to the funds, it
was stated by him that he had an approved loan from the bank but
he had not yet utilized it as he was intending to use it to pay for the
 quota. Hence, when he said the amount needed to pay Mrs. Tapnio
was in his folder which was in the bank, he meant and the manager
understood and knew he had an approved loan available to be used
in payment of the quota. In said Exh. "6-Gueco", Tuazon also
informed the manager that he would want for a notice from the
manager as to the time when the bank needed the money so that
Tuazon could sign the corresponding promissory note.
Further Consideration of the evidence discloses that when the branch manager of the
Philippine National Bank at San Fernando recommended the approval of the contract
of lease at the price of P2.80 per picul (Exh. 1 1-Bank), whose recommendation was
concurred in by the Vice-president of said Bank, J. V. Buenaventura, the board of
directors required that the amount be raised to 13.00 per picul. This act of the board
of directors was communicated to Tuazon, who in turn asked for a reconsideration
thereof. On November 19, 1956, the branch manager submitted Tuazon's request for
reconsideration to the board of directors with another recommendation for the
approval of the lease at P2.80 per picul, but the board returned the recommendation
unacted upon, considering that the current price prevailing at the time was P3.00 per
picul (Exh. 9-Bank).
The parties were notified of the refusal on the part of the board of directors of the
Bank to grant the motion for reconsideration. The matter stood as it was until
February 22, 1957, when Tuazon wrote a letter (Exh. 10-Bank informing the Bank
that he was no longer interested to continue the deal, referring to the lease of sugar
quota allotment in favor of defendant Rita Gueco Tapnio. The result is that the latter
lost the sum of P2,800.00 which she should have received from Tuazon and which
she could have paid the Bank to cancel off her indebtedness,
The court below held, and in this holding we concur that failure of the negotiation
for the lease of the sugar quota allocation of Rita Gueco Tapnio to Tuazon was due to
the fault of the directors of the Philippine National Bank, The refusal on the part of
the bank to approve the lease at the rate of P2.80 per picul which, as stated above,
would have enabled Rita Gueco Tapnio to realize the amount of P2,800.00 which
was more than sufficient to pay off her indebtedness to the Bank, and its insistence
on the rental price of P3.00 per picul thus unnecessarily increasing the value by only
a difference of P200.00. inevitably brought about the rescission of the lease contract
to the damage and prejudice of Rita Gueco Tapnio in the aforesaid sum of P2,800.00.
The unreasonableness of the position adopted by the board of directors of the
Philippine National Bank in refusing to approve the lease at the rate of P2.80 per
picul and insisting on the rate of P3.00 per picul, if only to increase the retail value
by only P200.00 is shown by the fact that all the accounts of Rita Gueco Tapnio with
the Bank were secured by chattel mortgage on standing crops, assignment of
leasehold rights and interests on her properties, and surety bonds, aside from the fact
that from Exh. 8-Bank, it appears that she was offering to execute a real estate
mortgage in favor of the Bank to replace the surety bond This statement is further
bolstered by the fact that Rita Gueco Tapnio apparently had the means to pay her
obligation fact that she has been granted several value of almost P80,000.00 for the
agricultural years from 1952 to 56. 1
Its motion for the reconsideration of the decision of the Court of Appeals having been denied,
petitioner filed the present petition.
The petitioner contends that the Court of Appeals erred:
(1) In finding that the rescission of the lease contract of the 1,000 piculs of sugar quota allocation of
respondent Rita Gueco Tapnio by Jacobo C. Tuazon was due to the unjustified refusal of petitioner to
approve said lease contract, and its unreasonable insistence on the rental price of P3.00 instead of
P2.80 per picul; and
(2) In not holding that based on the statistics of sugar price and prices of sugar quota in the possession
of the petitioner, the latter's Board of Directors correctly fixed the rental of price per picul of 1,000
piculs of sugar quota leased by respondent Rita Gueco Tapnio to Jacobo C. Tuazon at P3.00 per picul.
Petitioner argued that as an assignee of the sugar quota of Tapnio, it has the right, both under its own
Charter and under the Corporation Law, to safeguard and protect its rights and interests under the deed
of assignment, which include the right to approve or disapprove the said lease of sugar quota and in the
exercise of that authority, its
Board of Directors necessarily had authority to determine and fix the rental price per picul of the sugar
quota subject of the lease between private respondents and Jacobo C. Tuazon. It argued further that
both under its Charter and the Corporation Law, petitioner, acting thru its Board of Directors, has the
perfect right to adopt a policy with respect to fixing of rental prices of export sugar quota allocations,
and in fixing the rentals at P3.00 per picul, it did not act arbitrarily since the said Board was guided by
statistics of sugar price and prices of sugar quotas prevailing at the time. Since the fixing of the rental
of the sugar quota is a function lodged with petitioner's Board of Directors and is a matter of policy, the
respondent Court of Appeals could not substitute its own judgment for that of said Board of Directors,
which acted in good faith, making as its basis therefore the prevailing market price as shown by
statistics which were then in their possession.
Finally, petitioner emphasized that under the appealed judgment, it shall suffer a great injustice
because as a creditor, it shall be deprived of a just claim against its debtor (respondent Rita Gueco
Tapnio) as it would be required to return to respondent Philamgen the sum of P2,379.71, plus interest,
which amount had been previously paid to petitioner by said insurance company in behalf of the
principal debtor, herein respondent Rita Gueco Tapnio, and without recourse against respondent Rita
Gueco Tapnio.
We must advert to the rule that this Court's appellate jurisdiction in proceedings of this nature is limited
to reviewing only errors of law, accepting as conclusive the factual fin dings of the Court of Appeals
upon its own assessment of the evidence. 2
The contract of lease of sugar quota allotment at P2.50 per picul between Rita Gueco Tapnio and
Jacobo C. Tuazon was executed on April 17, 1956. This contract was submitted to the Branch Manager
of the Philippine National Bank at San Fernando, Pampanga. This arrangement was necessary because
Tapnio's indebtedness to petitioner was secured by a mortgage on her standing crop including her sugar
quota allocation for the agricultural year corresponding to said standing crop. The latter required the
parties to raise the consideration to P2.80 per picul, the minimum lease rental acceptable to the Bank,
or a total of P2,800.00. Tuazon informed the Branch Manager, thru a letter dated August 10, 1956, that
he was agreeable to raising the consideration to P2.80 per picul. He further informed the manager that
he was ready to pay the said sum of P2,800.00 as the funds were in his folder which was kept in the
said Bank. This referred to the approved loan of Tuazon from the Bank which he intended to use in
paying for the use of the sugar quota. The Branch Manager submitted the contract of lease of sugar
quota allocation to the Head Office on September 7, 1956, with a recommendation for approval, which
recommendation was concurred in by the Vice-President of the Bank, Mr. J. V. Buenaventura. This
notwithstanding, the Board of Directors of petitioner required that the consideration be raised to P3.00
per picul.
Tuazon, after being informed of the action of the Board of Directors, asked for a reconsideration
thereof. On November 19, 1956, the Branch Manager submitted the request for reconsideration and
again recommended the approval of the lease at P2.80 per picul, but the Board returned the
recommendation unacted, stating that the current price prevailing at that time was P3.00 per picul.
On February 22, 1957, Tuazon wrote a letter, informing the Bank that he was no longer interested in
continuing the lease of sugar quota allotment. The crop year 1956-1957 ended and Mrs. Tapnio failed
to utilize her sugar quota, resulting in her loss in the sum of P2,800.00 which she should have received
had the lease in favor of Tuazon been implemented.
It has been clearly shown that when the Branch Manager of petitioner required the parties to raise the
consideration of the lease from P2.50 to P2.80 per picul, or a total of P2,800-00, they readily agreed.
Hence, in his letter to the Branch Manager of the Bank on August 10, 1956, Tuazon informed him that
the minimum lease rental of P2.80 per picul was acceptable to him and that he even offered to use the
loan secured by him from petitioner to pay in full the sum of P2,800.00 which was the total
consideration of the lease. This arrangement was not only satisfactory to the Branch Manager but it
was also approves by Vice-President J. V. Buenaventura of the PNB. Under that arrangement, Rita
Gueco Tapnio could have realized the amount of P2,800.00, which was more than enough to pay the
balance of her indebtedness to the Bank which was secured by the bond of Philamgen.
There is no question that Tapnio's failure to utilize her sugar quota for the crop year 1956-1957 was
due to the disapproval of the lease by the Board of Directors of petitioner. The issue, therefore, is
whether or not petitioner is liable for the damage caused.
As observed by the trial court, time is of the essence in the approval of the lease of sugar quota
allotments, since the same must be utilized during the milling season, because any allotment which is
not filled during such milling season may be reallocated by the Sugar Quota Administration to other
holders of allotments. 3 There was no proof that there was any other person at that time willing to lease
the sugar quota allotment of private respondents for a price higher than P2.80 per picul. "The fact that
there were isolated transactions wherein the consideration for the lease was P3.00 a picul", according
to the trial court, "does not necessarily mean that there are always ready takers of said price. " The
unreasonableness of the position adopted by the petitioner's Board of Directors is shown by the fact
that the difference between the amount of P2.80 per picul offered by Tuazon and the P3.00 per picul
demanded by the Board amounted only to a total sum of P200.00. Considering that all the accounts of
Rita Gueco Tapnio with the Bank were secured by chattel mortgage on standing crops, assignment of
leasehold rights and interests on her properties, and surety bonds and that she had apparently "the
means to pay her obligation to the Bank, as shown by the fact that she has been granted several sugar
crop loans of the total value of almost P80,000.00 for the agricultural years from 1952 to 1956", there
was no reasonable basis for the Board of Directors of petitioner to have rejected the lease agreement
because of a measly sum of P200.00.
While petitioner had the ultimate authority of approving or disapproving the proposed lease since the
quota was mortgaged to the Bank, the latter certainly cannot escape its responsibility of observing, for
the protection of the interest of private respondents, that degree of care, precaution and vigilance which
the circumstances justly demand in approving or disapproving the lease of said sugar quota. The law
makes it imperative that every person "must in the exercise of his rights and in the performance of his
duties, act with justice, give everyone his due, and observe honesty and good faith, 4 This petitioner
failed to do. Certainly, it knew that the agricultural year was about to expire, that by its disapproval of
the lease private respondents would be unable to utilize the sugar quota in question. In failing to
observe the reasonable degree of care and vigilance which the surrounding circumstances reasonably
impose, petitioner is consequently liable for the damages caused on private respondents. Under Article
21 of the New Civil Code, "any person who wilfully causes loss or injury to another in a manner that is
contrary to morals, good customs or public policy shall compensate the latter for the damage." The
afore-cited provisions on human relations were intended to expand the concept of torts in this
jurisdiction by granting adequate legal remedy for the untold number of moral wrongs which is
impossible for human foresight to specifically provide in the statutes. 5
A corporation is civilly liable in the same manner as natural persons for torts, because "generally
speaking, the rules governing the liability of a principal or master for a tort committed by an agent or
servant are the same whether the principal or master be a natural person or a corporation, and whether
the servant or agent be a natural or artificial person. All of the authorities agree that a principal or
master is liable for every tort which he expressly directs or authorizes, and this is just as true of a
corporation as of a natural person, A corporation is liable, therefore, whenever a tortious act is
committed by an officer or agent under express direction or authority from the stockholders or
members acting as a body, or, generally, from the directors as the governing body." 6
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals is hereby AFFIRMED.
Xxxxxxxxxxxxxxxxxx
G. Criminal Liability
1. EN BANC
G.R. No. L-35262 March 15, 1930
THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellant, return, for purposes of taxation, of the total amount of sale made by said false return constitutes a
vs. violation of law, the defendant, as the author of the illegal act, must necessarily answer for its
TAN BOON KONG, defendant-appellee. consequences, provided that the allegation are proven.
Attorney-General Jaranilla for appellant. The ruling of the court below sustaining the demurrer to the complaint is therefore reversed, and the
Alejandro de Aboitiz Pinaga for appellee. case will be returned to said court for further proceedings not inconsistent with our view as hereinafter
OSTRAND, J.: stated. Without costs. So ordered.
This is an appeal from an order of the Judge of the Twenty-third Judicial District sustaining to Xxxxxxxxxxxxxxxxxx
demurrer to an information charging the defendant Tan Boon Kong with the violation of section 1458
of Act No. 2711 as amended. The information reads as follows: 2. SECOND DIVISION
That on and during the four quarters of the year 1924, in the municipality of Iloilo, Province
of Iloilo, Philippine Islands, the said accused, as corporation organized under the laws of the
Philippine Islands and engaged in the purchase and the sale of sugar, "bayon," coprax, and MANUEL C. ESPIRITU, JR., AUDIE G.R. No. 170891
other native products and as such object to the payment of internal-revenue taxes upon its LLONA, FREIDA F. ESPIRITU,
sales, did then and there voluntarily, illegally, and criminally declare in 1924 for the purpose CARLO F. ESPIRITU, RAFAEL F.
of taxation only the sum of P2,352,761.94, when in truth and in fact, and the accused well ESPIRITU, ROLANDO M. MIRABUNA,
knew that the total gross sales of said corporation during that year amounted to P2543,303.44, HERMILYN A. MIRABUNA, KIM
thereby failing to declare for the purpose of taxation the amount of P190,541.50, and ROLAND A. MIRABUNA, KAYE
voluntarily and illegally not paying the Government as internal-revenue percentage taxes the ANN A. MIRABUNA, KEN RYAN A.
sum of P2,960.12, corresponding to 1½ per cent of said undeclared sales. MIRABUNA, JUANITO P. DE
The question to be decided is whether the information sets forth facts rendering the defendant, as CASTRO, GERONIMA A. ALMONITE
manager of the corporation liable criminally under section 2723 of Act No. 2711 for violation of and MANUEL C. DEE, who are the
section 1458 of the same act for the benefit of said corporation. Section 1458 and 2723 read as follows: officers and directors of BICOL GAS
SEC. 1458. Payment of percentage taxes — Quarterly reports of earnings. — The percentage REFILLING PLANT CORPORATION,
taxes on business shall be payable at the end of each calendar quarter in the amount lawfully Petitioners, Present:
due on the business transacted during each quarter; and it shall be on the duty of every person Carpio, J., Chairperson,
conducting a business subject to such tax, within the same period as is allowed for the - versus - Leonardo-De Castro,
payment of the quarterly installments of the fixed taxes without penalty, to make a true and Brion,
complete return of the amount of the receipts or earnings of his business during the Del Castillo, and
preceeding quarter and pay the tax due thereon. . . . (Act No. 2711.) Abad, JJ.
SEC. 2723. Failure to make true return of receipts and sales. — Any person who, being PETRON CORPORATION and
required by law to make a return of the amount of his receipts, sales, or business, shall fail or CARMEN J. DOLOIRAS, doing
neglect to make such return within the time required, shall be punished by a fine not business under the name KRISTINA Promulgated:
exceeding two thousand pesos or by imprisonment for a term not exceeding one year, or both. PATRICIA ENTERPRISES,
And any such person who shall make a false or fraudulent return shall be punished by a fine Respondents. November 24, 2009
not exceeding ten thousand pesos or by imprisonment for a term not exceeding two years, or
both. (Act No. 2711.) x ---------------------------------------------------------------------------------------- x
Apparently, the court below based the appealed ruling on the ground that the offense charged must be
regarded as committed by the corporation and not by its officials or agents. This view is in direct
conflict with the great weight of authority. a corporation can act only through its officers and agent s, DECISION
and where the business itself involves a violation of the law, the correct rule is that all who participate
in it are liable (Grall and Ostrand's Case, 103 Va., 855, and authorities there cited.) ABAD, J.:
In case of State vs. Burnam (17 Wash., 199), the court went so far as to hold that the manager of a diary
corporation was criminally liable for the violation of a statute by the corporation through he was not
present when the offense was committed. This case is about the offense or offenses that arise from the reloading of the liquefied petroleum gas
In the present case the information or complaint alleges that he defendant was the manager of a cylinder container of one brand with the liquefied petroleum gas of another brand.
corporation which was engaged in business as a merchant, and as such manager, he made a false
 The Facts and the Case
Respondent Petron Corporation (Petron) sold and distributed liquefied petroleum gas (LPG)
in cylinder tanks that carried its trademark Gasul. [1] Respondent Carmen J. Doloiras owned and
operated Kristina Patricia Enterprises (KPE), the exclusive distributor of Gasul LPGs in the whole of
Sorsogon.[2] Jose Nelson Doloiras (Jose) served as KPEs manager.
Bicol Gas Refilling Plant Corporation (Bicol Gas) was also in the business of selling and
distributing LPGs in Sorsogon but theirs carried the trademark Bicol Savers Gas. Petitioner Audie
Llona managed Bicol Gas.
In the course of trade and competition, any given distributor of LPGs at times acquired
possession of LPG cylinder tanks belonging to other distributors operating in the same area. They
called these captured cylinders. According to Jose, KPEs manager, in April 2001 Bicol Gas agreed
with KPE for the swapping of captured cylinders since one distributor could not refill captured
cylinders with its own brand of LPG. At one time, in the course of implementing this arrangement,
KPEs Jose visited the Bicol Gas refilling plant. While there, he noticed several Gasul tanks in Bicol
Gas possession. He requested a swap but Audie Llona of Bicol Gas replied that he first needed to ask
the permission of the Bicol Gas owners. That permission was given and they had a swap involving
around 30 Gasul tanks held by Bicol Gas in exchange for assorted tanks held by KPE.
KPEs Jose noticed, however, that Bicol Gas still had a number of Gasul tanks in its yard. He
offered to make a swap for these but Llona declined, saying the Bicol Gas owners wanted to send those
tanks to Batangas. Later Bicol Gas told Jose that it had no more Gasul tanks left in its possession. Jose
observed on almost a daily basis, however, that Bicol Gas trucks which plied the streets of the province
carried a load of Gasul tanks. He noted that KPEs volume of sales dropped significantly from June to
July 2001.
On August 4, 2001 KPEs Jose saw a particular Bicol Gas truck on the Maharlika
Highway. While the truck carried mostly Bicol Savers LPG tanks, it had on it one unsealed 50-kg
Gasul tank and one 50-kg Shellane tank. Jose followed the truck and when it stopped at a store, he
asked the driver, Jun Leorena, and the Bicol Gas sales representative, Jerome Misal, about the Gasul
tank in their truck. They said it was empty but, when Jose turned open its valve, he noted that it was
not. Misal and Leorena then admitted that the Gasul and Shellane tanks on their truck belonged to a
customer who had them filled up by Bicol Gas. Misal then mentioned that his manager was a certain
Rolly Mirabena.
Because of the above incident, KPE filed a complaint [3] for violations of Republic Act (R.A.)
623 (illegally filling up registered cylinder tanks), as amended, and Sections 155 (infringement of trade
marks) and 169.1 (unfair competition) of the Intellectual Property Code (R.A. 8293). The complaint
charged the following: Jerome Misal, Jun Leorena, Rolly Mirabena, Audie Llona, and several John and
Jane Does, described as the directors, officers, and stockholders of Bicol Gas. These directors, officers,
and stockholders were eventually identified during the preliminary investigation.
