NDC vs. PHIL. VET.

BANK (Considering the Agrix went bankrupt, President Marcos enacted PD1717
which turned to be unconstitutional being that the police power cannot be invoked for it is contrast
with the lawful object and lawful means. Mortgage lien is a property right. The secured creditors
cannot be equated to other unsecured creditors. President Marcos enacted law (special law) which
violative to our constitution. He only specifically created it pertinent to Agrix and to other private
companies who likewise experience the same problem. It impairs obligation of contract and equal
protections clause.)

Agrix executed in favor of PVB a REM over 3 parcels of land in Laguna. However, Agrix went bankrupt.
Considering the same, President Marcos enacted PD No. 1717.

In view of that, PVB claimed for the payment of Agrix loan credit. Meantime, the New Agrix, Inc. and the
NDC invoking Section 4 (1) of the decree, filed a petition with the RTC for the cancellation of the
mortgage lien in favor of PVB

PVB took steps to extraducially foreclose the mortgage.

Judge Guerrero annulled Section 4 (1) and likewise the entire PD 1717 on the ff grounds: (1), but the
entire Pres. Decree No. 1717 on the grounds that: (1) the presidential exercise of legislative
power was a violation of the principle of separation of powers; (2) the law impaired the
obligation of contracts; and (3) the decree violated the equal protection clause.
The motion for reconsideration of this decision having been denied, the present petition was
filed.
PETITIONER’S CONTENTION: PVB is estopped from contesting the validity of the
decree citing Mendoza vs. Agrix Mktg., Inc. where constitutionality of PD No. 1717 was
raised.
Further, petitioners argue that property rights, like all rights, are subject to regulation under the
police power for the promotion of the common welfare. The contention is that this inherent
power of the state may be exercised at any time for this purpose so long as the taking of the
property right, even if based on contract, is done with due procesEs of law.
The Court dismissed the petition on the ground of estoppel after the petitioner filed their claims
with the Agrix Claims Committee.
It was only when the petitioners challenged the foreclosure on the basis of Sec. 4 (1) of the
decree, that the private respondent attacked the validity of the provision. At that stage, however,
consistent with Mendoza, the private respondent was already estopped from questioning the
constitutionality of the decree.

ISSUE: (1) WON the principle of estoppel is applicable. (NO)

(2) WON the inherent power of the state may be exercised at anytime even if taking the property right
is based on contract and done with due process of law (NO)
When President Marcos was the absolute ruler of this country and his decrees were the absolute
law. Any judicial challenge to them would have been futile, not to say foolhardy. The private
respondent, no less than the rest of the nation, was aware of that reality and knew it had no
choice under the circumstances but to conform.
Distinguishing to Mendoza case, petitioners received shares of stocks on their claims without
protest or reservation. However, in the instant case, PVB has not been paid a single centavo on
its claim and became pending for long years considering lack of supporting papers.
The Court is especially disturbed by Section 4(1) of the decree, quoted above, extinguishing
all mortgages and other liens attaching to the assets of AGRIX. It also notes, with equal concern,
the restriction in Subsection (ii) thereof that all "unsecured obligations shall not bear interest"
and in Subsection (iii) that "all accrued interests, penalties or charges as of date hereof pertaining
to the obligations, whether secured or unsecured, shall not be recognized."
These provisions must be read with the Bill of Rights, where it is clearly provided in Section
1 that "no person shall be deprived of life, liberty or property without due course of law nor shall
any person be denied the equal protection of the law" and in Section 10 that "no law impairing
the obligation of contracts shall be passed."

(2) The police power is not a panacea for all constitutional maladies. Neither does its mere
invocation conjure an instant and automatic justification for every act of the government
depriving a person of his life, liberty or property.
A legislative act based on the police power requires the concurrence of a lawful subject and a
lawful method. In more familiar words, a) the interests of the public generally, as distinguished
from those of a particular class, should justify the interference of the state; and b) the means
employed are reasonably necessary for the accomplishment of the purpose and not unduly
oppressive upon individuals. 2

Applying these criteria to the case at bar, the Court finds first of all that the interests of the
public are not sufficiently involved to warrant the interference of the government with the private
contracts of AGRIX. The decree speaks vaguely of the "public, particularly the small investors,"
who would be prejudiced if the corporation were not to be assisted. However, the record does not
state how many there are of such investors, and who they are, and why they are being preferred
to the private respondent and other creditors of AGRIX with vested property rights

The public interest supposedly involved is not identified or explained. It has not been shown
that by the creation of the New Agrix, Inc. and the extinction of the property rights of the
creditors of AGRIX, the interests of the public as a whole, as distinguished from those of a
particular class, would be promoted or protected. The indispensable link to the welfare of the
greater number has not been established. On the contrary, it would appear that the decree was
issued only to favor a special group of investors who, for reasons not given, have been preferred
to the legitimate creditors of AGRIX.

