Case Summary (G.R. No. L-6055)
Key Dates
Registration of articles of incorporation: November 4, 1946 (Pacific Airways Corporation).
Constitutional development relevant to the case: Parity Amendment approved March 1947 (placed Americans on the same footing as Filipino citizens regarding operation of public utilities).
Decision referenced in the record: 1953 (appeal decided by this Court).
Applicable Law
Criminal statutes: Revised Penal Code, Art. 171(4) (falsification by public officer, including making untruthful statements in a narration of facts) and Art. 172(1) (falsification by private individuals in any public or official document). Article 59 (impossible crime) is invoked by the trial court as a possible alternative theory but rejected by the Supreme Court.
Constitutional provision: Section 8, Article XIV of the then-applicable Constitution (the constitutional provision governing franchises, certificates, or other forms of authorization for the operation of public utilities, as construed in this case).
Corporate/regulatory context: Corporation law requirements for registration of articles of incorporation and the role of the Securities and Exchange Commission in issuing certificates of incorporation; statutory and constitutional requirements for eligibility to operate public utilities are enforced at the time of application for the franchise or certificate to operate, not at the time of mere corporate formation.
Undisputed Facts
Quasha prepared and registered the Pacific Airways Corporation’s articles of incorporation and acted as organizer. The articles declared a P1,000,000 capital stock (9,000 preferred shares at P100 par with 1/3 vote each; 100,000 common shares at P1 par with one vote each), with P200,000 actually subscribed. The articles listed subscribers and stated that Arsenio Baylon (a Filipino) had subscribed to 1,145 preferred shares (P114,500) and 6,500 common shares (P6,500), aggregating 60.005% of the subscribed capital, while the named American subscribers purportedly subscribed to the remainder (200 preferred = P20,000; 59,000 common = P59,000). The SEC accepted the articles and issued a certificate of incorporation. It was admitted that the funds actually paid on the subscription appearing under Baylon’s name belonged to the American subscribers; Baylon had not contributed the money himself.
Trustee Explanation Offered at Trial
Quasha testified, without contradiction, that Baylon served as a trustee for the American incorporators because the Americans (pilots) were unable to finalize their respective shareholdings at the organizational meeting. The incorporators agreed to have someone immediately available act as trustee for their subscriptions; Baylon was chosen because he was known and trusted by the organizers. Thus Baylon’s name appeared as subscriber in the articles though the subscription funds belonged to the American incorporators.
Criminal Charge and Legal Elements Considered
Quasha was charged under Art. 172(1) in connection with Art. 171(4) for falsification of a public and commercial document on the theory that the articles falsely represented Baylon as owner of 60.005% of the subscribed capital. The Court considered established interpretations of those articles that falsification by way of perversion of truth in recounting facts requires (1) wrongful intent to injure a third person and (2) a legal obligation on the part of the narrator to disclose the truth. The prosecution’s theory before the trial court was that the falsification was designed to circumvent Section 8, Article XIV of the Constitution (the 60% Filipino capital requirement for authorization to operate a public utility).
Trial Court’s Conclusion and Its Basis
The trial court found Quasha guilty, concluding that the misrepresentation that Baylon was the owner of 60.005% of the subscribed capital was a malicious perversion of truth intended to circumvent the constitutional prohibition (as the trial court construed it) that a public utility corporation must have 60% Filipino capital. The lower court operated on the premise that the Constitution barred the very formation of a public utility corporation that did not have the required proportion of Filipino capital, and therefore held that Quasha was obliged to disclose Baylon’s trustee status in the articles of incorporation.
Supreme Court’s Primary Holding on Constitutional Scope and Obligation to Disclose
The Supreme Court rejected the trial court’s premise. The Court held that Section 8, Article XIV did not prohibit the mere formation (primary franchise or corporate existence) of a corporation lacking 60% Filipino capital; instead the provision regulates the granting of a franchise, certificate, or other authorization to operate as a public utility (a secondary franchise vested after corporate formation). Because the constitutional prohibition operates at the time a corporation seeks authorization to operate as a public utility, the Court concluded that no legal obligation existed to disclose in the articles of incorporation that Baylon acted as trustee for American subscribers. In the absence of such an obligation, and lacking the wrongful intent required for falsification under Arts. 171–172, the elements of the charged crime were not present.