Subsequently, the provincial prosecutor ruled that there was probable cause only for violation
of R.A. 623 (unlawfully filling up registered tanks) and that only the four Bicol Gas employees,
Mirabena, Misal, Leorena, and petitioner Llona, could be charged. The charge against the other
petitioners who were the stockholders and directors of the company was dismissed.
Dissatisfied, Petron and KPE filed a petition for review with the Office of the Regional State
Prosecutor, Region V, which initially denied the petition but partially granted it on motion for
reconsideration. The Office of the Regional State Prosecutor ordered the filing of additional
informations against the four employees of Bicol Gas for unfair competition. It ruled, however, that no
case for trademark infringement was present. The Secretary of Justice denied the appeal of Petron and
KPE and their motion for reconsideration.
Undaunted, Petron and KPE filed a special civil action for certiorari with the Court of
Appeals[4] but the Bicol Gas employees and stockholders concerned opposed it, assailing the
inadequacy in its certificate of non-forum shopping, given that only Atty. Joel Angelo C. Cruz signed it
on behalf of Petron. In its Decision[5] dated October 17, 2005, the Court of Appeals ruled, however, that
Atty. Cruzs certification constituted sufficient compliance. As to the substantive aspect of the case, the
Court of Appeals reversed the Secretary of Justices ruling. It held that unfair competition does not
necessarily absorb trademark infringement. Consequently, the court ordered the filing of additional
charges of trademark infringement against the concerned Bicol Gas employees as well.
Since the Bicol Gas employees presumably acted under the direct order and control of its
owners, the Court of Appeals also ordered the inclusion of the stockholders of Bicol Gas in the various
charges, bringing to 16 the number of persons to be charged, now including petitioners Manuel C.
Espiritu, Jr., Freida F. Espiritu, Carlo F. Espiritu, Rafael F. Espiritu, Rolando M. Mirabuna, Hermilyn
A. Mirabuna, Kim Roland A. Mirabuna, Kaye Ann A. Mirabuna, Ken Ryan A. Mirabuna, Juanito P. de
Castro, Geronima A. Almonite, and Manuel C. Dee (together with Audie Llona), collectively,
petitioners Espiritu, et al. The court denied the motion for reconsideration of these employees and
stockholders in its Resolution dated January 6, 2006, hence, the present petition for review [6] before
this Court.
The Issues Presented
The petition presents the following issues:
1. Whether or not the certificate of non-forum shopping that accompanied
the petition filed with the Court of Appeals, signed only by Atty. Cruz on behalf of
Petron, complied with what the rules require;
2. Whether or not the facts of the case warranted the filing of charges
against the Bicol Gas people for:
a) Filling up the LPG tanks registered to another
manufacturer without the latters consent in violation of R.A. 623,
as amended;
 b) Trademark infringement consisting in Bicol Gas use of
a trademark that is confusingly similar to Petrons registered Gasul
trademark in violation of section 155 also of R.A. 8293; and
c) Unfair competition consisting in passing off Bicol Gas-
produced LPGs for Petron-produced Gasul LPG in violation of
Section 168.3 of R.A. 8293.
The Courts Rulings
First. Petitioners Espiritu, et al. point out that the certificate of non-forum shopping that
respondents KPE and Petron attached to the petition they filed with the Court of Appeals was
inadequate, having been signed only by Petron, through Atty. Cruz.
But, while procedural requirements such as that of submittal of a certificate of non-forum
shopping cannot be totally disregarded, they may be deemed substantially complied with under
justifiable circumstances.[7] One of these circumstances is where the petitioners filed a collective action
in which they share a common interest in its subject matter or raise a common cause of action. In such
a case, the certification by one of the petitioners may be deemed sufficient. [8]
Here, KPE and Petron shared a common cause of action against petitioners Espiritu, et al.,
namely, the violation of their proprietary rights with respect to the use of Gasul tanks and
trademark. Furthermore, Atty. Cruz said in his certification that he was executing it for and on behalf
of the Corporation, and co-petitioner Carmen J. Doloiras. [9] Thus, the object of the requirement to
ensure that a party takes no recourse to multiple forums was substantially achieved. Besides, the failure
of KPE to sign the certificate of non-forum shopping does not render the petition defective with respect
to Petron which signed it through Atty. Cruz. [10] The Court of Appeals, therefore, acted correctly in
giving due course to the petition before it.
Second. The Court of Appeals held that under the facts of the case, there is probable cause
that petitioners Espiritu, et al. committed all three crimes: (a) illegally filling up an LPG tank
registered to Petron without the latters consent in violation of R.A. 623, as amended; (b) trademark
infringement which consists in Bicol Gas use of a trademark that is confusingly similar to Petrons
registered Gasul trademark in violation of Section 155 of R.A. 8293; and (c) unfair competition which
consists in petitioners Espiritu, et al. passing off Bicol Gas-produced LPGs for Petron-produced Gasul
LPG in violation of Section 168.3 of R.A. 8293.
Here, the complaint adduced at the preliminary investigation shows that the one 50-kg Petron
Gasul LPG tank found on the Bicol Gas truck belonged to [a Bicol Gas] customer who had the same
filled up by BICOL GAS.[11] In other words, the customer had that one Gasul LPG tank brought to
Bicol Gas for refilling and the latter obliged.
R.A. 623, as amended,[12] punishes any person who, without the written consent of the
manufacturer or seller of gases contained in duly registered steel cylinders or tanks, fills the steel
cylinder or tank, for the purpose of sale, disposal or trafficking, other than the purpose for which the
manufacturer or seller registered the same. This was what happened in this case, assuming the
allegations of KPEs manager to be true. Bicol Gas employees filled up with their firms gas the tank
registered to Petron and bearing its mark without the latters written authority. Consequently, they may
be prosecuted for that offense.
But, as for the crime of trademark infringement, Section 155 of R.A. 8293 (in relation to
Section 170[13]) provides that it is committed by any person who shall, without the consent of the owner
of the registered mark:
1. Use in commerce any reproduction, counterfeit, copy or colorable
imitation of a registered mark or the same container or a dominant feature thereof in
connection with the sale, offering for sale, distribution, advertising of any goods or
services including other preparatory steps necessary to carry out the sale of any
goods or services on or in connection with which such use is likely to cause
confusion, or to cause mistake, or to deceive; or
2. Reproduce, counterfeit, copy or colorably imitate a registered mark or a
dominant feature thereof and apply such reproduction, counterfeit, copy or colorable
imitation to labels, signs, prints, packages, wrappers, receptacles or advertisements
intended to be used in commerce upon or in connection with the sale, offering for
sale, distribution, or advertising of goods or services on or in connection with which
such use is likely to cause confusion, or to cause mistake, or to deceive.
KPE and Petron have to show that the alleged infringer, the responsible officers and staff of
Bicol Gas, used Petrons Gasul trademark or a confusingly similar trademark on Bicol Gas tanks with
intent to deceive the public and defraud its competitor as to what it is selling. [14]Examples of this would
be the acts of an underground shoe manufacturer in Malabon producing Nike branded rubber shoes or
the acts of a local shirt company with no connection to La Coste, producing and selling shirts that bear
the stitched logos of an open-jawed alligator.
Here, however, the allegations in the complaint do not show that Bicol Gas painted on its own
tanks Petrons Gasul trademark or a confusingly similar version of the same to deceive its customers
and cheat Petron. Indeed, in this case, the one tank bearing the mark of Petron Gasul found in a truck
full of Bicol Gas tanks was a genuine Petron Gasul tank, more of a captured cylinder belonging to
competition.No proof has been shown that Bicol Gas has gone into the business of distributing
imitation Petron Gasul LPGs.
As to the charge of unfair competition, Section 168.3 (a) of R.A. 8293 (also in relation to
Section 170) describes the acts constituting the offense as follows:
168.3. In particular, and without in any way limiting the scope of protection
against unfair competition, the following shall be deemed guilty of unfair
competition:
(a) Any person, who is selling his goods and gives them
the general appearance of goods of another manufacturer or dealer,
either as to the goods themselves or in the wrapping of the
 packages in which they are contained, or the devices or words
thereon, or in any other feature of their appearance, which would
be likely to influence purchasers to believe that the goods offered
are those of a manufacturer or dealer, other than the actual
manufacturer or dealer, or who otherwise clothes the goods with
such appearance as shall deceive the public and defraud another of
his legitimate trade, or any subsequent vendor of such goods or any
agent of any vendor engaged in selling such goods with a like
purpose;
Essentially, what the law punishes is the act of giving ones goods the general appearance of
the goods of another, which would likely mislead the buyer into believing that such goods belong to
the latter. Examples of this would be the act of manufacturing or selling shirts bearing the logo of an
alligator, similar in design to the open-jawed alligator in La Coste shirts, except that the jaw of the
alligator in the former is closed, or the act of a producer or seller of tea bags with red tags showing the
shadow of a black dog when his competitor is producing or selling popular tea bags with red tags
showing the shadow of a black cat. Here, there is no showing that Bicol Gas has been giving its LPG
tanks the general appearance of the tanks of Petrons Gasul. As already stated, the truckfull of Bicol
Gas tanks that the KPE manager arrested on a road in Sorsogon just happened to have mixed up with
them one authentic Gasul tank that belonged to Petron.
The only point left is the question of the liability of the stockholders and members of the
board of directors of Bicol Gas with respect to the charge of unlawfully filling up a steel cylinder or
tank that belonged to Petron. The Court of Appeals ruled that they should be charged along with the
Bicol Gas employees who were pointed to as directly involved in overt acts constituting the offense.
Bicol Gas is a corporation. As such, it is an entity separate and distinct from the persons of its
officers, directors, and stockholders. It has been held, however, that corporate officers or employees,
through whose act, default or omission the corporation commits a crime, may themselves be
individually held answerable for the crime.[15]
Jose claimed in his affidavit that, when he negotiated the swapping of captured cylinders with
Bicol Gas, its manager, petitioner Audie Llona, claimed that he would be consulting with the owners of
Bicol Gas about it. Subsequently, Bicol Gas declined the offer to swap cylinders for the reason that the
owners wanted to send their captured cylinders to Batangas. The Court of Appeals seized on this as
evidence that the employees of Bicol Gas acted under the direct orders of its owners and that the
owners of Bicol Gas have full control of the operations of the business.[16]
The owners of a corporate organization are its stockholders and they are to be distinguished
from its directors and officers. The petitioners here, with the exception of Audie Llona, are being
charged in their capacities as stockholders of Bicol Gas. But the Court of Appeals forgets that in a
corporation, the management of its business is generally vested in its board of directors, not its
stockholders.[17]Stockholders are basically investors in a corporation. They do not have a hand in
running the day-to-day business operations of the corporation unless they are at the same time directors
or officers of the corporation. Before a stockholder may be held criminally liable for acts committed by
the corporation, therefore, it must be shown that he had knowledge of the criminal act committed in the
name of the corporation and that he took part in the same or gave his consent to its commission,
whether by action or inaction.
The finding of the Court of Appeals that the employees could not have committed the crimes
without the consent, [abetment], permission, or participation of the owners of Bicol Gas [18] is a
sweeping speculation especially since, as demonstrated above, what was involved was just one Petron
Gasul tank found in a truck filled with Bicol Gas tanks. Although the KPE manager heard petitioner
Llona say that he was going to consult the owners of Bicol Gas regarding the offer to swap additional
captured cylinders, no indication was given as to which Bicol Gas stockholders Llona consulted. It
would be unfair to charge all the stockholders involved, some of whom were proved to be minors.
[19]
No evidence was presented establishing the names of the stockholders who were charged with
running the operations of Bicol Gas. The complaint even failed to allege who among the stockholders
sat in the board of directors of the company or served as its officers.The Court of Appeals of course
specifically mentioned petitioner stockholder Manuel C. Espiritu, Jr. as the registered owner of the
truck that the KPE manager brought to the police for investigation because that truck carried a tank of
Petron Gasul. But the act that R.A. 623 punishes is the unlawful filling up of registered tanks of
another. It does not punish the act of transporting such tanks. And the complaint did not allege that the
truck owner connived with those responsible for filling up that Gasul tank with Bicol Gas LPG.
WHEREFORE, the Court REVERSES and SETS ASIDE the Decision of the Court of
Appeals in CA-G.R. SP 87711 dated October 17, 2005 as well as its Resolution dated January 6, 2006,
the Resolutions of the Secretary of Justice dated March 11, 2004 and August 31, 2004, and the Order
of the Office of the Regional State Prosecutor, Region V, dated February 19, 2003. The
Court REINSTATES the Resolution of the Office of the Provincial Prosecutor of Sorsogon in I.S.
2001-9231 (inadvertently referred in the Resolution itself as I.S. 2001-9234), dated February 26,
2002. The names of petitioners Manuel C. Espiritu, Jr., Freida F. Espititu, Carlo F. Espiritu, Rafael F.
Espiritu, Rolando M. Mirabuna, Hermilyn A. Mirabuna, Kim Roland A. Mirabuna, Kaye Ann A.
Mirabuna, Ken Ryan A. Mirabuna, Juanito P. De Castro, Geronima A. Almonite and Manuel C. Dee
are ORDERED excluded from the charge.
Xxxxxxxxxxxxxxxxxx
H. Moral Damages
1. FIRST DIVISION
[G.R. No. 128690. January 21, 1999]
ABS-CBN BROADCASTING CORPORATION, petitioners, vs. HONORABLE COURT OF
APPEALS, REPUBLIC BROADCASTING CORP., VIVA PRODUCTIONS, INC., and
VICENTE DEL ROSARIO, respondents.
 SYNOPSIS
In 1990, ABS-CBN and VIVA executed a Film Exhibition Agreement whereby the latter gave the
former an exclusive right to exhibit 24 VIVA Films for TV telecast. Later, VIVA, through respondent
Vincent del Rosario, offered ABS-CBN a list of 3 film packages (36 titles) from which the latter may
exercise its right of first refusal under their agreement. ABS-CBN ticked off 10 titles therefrom.
Thereafter, in February 1992, Del Rosario offered ABS-CBN airing rights over a package of 104
movies for P60 million. In April, 1992, Del Rosario, and Eugenio Lopez of ABS-CBN, met at a
restaurant to discuss the package proposal. According to Lopez, however, what they agreed upon was
ABS-CBNs exclusive film rights to 14 films for P36 million. Del Rosario denied the same. He
insisted that the discussion was on VIVAs offer of 104 films for P60 million, to which ABSCBN later
made a counterproposal but rejected by VIVAs Board of Directors. Hence, VIVA later granted RBS
the exclusive right to air the 104 VIVA films, including the 14 films supposedly granted to ABS-CBN.
ABS-CBN then filed a complaint for specific performance with prayer for injunction. The RTC
granted the prayer and required ABS-CBN post a P35 million bond. But while ABS-CBN was moving
for reduction of the bond, RBS offered to put up a counterbond and was allowed to post P30 million.
Later, the RTC rendered a decision in favor of RBS and VIVA, ordering ABS-CBN to pay RBS the
amount it paid for the print advertisement and premium on the counterbond, moral damages,
exemplary damages and attorneys fee. ABS-CBN appealed to the Court of Appeals. Viva and Del
Rosario also appealed seeking moral and exemplary damages and additional attorneys fees. The Court
of Appeals affirmed the RTC decision and sustained the monetary awards, VIVAs and Del Rosarios
appeals were denied.
The key issues are: 1. Whether there was a perfected contract between VIVA and ABS-CBN; and
2. Whether RBS is entitled to damages and attorneys fees.
The first issue is resolved against ABS-CBN, in the absence of the requisites to make a valid
contract. The alleged agreement on the 14 films, if there is one, is not binding to VIVA as it is not
manifested that Del Rosario has an authority to bind VIVA. Thus, when ABS-CBN made a counter-
proposal to VIVA, the same was submitted to its Board of Directors, who rejected the same. Further,
the Court agreed that the alleged agreement is not a continuation of the 1990 Contract as the right of
first refusal under the said contract had already been exercised by ABS-CBN. However, on the issue
of damages, the Court found ABS-CBN. RBS is not entitled to actual damages as the claim thereof did
not arise from that which allows the same to be recovered. Neither is RBS entitled to attorneys fees as
there is no showing of bad faith in the other partys persistence in his case. Also, being a corporation,
RBS is not entitled to moral damages as the same is awarded to compensate actual injuries suffered.
Lastly, exemplary damages cannot be awarded in the absence of proof that ABS-CBN was inspired by
malice or bad faith.
SYLLABUS
1. CIVIL LAW; CONTRACT; ELUCIDATED. A contract is a meeting of minds between two
persons whereby one binds himself to give something or to render some service to another for a
consideration. There is no contract unless the following requisites concur: (1) consent of the
contracting parties; (2) object certain which is the subject of the contract; and (3) cause of the
obligation, which is established. A contract undergoes three stages: (a) preparation, conception,
or generation, which is the period of negotiation and bargaining, ending at the moment of
agreement of the parties; (b) perfection or birth of the contract, which is the moment when the
parties come to agree on the terms of the contract; and (c) consummation or death, which is the
fulfillment or performance of the terms agreed upon in the contract. Contracts that are
consensual in nature are perfected upon mere meeting of the minds. Once there is concurrence
between the offer and the acceptance upon the subject matter, consideration, and terms of
payment, a contract is produced. The offer must be certain. To convert the offer into a contract,
the acceptance must be absolute and must not qualify the terms of the offer; it must be plain,
unequivocal, unconditional, and without variance of any sort from the proposal. A qualified
acceptance, or one that involves a new proposal, constitutes a counter-offer and is a rejection of
the original offer. Consequently, when something is desired which is not exactly what is
proposed in the offer, such acceptance is not sufficient to generate consent because any
modification or variation from the terms of the offer annuls the offer.
2. CORPORATION LAW; BOARD OF DIRECTORS; POWER TO ENTER INTO
CONTRACTS; DELEGATION; VALIDITY THEREOF. Under the Corporation Code, unless
otherwise provided by said Code, corporate powers, such as the power to enter into contracts, are
exercised by the Board of Directors. However, the Board may delegate such powers to either an
executive committee or officials or contracted managers. The delegation, except for the
executive committee, must be for specific purposes. Delegation to officers makes the latter
agents of the corporation; accordingly, the general rules of agency as to the binding effects of
their acts would apply. For such officers to be deemed fully clothed by the corporation to
exercise a power of the Board, did not have the authority to accept ABS-CBNs counter-offer was
best evidenced by his submission of the draft contract to VIVAS Board of Directors for the latters
approval. In any event, there was between Del Rosario and Lopez III no meeting of minds.
3. CIVIL LAW; OBLIGATIONS AND CONTRACTS; DAMAGES; ACTUAL DAMAGES;
ELABORATED. Chapter 2, Title XVIII, Book IV of the Civil Code is the specific law on actual
or compensatory damages. Except as provided by law or by stipulation, one is entitled to
compensation for actual damages only for such pecuniary loss suffered by him as he has duly
proved. The indemnification shall comprehend not only the value of the loss suffered, but also
that of the profits that the obligee failed to obtain. In contracts and quasi-contracts the damages
which may be awarded are dependent on whether the obligor acted with good faith or otherwise.