Assuming there is a valid public interest involved, the Court still finds that the means employed
to rehabilitate AGRIX fall far short of the requirement that they shall not be unduly oppressive.
The oppressiveness is patent on the face of the decree. The right to property in all mortgages,
liens, interests, penalties and charges owing to the creditors of AGRIX is arbi trarily destroyed.
No consideration is paid for the extinction of the mortgage rights. The accrued interests and other
charges are simply rejected by the decree. The right to property is dissolved by legislative fiat
without regard to the private interest violated and, worse, in favor of another private interest.
A mortgage lien is a property right derived from contract and so comes under the protection
of the Bill of Rights. So do interests on loans, as well as penalties and charges, which are also
vested rights once they accrue. Private property cannot simply be taken by law from one person
and given to another without compensation and any known public purpose. This is plain
arbitrariness and is not permitted under the Constitution.
The decree operated, to use the words of a celebrated case,  "with an evil eye and an uneven
3

hand."
On top of all this, New Agrix, Inc. was created by special decree notwithstanding the
provision of Article XIV, Section 4 of the 1973 Constitution, then in force, that:
SEC. 4. The Batasang Pambansa shall not, except by general law, provide for the formation, organization,
or regulation of private corporations, unless such corporations are owned or controlled by the
Government or any subdivision or instrumentality thereof.4

The new corporation is neither owned nor controlled by the government. The National
Development Corporation was merely required to extend a loan of not more than P10,000,000.00
to New Agrix, Inc. Pending payment thereof, NDC would undertake the management of the
corporation, but with the obligation of making periodic reports to the Agrix board of directors.
After payment of the loan, the said board can then appoint its own management. The stocks of
the new corporation are to be issued to the old investors and stockholders of AGRIX upon proof
of their claims against the abolished corporation. They shall then be the owners of the new
corporation. New Agrix, Inc. is entirely private and so should have been organized under the
Corporation Law in accordance with the above-cited constitutional provision.

While it is true that the police power is superior to the impairment clause, the principle will apply
only where the contract is so related to the public welfare that it will be considered congenitally
susceptible to change by the legislature in the interest of the greater number.  Most present-day
5

contracts are of that nature. But as already observed, the contracts of loan and mortgage
executed by AGRIX are purely private transactions and have not been shown to be
affected. with public interest. There was therefore no warrant to amend their provisions
and deprive the private respondent of its vested property rights.
The Court reaffirms and applies that ruling in the case at bar. Our finding, in sum, is that Pres.
Decree No. 1717 is an invalid exercise of the police power, not being in conformity with the
traditional requirements of a lawful subject and a lawful method. The extinction of the mortgage
and other liens and of the interest and other charges pertaining to the legitimate creditors of
AGRIX constitutes taking without due process of law, and this is compounded by the reduction
of the secured creditors to the category of unsecured creditors in violation of the equal protection
clause. Moreover, the new corporation, being neither owned nor controlled by the Government,
should have been created only by general and not special law. And insofar as the decree also
interferes with purely private agreements without any demonstrated connection with the public
interest. there is likewise an impairment of the obligation of the contract.
 With the above pronouncements, we feel there is no more need to rule on the authority of
President Marcos to promulgate Pres. Decree No. 1717 under Amendment No. 6 of the 1973
Constitution. Even if he had such authority, the decree must fall just the same because of its
violation of the Bill of Rights.
WHEREFORE, the petition is DISMISSED.

FELICIANO vs. COA- (COA audited the accounts of LMWD and directed to pay
auditing fees. However, petitioner objected thereto citing provisions of PD 198 and RA
6758.)

a private corporation cannot be created by a special but only by a general law as stated
in the Constitution. The purpose of which is to ban private corps. Created by special
charters which gave certain individuals, families or groups special privileges denied to
other citizens. PRIVATE CORPS. MAY EXIST ONLY UNDER A GENERAL LAW.
ONLY CORPS CREATED UNDER A GENERAL LAW CAN QUALIFY AS PRIVATE
CORPS.