In case of good faith, the damages recoverable are those which are the natural and probable
consequences of the breach of the obligation and which the parties have foreseen or could have
reasonably foreseen at the time of the constitution of the obligation. If the obligor acted with
fraud, bad faith, malice, or wanton attitude, he shall be responsible for all damages which may be
reasonably attributed to the non-performance of the obligation. In crimes and quasi-delicts, the
defendant shall be liable for all damages which are the natural and probable consequences of the
act or omission complained of, whether or not such damages have been foreseen or could have
reasonably been foreseen by the defendant. Actual damages may likewise be recovered for loss
or impairment of earning capacity in cases of temporary or permanent personal injury, or for
injury to the plaintiffs business standing or commercial credit.
4. ID.; ID.; ID.; ID.; CASE AT BAR. The claim of RBS for actual damages did not arise from
contract, quasi- contract, delict, or quasi-delict. It arose from the fact of filing of the complaint
despite ABS-CBNs alleged knowledge of lack of cause of action. Needless to state, the award of
actual damages cannot be comprehended under the law on actual damages. RBS could only
probably take refuge under Articles 19, 20, and 21 of the Civil Code. It may further be observed
 that in cases where a writ of preliminary injunction is issued, the damages which the defendant
may suffer by reason of the writ are recoverable from the injunctive bond. In this case, ABS-
CBN had not yet filed the required bond; as a matter of fact, it asked for reduction of the bond
and even went to the Court of Appeals to challenge the order on the matter. Clearly then, it was
not necessary for RBS to file a counterbond. Hence, ABS-CBN cannot be held responsible for
the premium RBS paid for the counterbond. Neither could ABS-CBN be liable for the print
advertisements for Maging Sino Ka Man for lack of sufficient legal basis. The RTC issued a
temporary restraining order and later, a writ of preliminary injunction on the basis of its
determination that there existed sufficient grounds for the issuance thereof. Notably, the RTC did
not dissolve the injunction on the ground of lack of legal and factual basis, but because of the
plea of RBS that it be allowed to put up a counterbond.
5. ID.; ID.; ID.; ID.; ATTORNEYS FEES; ELABORATED. As regards attorneys fees, the law is
clear that in the absence of stipulation, attorneys fees may be recovered as actual or compensatory
damages under any of the circumstances provided for in Article 2208 of the Civil Code. The
general rule is that attorneys fees cannot be recovered as part of damages because of the policy
that no premium should be placed on the right of litigate. They are not to be awarded every time
a party wins a suit. The power of the court to award attorneys fees under Article 2208 demands
factual, legal, and equitable justification. Even when a claimant is compelled to litigate with third
persons or to incur expenses to protect his rights, still attorneys fees may not be awarded where
no sufficient showing of bad faith could be reflected in a partys persistence in a case other than an
erroneous conviction of the righteousness of his cause.
6. ID.; ID.; ID.; MORAL DAMAGES; ELABORATED. As to moral damages the law is Section 1,
Chapter 3, Title XVIII, Book IV of the Civil Code. Article 2217 thereof defines what are included
in moral damages, while Article 2219 enumerates the cases where they may be recovered. Article
2220 provides that moral damages may be recovered in breaches of contract where the defendant
acted fraudulently or in bad faith. Moral damages are in the category of an award designed to
compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer.
The award is not meant to enrich the complainant at the expense of the defendant, but to enable
the injured party to obtain means, diversion, or amusements that will serve to obviate the moral
suffering he has undergone. It is aimed at the restoration, within the limits of the possible, of the
spiritual status quo ante, and should be proportionate to the suffering inflicted. Trial courts must
then guard against the award of exorbitant damages; they should exercise balanced restrained and
measured objectivity to avoid suspicion that it was due to passion, prejudice, or corruption on the
part of the trial court.
7. ID.; ID.; ID.; ID.; CASE AT BAR. RBSs claim for moral damages could possibly fall only under
item (10) of Article 2219, thereof which reads: (10) Acts and actions referred to in Articles 21, 26,
27, 28, 29, 30, 32, 34, and 35. However, the award of moral damages cannot be granted in favor
of a corporation because, being an artificial person and having existence only in legal
contemplation, it has no feelings, no emotions, no senses. It cannot, therefore, experience
physical suffering and mental anguish, which can be experienced only by one having a nervous
system. The statement in People v. Manero and Mambulao Lumber Co. v. PNB that a
corporation may recover moral damages if it has a good reputation that is debased, resulting in
social humiliation is an obiter dictum. On this score alone the award for damages must be set
aside, since RBS is a corporation.
8. ID.; ID.; ID.; EXEMPLARY DAMAGES; ELUCIDATED. The basic law on exemplary damages
is Section 5, Chapter 3, Title XVIII, Book IV of the Civil Code. These are imposed by way of
example or correction for the public good, in addition to moral, temperate, liquidated, or
compensatory damages. They are recoverable in criminal cases as part of the civil liability when
the crime was committed with one or more aggravating circumstances; in quasi-delicts, if the
defendant acted with gross negligence; and in contracts and quasi-contracts, if the defendant
acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.
9. ID.; ID.; ID.; ID.; CASE AT BAR. The claim of RBS against ABS-CBN is not based on contract,
quasi-contract, delict, or quasi-delict. Hence, the claims for moral and exemplary damages can
only be based on Articles 19, 20, and 21 of the Civil Code. The elements of abuse of right under
Article 19 are the following: (1) the existence of a legal right or duty, (2) which is exercised in
bad faith, and (3) for the sole intent of prejudicing or injuring another. Article 20 speaks of the
general sanction for all other provisions of law which do not especially provide for their own
sanction; while Article 21 deals with acts contra bonus mores, and has the following elements: (1)
there is an act which is legal, (2) but which is contrary to morals, good custom, public order, or
public policy, and (3) and it is done with intent to injure. Verily then, malice or bad faith is at the
core of Articles 19, 20, and 21. Malice or bad faith implies a conscious and intentional design to
do a wrongful act for a dishonest purpose or moral obliquity. Such must be substantiated by
evidence. There is no adequate proof that ABS-CBN was inspired by malice or bad faith. It was
honestly convinced of the merits of its cause after it had undergone serious negotiations
culminating in its formal submission of a draft contract. Settled is the rule that the adverse result
of an action does not per se make the action wrongful and subject the actor to damages, for the
law could not have meant to impose a penalty on the right to litigate. If damages result from a
persons exercise of a right, it is damnum absque injuria.
DECISION
DAVIDE, JR., C.J.:
In this petition for review on certiorari, petitioners ABS-CBN Broadcasting Corp. (hereinafter
ABS-CBN) seeks to reverse and set aside the decision [1] of 31 October 1996 and the resolution [2] of 10
March 1997 of the Court of Appeals in CA-G.R. CV No. 44125. The former affirmed with
modification the decision[3] of 28 April 1993 of the Regional Trial Court (RTC) of Quezon City, Branch
80, in Civil Case No. Q-12309. The latter denied the motion to reconsider the decision of 31 October
1996.
The antecedents, as found by the RTC and adopted by the Court of Appeals, are as follows:
In 1990, ABS-CBN and VIVA executed a Film Exhibition Agreement (Exh. A) whereby Viva gave
ABS-CBN an exclusive right to exhibit some Viva films.Sometime in December 1991, in accordance
with paragraph 2.4 [sic] of said agreement stating that-
1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) Viva films for TV
telecast under such terms as may be agreed upon by the parties hereto, provided, however, that such
right shall be exercised by ABS-CBN from the actual offer in writing.
Viva, through defendant Del Rosario, offered ABS-CBN, through its vice-president Charo Santos-
Concio, a list of three (3) film packages (36 title) from which ABS-CBN may exercise its right of first
refusal under the afore-said agreement (Exhs. 1 par. 2, 2, 2-A and 2-B Viva). ABS-CBN, however
through Mrs. Concio, can tick off only ten (10) titles (from the list) we can purchase (Exh. 3 Viva) and
therefore did not accept said list (TSN, June 8, 1992, pp. 9-10). The titles ticked off by Mrs. Concio are
not the subject of the case at bar except the film Maging Sino Ka Man.
For further enlightenment, this rejection letter dated January 06, 1992 (Exh 3 Viva) is hereby quoted:
6 January 1992
Dear Vic,
This is not a very formal business letter I am writing to you as I would like to express my difficulty in
recommending the purchase of the three film packages you are offering ABS-CBN.
From among the three packages I can only tick off 10 titles we can purchase. Please see attached. I
hope you will understand my position. Most of the action pictures in the list do not have big action
stars in the cast. They are not for primetime. In line with this I wish to mention that I have not
scheduled for telecast several action pictures in our very first contract because of the cheap production
value of these movies as well as the lack of big action stars. As a film producer, I am sure you
understand what I am trying to say as Viva produces only big action pictures.
In fact, I would like to request two (2) additional runs for these movies as I can only schedule them in
out non-primetime slots. We have to cover the amount that was paid for these movies because as you
very well know that non-primetime advertising rates are very low. These are the unaired titles in the
first contract.
1. Kontra Persa [sic]
2. Raider Platoon
3. Underground guerillas
4. Tiger Command
5. Boy de Sabog
6. lady Commando
7. Batang Matadero
8. Rebelyon
I hope you will consider this request of mine.
The other dramatic films have been offered to us before and have been rejected because of the ruling of
MTRCB to have them aired at 9:00 p.m. due to their very adult themes.
As for the 10 titles I have choosen [sic] from the 3 packages please consider including all the other
Viva movies produced last year, I have quite an attractive offer to make.
Thanking you and with my warmest regards.
(Signed)
Charo Santos-Concio
On February 27, 1992, defendant Del Rosario approached ABS-CBNs Ms. Concio, with a list
consisting of 52 original movie titles (i.e., not yet aired on television) including the 14 titles subject of
the present case, as well as 104 re-runs (previously aired on television) from which ABS-CBN may
choose another 52 titles, as a total of 156 titles, proposing to sell to ABS-CBN airing rights over this
package of 52 originals and 52 re-runs for P60,000,000.00 of which P30,000,000.00 will be in cash
and P30,000,000.00 worth of television spots (Exh. 4 to 4-C Viva; 9 Viva).
On April 2, 1992, defendant Del Rosario and ABS-CBNs general manager, Eugenio Lopez III, met at
the Tamarind Grill Restaurant in Quezon City to discuss the package proposal of VIVA. What
transpired in that lunch meeting is the subject of conflicting versions. Mr. Lopez testified that he and
Mr. Del Rosario allegedly agreed that ABS-CBN was granted exclusive film rights to fourteen (14)
films for a total consideration of P36 million; that he allegedly put this agreement as to the price and
number of films in a napkin and signed it and gave it to Mr. Del Rosario (Exh. D; TSN, pp. 24-26, 77-
78, June 8, 1992). On the other hand. Del Rosario denied having made any agreement with Lopez
regarding the 14 Viva films; denied the existence of a napkin in which Lopez wrote something; and
insisted that what he and Lopez discussed at the lunch meeting was Vivas film package offer of 104
films (52 originals and 52 re-runs) for a total price of P60 million. Mr. Lopez promising [sic]to make a
counter proposal which came in the form of a proposal contract Annex C of the complaint (Exh. 1
Viva; Exh C ABS-CBN).
On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS Senior vice-president for Finance
discussed the terms and conditions of Vivas offer to sell the 104 films, after the rejection of the same
package by ABS-CBN.
On April 07, 1992, defendant Del Rosario received through his secretary , a handwritten note from Ms.
Concio, (Exh. 5 Viva), which reads: Heres the draft of the contract. I hope you find everything in order,
to which was attached a draft exhibition agreement (Exh. C ABS-CBN; Exh. 9 Viva p. 3) a counter-
proposal covering 53 films, 52 of which came from the list sent by defendant Del Rosario and one film
was added by Ms. Concio, for a consideration of P35 million. Exhibit C provides that ABS-CBN is
granted film rights to 53 films and contains a right of first refusal to 1992 Viva Films. The said counter
proposal was however rejected by Vivas Board of Directors [in the] evening of the same day, April 7,
1992, as Viva would not sell anything less than the package of 104 films for P60 million pesos (Exh. 9
Viva), and such rejection was relayed to Ms. Concio.
On April 29, 1992, after the rejection of ABS-CBN and following several negotiations and meetings
defendant Del Rosario and Vivas President Teresita Cruz, in consideration of P60 million, signed a
letter of agreement dated April 24, 1992, granting RBS the exclusive right to air 104 Viva-produced
and/or acquired films (Exh. 7-A - RBS; Exh. 4 RBS) including the fourteen (14) films subject of the
present case.[4]
On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific performance with a
prayer for a writ of preliminary injunction and/or temporary restraining order against private
respondents Republic Broadcasting Corporation [5] (hereafter RBS), Viva Production (hereafter VIVA),
and Vicente del Rosario. The complaint was docketed as Civil Case No. Q-92-12309.
On 28 May 1992, the RTC issued a temporary restraining order [6] enjoining private respondents
from proceeding with the airing, broadcasting, and televising of the fourteen VIVA films subject of the
controversy, starting with the film Maging Sino Ka Man, which was scheduled to be shown on private
respondent RBS channel 7 at seven oclock in the evening of said date.
On 17 June 1992, after appropriate proceedings, the RTC issued an order [7] directing the issuance
of a writ of preliminary injunction upon ABS-CBNs posting of a P35 million bond. ABS-CBN moved
for the reduction of the bond,[8] while private respondents moved for reconsideration of the order and
offered to put up a counterbond.[9]
In the meantime, private respondents filed separate answer with counterclaim. [10] RBS also set up
a cross-claim against VIVA.
On 3 August 1992, the RTC issued an order [11] dissolving the writ of preliminary injunction upon
the posting by RBS of a P30 million counterbond to answer for whatever damages ABS-CBN might
suffer by virtue of such dissolution. However, it reduced petitioners injunction bond to P15 million as a
condition precedent for the reinstatement of the writ of preliminary injunction should private
respondents be unable to post a counterbond.
 At the pre-trial[12] on 6 August 1992, the parties upon suggestion of the court, agreed to explore
the possibility of an amicable settlement. In the meantime, RBS prayed for and was granted reasonable
time within which to put up a P30 million counterbond in the event that no settlement would be
reached.
As the parties failed to enter into an amicable settlement, RBS posted on 1 October 1992 a
counterbond, which the RTC approved in its Order of 15 October 1992.[13]
On 19 October 1992, ABS-CBN filed a motion for reconsideration [14] of the 3 August and 15
October 1992 Orders, which RBS opposed.[15]
On 29 October, the RTC conducted a pre-trial.[16]
Pending resolution of its motion for reconsideration, ABS-CBN filed with the Court of Appeals a
petition[17] challenging the RTCs Order of 3 August and 15 October 1992 and praying for the issuance
of a writ of preliminary injunction to enjoin the RTC from enforcing said orders. The case was
docketed as CA-G.R. SP No. 29300.
On 3 November 1992, the Court of Appeals issued a temporary restraining order [18] to enjoin the
airing, broadcasting, and televising of any or all of the films involved in the controversy.
On 18 December 1992, the Court of Appeals promulgated a decision [19] dismissing the petition in
CA-G.R. SP No. 29300 for being premature. ABS-CBN challenged the dismissal in a petition for
review filed with this Court on 19 January 1993, which was docketed s G.R. No. 108363.
In the meantime the RTC received the evidence for the parties in Civil Case No. Q-92-
12309. Thereafter, on 28 April 1993, it rendered a decision [20] in favor of RBS and VIVA and against
ABS-CBN disposing as follows:
WHEREFORE, under cool reflection and prescinding from the foregoing, judgment is rendered in
favor of defendants and against the plaintiff.
(1) The complaint is hereby dismissed;
(2) Plaintiff ABS-CBN is ordered to pay defendant RBS the following:
a) P107,727.00 the amount of premium paid by RBS to the surety which issued
defendants RBSs bond to lift the injunction;
b) P191,843.00 for the amount of print advertisement for Maging Sino Ka Man in
various newspapers;
c) Attorneys fees in the amount of P1 million;
d) P5 million as and by way of moral damages;
e) P5 million as and by way of exemplary damages;
(3) For the defendant VIVA, plaintiff ABS-CBN is ordered to pay P212,000.00 by way of
reasonable attorneys fees.
(4) The cross-claim of defendant RBS against defendant VIVA is dismissed.
(5) Plaintiff to pay the costs.
According to the RTC, there was no meeting of minds on the price and terms of the offer. The
alleged agreement between Lopez III and Del Rosario was subject to the approval of the VIVA Board
of Directors, and said agreement was disapproved during the meeting of the Board on 7 April
1992. Hence, there was no basis for ABS-CBNs demand that VIVA signed the 1992 Film Exhibition
Agreement. Furthermore, the right of first refusal under the 1990 Film Exhibition Agreement had
previously been exercised per Ms. Concios letter to Del Rosario ticking off ten titles acceptable to
them, which would have made the 1992 agreement an entirely new contract.
On 21 June 1993, this Court denied[21] ABS-CBNs petition for review in G.R. No. 108363, as no
reversible error was committed by the Court of Appeals in its challenged decision and the case had
become moot and academic in view of the dismissal of the main action by the court a quo in its
decision of 28 April 1993.
Aggrieved by the RTCs decision, ABS-CBN appealed to the Court of Appeals claiming that there
was a perfected contract between ABS-CBN and VIVA granting ABS-CBN the exclusive right to
exhibit the subject films. Private respondents VIVA and Del Rosario also appealed seeking moral and
exemplary damages and additional attorneys fees.
In its decision of 31 October 1996, the Court of Appeals agreed with the RTC that the contract
between ABS-CBN and VIVA had not been perfected, absent the approval by the VIVA Board of
Directors of whatever Del Rosario, its agent, might have agreed with Lopez III. The appellate court did
not even believe ABS-CBNs evidence that Lopez III actually wrote down such an agreement on
a napkin, as the same was never produced in court. It likewise rejected ABS-CBNs insistence on its
right of first refusal and ratiocinated as follows:
As regards the matter of right of first refusal, it may be true that a Film Exhibition Agreement was
entered into between Appellant ABS-CBN and appellant VIVA under Exhibit A in 1990 and that parag.
1.4 thereof provides:
1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) VIVA films for TV
telecast under such terms as may be agreed upon by the parties hereto, provided, however, that such
right shall be exercised by ABS-CBN within a period of fifteen (15) days from the actual offer in
writing (Records, p. 14).
[H]owever, it is very clear that said right of first refusal in favor of ABS-CBN shall still be subjected to
such terms as may be agreed upon by the parties thereto, and that the said right shall be exercised by
ABS-CBN within fifteen (15) days from the actual offer in writing.
Said parag. 1.4 of the agreement Exhibit A on the right of first refusal did not fix the price of the film
right to the twenty-four (24) films, nor did it specify the terms thereof. The same are still left to be
agreed upon by the parties.
In the instant case, ABS-CBNs letter of rejection Exhibit 3 (Records, p. 89) stated that it can only tick
off ten (10) films, and the draft contract Exhibit C accepted only fourteen (14) films, while parag. 1.4
of Exhibit A speaks of the next twenty-four (24) films.
The offer of VIVA was sometime in December 1991, (Exhibits 2, 2-A, 2-B; Records, pp. 86-88;
Decision, p. 11, Records, p. 1150), when the first list of VIVA films was sent by Mr. Del Rosario to
ABS-CBN. The Vice President of ABS-CBN, Mrs. Charo Santos-Concio, sent a letter dated January 6,
1992 (Exhibit 3, Records, p. 89) where ABS-CBN exercised its right of refusal by rejecting the offer of
VIVA. As aptly observed by the trial court, with the said letter of Mrs. Concio of January 6, 1992,
ABS-CBN had lost its right of first refusal. And even if We reckon the fifteen (15) day period from
February 27, 1992 (Exhibit 4 to 4-C) when another list was sent to ABS-CBN after the letter of Mrs.
Concio, still the fifteen (15) day period within which ABS-CBN shall exercise its right of first refusal
has already expired.[22]
Accordingly, respondent court sustained the award factual damages consisting in the cost of print
advertisements and the premium payments for the counterbond, there being adequate proof of the
pecuniary loss which RBS has suffered as a result of the filing of the complaint by ABS-CBN. As to
the award of moral damages, the Court of Appeals found reasonable basis therefor, holding that RBSs
reputation was debased by the filing of the complaint in Civil Case No. Q-92-12309 and by the non-
showing of the film Maging Sino Ka Man. Respondent court also held that exemplary damages were
correctly imposed by way of example or correction for the public good in view of the filing of the
complaint despite petitioners knowledge that the contract with VIVA had not been perfected. It also
upheld the award of attorneys fees, reasoning that with ABS-CBNs act of instituting Civil Case No. Q-
92-12309, RBS was unnecessarily forced to litigate. The appellate court, however, reduced the awards
of moral damages to P 2 million, exemplary damages to P2 million, and attorneys fees to P500,000.00.
On the other hand, respondent Court of Appeals denied VIVA and Del Rosarios appeal because it
was RBS and not VIVA which was actually prejudiced when the complaint was filed by ABS-CBN.
Its motion for reconsideration having been denied, ABS-CBN filed the petition in this case,
contending that the Court of Appeals gravely erred in
I wanton, fraudulent, or reckless; they arose by virtue only of the filing of the complaint. An award of
RULING THAT THERE WAS NO PERFECTED CONTRACT BETWEEN
PETITIONER AND PRIVATE RESPONDENT VIVA
NOTWITHSTANDINGPREPONFERANCE OF EVIDENCE ADDUCED BY
PETITIONER TO THE CONTRARY.
II
IN AWARDING ACTUAL AND COMPENSATORY DAMAGES IN FAVOR OF
PRIVATE RESPONDENT RBS.
III
IN AWARDING MORAL AND EXEMPLARY DAMAGES IN FAVOR OF PRIVATE
RESPONDENT RBS.
IV
IN AWARDING ATORNEYS FEES OF RBS.
ABS-CBN claims that it had yet to fully exercise its right of first refusal over twenty-four titles
under the 1990 Film Exhibition Agreement, as it had chosen only ten titles from the first list. It insists
that we give credence to Lopezs testimony that he and Del Rosario met at the Tamarind Grill
Restaurant, discussed the terms and conditions of the second list (the 1992 Film Exhibition Agreement)
and upon agreement thereon, wrote the same on a paper napkin. It also asserts that the contract has
already been effective, as the elements thereof, namely, consent, object, and consideration were
established. It then concludes that the Court of Appeals pronouncements were not supported by law
and jurisprudence, as per our decision of 1 December 1995 in Limketkai Sons Milling, Inc. v. Court of
Appeals,[23]which cited Toyota Shaw, Inc. v. Court of Appeals;[24] Ang Yu Asuncion v. Court of
Appeals,[25] and Villonco Realty Company v. Bormaheco, Inc.[26]
Anent the actual damages awarded to RBS, ABS-CBN disavows liability therefor. RBS spent for
the premium on the counterbond of its own volition in order to negate the injunction issued by the trial
court after the parties had ventilated their respective positions during the hearings for the purpose. The
filing of the counterbond was an option available to RBS, but it can hardly be argued that ABS-CBN
compelled RBS to incur such expense. Besides, RBS had another available option, i.e., move for the
dissolution of the injunction; or if it was determined to put up a counterbond, it could have presented a
cash bond. Furthermore under Article 2203 of the Civil Code, the party suffering loss injury is also
required to exercise the diligence of a good father of a family to minimize the damages resulting from
the act or omission. As regards the cost of print advertisements, RBS had not convincingly established
that this was a loss attributable to the non-showing of Maging Sino Ka Man; on the contrary, it was
brought out during trial that with or without the case or injunction, RBS would have spent such an
amount to generate interest in the film.
ABS-CBN further contends that there was no other clear basis for the awards of moral and
exemplary damages. The controversy involving ABS-CBN and RBS did not in any way originate from
business transaction between them. The claims for such damages did not arise from any contractual
dealings or from specific acts committed by ABS-CBN against RBS that may be characterized as
moral and exemplary damages is not warranted where the record is bereft of any proof that a party
acted maliciously or in bad faith in filing an action. [27] In any case, free resort to courts for redress of
wrongs is a matter of public policy. The law recognizes the right of every one to sue for that which he
honestly believes to be his right without fear of standing trial for damages where by lack of
sufficient evidence, legal technicalities, or a different interpretation of the laws on the matter, the case
would lose ground.[28] One who, makes use of his own legal right does no injury. [29] If damage results
from filing of the complaint, it is damnum absque injuria.[30] Besides, moral damages are generally not
awarded in favor of a juridical person, unless it enjoys a good reputation that was debased by the
offending party resulting in social humiliation.[31]
As regards the award of attorneys fees, ABS-CBN maintains that the same had no factual, legal,
or equitable justification. In sustaining the trial courts award, the Court of Appeals acted in clear
disregard of the doctrine laid down in Buan v. Camaganacan[32] that the text of the decision should
state the reason why attorneys fees are being awarded; otherwise, the award should be
disallowed. Besides, no bad faith has been imputed on, much less proved as having been committed by,
ABS-CBN. It has been held that where no sufficient showing of bad faith would be reflected in a
partys persistence in a case other than an erroneous conviction of the righteousness of his cause,
attorneys fees shall not be recovered as cost.[33]
On the other hand, RBS asserts that there was no perfected contract between ABS-CBN and
VIVA absent meeting of minds between them regarding the object and consideration of the alleged
contract. It affirms that ABS-CBNs claim of a right of first refusal was correctly rejected by the trial
court. RBS insists the premium it had paid for the counterbond constituted a pecuniary loss upon
which it may recover. It was obliged to put up the counterbond due to the injunction procured by ABS-
CBN. Since the trial court found that ABS-CBN had no cause of action or valid claim against RBS
and, therefore not entitled to the writ of injunction, RBS could recover from ABS-CBN the premium
paid on the counterbond. Contrary to the claim of ABS-CBN, the cash bond would prove to be more
expensive, as the loss would be equivalent to the cost of money RBS would forego in case the P30
million came from its funds or was borrowed from banks.
RBS likewise asserts that it was entitled to the cost of advertisements for the cancelled showing
of the film Maging Sino Ka Man because the print advertisements were out to announce the showing
on a particular day and hour on Channel 7, i.e., in its entirety at one time, not as series to be shown on
a periodic basis. Hence, the print advertisements were good and relevant for the particular date of
showing, and since the film could not be shown on that particular date and hour because of the
injunction, the expenses for the advertisements had gone to waste.
As regards moral and exemplary damages, RBS asserts that ABS-CBN filed the case and secured
injunctions purely for the purpose of harassing and prejudicing RBS. Pursuant then to Articles 19 and
21 of the Civil Code, ABS-CBN must be held liable for such damages. Citing Tolentino,[34] damages
may be awarded in cases of abuse of rights even if the done is not illicit, and there is abuse of rights
where a plaintiff institutes an action purely for the purpose of harassing or prejudicing the defendant.
In support of its stand that a juridical entity can recover moral and exemplary damages, private
respondent RBS cited People v. Manero,[35] where it was stated that such entity may recover moral and
exemplary damages if it has a good reputation that is debased resulting in social humiliation. It then
ratiocinates; thus:
There can be no doubt that RBS reputation has been debased by ABS-CBNs acts in this case. When
RBS was not able to fulfill its commitment to the viewing public to show the film Maging Sino Ka
Man on the scheduled dates and times (and on two occasions that RBS advertised), it suffered serious
embarrassment and social humiliation. When the showing was cancelled, irate viewers called up RBS
offices and subjected RBS to verbal abuse (Announce kayo ng announce, hindi ninyo naman ilalabas,
nanloloko yata kayo) (Exh. 3-RBS, par.3). This alone was not something RBS brought upon itself. It
was exactly what ABS-CBN had planted to happen.
The amount of moral and exemplary damages cannot be said to be excessive. Two reasons justify the
amount of the award.
The first is that the humiliation suffered by RBS, is national in extent. RBS operations as a
broadcasting company is [sic] nationwide. Its clientele, like that of ABS-CBN, consists of those who
own and watch television. It is not an exaggeration to state, and it is a matter of judicial notice that
almost every other person in the country watches television. The humiliation suffered by RBS is
multiplied by the number of televiewers who had anticipated the showing of the film, Maging Sino Ka
Man on May 28 and November 3, 1992 but did not see it owing to the cancellation. Added to this are
the advertisers who had placed commercial spots for the telecast and to whom RBS had a commitment
in consideration of the placement to show the film in the dates and times specified.
The second is that it is a competitor that caused RBS suffer the humiliation. The humiliation and injury
are far greater in degree when caused by an entity whose ultimate business objective is to lure
customers (viewers in this case) away from the competition.[36]
For their part, VIVA and Vicente del Rosario contend that the findings of fact of the trial court
and the Court of Appeals do not support ABS-CBNs claim that there was a perfected contract. Such
factual findings can no longer be disturbed in this petition for review under Rule 45, as only questions
of law can be raised, not questions of fact. On the issue of damages and attorneys fees, they adopted
the arguments of RBS.
The key issues for our consideration are (1) whether there was a perfected contract between VIVA
and ABS-CBN, and (2) whether RBS is entitled to damages and attorneys fees. It may be noted that
that award of attorneys fees of P212,000 in favor of VIVA is not assigned as another error.
I
The first issue should be resolved against ABS-CBN. A contract is a meeting of minds between
two persons whereby one binds himself to give something or render some service to another [37] for a
consideration. There is no contract unless the following requisites concur: (1) consent of the
contracting parties; (2) object certain which is the subject of the contract; and (3) cause of the
obligation, which is established.[38] A contract undergoes three stages:
(a) preparation, conception, or generation, which is the period of negotiation and bargaining,
ending at the moment of agreement of the parties;
(b) perfection or birth of the contract, which is the moment when the parties come to agree
on the terms of the contract; and
(c) consummation or death, which is the fulfillment or performance of the terms agreed
upon in the contract.[39]
Contracts that are consensual in nature are perfected upon mere meeting of the minds. Once there
is concurrence between the offer and the acceptance upon the subject matter, consideration, and terms
of payment a contract is produced. The offer must be certain. To convert the offer into a contract, the
acceptance must be absolute and must not qualify the terms of the offer; it must be plain, unequivocal,
unconditional, and without variance of any sort from the proposal. A qualified acceptance, or one that
involves a new proposal, constitutes a counter-offer and is a rejection of the original
offer. Consequently, when something is desired which is not exactly what is proposed in the offer, such
acceptance is not sufficient to generate consent because any modification or variation from the terms of
the offer annuls the offer.[40]
When Mr. Del Rosario of Viva met Mr. Lopez of ABS-CBN at the Tamarind Grill on 2 April
1992 to discuss the package of films, said package of 104 VIVA films was VIVAs offer to ABS-CBN
to enter into a new Film Exhibition Agreement. But ABS-CBN, sent through Ms. Concio, counter-
proposal in the form a draft contract proposing exhibition of 53 films for a consideration of P35
million. This counter-proposal could be nothing less than the counter-offer of Mr. Lopez during his
conference with Del Rosario at Tamarind Grill Restaurant. Clearly, there was no acceptance of VIVAs
offer, for it was met by a counter-offer which substantially varied the terms of the offer.
ABS-CBNs reliance in Limketkai Sons Milling, Inc. v. Court of Appeals [41] and Villonco Realty
Company v. Bormaheco, Inc.,[42] is misplaced. In these cases, it was held that an acceptance may
contain a request for certain changes in the terms of the offer and yet be a binding acceptance as long
as it is clear that the meaning of the acceptance is positively and unequivocally to accept the offer,
whether such request is granted or not. This ruling was, however, reversed in the resolution of 29
March 1996,[43] which ruled that the acceptance of an offer must be unqualified and absolute, i.e., it
must be identical in all respects with that of the offer so as to produce consent or meetings of the
minds.
On the other hand, in Villonco, cited in Limketkai, the alleged changes in the revised counter-offer
were not material but merely clarificatory of what had previously been agreed upon. It cited the
statement in Stuart v. Franklin Life Insurance Co.[44] that a vendors change in a phrase of the offer to
purchase, which change does not essentially change the terms of the offer, does not amount to a
rejection of the offer and the tender of a counter-offer.[45] However, when any of the elements of the
contract is modified upon acceptance, such alteration amounts to a counter-offer.
In the case at bar, ABS-CBN made no unqualified acceptance of VIVAs offer hence, they
underwent period of bargaining. ABS-CBN then formalized its counter-proposals or counter-offer in a
draft contract. VIVA through its Board of Directors, rejected such counter-offer. Even if it be
conceded arguendo that Del Rosario had accepted the counter-offer, the acceptance did not bind VIVA,
as there was no proof whatsoever that Del Rosario had the specific authority to do so.
Under the Corporation Code, [46] unless otherwise provided by said Code, corporate powers, such
as the power to enter into contracts, are exercised by the Board of Directors. However, the Board may
delegate such powers to either an executive committee or officials or contracted managers. The
delegation, except for the executive committee, must be for specific purposes. [47] Delegation to officers
makes the latter agents of the corporation; accordingly, the general rules of agency as to the binding
effects of their acts would apply.[48] For such officers to be deemed fully clothed by the corporation to
exercise a power of the Board, the latter must specially authorize them to do so. that Del Rosario did
not have the authority to accept ABS-CBNs counter-offer was best evidenced by his submission of the
draft contract to VIVAs Board of Directors for the latters approval. In any event, there was between
Del Rosario and Lopez III no meeting of minds. The following findings of the trial court are
instructive:
A number of considerations militate against ABS-CBNs claim that a contract was perfected at that
lunch meeting on April 02, 1992 at the Tamarind Grill.
FIRST, Mr. Lopez claimed that what was agreed upon at the Tamarind Grill referred to the price and
the number of films, which he wrote on a napkin. However, Exhibit C contains numerous provisions
which were not discussed at the Tamarind Grill, if Lopez testimony was to be believed nor could they
have been physically written on a napkin. There was even doubt as to whether it was a paper napkin or
cloth napkin. In short what were written in Exhibit C were not discussed, and therefore could not have
been agreed upon, by the parties. How then could this court compel the parties to sign Exhibit C when
the provisions thereof were not previously agreed upon?
SECOND, Mr. Lopez claimed that what was agreed upon as the subject matter of the contract was 14
films. The complaint in fact prays for delivery of 14 films. But Exhibit C mentions 53 films as its
subject matter. Which is which? If Exhibit C reflected the true intent of the parties, then ABS-CBNs
claim for 14 films in its complaint is false or if what it alleged in the complaint is true, then Exhibit C
did not reflect what was agreed upon by the parties. This underscores the fact that there was no
meeting of the minds as to the subject matter of the contract, so as to preclude perfection thereof. For
settled is the rule that there can be no contract where there is no object certain which is its subject
matter (Art. 1318, NCC).
THIRD, Mr. Lopez [sic] answer to question 29 of his affidavit testimony (Exh. D) States:
We were able to reach an agreement. VIVA gave us the exclusive license to show these fourteen (14)
films, and we agreed to pay Viva the amount of P16,050,000.00 as well as grant Viva commercial slots
worth P19,950,000.00. We had already earmarked this P16,050,000.00.
which gives a total consideration of P36 million (P19,951,000.00 plus P16,050,000.00
equals P36,000,000.00).
On cross-examination Mr. Lopez testified:
Q What was written in this napkin?
A The total price, the breakdown the known Viva movies, the 7 blockbuster movies and the other 7
Viva movies because the price was broken down accordingly. The none [sic] Viva and the
seven other Viva movies and the sharing between the cash portion and the concerned spot
portion in the total amount of P35 million pesos.
Now, which is which? P36 million or P35 million? This weakens ABS-CBNs claim.
FOURTH. Mrs. Concio, testifying for ABS-CBN stated that she transmitted Exhibit C to Mr. Del
Rosario with a handwritten note, describing said Exhibit C as a draft. (Exh. 5 Viva; tsn pp. 23-24, June
08, 1992). The said draft has a well defined meaning.
Since Exhibit C is only a draft, or a tentative, provisional or preparatory writing prepared for
discussion, the terms and conditions thereof could not have been previously agreed upon by ABS-CBN
and Viva. Exhibit C could not therefore legally bind Viva, not having agreed thereto. In fact, Ms.
Concio admitted that the terms and conditions embodied in Exhibit C were prepared by ABS-CBNs
lawyers and there was no discussion on said terms and conditions.
As the parties had not yet discussed the proposed terms and conditions in Exhibit C, and there was no
evidence whatsoever that Viva agreed to the terms and conditions thereof, said document cannot be a
binding contract. The fact that Viva refused to sign Exhibit C reveals only two [sic] well that it did not
agree on its terms and conditions, and this court has no authority to compel Viva to agree thereto.
FIFTH. Mr. Lopez understand [sic] that what he and Mr. Del Rosario agreed upon at the Tamarind
Grill was only provisional, in the sense that it was subject to approval by the Board of Directors of
Viva. He testified:
Q Now, Mr. Witness, and after that Tamarinf meeting the second meeting wherein you claimed that
you have the meeting of the minds between you and Mr. Vic del Rosario, what happened?
A Vic Del Rosario was supposed to call us up and tell us specifically the result of the discussion
with the Board of Directors.
Q And you are referring to the so-called agreement which you wrote in [sic] a piece of paper?
A Yes, sir.
Q So, he was going to forward that to the board of Directors for approval?
A Yes, sir (Tsn, pp. 42-43, June 8, 1992)
Q Did Mr. Del Rosario tell you that he will submit it to his Board for approval?
A Yes, sir. (Tsn, p. 69, June 8, 1992).
The above testimony of Mr. Lopez shows beyond doubt that he knew Mr. Del Rosario had no authority
to bind Viva to a contract with ABS-CBN until and unless its Board of Directors approved it. The
complaint, in fact, alleges that Mr. Del Rosario is the Executive Producer of defendant Viva which is a
corporation. (par. 2, complaint). As a mere agent of Viva, Del Rosario could not bind Viva unless what
he did is ratified by its Directors. (Vicente vs.Geraldez, 52 SCRA 210; Arnold vs. Willets and Paterson,
44 Phil. 634). As a mere agent, recognized as such by plaintiff, Del Rosario could not be held liable
jointly and severally with Viva and his inclusion as party defendant has no legal basis. (Salonga vs.
Warner Barnes [sic],COLTA, 88 Phil. 125; Salmon vs. Tan, 36 Phil. 556).