Under existing laws, the GENERAL LAW is the corporation code. Cooperative Code-
governs the incorporation of cooperatives.

The determining factor of COA’s audit jurisdiction is government ownership or control of the
corporation

FACTS:

The Special Audit Team from COA audited the accounts of Leyte Metropolitan Water District and
requested LMWD to pay auditing fees. However, the petitioner objected thereto citing Sections 6 and
20 PD 198 and Section 18 of RA 6758.

Notwithstanding the resolutions attached to LMWD petition, the COA ruled that the subject matter was
under the COA’s audit jurisdiction over local water districts citing Davao City Water District vs. CSC
wherein the contention is they are a private corp. It is clear therefrom that the power to appoint the
members who will comprise the members of the Board of Directors belong to the local executives of
the local subdivision unit where such districts are located. In contrast, the members of the Board of
Directors or the trustees of a private corporation are elected from among members or stockholders
thereof. It would not be amiss at this point to emphasize that a private corporation is created for the
private purpose, benefit, aim and end of its members or stockholders. Necessarily, said members or
stockholders should be given a free hand to choose who will compose the governing body of their
corporation. But this is not the case here and this clearly indicates that petitioners are not private
corporations.

PETITIONER CONTENTION: LWD are not GOCC with original charters. LWD are private
corporations.
Petitioner theorizes that what PD 198 created was the Local Waters Utilities Administration
("LWUA") and not the LWDs. Petitioner claims that LWDs are created "pursuant to" and not created
directly by PD 198. Thus, petitioner concludes that PD 198 is not an "original charter" that would
place LWDs within the audit jurisdiction of COA as defined in Section 2(1), Article IX-D of the
Constitution. Petitioner elaborates that PD 198 does not create LWDs since it does not expressly
direct the creation of such entities, but only provides for their formation on an optional or voluntary
basis. Petitioner adds that the operative act that creates an LWD is the approval of the Sanggunian
8 

Resolution as specified in PD 198.

Further, Petitioner concludes that the term quasi-public can only apply to private corps.

ISSUE: 1. Whether a Local Water District ("LWD") created under PD 198, as amended, is a
government-owned or controlled corporation subject to the audit jurisdiction of COA;

2. Whether Section 20 of PD 198, as amended, prohibits COA’s certified public accountants

from auditing local water districts; and

3. Whether Section 18 of RA 6758 prohibits the COA from charging government-owned and
controlled corporations auditing fees.

RULING:

The petition lacks merit.

The Constitution and existing laws mandate COA to audit all government agencies, including
4 

government-owned and controlled corporations ("GOCCs") with original charters. An LWD is a

GOCC with an original charter. Section 2(1), Article IX-D of the Constitution provides for COA’s audit
jurisdiction, as follows:

SECTION 2. (1) The Commission on Audit shall have the power, authority and duty to
examine, audit, and settle all accounts pertaining to the revenue and receipts of, and
expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the
Government, or any of its subdivisions, agencies, or instrumentalities, including
government-owned and controlled corporations with original charters, and on a post-
audit basis: (a) constitutional bodies, commissions and offices that have been granted fiscal
autonomy under this Constitution; (b) autonomous state colleges and universities; (c) other
government-owned or controlled corporations and their subsidiaries; and (d) such non-
governmental entities receiving subsidy or equity, directly or indirectly, from or through the
government, which are required by law or the granting institution to submit to such audit as a
condition of subsidy or equity. However, where the internal control system of the audited
agencies is inadequate, the Commission may adopt such measures, including temporary or
special pre-audit, as are necessary and appropriate to correct the deficiencies. It shall keep
the general accounts of the Government and, for such period as may be provided by law,
preserve the vouchers and other supporting papers pertaining thereto. (Emphasis supplied)

The COA’s audit jurisdiction extends not only to government "agencies or instrumentalities," but also
to "government-owned and controlled corporations with original charters" as well as "other
government-owned or controlled corporations" without original charters.
Clearly, LWDs exist as corporations only by virtue of PD 198, which expressly confers on LWDs
corporate powers. Section 6 of PD 198 provides that LWDs "shall exercise the powers, rights and
privileges given to private corporations under existing laws." Without PD 198, LWDs would have no
corporate powers. Thus, PD 198 constitutes the special enabling charter of LWDs. The ineluctable
conclusion is that LWDs are government-owned and controlled corporations with a special charter.