The testimony of Mr. Lopez and the allegations in the complaint are clear admissions that what was
supposed to have been agreed upon at the Tamarind Grill between Mr. Lopez and Del Rosario was not
a binding agreement. It is as it should be because corporate power to enter into a contract is lodged in
the Board of Directors. (Sec. 23, Corporation Code). Without such board approval by the Viva board,
whatever agreement Lopez and Del Rosario arrived at could not ripen into a valid binding upon Viva
(Yao Ka Sin Trading vs. Court of Appeals, 209 SCRA 763). The evidence adduced shows that the
Board of Directors of Viva rejected Exhibit C and insisted that the film package for 104 films be
maintained (Exh. 7-1 Cica).[49]
The contention that ABS-CBN had yet to fully exercise its right of first refusal over twenty-four
films under the 1990 Film Exhibition Agreement and that the meeting between Lopez and Del Rosario
was a continuation of said previous contract is untenable. As observed by the trial court, ABS-CBNs
right of first refusal had already been exercised when Ms. Concio wrote to Viva ticking off ten
films. Thus:
[T]he subsequent negotiation with ABS-CBN two (2) months after this letter was sent, was for an
entirely different package. Ms. Concio herself admitted on cross-examination to having used or
exercised the right of first refusal. She stated that the list was not acceptable and was indeed not
accepted by ABS-CBN, (Tsn, June 8, 1992, pp. 8-10). Even Mr. Lopez himself admitted that the
right of first refusal may have been already exercised by Ms. Concio (as she had). (TSN, June 8,
1992, pp. 71-75). Del Rosario himself knew and understand [sic] that ABS-CBN has lost its right
of first refusal when his list of 36 titles were rejected (Tsn, June 9, 1992, pp. 10-11). [50]
II
However, we find for ABS-CBN on the issue of damages. We shall first take up actual
damages. Chapter 2, Title XVIII, Book IV of the Civil Code is the specific law on actual or
compensatory damages. Except as provided by law or by stipulation, one is entitled to compensation
for actual damages only for such pecuniary loss suffered by him as he has duly proved. [51] The
indemnification shall comprehend not only the value of the loss suffered, but also that of the profits
that the obligee failed to obtain. [52] In contracts and quasi-contracts the damages which may be awarded
are dependent on whether the obligor acted with good faith or otherwise. In case of good faith, the
damages recoverable are those which are the natural and probable consequences of the breach of the
obligation and which the parties have foreseen or could have reasonably foreseen at the time of the
constitution of the obligation. If the obligor acted with fraud, bad faith, malice, or wanton attitude, he
shall be responsible for all damages which may be reasonably attributed to the non-performance of the
obligation.[53] In crimes and quasi-delicts, the defendants shall be liable for all damages which are the
natural and probable consequences of the act or omission complained of, whether or not such damages
have been foreseen or could have reasonably been foreseen by the defendant.[54]
Actual damages may likewise be recovered for loss or impairment of earning capacity in cases of
temporary or permanent personal injury, or for injury to the plaintiffs business standing or commercial
credit.[55]
The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or quasi-
delict. It arose from the fact of filing of the complaint despite ABS-CBNs alleged knowledge of lack of
cause of action. Thus paragraph 12 of RBSs Answer with Counterclaim and Cross-claim under the
heading COUNTERCLAIM specifically alleges:
12. ABS-CBN filed the complaint knowing fully well that it has no cause of action against
RBS. As a result thereof, RBS suffered actual damages in the amount of P6,621,195.32.
[56]
Needless to state the award of actual damages cannot be comprehended under the above law on actual
damages. RBS could only probably take refuge under Articles 19, 20, and 21 of the Civil Code, which
read as follows:
ART. 19. Every person must, in the exercise of hid rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and good faith.
ART. 20. Every person who, contrary to law, wilfully or negligently causes damage to another shall
indemnify the latter for the same.
ART. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to
morals, good customs or public policy shall compensate the latter for the damage.
It may further be observed that in cases where a writ of preliminary injunction is issued, the
damages which the defendant may suffer by reason of the writ are recoverable from the injunctive
bond.[57] In this case, ABS-CBN had not yet filed the required bond; as a matter of fact, it asked for
reduction of the bond and even went to the Court of Appeals to challenge the order on the
matter. Clearly then, it was not necessary for RBS to file a counterbond. Hence, ABS-CBN cannot be
held responsible for the premium RBS paid for the counterbond.
Neither could ABS-CBN be liable for the print advertisements for Maging Sino Ka Man for lack
of sufficient legal basis. The RTC issued a temporary restraining order and later, a writ of preliminary
injunction on the basis of its determination that there existed sufficient ground for the issuance
thereof. Notably, the RTC did not dissolve the injunction on the ground of lack of legal and factual
basis, but because of the plea of RBS that it be allowed to put up a counterbond.
As regards attorneys fees, the law is clear that in the absence of stipulation, attorneys fees may be
recovered as actual or compensatory damages under any of the circumstances provided for in Article
2208 of the Civil Code.[58]
The general rule is that attorneys fees cannot be recovered as part of damages because of the
policy that no premium should be placed on the right to litigate. [59]They are not to be awarded every
time a party wins a suit. The power of the court t award attorneys fees under Article 2208 demands
factual, legal, and equitable justification. [60] Even when a claimant is compelled to litigate with third
persons or to incur expenses to protect his rights, still attorneys fees may not be awarded where no
sufficient showing of bad faith could be reflected in a partys persistence in a case other than an
erroneous conviction of the righteousness of his cause.[61]
As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of the Civil
Code. Article 2217 thereof defines what are included in moral damages, while Article 2219 enumerates
the cases where they may be recovered. Article 2220 provides that moral damages may be recovered in
breaches of contract where the defendant acted fraudulently or in bad faith. RBSs claim for moral
damages could possibly fall only under item (10) of Article 2219, thereof which reads:
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34 and 35.
Moral damages are in the category of an award designed to compensate the claimant for actual
injury suffered and not to impose a penalty on the wrongdoer. [62]The award is not meant to enrich the
complainant at the expense of the defendant, but to enable the injured party to obtain means, diversion,
or amusements that will serve to obviate the moral suffering he has undergone. It is aimed at the
restoration, within the limits of the possible, of the spiritual status quo ante, and should be
proportionate to the suffering inflicted. [63] Trial courts must then guard against the award of exorbitant
damages; they should exercise balanced restrained and measured objectivity to avoid suspicion that it
was due to passion, prejudice, or corruption or the part of the trial court.[64]
The award of moral damages cannot be granted in favor of a corporation because, being
an artificial person and having existence only in legal contemplation, it has no feelings, no emotions,
no senses. It cannot, therefore, experience physical suffering and mental anguish, which can be
experienced only by one having a nervous system.[65] The statement in People v.
Manero[66] and Mambulao Lumber Co. v. PNB[67] that a corporation may recover moral damages if it
has a good reputation that is debased, resulting in social humiliation is an obiter dictum. On this score
alone the award for damages must be set aside, since RBS is a corporation.
The basic law on exemplary damages is Section 5 Chapter 3, Title XVIII, Book IV of the Civil
Code. These are imposed by way of example or correction for the public good, in addition to moral,
temperate, liquidated, or compensatory damages. [68] They are recoverable in criminal cases as part of
the civil liability when the crime was committed with one or more aggravating circumstances; [69] in
quasi-delicts, if the defendant acted with gross negligence; [70] and in contracts and quasi-contracts, if
the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.[71]
It may be reiterated that the claim of RBS against ABS-CBN is not based on contract, quasi-
contract, delict, or quasi-delict. Hence, the claims for moral and exemplary damages can only be based
on Articles 19, 20, and 21 of the Civil Code.
The elements of abuse of right under Article 19 are the following: (1) the existence of a legal
right or duty, (2) which is exercised in bad faith, and (3) for the sole intent of prejudicing or injuring
another. Article 20 speaks of the general sanction for all provisions of law which do not especially
provide for their own sanction; while Article 21 deals with acts contra bonus mores, and has the
following elements: (1) there is an act which is legal, (2) but which is contrary to morals, good custom,
public order, or public policy, and (3) and it is done with intent to injure.[72]
Verily then, malice or bad faith is at the core of Articles 19, 20, and 21. Malice or bad faith
implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral
obliquity.[73] Such must be substantiated by evidence.[74]
There is no adequate proof that ABS-CBN was inspired by malice or bad faith. It was honestly
convinced of the merits of its cause after it had undergone serious negotiations culminating in its
formal submission of a draft contract. Settled is the rule that the adverse result of an action does
not per se make the action wrongful and subject the actor to damages, for the law could not have meant
impose a penalty on the right to litigate. If damages result from a persons exercise of a right, it
is damnum absque injuria.[75]
WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of
Appeals in CA-G.R. CV No. 44125 is hereby REVERSED except as to unappealed award of attorneys
fees in favor of VIVA Productions, Inc.
No pronouncement as to costs.
SO ORDERED.
Xxxxxxxxxxxxxxxxxxxxxxx
I. NATIONALITY
1. EN BANC
G.R. No. L-6776 May 21, 1955
THE REGISTER OF DEEDS OF RIZAL, petitioner-appellee,
vs.
UNG SIU SI TEMPLE, respondent-appellant.
Alejo F. Candido for appellant.
Office of the Solicitor General Querube C. Makalintal and Solicitor Felix V. Makasiar for appellee.
REYES, J.B.L., J.:
The Register of Deeds for the province of Rizal refused to accept for record a deed of donation
executed in due form on January 22, 1953, by Jesus Dy, a Filipino citizen, conveying a parcel of
residential land, in Caloocan, Rizal, known as lot No. 2, block 48-D, PSD-4212, G.L.R.O. Record No.
11267, in favor of the unregistered religious organization "Ung Siu Si Temple", operating through three
trustees all of Chinese nationality. The donation was duly accepted by Yu Juan, of Chinese nationality,
founder and deaconess of the Temple, acting in representation and in behalf of the latter and its
trustees.
The refusal of the Registrar was elevated en Consultato the IVth Branch of the Court of First Instance
of Manila. On March 14, 1953, the Court upheld the action of the Rizal Register of Deeds, saying:
The question raised by the Register of Deeds in the above transcribed consulta is whether a
deed of donation of a parcel of land executed in favor of a religious organization whose
founder, trustees and administrator are Chinese citizens should be registered or not.
It appearing from the record of the Consulta that UNG SIU SI TEMPLE is a religious
organization whose deaconess, founder, trustees and administrator are all Chinese citizens,
this Court is of the opinion and so hold that in view of the provisions of the sections 1 and 5
of Article XIII of the Constitution of the Philippines limiting the acquisition of land in the
Philippines to its citizens, or to corporations or associations at least sixty per centum of the
capital stock of which is owned by such citizens adopted after the enactment of said Act No.
271, and the decision of the Supreme Court in the case of Krivenko vs. the Register of Deeds
of Manila, the deed of donation in question should not be admitted for admitted for
registration. (Printed Rec. App. pp 17-18).
Not satisfied with the ruling of the Court of First Instance, counsel for the donee Uy Siu Si Temple has
appealed to this Court, claiming: (1) that the acquisition of the land in question, for religious purposes,
is authorized and permitted by Act No. 271 of the old Philippine Commission, providing as follows:
SECTION 1. It shall be lawful for all religious associations, of whatever sort or denomination,
whether incorporated in the Philippine Islands or in the name of other country, or not
incorporated at all, to hold land in the Philippine Islands upon which to build churches,
parsonages, or educational or charitable institutions.
SEC. 2. Such religious institutions, if not incorporated, shall hold the land in the name of
three Trustees for the use of such associations; . . .. (Printed Rec. App. p. 5.)
and (2) that the refusal of the Register of Deeds violates the freedom of religion clause of our
Constitution [Art. III, Sec. 1(7)].
We are of the opinion that the Court below has correctly held that in view of the absolute terms of
section 5, Title XIII, of the Constitution, the provisions of Act No. 271 of the old Philippine
Commission must be deemed repealed since the Constitution was enacted, in so far as incompatible
therewith. In providing that, —
 Save in cases of hereditary succession, no private agricultural land shall be transferred or
assigned except to individuals, corporations or associations qualified to acquire or hold lands
of the public domain in the Philippines,
the Constitution makes no exception in favor of religious associations. Neither is there any such saving
found in sections 1 and 2 of Article XIII, restricting the acquisition of public agricultural lands and
other natural resources to "corporations or associations at least sixty per centum of the capital of which
is owned by such citizens" (of the Philippines).
The fact that the appellant religious organization has no capital stock does not suffice to escape the
Constitutional inhibition, since it is admitted that its members are of foreign nationality. The purpose of
the sixty per centum requirement is obviously to ensure that corporations or associations allowed to
acquire agricultural land or to exploit natural resources shall be controlled by Filipinos; and the spirit
of the Constitution demands that in the absence of capital stock, the controlling membership should be
composed of Filipino citizens.
To permit religious associations controlled by non-Filipinos to acquire agricultural lands would be to
drive the opening wedge to revive alien religious land holdings in this country. We can not ignore the
historical fact that complaints against land holdings of that kind were among the factors that sparked
the revolution of 1896.
As to the complaint that the disqualification under article XIII is violative of the freedom of religion
guaranteed by Article III of the Constitution, we are by no means convinced (nor has it been shown)
that land tenure is indispensable to the free exercise and enjoyment of religious profession or worship;
or that one may not worship the Deity according to the dictates of his own conscience unless upon land
held in fee simple.
The resolution appealed from is affirmed, with costs against appellant.
XXXXXXXXXXXXXXXXXX
2. EN BANC
G.R. No. L-8451 December 20, 1957
THE ROMAN CATHOLIC APOSTOLIC ADMINISTRATOR OF DAVAO, INC., petitioner,
vs.
THE LAND REGISTRATION COMMISSION and THE REGISTER OF DEEDS OF DAVAO
CITY, respondents.
Teodoro Padilla, for petitioner.
Office of the Solicitor General Ambrosio Padilla, Assistant Solicitor General Jose G. Bautista and
Troadio T. Quianzon, Jr., for respondents.
FELIX, J.:
This is a petition for mandamus filed by the Roman Catholic Apostolic Administrator of Davao
seeking the reversal of a resolution by the Land Registration Commissioner in L.R.C. Consulta No. 14.
The facts of the case are as follows:
On October 4, 1954, Mateo L. Rodis, a Filipino citizen and resident of the City of Davao, executed a
deed of sale of a parcel of land located in the same city covered by Transfer Certificate No. 2263, in
favor of the Roman Catholic Apostolic Administrator of Davao Inc., s corporation sole organized and
existing in accordance with Philippine Laws, with Msgr. Clovis Thibault, a Canadian citizen, as actual
incumbent. When the deed of sale was presented to Register of Deeds of Davao for registration, the
latter.
having in mind a previous resolution of the Fourth Branch of the Court of First Instance of
Manila wherein the Carmelite Nuns of Davao were made to prepare an affidavit to the effect
that 60 per cent of the members of their corporation were Filipino citizens when they sought
to register in favor of their congregation of deed of donation of a parcel of land—
required said corporation sole to submit a similar affidavit declaring that 60 per cent of the members
thereof were Filipino citizens.
The vendee in the letter dated June 28, 1954, expressed willingness to submit an affidavit, both not in
the same tenor as that made the Progress of the Carmelite Nuns because the two cases were not similar,
for whereas the congregation of the Carmelite Nuns had five incorporators, the corporation sole has
only one; that according to their articles of incorporation, the organization of the Carmelite Nuns
became the owner of properties donated to it, whereas the case at bar, the totality of the Catholic
population of Davao would become the owner of the property bought to be registered.
As the Register of Deeds entertained some doubts as to the registerability if the document, the matter
was referred to the Land Registration Commissioner en consulta for resolution in accordance with
section 4 of Republic Act No. 1151. Proper hearing on the matter was conducted by the Commissioner
and after the petitioner corporation had filed its memorandum, a resolution was rendered on September
21, 1954, holding that in view of the provisions of Section 1 and 5 of Article XIII of the Philippine
Constitution, the vendee was not qualified to acquire private lands in the Philippines in the absence of
proof that at least 60 per centum of the capital, property, or assets of the Roman Catholic Apostolic
Administrator of Davao, Inc., was actually owned or controlled by Filipino citizens, there being no
question that the present incumbent of the corporation sole was a Canadian citizen. It was also the
opinion of the Land Registration Commissioner that section 159 of the corporation Law relied upon by
the vendee was rendered operative by the aforementioned provisions of the Constitution with respect to
real estate, unless the precise condition set therein — that at least 60 per cent of its capital is owned by
Filipino citizens — be present, and, therefore, ordered the Registered Deeds of Davao to deny
registration of the deed of sale in the absence of proof of compliance with such condition.
After the motion to reconsider said resolution was denied, an action for mandamus was instituted with
this Court by said corporation sole, alleging that under the Corporation Law as well as the settled
jurisprudence on the matter, the deed of sale executed by Mateo L. Rodis in favor of petitioner is
actually a deed of sale in favor of the Catholic Church which is qualified to acquire private agricultural
lands for the establishment and maintenance of places of worship, and prayed that judgment be
rendered reserving and setting aside the resolution of the Land Registration Commissioner in question.
In its resolution of November 15, 1954, this Court gave due course to this petition providing that the
procedure prescribed for appeals from the Public Service Commission of the Securities and Exchange
Commissions (Rule 43), be followed.
Section 5 of Article XIII of the Philippine Constitution reads as follows:
SEC. 5. Save in cases of hereditary succession, no private agricultural land shall be
transferred or assigned except to individuals, corporations, or associations qualified to acquire
or hold lands of the public domain in the Philippines.
Section 1 of the same Article also provides the following:
SECTION 1. All agricultural, timber, and mineral lands of the public domain, water, minerals, coal,
petroleum, and other mineral oils, all forces of potential energy, and other natural resources of the
Philippines belong to the State, and their disposition, exploitation, development, or utilization shall be
limited to cititzens of the Philippines, or to corporations or associations at least sixty per centum of
the capital of which is owned by such citizens, SUBJECT TO ANY EXISTING RIGHT, grant, lease, or
concession AT THE TIME OF THE INAUGURATION OF THE GOVERNMENT ESTABLISHED
UNDER CONSTITUTION. Natural resources, with the exception of public agricultural land, shall not
be alienated, and no license, concession, or leases for the exploitation, development, or utilization of
any of the natural resources shall be granted for a period exceeding twenty-five years, renewable for
another twenty-five years, except as to water rights for irrigation, water supply, fisheries, or industrial
uses other than the development of water power, in which cases other than the development and limit
of the grant.
In virtue of the foregoing mandates of the Constitution, who are considered "qualified" to acquire and
hold agricultural lands in the Philippines? What is the effect of these constitutional prohibition of the
right of a religious corporation recognized by our Corporation Law and registered as a corporation
sole, to possess, acquire and register real estates in its name when the Head, Manager, Administrator or
actual incumbent is an alien?
Petitioner consistently maintained that a corporation sole, irrespective of the citizenship of its
incumbent, is not prohibited or disqualified to acquire and hold real properties. The Corporation Law
and the Canon Law are explicit in their provisions that a corporation sole or "ordinary" is not the
owner of the of the properties that he may acquire but merely the administrator thereof. The Canon
Law also specified that church temporalities are owned by the Catholic Church as a "moral person" or
by the diocess as minor "moral persons" with the ordinary or bishop as administrator.
And elaborating on the composition of the Catholic Church in the Philippines, petitioner explained that
as a religious society or organization, it is made up of 2 elements or divisions — the clergy or religious
members and the faithful or lay members. The 1948 figures of the Bureau of Census showed that there
were 277,551 Catholics in Davao and aliens residing therein numbered 3,465. Ever granting that all
these foreigners are Catholics, petitioner contends that Filipino citizens form more than 80 per cent of
the entire Catholics population of that area. As to its clergy and religious composition, counsel for
petitioner presented the Catholic Directory of the Philippines for 1954 (Annex A) which revealed that
as of that year, Filipino clergy and women novices comprise already 60.5 per cent of the group. It was,
therefore, allowed that the constitutional requirement was fully met and satisfied.
Respondents, on the other hand, averred that although it might be true that petitioner is not the owner
of the land purchased, yet he has control over the same, with full power to administer, take possession
of, alienate, transfer, encumber, sell or dispose of any or all lands and their improvements registered in
the name of the corporation sole and can collect, receive, demand or sue for all money or values of any
kind that may be kind that may become due or owing to said corporation, and vested with authority to
enter into agreements with any persons, concerns or entities in connection with said real properties, or
in other words, actually exercising all rights of ownership over the properties. It was their stand that
the theory that properties registered in the name of the corporation sole are held in true for the benefit
of the Catholic population of a place, as of Davao in the case at bar should be sustained because a
conglomeration of persons cannot just be pointed out as the cestui que trust or recipient of the benefits
from the property allegedly administered in their behalf. Neither can it be said that the mass of people
referred to as such beneficiary exercise ant right of ownership over the same. This set-up, respondents
argued, falls short of a trust. The respondents instead tried to prove that in reality, the beneficiary of
ecclesiastical properties are not members or faithful of the church but someone else, by quoting a
portion a portion of the ought of fidelity subscribed by a bishop upon his elevation to the episcopacy
wherein he promises to render to the Pontificial Father or his successors an account of
his pastoral office and of all things appertaining to the state of this church.
Respondents likewise advanced the opinion that in construing the constitutional provision calling for
60 per cent of Filipino citizenship, the criterion of the properties or assets thereof.
In solving the problem thus submitted to our consideration, We can say the following: A corporation
sole is a special form of corporation usually associated with the clergy. Conceived and introduced into
the common law by sheer necessity, this legal creation which was referred to as "that unhappy freak of
English law" was designed to facilitate the exercise of the functions of ownership carried on by the
clerics for and on behalf of the church which was regarded as the property owner (See I Couvier's Law
Dictionary, p. 682-683).
A corporation sole consists of one person only, and his successors (who will always be one at a time),
in some particular station, who are incorporated by law in order to give them some legal capacities and
advantages, particularly that of perpetuity, which in their natural persons they could not have had. In
this sense, the king is a sole corporation; so is a bishop, or dens, distinct from their several chapters
(Reid vs. Barry, 93 Fla. 849, 112 So. 846).
The provisions of our Corporation law on religious corporations are illuminating and sustain the stand
of petitioner. Section 154 thereof provides:
SEC. 154. — For the administration of the temporalities of any religious denomination,
society or church and the management of the estates and the properties thereof, it shall be
lawful for the bishop, chief priest, or presiding either of any such religious denomination,
 society or church to become a corporation sole, unless inconsistent wit the rules, regulations
or discipline of his religious denomination, society or church or forbidden by competent
authority thereof.
See also the pertinent provisions of the succeeding sections of the same Corporation Law copied
hereunder:
SEC. 155. In order to become a corporation sole the bishop, chief priest, or presiding elder of
any religious denomination, society or church must file with the Securities and Exchange
Commissioner articles of incorporation setting forth the following facts:
xxx xxx xxx.
(3) That as such bishop, chief priest, or presiding elder he is charged with the
administration of the temporalities and the management of the estates and properties of his
religious denomination, society, or church within its territorial jurisdiction, describing it;
xxx xxx xxx.
(As amended by Commonwealth Act No. 287).
SEC. 157. From and after the filing with the Securities and Exchange Commissioner of the
said articles of incorporation, which verified by affidavit or affirmation as aforesaid and
accompanied by the copy of the commission, certificate of election, or letters of appointment
of the bishop, chief priest, or presiding elder, duly certified as prescribed in the section
immediately preceding such the bishop, chief priest, or presiding elder, as the case may be,
shall become a corporation sole and all temporalities, estates, and properties the religious
denomination, society, or church therefore administered or managed by him as such bishop,
chief priest, or presiding elder, shall be held in trust by him as a corporation sole, for the use,
purpose, behalf, and sole benefit of his religious denomination, society, or church, including
hospitals, schools, colleges, orphan, asylums, parsonages, and cemeteries thereof. For the
filing of such articles of incorporation, the Securities and Exchange Commissioner shall
collect twenty-five pesos. (As amended by Commonwealth Act. No. 287); and.
SEC. 163. The right to administer all temporalities and all property held or owned by a
religious order or society, or by the diocese, synod, or district organization of any religious
denomination or church shall, on its incorporation, pass to the corporation and shall be held in
trust for the use, purpose behalf, and benefit of the religious society, or order so incorporated
or of the church of which the diocese, or district organization is an organized and constituent
part.
The Cannon Law contains similar provisions regarding the duties of the corporation sole or ordinary as
administrator of the church properties, as follows:
Al Ordinario local pertenence vigilar diligentemente sobre la administracion de todos los
bienes eclesiasticos que se hallan en su territorio y no estuvieren sustraidos de su jurisdiccion,
salvs las prescriciones legitimas que le concedan mas aamplios derechos.
Teniendo en cuenta los derechos y las legitimas costumbres y circunstancias, procuraran los
Ordinarios regular todo lo concerniente a la administracion de los bienes eclesciasticos, dando
las oportunas instucciones particularles dentro del narco del derecho comun. (Title XXVIII,
Codigo de Derecho Canonico, Lib. III, Canon 1519).1
That leaves no room for doubt that the bishops or archbishops, as the case may be, as corporation's sole
are merely administrators of the church properties that come to their possession, in which they hold in
trust for the church. It can also be said that while it is true that church properties could be administered
by a natural persons, problems regarding succession to said properties can not be avoided to rise upon
his death. Through this legal fiction, however, church properties acquired by the incumbent of a
corporation sole pass, by operation of law, upon his death not his personal heirs but to his successor in
office. It could be seen, therefore, that a corporation sole is created not only to administer the
temporalities of the church or religious society where he belongs but also to hold and transmit the same
to his successor in said office. If the ownership or title to the properties do not pass to the
administrators, who are the owners of church properties?.
Bouscaren and Elis, S.J., authorities on cannon law, on their treatise comment:
In matters regarding property belonging to the Universal Church and to the Apostolic See, the
Supreme Pontiff exercises his office of supreme administrator through the Roman Curia; in
matters regarding other church property, through the administrators of the individual moral
persons in the Church according to that norms, laid down in the Code of Cannon Law. This
does not mean, however, that the Roman Pontiff is the owner of all the church property; but
merely that he is the supreme guardian (Bouscaren and Ellis, Cannon Law, A Text and
Commentary, p. 764).
and this Court, citing Campes y Pulido, Legislacion y Jurisprudencia Canonica, ruled in the case of
Trinidad vs. Roman Catholic Archbishop of Manila, 63 Phil. 881, that:
The second question to be decided is in whom the ownership of the properties constituting the
endowment of the ecclesiastical or collative chaplaincies is vested.
Canonists entertain different opinions as to the persons in whom the ownership of the
ecclesiastical properties is vested, with respect to which we shall, for our purpose, confine
ourselves to stating with Donoso that, while many doctors cited by Fagnano believe that it
resides in the Roman Pontiff as Head of the Universal Church, it is more probable that
ownership, strictly speaking, does not reside in the latter, and, consequently, ecclesiastical
properties are owned by the churches, institutions and canonically established private
corporations to which said properties have been donated.
Considering that nowhere can We find any provision conferring ownership of church properties on the
Pope although he appears to be the supreme administrator or guardian of his flock, nor on the
corporation sole or heads of dioceses as they are admittedly mere administrators of said properties,
ownership of these temporalities logically fall and develop upon the church, diocese or congregation
acquiring the same. Although this question of ownership of ecclesiastical properties has off and on
been mentioned in several decisions of the Court yet in no instance was the subject of citizenship of
this religious society been passed upon.
We are not unaware of the opinion expressed by the late Justice Perfecto in his dissent in the case of
Agustines vs. Court of First Instance of Bulacan, 80 Phil. 565, to the effect that "the Roman Catholic
Archbishop of Manila is only a branch of a universal church by the Pope, with permanent residence in
Rome, Italy". There is no question that the Roman Catholic Church existing in the Philippines is a
tributary and part of the international religious organization, for the word "Roman" clearly expresses
its unity with and recognizes the authority of the Pope in Rome. However, lest We become hasty in
drawing conclusions, We have to analyze and take note of the nature of the government established in
the Vatican City, of which it was said:
GOVERNMENT. In the Roman Catholic Church supreme authority and jurisdiction over
clergy and laity alike as held by the pope who (since the Middle Ages) is elected by the
cardinals assembled in conclave, and holds office until his death or legitimate abdication. . .
While the pope is obviously independent of the laws made, and the officials appointed, by
himself or his predecessors, he usually exercises his administrative authority according to the
code of canon law and through the congregations, tribunals and offices of the Curia Romana.
In their respective territories (called generally dioceses) and over their respective subjects, the
patriarchs, metropolitans or archbishops and bishops exercise a jurisdiction which is called
ordinary (as attached by law to an office given to a person. . . (Collier's Encyclopedia, Vol. 17,
p. 93).
While it is true and We have to concede that in the profession of their faith, the Roman Pontiff is the
supreme head; that in the religious matters, in the exercise of their belief, the Catholic congregation of
the faithful throughout the world seeks the guidance and direction of their Spiritual Father in the
Vatican, yet it cannot be said that there is a merger of personalities resultant therein. Neither can it be
said that the political and civil rights of the faithful, inherent or acquired under the laws of their
country, are affected by that relationship with the Pope. The fact that the Roman Catholic Church in
almost every country springs from that society that saw its beginning in Europe and the fact that the
clergy of this faith derive their authorities and receive orders from the Holy See do not give or bestow
the citizenship of the Pope upon these branches. Citizenship is a political right which cannot be
acquired by a sort of "radiation". We have to realize that although there is a fraternity among all the
catholic countries and the dioceses therein all over the globe, the universality that the word "catholic"
implies, merely characterize their faith, a uniformity in the practice and the interpretation of their
dogma and in the exercise of their belief, but certainly they are separate and independent from one
another in jurisdiction, governed by different laws under which they are incorporated, and entirely
independent on the others in the management and ownership of their temporalities. To allow theory
that the Roman Catholic Churches all over the world follow the citizenship of their Supreme Head, the
Pontifical Father, would lead to the absurdity of finding the citizens of a country who embrace the
Catholic faith and become members of that religious society, likewise citizens of the Vatican or of Italy.
And this is more so if We consider that the Pope himself may be an Italian or national of any other
country of the world. The same thing be said with regard to the nationality or citizenship of the
corporation sole created under the laws of the Philippines, which is not altered by the change of
citizenship of the incumbent bishops or head of said corporation sole.
We must therefore, declare that although a branch of the Universal Roman Catholic Apostolic Church,
every Roman Catholic Church in different countries, if it exercises its mission and is lawfully
incorporated in accordance with the laws of the country where it is located, is considered an entity or
person with all the rights and privileges granted to such artificial being under the laws of that country,
separate and distinct from the personality of the Roman Pontiff or the Holy See, without prejudice to
its religious relations with the latter which are governed by the Canon Law or their rules and
regulations.
We certainly are conscious of the fact that whatever conclusion We may draw on this matter will have
a far reaching influence, nor can We overlook the pages of history that arouse indignation and
criticisms against church landholdings. This nurtured feeling that snowbailed into a strong nationalistic
sentiment manifested itself when the provisions on natural to be embodied in the Philippine
Constitution were framed, but all that has been said on this regard referred more particularly to
landholdings of religious corporations known as "Friar Estates" which have already bee acquired by
our government, and not to properties held by corporations sole which, We repeat, are properties held
in trust for the benefit of the faithful residing within its territorial jurisdiction. Though that same
feeling probably precipitated and influenced to a large extent the doctrine laid down in the celebrated
Krivenco decision, We have to take this matter in the light of legal provisions and jurisprudence
actually obtaining, irrespective of sentiments.
The question now left for our determination is whether the Universal Roman Catholic Apostolic
Church in the Philippines, or better still, the corporation sole named the Roman Catholic Apostolic
Administrator of Davao, Inc., is qualified to acquire private agricultural lands in the Philippines
pursuant to the provisions of Article XIII of the Constitution.
We see from sections 1 and 5 of said Article quoted before, that only persons or corporations qualified
to acquire hold lands of the public domain in the Philippines may acquire or be assigned and hold
private agricultural lands. Consequently, the decisive factor in the present controversy hinges on the
proposition or whether or not the petitioner in this case can acquire agricultural lands of the public
domain.
From the data secured from the Securities and Exchange Commission, We find that the Roman
Catholic Bishop of Zamboanga was incorporated (as a corporation sole) in September, 1912,
principally to administer its temporalities and manage its properties. Probably due to the ravages of
the last war, its articles of incorporation were reconstructed in the Securities and Exchange
Commission on April 8, 1948. At first, this corporation sole administered all the temporalities of the
church existing or located in the island of Mindanao. Later on, however, new dioceses were formed
and new corporations sole were created to correspond with the territorial jurisdiction of the new
dioceses, one of them being petitioner herein, the Roman Catholic Apostolic Administrator of Davao,
Inc., which was registered with the Securities and Exchange Commission on September 12, 1950, and
succeeded in the administrative for all the "temporalities" of the Roman Catholic Church existing in
Davao.
According to our Corporation Law, Public Act No. 1549, approved April 1, 1906, a corporation sole.
is organized and composed of a single individual, the head of any religious society or church,
for the ADMINISTRATION of the temporalities of such society or church. By "temporalities"
is meant estate and properties not used exclusively for religious worship. The successor in
office of such religious head or chief priest incorporated as a corporation sole shall become
the corporation sole on ascension to office, and shall be permitted to transact business as such
on filing with the Securities and Exchange Commission a copy of his commission, certificate
of election or letter of appointment duly certified by any notary public or clerk of court of
record (Guevara's The Philippine Corporation Law, p. 223).
The Corporation Law also contains the following provisions:
SECTION 159. Any corporation sole may purchase and hold real estate and personal;
property for its church, charitable, benevolent, or educational purposes, and may receive
bequests or gifts of such purposes. Such corporation may mortgage or sell real property held
by it upon obtaining an order for that purpose from the Court of First Instance of the province
in which the property is situated; but before making the order proof must be made to the
satisfaction of the Court that notice of the application for leave to mortgage or sell has been
given by publication or otherwise in such manner and for such time as said Court or the Judge
thereof may have directed, and that it is to the interest of the corporation that leave to
mortgage or sell must be made by petition, duly verified by the bishop, chief priest, or
presiding elder acting as corporation sole, and may be opposed by any member of the
religious denomination, society or church represented by the corporation sole: Provided,
however, That in cases where the rules, regulations, and discipline of the religious
denomination, society or church concerned represented by such corporation sole regulate the
methods of acquiring, holding, selling and mortgaging real estate and personal property, such
rules, regulations, and discipline shall control and the intervention of the Courts shall not be
necessary.
It can, therefore, be noticed that the power of a corporation sole to purchase real property, like the
power exercised in the case at bar, it is not restricted although the power to sell or mortgage sometimes
is, depending upon the rules, regulations, and discipline of the church concerned represented by said
corporation sole. If corporations sole can purchase and sell real estate for its church, charitable,
benevolent, or educational purposes, can they register said real properties? As provided by law, lands
held in trust for specific purposes me be subject of registration (section 69, Act 496), and the capacity
of a corporation sole, like petitioner herein, to register lands belonging to it is acknowledged, and title
thereto may be issued in its name (Bishop of Nueva Segovia vs. Insular Government, 26 Phil. 300-
1913). Indeed it is absurd that while the corporations sole that might be in need of acquiring lands for
the erection of temples where the faithful can pray, or schools and cemeteries which they are expressly
authorized by law to acquire in connection with the propagation of the Roman Catholic Apostolic faith
or in furtherance of their freedom of religion they could not register said properties in their name. As
professor Javier J. Nepomuceno very well says "Man in his search for the immortal and imponderable,
has, even before the dawn of recorded history, erected temples to the Unknown God, and there is no
doubt that he will continue to do so for all time to come, as long as he continues 'imploring the aid of
Divine Providence'" (Nepomuceno's Corporation Sole, VI Ateneo Law Journal, No. 1, p. 41,
September, 1956). Under the circumstances of this case, We might safely state that even before the
establishment of the Philippine Commonwealth and of the Republic of the Philippines every
corporation sole then organized and registered had by express provision of law the necessary power
and qualification to purchase in its name private lands located in the territory in which it exercised its
functions or ministry and for which it was created, independently of the nationality of its incumbent
unique and single member and head, the bishop of the dioceses. It can be also maintained without fear
of being gainsaid that the Roman Catholic Apostolic Church in the Philippines has no nationality and
that the framers of the Constitution, as will be hereunder explained, did not have in mind the religious
corporations sole when they provided that 60 per centum of the capital thereof be owned by Filipino
citizens.
There could be no controversy as to the fact that a duly registered corporation sole is an artificial being
having the right of succession and the power, attributes, and properties expressly authorized by law or
incident to its existence (section 1, Corporation Law). In outlining the general powers of a corporation.
Public Act. No. 1459 provides among others:
SEC. 13. Every corporation has the power:
(5) To purchase, hold, convey, sell, lease, lot, mortgage, encumber, and otherwise deal with
such real and personal property as the purpose for which the corporation was formed may
permit, and the transaction of the lawful business of the corporation may reasonably and
necessarily require, unless otherwise prescribed in this Act: . . .
In implementation of the same and specially made applicable to a form of corporation recognized by
the same law, Section 159 aforequoted expressly allowed the corporation sole to purchase and hold real
as well as personal properties necessary for the promotion of the objects for which said corporation
sole is created. Respondent Land Registration Commissioner, however, maintained that since the
Philippine Constitution is a later enactment than public Act No. 1459, the provisions of Section 159 in
amplification of Section 13 thereof, as regard real properties, should be considered repealed by the
former.