The phrase "government-owned and controlled corporations with original charters" means GOCCs
created under special laws and not under the general incorporation law. There is no difference
between the term "original charters" and "special charters."

"The Court, in National Service Corporation (NASECO) v. National Labor

Relations Commission, G.R. No. 69870, promulgated on 29 November 1988,
quoting extensively from the deliberations of the 1986 Constitutional
Commission in respect of the intent and meaning of the new phrase ‘with
original charter,’ in effect held that government-owned and controlled
corporations with original charter refer to corporations chartered by special
law as distinguished from corporations organized under our general
incorporation statute — the Corporation Code. In NASECO, the company
involved had been organized under the general incorporation statute and was a
subsidiary of the National Investment Development Corporation (NIDC) which in turn
was a subsidiary of the Philippine National Bank, a bank chartered by a special
statute. Thus, government-owned or controlled corporations like NASECO are
effectively, excluded from the scope of the Civil Service." (Emphasis supplied)

GOCC with ORIGINAL CHARTER-special law

CORPORATIONS-GENERAL LAW (Corporation Code)

Petitioner forgets that the constitutional criterion on the exercise of COA’s audit jurisdiction depends
on the government’s ownership or control of a corporation. The nature of the corporation, whether it
is private, quasi-public, or public is immaterial.

The Constitution vests in the COA audit jurisdiction over "government-owned and controlled
corporations with original charters," as well as "government-owned or controlled corporations"
without original charters. GOCCs with original charters are subject to COA pre-audit, while GOCCs
without original charters are subject to COA post-audit. GOCCs without original charters refer to
corporations created under the Corporation Code but are owned or controlled by the government.
The nature or purpose of the corporation is not material in determining COA’s audit jurisdiction.
Neither is the manner of creation of a corporation, whether under a general or special law.

Certainly, the government owns and controls LWDs. The government organizes LWDs in
accordance with a specific law, PD 198. There is no private party involved as co-owner in the
creation of an LWD. Just prior to the creation of LWDs, the national or local government owns and
controls all their assets. The government controls LWDs because under PD 198 the municipal or city
mayor, or the provincial governor, appoints all the board directors of an LWD for a fixed term of six
years. The board directors of LWDs are not co-owners of the LWDs. LWDs have no private
24 

stockholders or members. The board directors and other personnel of LWDs are government
employees subject to civil service laws and anti-graft laws.
25  26

While Section 8 of PD 198 states that "[N]o public official shall serve as director" of an LWD, it only
means that the appointees to the board of directors of LWDs shall come from the private sector.
Once such private sector representatives assume office as directors, they become public officials
governed by the civil service law and anti-graft laws. Otherwise, Section 8 of PD 198 would
contravene Section 2(1), Article IX-B of the Constitution declaring that the civil service includes
"government-owned or controlled corporations with original charters."

If LWDs are neither GOCCs with original charters nor GOCCs without original charters, then they
would fall under the term "agencies or instrumentalities" of the government and thus still subject to
COA’s audit jurisdiction. However, the stark and undeniable fact is that the government owns LWDs.
Section 45 of PD 198 recognizes government ownership of LWDs when Section 45 states that the
27 

board of directors may dissolve an LWD only on the condition that "another public entity has
acquired the assets of the district and has assumed all obligations and liabilities attached thereto."
The implication is clear that an LWD is a public and not a private entity.

COA may charge GOCCs "actual audit cost" but GOCCs must pay the same directly to COA and not
to COA auditors. Petitioner has not alleged that COA charges LWDs auditing fees in excess of
COA’s "actual audit cost." Neither has petitioner alleged that the auditing fees are paid by LWDs
directly to individual COA auditors. Thus, petitioner’s contention must fail.

Affirmed COA’s resolution.

JM TUAZON vs. BOLANOS

FACTS:

This is an action to recover possession of registered land located in Tatalon, QC filed by the JM Tuason &
Co., Inc. The property subject of the action was claimed to be owned by the plaintiff. On the other
hand, Bolanos claimed ownership of the subject property by virtue of prescription and further
contended that registration of the land in dispute was obtained by plaintiff or its predecessors in
interest thru fraud or error and without knowledge or interest either personal or thru publication to
defendant and/or predecessors in interest.