There is a reason to believe that when the specific provision of the Constitution invoked by respondent
Commissioner was under consideration, the framers of the same did not have in mind or overlooked
this particular form of corporation. It is undeniable that the naturalization and conservation of our
national resources was one of the dominating objectives of the Convention and in drafting the present
Article XII of the Constitution, the delegates were goaded by the desire (1) to insure their conservation
for Filipino posterity; (2) to serve as an instrument of national defense, helping prevent the extension
into the country of foreign control through peaceful economic penetration; and (3) to prevent making
the Philippines a source of international conflicts with the consequent danger to its internal security
and independence (See The Framing of the Philippine Constitution by Professor Jose M. Aruego, a
Delegate to the Constitutional Convention, Vol. II. P. 592-604). In the same book Delegate Aruego,
explaining the reason behind the first consideration, wrote:
At the time of the framing of Philippine Constitution, Filipino capital had been to be rather
shy. Filipinos hesitated s a general rule to invest a considerable sum of their capital for the
development, exploitation and utilization of the natural resources of the country. They had not
as yet been so used to corporate as the peoples of the west. This general apathy, the delegates
knew, would mean the retardation of the development of the natural resources, unless foreign
capital would be encouraged to come and help in that development. They knew that the
naturalization of the natural resources would certainly not encourage the INVESTMENT OF
FOREIGN CAPITAL into them. But there was a general feeling in the Convention that it was
better to have such a development retarded or even postpone together until such time when
the Filipinos would be ready and willing to undertake it rather than permit the natural
resources to be placed under the ownership or control of foreigners in order that they might be
immediately be developed, with the Filipinos of the future serving not as owners but utmost
as tenants or workers under foreign masters. By all means, the delegates believed, the natural
resources should be conserved for Filipino posterity.
It could be distilled from the foregoing that the farmers of the Constitution intended said provisions as
barrier for foreigners or corporations financed by such foreigners to acquire, exploit and develop our
natural resources, saving these undeveloped wealth for our people to clear and enrich when they are
already prepared and capable of doing so. But that is not the case of corporations sole in the
Philippines, for, We repeat, they are mere administrators of the "temporalities" or properties titled in
their name and for the benefit of the members of their respective religion composed of an
overwhelming majority of Filipinos. No mention nor allusion whatsoever is made in the Constitution
as to the prohibition against or the liability of the Roman Catholic Church in the Philippines to acquire
and hold agricultural lands. Although there were some discussions on landholdings, they were mostly
confined in the inclusion of the provision allowing the Government to break big landed estates to put
an end to absentee landlordism.
But let us suppose, for the sake of argument, that the above referred to inhibitory clause of Section 1 of
Article XIII of the constitution does have bearing on the petitioner's case; even so the clause requiring
that at least 60 per centum of the capital of the corporation be owned by Filipinos is subordinated to
the petitioner's aforesaid right already existing at the time of the inauguration of the Commonwealth
and the Republic of the Philippines. In the language of Mr. Justice Jose P. Laurel (a delegate to the
Constitutional Convention), in his concurring opinion of the case of Gold Creek mining Corporation,
petitioner vs. Eulogio Rodriguez, Secretary of Agriculture and Commerce, and Quirico Abadilla,
Director of the Bureau of Mines, respondent, 66 Phil. 259:
The saving clause in the section involved of the Constitution was originally embodied in the
report submitted by the Committee on Naturalization and Preservation of Land and Other
Natural Resources to the Constitutional Convention on September 17, 1954. It was later
inserted in the first draft of the Constitution as section 13 of Article XIII thereof, and finally
incorporated as we find it now. Slight have been the changes undergone by the proviso from
the time when it comes out of the committee until it was finally adopted. When first submitted
and as inserted to the first draft of the Constitution it reads: 'subject to any right, grant, lease,
or concession existing in respect thereto on the date of the adoption of the Constitution'. As
finally adopted, the proviso reads: 'subject to any existing right, grant, lease, or concession at
the time of the inauguration of the Government established under this Constitution'. This
recognition is not mere graciousness but springs form the just character of the government
established. The framers of the Constitution were not obscured by the rhetoric of democracy
or swayed to hostility by an intense spirit of nationalism. They well knew that conservation of
our natural resources did not mean destruction or annihilation of acquired property rights.
Withal, they erected a government neither episodic nor stationary but well-nigh conservative
in the protection of property rights. This notwithstanding nationalistic and socialistic traits
discoverable upon even a sudden dip into a variety of the provisions embodied in the
instrument.
The writer of this decision wishes to state at this juncture that during the deliberation of this case he
submitted to the consideration of the Court the question that may be termed the "vested right saving
clause" contained in Section 1, Article XII of the Constitution, but some of the members of this Court
either did not agree with the theory of the writer, or were not ready to take a definite stand on the
particular point I am now to discuss deferring our ruling on such debatable question for a better
occasion, inasmuch as the determination thereof is not absolutely necessary for the solution of the
problem involved in this case. In his desire to face the issues squarely, the writer will endeavor, at least
as a disgression, to explain and develop his theory, not as a lucubration of the Court, but of his own, for
he deems it better and convenient to go over the cycle of reasons that are linked to one another and that
step by step lead Us to conclude as We do in the dispositive part of this decision.
It will be noticed that Section 1 of Article XIII of the Constitution provides, among other things, that
"all agricultural lands of the public domain and their disposition shall be limited to citizens of the
Philippines or to corporations at least 60 per centum of the capital of which is owned by such citizens ,
SUBJECT TO ANY EXISTING RIGHT AT THE TIME OF THE INAUGURATION OF THE
GOVERNMENT ESTABLISHED UNDER THIS CONSTITUTION."
As recounted by Mr. Justice Laurel in the aforementioned case of Gold Creek Mining Corporation vs.
Rodriguez et al., 66 Phil. 259, "this recognition (in the clause already quoted), is not mere
graciousness but springs from the just character of the government established. The farmers of the
Constitution were not obscured by the rhetoric of democracy or swayed to hostility by an intense spirit
of nationalism. They well knew that conservation of our natural resources did not mean destruction or
annihilation of ACQUIRED PROPERTY RIGHTS".
But respondents' counsel may argue that the preexisting right of acquisition of public or private lands
by a corporation which does not fulfill this 60 per cent requisite, refers to purchases of the Constitution
and not to later transactions. This argument would imply that even assuming that petitioner had at the
time of the enactment of the Constitution the right to purchase real property or right could not be
exercised after the effectivity of our Constitution, because said power or right of corporations sole, like
the herein petitioner, conferred in virtue of the aforequoted provisions of the Corporation Law, could
no longer be exercised in view of the requisite therein prescribed that at least 60 per centum of the
capital of the corporation had to be Filipino. It has been shown before that: (1) the corporation sole,
unlike the ordinary corporations which are formed by no less than 5 incorporators, is composed of only
one persons, usually the head or bishop of the diocese, a unit which is not subject to expansion for the
purpose of determining any percentage whatsoever; (2) the corporation sole is only
the administrator and not the owner of the temporalities located in the territory comprised by said
corporation sole; (3) such temporalities are administered for and on behalf of the faithful residing in
the diocese or territory of the corporation sole; and (4) the latter, as such, has no nationality and the
citizenship of the incumbent Ordinary has nothing to do with the operation, management or
administration of the corporation sole, nor effects the citizenship of the faithful connected with their
respective dioceses or corporation sole.
In view of these peculiarities of the corporation sole, it would seem obvious that when the specific
provision of the Constitution invoked by respondent Commissioner (section 1, Art. XIII), was under
consideration, the framers of the same did not have in mind or overlooked this particular form of
corporation. If this were so, as the facts and circumstances already indicated tend to prove it to be so,
then the inescapable conclusion would be that this requirement of at least 60 per cent of Filipino
capital was never intended to apply to corporations sole, and the existence or not a vested right
becomes unquestionably immaterial.
But let us assumed that the questioned proviso is material. yet We might say that a reading of said
Section 1 will show that it does not refer to any actual acquisition of land up to the right, qualification
or power to acquire and hold private real property. The population of the Philippines, Catholic to a
high percentage, is ever increasing. In the practice of religion of their faithful the corporation sole may
be in need of more temples where to pray, more schools where the children of the congregation could
be taught in the principles of their religion, more hospitals where their sick could be treated, more
hallow or consecrated grounds or cemeteries where Catholics could be buried, many more than those
actually existing at the time of the enactment of our Constitution. This being the case, could it be
logically maintained that because the corporation sole which, by express provision of law, has the
power to hold and acquire real estate and personal property of its churches, charitable benevolent, or
educational purposes (section 159, Corporation Law) it has to stop its growth and restrain its
necessities just because the corporation sole is a non-stock corporation composed of only one person
who in his unity does not admit of any percentage, especially when that person is not the owner but
merely an administrator of the temporalities of the corporation sole? The writer leaves the answer to
whoever may read and consider this portion of the decision.
Anyway, as stated before, this question is not a decisive factor in disposing the case, for even if We
were to disregard such saving clause of the Constitution, which reads: subject to any existing right,
grant, etc., at the same time of the inauguration of the Government established under this Constitution,
yet We would have, under the evidence on record, sufficient grounds to uphold petitioner's contention
on this matter.
In this case of the Register of Deeds of Rizal vs. Ung Sui Si Temple, 2 G.R. No. L-6776, promulgated
May 21, 1955, wherein this question was considered from a different angle, this Court through Mr.
Justice J.B.L. Reyes, said:
The fact that the appellant religious organization has no capital stock does not suffice to
escape the Constitutional inhibition, since it is admitted that its members are of foreign
nationality. The purpose of the sixty per centum requirement is obviously to ensure that
corporation or associations allowed to acquire agricultural land or to exploit natural resources
shall be controlled by Filipinos; and the spirit of the Constitution demands that in the absence
of capital stock, the controlling membership should be composed of Filipino citizens.
In that case respondent-appellant Ung Siu Si Temple was not a corporation sole but a corporation
aggregate, i.e., an unregistered organization operating through 3 trustees, all of Chinese nationality, and
that is why this Court laid down the doctrine just quoted. With regard to petitioner, which likewise is a
non-stock corporation, the case is different, because it is a registered corporation sole, evidently of no
nationality and registered mainly to administer the temporalities and manage the properties belonging
to the faithful of said church residing in Davao. But even if we were to go over the record to inquire
into the composing membership to determine whether the citizenship requirement is satisfied or not,
we would find undeniable proof that the members of the Roman Catholic Apostolic faith within the
territory of Davao are predominantly Filipino citizens. As indicated before, petitioner has presented
evidence to establish that the clergy and lay members of this religion fully covers the percentage of
Filipino citizens required by the Constitution. These facts are not controverted by respondents and our
conclusion in this point is sensibly obvious.
Dissenting Opinion—Discussed. — After having developed our theory in the case and arrived at the
findings and conclusions already expressed in this decision. We now deem it proper to analyze and
delve into the basic foundation on which the dissenting opinion stands up. Being aware of the
transcendental and far-reaching effects that Our ruling on the matter might have, this case was
thoroughly considered from all points of view, the Court sparing no effort to solve the delicate
problems involved herein.
At the deliberations had to attain this end, two ways were open to a prompt dispatch of the case: (1) the
reversal of the doctrine We laid down in the celebrated Krivenko case by excluding urban lots and
properties from the group of the term "private agricultural lands" use in this section 5, Article XIII of
the Constitution; and (2) by driving Our reasons to a point that might indirectly cause the appointment
of Filipino bishops or Ordinary to head the corporations sole created to administer the temporalities of
the Roman Catholic Church in the Philippines. With regard to the first way, a great majority of the
members of this Court were not yet prepared nor agreeable to follow that course, for reasons that are
obvious. As to the second way, it seems to be misleading because the nationality of the head of a
diocese constituted as a corporation sole has no material bearing on the functions of the latter, which
are limited to the administration of the temporalities of the Roman Catholic Apostolic Church in the
Philippines.
Upon going over the grounds on which the dissenting opinion is based, it may be noticed that its author
lingered on the outskirts of the issues, thus throwing the main points in controversy out of focus. Of
course We fully agree, as stated by Professor Aruego, that the framers of our Constitution had at heart
to insure the conservation of the natural resources of Our motherland of Filipino posterity; to serve
them as an instrument of national defense, helping prevent the extension into the country of foreign
control through peaceful economic penetration; and to prevent making the Philippines a source of
international conflicts with the consequent danger to its internal security and independence. But all
these precautions adopted by the Delegates to Our Constitutional Assembly could have not been
intended for or directed against cases like the one at bar. The emphasis and wonderings on the
statement that once the capacity of a corporation sole to acquire private agricultural lands is admitted
there will be no limit to the areas that it may hold and that this will pave the way for the "revival or
revitalization of religious landholdings that proved so troublesome in our past", cannot even furnish the
"penumbra" of a threat to the future of the Filipino people. In the first place, the right of Filipino
citizens, including those of foreign extraction, and Philippine corporations, to acquire private lands is
not subject to any restriction or limit as to quantity or area, and We certainly do not see any wrong in
that. The right of Filipino citizens and corporations to acquire public agricultural lands is already
limited by law. In the second place, corporations sole cannot be considered as aliens because they have
no nationality at all. Corporations sole are, under the law, mere administrators of the temporalities of
the Roman Catholic Church in the Philippines. In the third place, every corporation, be it aggregate or
sole, is only entitled to purchase, convey, sell, lease, let, mortgage, encumber and otherwise deal with
real properties when it is pursuant to or in consonance with the purposes for which the corporation was
formed, and when the transactions of the lawful business of the corporation reasonably and necessarily
require such dealing — section 13-(5) of the Corporation Law, Public Act No. 1459 — and considering
these provisions in conjunction with Section 159 of the same law which provides that a corporation
sole may only "purchase and hold real estate and personal properties for its church, charitable,
benevolent or educational purposes", the above mentioned fear of revitalization of religious
landholdings in the Philippines is absolutely dispelled. The fact that the law thus expressly authorizes
the corporations sole to receive bequests or gifts of real properties (which were the main source that
the friars had to acquire their big haciendas during the Spanish regime), is a clear indication that the
requisite that bequests or gifts of real estate be for charitable, benevolent, or educational purposes, was,
in the opinion of the legislators, considered sufficient and adequate protection against the revitalization
of religious landholdings.
Finally, and as previously stated, We have reason to believe that when the Delegates to the
Constitutional Convention drafted and approved Article XIII of the Constitution they do not have in
mind the corporation sole. We come to this finding because the Constitutional Assembly, composed as
it was by a great number of eminent lawyers and jurists, was like any other legislative body
empowered to enact either the Constitution of the country or any public statute, presumed to know the
conditions existing as to particular subject matter when it enacted a statute (Board of Commerce of
Orange Country vs. Bain, 92 S.E. 176; N. C. 377).
Immemorial customs are presumed to have been always in the mind of the Legislature in
enacting legislation. (In re Kruger's Estate, 121 A. 109; 277 P. 326).
The Legislative is presumed to have a knowledge of the state of the law on the subjects upon
which it legislates. (Clover Valley Land and Stock Co. vs. Lamb et al., 187, p. 723,726.)
The Court in construing a statute, will assume that the legislature acted with full knowledge of
the prior legislation on the subject and its construction by the courts. (Johns vs. Town of
Sheridan, 89 N. E. 899, 44 Ind. App. 620.).
The Legislature is presumed to have been familiar with the subject with which it was dealing .
. . . (Landers vs. Commonwealth, 101 S. E. 778, 781.).
The Legislature is presumed to know principles of statutory construction. (People vs. Lowell,
230 N. W. 202, 250 Mich. 349, followed in P. vs. Woodworth, 230 N.W. 211, 250 Mich. 436.).
It is not to be presumed that a provision was inserted in a constitution or statute without
reason, or that a result was intended inconsistent with the judgment of men of common sense
guided by reason" (Mitchell vs. Lawden, 123 N.E. 566, 288 Ill. 326.) See City of Decatur vs.
German, 142 N. E. 252, 310 Ill. 591, and may other authorities that can be cited in support
hereof.
Consequently, the Constitutional Assembly must have known:
1. That a corporation sole is organized by and composed of a single individual, the head of
any religious society or church operating within the zone, area or jurisdiction covered by said
corporation sole (Article 155, Public Act No. 1459);
2. That a corporation sole is a non-stock corporation;
3. That the Ordinary ( the corporation sole proper) does not own the temporalities which he
merely administers;
4. That under the law the nationality of said Ordinary or of any administrator has absolutely
no bearing on the nationality of the person desiring to acquire real property in the Philippines
by purchase or other lawful means other than by hereditary succession, who according to the
Constitution must be a Filipino (sections 1 and 5, Article XIII).
5. That section 159 of the Corporation Law expressly authorized the corporation sole to
purchase and holdreal estate for its church, charitable, benevolent or educational purposes,
and to receive bequests or gifts for such purposes;
6. That in approving our Magna Carta the Delegates to the Constitutional Convention, almost
all of whom were Roman Catholics, could not have intended to curtail the propagation of the
Roman Catholic faith or the expansion of the activities of their church, knowing pretty well
that with the growth of our population more places of worship, more schools where our youth
could be taught and trained; more hallow grounds where to bury our dead would be needed in
the course of time.
Long before the enactment of our Constitution the law authorized the corporations sole even to receive
bequests or gifts of real estates and this Court could not, without any clear and specific provision of the
Constitution, declare that any real property donated, let as say this year, could no longer be registered
in the name of the corporation sole to which it was conveyed. That would be an absurdity that should
not receive our sanction on the pretext that corporations sole which have no nationality and are non-
stock corporations composed of only one person in the capacity of administrator, have to establish first
that at least sixty per centum of their capital belong to Filipino citizens. The new Civil Code even
provides:
ART. 10. — In case of doubt in the interpretation or application of laws, it is presumed that
the lawmaking body intended right and justice to prevail.
Moreover, under the laws of the Philippines, the administrator of the properties of a Filipino can
acquire, in the name of the latter, private lands without any limitation whatsoever, and that is so
because the properties thus acquired are not for and would not belong to the administrator but to the
Filipino whom he represents. But the dissenting Justice inquires: If the Ordinary is only the
administrator, for whom does he administer? And who can alter or overrule his acts? We will forthwith
proceed to answer these questions. The corporations sole by reason of their peculiar constitution and
form of operation have no designed owner of its temporalities, although by the terms of the law it can
be safely implied that the Ordinary holds them in trust for the benefit of the Roman Catholic faithful to
their respective locality or diocese. Borrowing the very words of the law, We may say that the
temporalities of every corporation sole are held in trust for the use, purpose, behalf and benefit of the
religious society, or order so incorporated or of the church to which the diocese, synod, or district
organization is an organized and constituent part (section 163 of the Corporation Law).
In connection with the powers of the Ordinary over the temporalities of the corporation sole, let us see
now what is the meaning and scope of the word "control". According to the Merriam-Webster's New
International Dictionary, 2nd ed., p. 580, on of the acceptations of the word "control" is:
4. To exercise restraining or directing influence over; to dominate; regulate; hence, to hold
from action; to curb; subject; also, Obs. — to overpower.
SYN: restrain, rule, govern, guide, direct; check, subdue.
It is true that under section 159 of the Corporation Law, the intervention of the courts is not necessary,
to mortgageor sell real property held by the corporation sole where the rules, regulations and discipline
of the religious denomination, society or church concerned presented by such corporation sole
regulates the methods of acquiring, holding, selling and mortgaging real estate, and that the Roman
Catholic faithful residing in the jurisdiction of the corporation sole has no say either in the manner of
acquiring or of selling real property. It may be also admitted that the faithful of the diocese cannot
govern or overrule the acts of the Ordinary, but all this does not mean that the latter can administer the
temporalities of the corporation sole without check or restraint. We must not forget that when a
corporation sole is incorporated under Philippine laws, the head and only member thereof subjects
himself to the jurisdiction of the Philippine courts of justice and these tribunals can thus entertain
grievances arising out of or with respect to the temporalities of the church which came into the
possession of the corporation sole as administrator. It may be alleged that the courts cannot intervene
as to the matters of doctrine or teachings of the Roman Catholic Church. That is correct, but the courts
may step in, at the instance of the faithful for whom the temporalities are being held in trust, to check
undue exercise by the corporation sole of its power as administrator to insure that they are used for the
purpose or purposes for which the corporation sole was created.
American authorities have these to say:
It has been held that the courts have jurisdiction over an action brought by persons claiming
to be members of a church, who allege a wrongful and fraudulent diversion of the church
property to uses foreign to the purposes of the church, since no ecclesiastical question is
involved and equity will protect from wrongful diversion of the property (Hendryx vs. Peoples
United Church, 42 Wash. 336, 4 L.R.A. — n.s. — 1154).
The courts of the State have no general jurisdiction and control over the officers of such
corporations in respect to the performance of their official duties; but as in respect to the
property which they hold for the corporation, they stand in position of TRUSTEES and the
courts may exercise the same supervision as in other cases of trust (Ramsey vs. Hicks, 174
Ind. 428, 91 N.E. 344, 92 N.E. 164, 30 L.R.A. — n.s. — 665; Hendryx vs. Peoples United
Church, supra.).
Courts of the state do not interfere with the administration of church rules or discipline unless
civil rights become involved and which must be protected (Morris St., Baptist Church vs.
Dart, 67 S.C. 338, 45 S.E. 753, and others). (All cited in Vol. II, Cooley's Constitutional
Limitations, p. 960-964.).
If the Constitutional Assembly was aware of all the facts above enumerated and of the provisions of
law relative to existing conditions as to management and operation of corporations sole in the
Philippines, and if, on the other hand, almost all of the Delegates thereto embraced the Roman Catholic
faith, can it be imagined even for an instant that when Article XIII of the Constitution was approved
the framers thereof intended to prevent or curtail from then on the acquisition sole, either by purchase
or donation, of real properties that they might need for the propagation of the faith and for there
religious and Christian activities such as the moral education of the youth, the care, attention and
treatment of the sick and the burial of the dead of the Roman Catholic faithful residing in the
jurisdiction of the respective corporations sole? The mere indulgence in said thought would impress
upon Us a feeling of apprehension and absurdity. And that is precisely the leit motiv that permeates the
whole fabric of the dissenting opinion.
It seems from the foregoing that the main problem We are confronted with in this appeal, hinges
around the necessity of a proper and adequate interpretation of sections 1 and 5 of Article XIII of the
Constitution. Let Us then be guided by the principles of statutory construction laid down by the
authorities on the matter:
The most important single factor in determining the intention of the people from whom the
constitution emanated is the language in which it is expressed. The words employed are to be
taken in their natural sense, except that legal or technical terms are to be given their technical
meaning. The imperfections of language as a vehicle for conveying meanings result in
ambiguities that must be resolved by result to extraneous aids for discovering the intent of the
framers. Among the more important of these are a consideration of the history of the times
when the provision was adopted and of the purposes aimed at in its adoption. The debates of
constitutional convention, contemporaneous construction, and practical construction by the
 legislative and executive departments, especially if long continued, may be resorted to
resolve, but not to create, ambiguities. . . . Consideration of the consequences flowing from
alternative constructions of doubtful provisions constitutes an important interpretative device.
. . . The purposes of many of the broadly phrased constitutional limitations were the
promotion of policies that do not lend themselves to definite and specific formulation. The
courts have had to define those policies and have often drawn on natural law and natural
rights theories in doing so. The interpretation of constitutions tends to respond to changing
conceptions of political and social values. The extent to which these extraneous aids affect the
judicial construction of constitutions cannot be formulated in precise rules, but their influence
cannot be ignored in describing the essentials of the process (Rottschaeffer on Constitutional
Law, 1939 ed., p. 18-19).
There are times that when even the literal expression of legislation may be inconsistent with
the general objectives of policy behind it, and on the basis of equity or spirit of the statute the
courts rationalize a restricted meaning of the latter. A restricted interpretation is usually
applied where the effect of literal interpretation will make for injustice and absurdity or, in the
words of one court, the language must be so unreasonable 'as to shock general common
sense'. (Vol. 3, Sutherland on Statutory Construction, 3rd ed., 150.).
A constitution is not intended to be a limitation on the development of a country nor an
obstruction to its progress and foreign relations (Moscow Fire Ins. Co. of Moscow, Russia vs.
Bank of New York and Trust Co., 294 N. Y. S.648; 56 N.E. 2d. 745, 293 N.Y. 749).
Although the meaning or principles of a constitution remain fixed and unchanged from the
time of its adoption, a constitution must be construed as if intended to stand for a great length
of time, and it is progressive and not static. Accordingly, it should not receive too narrow or
literal an interpretation but rather the meaning given it should be applied in such manner as to
meet new or changed conditions as they arise (U.S. vs. Lassic, 313 U.S. 299, 85 L. Ed., 1368).
Effect should be given to the purpose indicated by a fair interpretation of the language used
and that construction which effectuates, rather than that which destroys a plain intent or
purpose of a constitutional provision, is not only favored but will be adopted (State ex rel.
Randolph Country vs. Walden, 206 S.W. 2d 979).
It is quite generally held that in arriving at the intent and purpose the construction should be
broad or liberal or equitable, as the better method of ascertaining that intent, rather than
technical (Great Southern Life Ins. Co. vs. City of Austin, 243 S.W. 778).
All these authorities uphold our conviction that the framers of the Constitution had not in mind the
corporations sole, nor intended to apply them the provisions of section 1 and 5 of said Article XIII
when they passed and approved the same. And if it were so as We think it is, herein petitioner, the
Roman Catholic Apostolic Administrator of Davao, Inc., could not be deprived of the right to acquire
by purchase or donation real properties for charitable, benevolent and educational purposes, nor of the
right to register the same in its name with the Register of Deeds of Davao, an indispensable requisite
prescribed by the Land Registration Act for lands covered by the Torrens system.
We leave as the last theme for discussion the much debated question above referred to as "the vested
right saving clause" contained in section 1, Article XIII of the Constitution. The dissenting Justice
hurls upon the personal opinion expressed on the matter by the writer of the decision the most pointed
darts of his severe criticism. We think, however, that this strong dissent should have been spared,
because as clearly indicated before, some members of this Court either did not agree with the theory of
the writer or were not ready to take a definite stand on that particular point, so that there being no
majority opinion thereon there was no need of any dissension therefrom. But as the criticism has been
made the writer deems it necessary to say a few words of explanation.
The writer fully agrees with the dissenting Justice that ordinarily "a capacity to acquire (property) in
futuro, is not in itself a vested or existing property right that the Constitution protects from impairment.
For a property right to be vested (or acquired) there must be a transition from the potential or
contingent to the actual, and the proprietary interest must have attached to a thing; it must have
become 'fixed and established'" (Balboa vs. Farrales, 51 Phil. 498). But the case at bar has to be
considered as an exception to the rule because among the rights granted by section 159 of the
Corporation Law was the right to receive bequests or gifts of real properties for charitable, benevolent
and educational purposes. And this right to receive such bequests or gifts (which implies donations in
futuro), is not a mere potentiality that could be impaired without any specific provision in the
Constitution to that effect, especially when the impairment would disturbingly affect the propagation of
the religious faith of the immense majority of the Filipino people and the curtailment of the activities
of their Church. That is why the writer gave us a basis of his contention what Professor Aruego said in
his book "The Framing of the Philippine Constitution" and the enlightening opinion of Mr. Justice Jose
P. Laurel, another Delegate to the Constitutional Convention, in his concurring opinion in the case of
Goldcreek Mining Co. vs. Eulogio Rodriguez et al., 66 Phil. 259. Anyway the majority of the Court did
not deem necessary to pass upon said "vested right saving clause" for the final determination of this
case.
JUDGMENT
Wherefore, the resolution of the respondent Land Registration Commission of September 21, 1954,
holding that in view of the provisions of sections 1 and 5 of Article XIII of the Philippine Constitution
the vendee (petitioner) is not qualified to acquire lands in the Philippines in the absence of proof that at
least 60 per centum of the capital, properties or assets of the Roman Catholic Apostolic Administrator
of Davao, Inc. is actually owned or controlled by Filipino citizens, and denying the registration of the
deed of sale in the absence of proof of compliance with such requisite, is hereby reversed.
Consequently, the respondent Register of Deeds of the City of Davao is ordered to register the deed of
sale executed by Mateo L. Rodis in favor of the Roman Catholic Apostolic Administrator of Davao,
Inc., which is the subject of the present litigation. No pronouncement is made as to costs. It is so
ordered.
XXXXXXXXXXXXXXXXXXXX
3. EN BANC
G.R. No. L-6055 June 12, 1953
THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee,
vs.
WILLIAM H. QUASHA, defendant-appellant.
Jose P. Laurel for appellant and William H. Quasha in his own behalf.
Office of the Solicitor General Juan R. Liwag and Assistant Solicitor General Francisco Carreon for
appellee.
REYES, J.:
William H. Quasha, a member of the Philippine bar, was charged in the Court of First Instance of
Manila with the crime of falsification of a public and commercial document in that, having been
entrusted with the preparation and registration of the article of incorporation of the Pacific Airways
Corporation, a domestic corporation organized for the purpose of engaging in business as a common
carrier, he caused it to appear in said article of incorporation that one Arsenio Baylon, a Filipino
citizen, had subscribed to and was the owner of 60.005 per cent of the subscribed capital stock of the
corporation when in reality, as the accused well knew, such was not the case, the truth being that the
owner of the portion of the capital stock subscribed to by Baylon and the money paid thereon were
American citizen whose name did not appear in the article of incorporation, and that the purpose for
making this false statement was to circumvent the constitutional mandate that no corporation shall be
authorize to operate as a public utility in the Philippines unless 60 per cent of its capital stock is owned
by Filipinos.
Found guilty after trial and sentenced to a term of imprisonment and a fine, the accused has appealed
to this Court.
The essential facts are not in dispute. On November 4,1946, the Pacific Airways Corporation registered
its articles of incorporation with the Securities and Exchanged Commission. The article were prepared
and the registration was effected by the accused, who was in fact the organizer of the corporation. The
article stated that the primary purpose of the corporation was to carry on the business of a common
carrier by air, land or water; that its capital stock was P1,000,000, represented by 9,000 preferred and
100,000 common shares, each preferred share being of the par value of p100 and entitled to 1/3 vote
and each common share, of the par value of P1 and entitled to one vote; that the amount capital stock
actually subscribed was P200,000, and the names of the subscribers were Arsenio Baylon, Eruin E.
Shannahan, Albert W. Onstott, James O'Bannon, Denzel J. Cavin, and William H. Quasha, the first
being a Filipino and the other five all Americans; that Baylon's subscription was for 1,145 preferred
shares, of the total value of P114,500, and for 6,500 common shares, of the total par value of P6,500,
while the aggregate subscriptions of the American subscribers were for 200 preferred shares, of the
total par value of P20,000, and 59,000 common shares, of the total par value of P59,000; and that
Baylon and the American subscribers had already paid 25 per cent of their respective subscriptions.
Ostensibly the owner of, or subscriber to, 60.005 per cent of the subscribed capital stock of the
corporation, Baylon nevertheless did not have the controlling vote because of the difference in voting
power between the preferred shares and the common shares. Still, with the capital structure as it was,
the article of incorporation were accepted for registration and a certificate of incorporation was issued
by the Securities and Exchange Commission.
There is no question that Baylon actually subscribed to 60.005 per cent of the subscribed capital stock
of the corporation. But it is admitted that the money paid on his subscription did not belong to him but
to the Americans subscribers to the corporate stock. In explanation, the accused testified, without
contradiction, that in the process of organization Baylon was made a trustee for the American
incorporators, and that the reason for making Baylon such trustee was as follows:
Q. According to this article of incorporation Arsenio Baylon subscribed to 1,135 preferred
shares with a total value of P1,135. Do you know how that came to be?
A. Yes.
The people who were desirous of forming the corporation, whose names are listed on page 7 of this
certified copy came to my house, Messrs. Shannahan, Onstott, O'Bannon, Caven, Perry and
Anastasakas one evening. There was considerable difficulty to get them all together at one time
because they were pilots. They had difficulty in deciding what their respective share holdings would
be. Onstott had invested a certain amount of money in airplane surplus property and they had obtained
a considerable amount of money on those planes and as I recall they were desirous of getting a
corporation formed right away. And they wanted to have their respective shares holdings resolved at a
latter date. They stated that they could get together that they feel that they had no time to settle their
respective share holdings. We discussed the matter and finally it was decided that the best way to
handle the things was not to put the shares in the name of anyone of the interested parties and to have
someone act as trustee for their respective shares holdings. So we looked around for a trustee. And he
said "There are a lot of people whom I trust." He said, "Is there someone around whom we could get
right away?" I said, "There is Arsenio. He was my boy during the liberation and he cared for me when i
was sick and i said i consider him my friend." I said. They all knew Arsenio. He is a very kind man and
that was what was done. That is how it came about.
Defendant is accused under article 172 paragraph 1, in connection with article 171, paragraph 4, of the
Revised Penal Code, which read:
ART. 171. Falsification by public officer, employee, or notary or ecclesiastic minister. — The
penalty of prision mayor and a fine not to exceed 5,000 pesos shall be imposed upon any
public officer, employee, or notary who, taking advantage of his official position, shall falsify
a document by committing any of the following acts:
xxx xxx xxx
4. Making untruthful statements in a narration of facts.
ART. 172. Falsification by private individuals and use of falsified documents. — The penalty
of prision correccional in its medium and maximum period and a fine of not more than 5,000
pesos shall be imposed upon:
xxx xxx xxx
 1. Any private individual who shall commit any of the falsifications enumerated in the next
preceding article in any public or official document or letter of exchange or any other kind of
commercial document.
Commenting on the above provision, Justice Albert, in his well-known work on the Revised Penal
Code ( new edition, pp. 407-408), observes, on the authority of U.S. vs. Reyes, (1 Phil., 341), that the
perversion of truth in the narration of facts must be made with the wrongful intent of injuring a third
person; and on the authority of U.S. vs. Lopez (15 Phil., 515), the same author further maintains that
even if such wrongful intent is proven, still the untruthful statement will not constitute the crime of
falsification if there is no legal obligation on the part of the narrator to disclose the truth. Wrongful
intent to injure a third person and obligation on the part of the narrator to disclose the truth are thus
essential to a conviction for a crime of falsification under the above article of the Revised Penal Code.
Now, as we see it, the falsification imputed in the accused in the present case consists in not disclosing
in the articles of incorporation that Baylon was a mere trustee ( or dummy as the prosecution chooses
to call him) of his American co-incorporators, thus giving the impression that Baylon was the owner of
the shares subscribed to by him which, as above stated, amount to 60.005 per cent of the sub-scribed
capital stock. This, in the opinion of the trial court, is a malicious perversion of the truth made with the
wrongful intent circumventing section 8, Article XIV of the Constitution, which provides that " no
franchise, certificate, or any other form of authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to corporation or other entities organized under the law
of the Philippines, sixty per centum of the capital of which is owned by citizens of the
Philippines . . . ." Plausible though it may appear at first glance, this opinion loses validity once it is
noted that it is predicated on the erroneous assumption that the constitutional provision just quoted was
meant to prohibit the mere formation of a public utility corporation without 60 per cent of its capital
being owned by the Filipinos, a mistaken belief which has induced the lower court to that the accused
was under obligation to disclose the whole truth about the nationality of the subscribed capital stock of
the corporation by revealing that Baylon was a mere trustee or dummy of his American co-
incorporators, and that in not making such disclosure defendant's intention was to circumvent the
Constitution to the detriment of the public interests. Contrary to the lower court's assumption, the
Constitution does not prohibit the mere formation of a public utility corporation without the required
formation of Filipino capital. What it does prohibit is the granting of a franchise or other form of
authorization for the operation of a public utility to a corporation already in existence but without the
requisite proportion of Filipino capital. This is obvious from the context, for the constitutional
provision in question qualifies the terms " franchise", "certificate", or "any other form of authorization"
with the phrase "for the operation of a public utility," thereby making it clear that the franchise meant
is not the "primary franchise" that invest a body of men with corporate existence but the "secondary
franchise" or the privilege to operate as a public utility after the corporation has already come into
being.
If the Constitution does not prohibit the mere formation of a public utility corporation with the alien
capital, then how can the accused be charged with having wrongfully intended to circumvent that
fundamental law by not revealing in the articles of incorporation that Baylon was a mere trustee of his
American co-incorporation and that for that reason the subscribed capital stock of the corporation was
wholly American? For the mere formation of the corporation such revelation was not essential, and the
Corporation Law does not require it. Defendant was, therefore, under no obligation to make it. In the
absence of such obligation and of the allege wrongful intent, defendant cannot be legally convicted of
the crime with which he is charged.
It is urged, however, that the formation of the corporation with 60 per cent of its subscribed capital
stock appearing in the name of Baylon was an indispensable preparatory step to the subversion of the
constitutional prohibition and the laws implementing the policy expressed therein. This view is not
correct. For a corporation to be entitled to operate a public utility it is not necessary that it be organized
with 60 per cent of its capital owned by Filipinos from the start. A corporation formed with capital that
is entirely alien may subsequently change the nationality of its capital through transfer of shares to
Filipino citizens. conversely, a corporation originally formed with Filipino capital may subsequently
change the national status of said capital through transfer of shares to foreigners. What need is there
then for a corporation that intends to operate a public utility to have, at the time of its formation, 60 per
cent of its capital owned by Filipinos alone? That condition may anytime be attained thru the necessary
transfer of stocks. The moment for determining whether a corporation is entitled to operate as a public
utility is when it applies for a franchise, certificate, or any other form of authorization for that purpose.
And that can be done after the corporation has already come into being and not while it is still being
formed. And at that moment, the corporation must show that it has complied not only with the
requirement of the Constitution as to the nationality of its capital, but also with the requirements of the
Civil Aviation Law if it is a common carrier by air, the Revised Administrative Code if it is a common
carrier by water, and the Public Service Law if it is a common carrier by land or other kind of public
service.
Equally untenable is the suggestion that defendant should at least be held guilty of an "impossible
crime" under article 59 of the Revised Penal Code. It not being possible to suppose that defendant had
intended to commit a crime for the simple reason that the alleged constitutional prohibition which he is
charged for having tried to circumvent does not exist, conviction under that article is out of the
question.
The foregoing consideration can not but lead to the conclusion that the defendant can not be held guilty
of the crime charged. The majority of the court, however, are also of the opinion that, even supposing
that the act imputed to the defendant constituted falsification at the time it was perpetrated, still with
the approval of the Party Amendment to the Constitution in March, 1947, which placed Americans on
the same footing as Filipino citizens with respect to the right to operate public utilities in the
Philippines, thus doing away with the prohibition in section 8, Article XIV of the Constitution in so far
as American citizens are concerned, the said act has ceased to be an offense within the meaning of the
law, so that defendant can no longer be held criminally liable therefor.
In view of the foregoing, the judgment appealed from is reversed and the defendant William H. Quasha
acquitted, with costs de oficio.