The lower court ruled in favor of JM Tuason. Hence, this petition. One of the errors presented by
Bolanos is that the trial court erred in not dismissing the case on the ground that the case was not
brought by the real property in interest since Gregorio Araneta, Inc. cannot act as managing partner for
plaintiff on the theory that it is illegal for two corporations to enter into a partnership.

ISSUE: W/N JM TUASON & CO. AND GREGORIO ARANETA, INC. MAY ENTER INTO A PARTNERSHIP.
(YES)

RULING:

As to the first assigned error, there is nothing to the contention that the present action is not
brought by the real party in interest, that is, by J. M. Tuason %z Co., Inc. What the Rules of
Court require is that an action be brought in the name of, but not necessarily by, the real party in
interest. (Section 2, Rule 2.) In fact the practice is for an attorney-at-law to bring the action, that
is to file the complaint, in the name of the plaintiff. That practice appears to have been followed
in this case, since the complaint is signed by the law firm of Araneta & Araneta, "counsel for
plaintiff" and commences with the statement "Comes now plaintiff, through its undersigned
counsel." It is true that the complaint also states that the plaintiff is "represented herein by its
Managing Partner Gregorio Araneta, Inc.", another corporation, but there is nothing against one
corporation being represented by another person, natural or juridical, in a suit in court. The
contention that Gregorio Araneta, Inc. can not act as managing partner for plaintiff on the theory
that it is illegal for two corporations to enter into a partnership is without merit, for the true rule
is that "though a corporation has no power to enter into a partnership, it may nevertheless
enter into a joint venture with another where the nature of that venture is in line with the
business authorized by its charter.

AURBACH vs. SANITARY WARES

Corporations; Contracts; Joint venture; Rule that whether the parties have established a joint
venture or some other relation depends upon their actual intention.—The rule is that whether the parties
to a particular contract have thereby established among themselves a joint venture or some other relation
depends upon their actual intention which is determined in accordance with the rules governing the
interpretation and construction of contracts.

Legal concept of joint venture; A corporation cannot enter into a partnership contract but may
engage in a joint venture with others.—The ASI Group’s argument is correct within the context of
Section 24 of the Corporation Code. The point of query, however, is whether or not that provision is
applicable to a joint venture with clearly defined agreements: “The legal concept of a joint venture is of
common law origin. It has no precise legal definition, but it has been generally understood to mean an
organization formed for some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920] It is in fact
hardly distinguishable from the partnership, since their elements are similar—community of interest in
the business, sharing of profits and losses, and a mutual right of control. (Blackner v. McDermott, 176 F.
2d. 498, [1949]; Carboneau v. Peterson, 95 P. 2d. 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183,
288 P. 2d. 12 289 P. 2d. 242 [1955]). The main distinction cited by most opinions in common law
jurisdictions is that the partnership contemplates a general business with some degree of continuity, while
the joint venture is formed for the execution of a single transaction, and is thus of a temporary nature.
(Tufts v. Mann. 116 Cal. App. 170,2 P. 2d. 500 [1931]; Harmon v. Martin, 395 Ill. 595, 71 NE 2d. 74
[1947]; Gates v. Megargel 266 Fed. 811 [1920]). This observation is not entirely accurate in this
jurisdiction, since under the Civil Code, a partnership may be particular or universal, and a particular
partnership may have for its object a specific undertaking. (Art. 1783, Civil Code). It would seem
therefore that under Philippine law, a joint venture is a form of partnership and should thus be governed
by the law of partnerships. The Supreme Court has however recognized a distinction between these two
business forms, and has held that although a corporation cannot enter into a partnership contract, it may
however engage in a joint venture with others. (At p. 12, Tuazon v. Bolaños, 95 Phil. 906 [1954])
(Campos and Lopez—Campos Comments, Notes and Selected Cases, Corporation Code 1981) Moreover,
the usual rules as regards the construction and operations of contracts generally apply to a contract of a
joint venture. (O’Hara v. Harman, 14 App. Dev. (167) 43 NYS 556).

FACTS:

In 1961, Saniwares, a domestic corporation was incorporated for the primary purpose of
manufacturing and marketing sanitary wares. One of the incorporators, Mr. Baldwin Young went
abroad to look for foreign partners, European or American who could help in its expansion plans.
On August 15, 1962, ASI, a foreign corporation domiciled in Delaware, United States entered
into an Agreement with Saniwares and some Filipino investors whereby ASI and the Filipino
investors agreed to participate in the ownership of an enterprise which would engage primarily in
the business of manufacturing in the Philippines and selling here and abroad vitreous china and
sanitary wares. The parties agreed that the business operations in the Philippines shall be carried
on by an incorporated enterprise and that the name of the corporation shall initially be “Sanitary
Wares Manufacturing Corporation.”

The SEC decision led to the filing of two separate appeals with the Intermediate Appellate Court
by Wolfgang Aurbach, John Griffin, David Whittingham and Charles Chamsay (docketed
as AC-G.R. SP No. 05604) and by Luciano E. Salazar
ISSUES:

(1) the nature of the business established by the parties—whether it was a joint venture or a
corporation and (2) whether or not the ASI Group may vote their additional 10% equity
during elections of Saniwares’ board of directors.
RULING:

Corporations; Contracts; Joint venture; Rule that whether the parties have established a joint

venture or some other relation depends upon their actual intention.—The rule is that whether the parties
to a particular contract have thereby established among themselves a joint venture or some other relation
depends upon their actual intention which is determined in accordance with the rules governing the
interpretation and construction of contracts.

PRIMELINK vs. LAZATIN (CHECK PARTNERSHIP CASE)

A JVA is a form of partnership, and as such is to be governed by the laws on partnership.—We agree
with the CA ruling that petitioner Primelink and respondents entered into a joint venture as evidenced
by their JVA which, under the Court’s ruling in Aurbach, is a form of partnership

FACTS:

Primelink Properties and Development Corporation (Primelink for brevity) is a domestic

corporation engaged in real estate development. Rafaelito W. Lopez is its President and Chief
Executive Officer. 3

Ma. Clara T. Lazatin-Magat and her brothers, Jose Serafin T. Lazatin, Jaime T. Lazatin and
Jose Marcos T. Lazatin (the Lazatins for brevity), are co-owners of two (2) adjoining parcels of
land, with a combined area of 30,000 square meters, located in Tagaytay City and covered by
Transfer Certificate of Title (TCT) No. T-10848  of the Register of Deeds of Tagaytay City.
4
 On March 10, 1994, the Lazatins and Primelink, represented by Lopez, in his capacity as
President, entered into a Joint Venture Agreement  (JVA) for the development of the
5

aforementioned property into a residential subdivision to be known as “Tagaytay Garden Villas.”

Under the JVA, the Lazatin siblings obliged themselves to contribute the two parcels of land as
their share in the joint venture. For its part, Primelink undertook to contribute money, labor,
personnel, machineries, equipment, contractor’s pool, marketing activities, managerial expertise
and other needed resources to develop the property and construct therein the units for sale to the
public.
The parties agreed that any unsettled or unresolved misunderstanding or conflicting opinions
between the parties relative to the interpretation, scope and reach, and the
enforcement/implementation of any provision of the agreement shall be referred to Voluntary
Arbitration in accordance with the Arbitration Law.

PETITION DENIED

SMITBELL vs. NATIVIDAD

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
reënacting 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.)
'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 lslands; (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 the Philippine Islands, provided
some duly authorized officer 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 persons not
included under the last preceding paragraph."

ISSUE: 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.
RULING:
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.

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 is relied upon. Act No. 2761 of the Philippine
Legislature is held valid and constitutional.

Yes the Government can deny the registry of a

vessel to corporations having alien stockholders since it
is within the purview of the police power. . However, the
SCacknowledge thata corporation having alien
stockholders, is still entitled to the protection
afforded by the due-process of law and equal protection
of the laws clause of the constitution.

STONEHILL v DIOKNO
Facts: Upon application of the officers of the government,
several judges issued search warrants against petitioners
and the corporations of which they were officers for
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, said petitioner filed with the SC a writ of
preliminary injunction restraining Respondents-
Prosecutors from using the effects seized.

Ruling: The SC held that petitioners have no cause of

action to assail the legality of the search warrants, for
the simple reason that said corporations have their
respective personalities, separate and distinct from the
personality of the petitioners and the objection to an
unlawful search and seizure is purely personal and cannot be
availed of by third parties.