Rejection of “Preparatory Step” and Impossibility Theories
The Court further rejected the argument that making Baylon appear as subscriber was an indispensable preparatory step to subverting the constitutional prohibition. The Court reasoned that corporate nationality of capital can change through post-formation transfers; a corporation organized with alien capital
...continue readingCase Syllabus (G.R. No. L-6055)
Citation and Court
- Reported at 93 Phil. 333; G.R. No. L-6055.
- Decision dated June 12, 1953.
- Opinion by Justice REYES, J.
- Paras, C. J., Pablo, Bengzon, Padilla, Tuason, Jugo, Bautista Angelo and Labrador, JJ., concur.
Parties and Role of the Accused
- Plaintiff and appellee: The People of the Philippines.
- Defendant and appellant: William H. Quasha, a member of the Philippine bar.
- Accused acted as organizer of Pacific Airways Corporation, and prepared and effected registration of its articles of incorporation.
Procedural History
- Accused was charged in the Court of First Instance of Manila with falsification of a public and commercial document.
- After trial, accused was found guilty and sentenced to a term of imprisonment and a fine.
- Accused appealed to the Supreme Court; judgment below was reversed by the Supreme Court and the accused was acquitted, with costs de oficio.
Essential Facts (Undisputed)
- On November 4, 1946, Pacific Airways Corporation registered its articles of incorporation with the Securities and Exchange Commission.
- Articles prepared and registration effected by the accused, who was organizer.
- Articles stated primary purpose: to carry on business as a common carrier by air, land or water.
- Stated capital stock: P1,000,000 represented by 9,000 preferred shares and 100,000 common shares.
- Each preferred share par value P100 and entitled to 1/3 vote.
- Each common share par value P1 and entitled to one vote.
- Amount of capital stock actually subscribed: P200,000.
- Named subscribers in the articles: Arsenio Baylon (Filipino), Eruin E. Shannahan, Albert W. Onstott, James O'Bannon, Denzel J. Cavin, and William H. Quasha (the latter five Americans).
- Subscriptions as stated in the articles:
- Baylon: 1,145 preferred shares, total P114,500; and 6,500 common shares, total P6,500. (As stated in the articles.)
- Aggregate subscriptions of American subscribers: 200 preferred shares, total P20,000; and 59,000 common shares, total P59,000.
- Baylon and the American subscribers had already paid 25% of their respective subscriptions.
- Baylon was shown in the articles as owner/subscriber of 60.005% of the subscribed capital stock.
- Despite numerical majority of subscribed capital appearing in Baylon's name, Baylon did not possess the controlling vote because preferred shares carried reduced voting power relative to common shares.
- Securities and Exchange Commission accepted the articles for registration and issued a certificate of incorporation.
Facts Concerning the True Ownership and Trust Arrangement
- It is admitted that:
- Baylon actually subscribed to 60.005% of the subscribed capital stock as reflected in the articles.
- The money paid on Baylon's subscription did not belong to Baylon but to the American subscribers.
- Accused's uncontradicted testimony describing the organization process and the trustee arrangement:
- Organizers (Shannahan, Onstott, O'Bannon, Cavin, Perry and Anastasakas) met at accused's house; difficulty in resolving shareholdings immediately.
- Decision made to have someone act as trustee for the respective shareholdings rather than place shares in the name of any one interested party.
- Arsenio Baylon was selected as trustee because of personal acquaintance and trust: "He was my boy during the liberation and he cared for me when I was sick ... I consider him my friend. ... They all knew Arsenio. He is a very kind man and that was what was done."
- (Note: the record contains a narrative exchange in which a different preferred-share figure appears in the quoted testimony—reflecting the testimony as given.)
Criminal Charge and Statutory Provisions Invoked
- Accused charged under Article 172, paragraph 1, in connection with Article 171, paragraph 4, Revised Penal Code.
- Text of relevant provisions as quoted in the decision:
- ART. 171. Falsification by public officer, employee or notary or ecclesiastic minister.
- Penalty of prision mayor and a fine not to exceed 5,000 pesos for a public officer, employee, or notary who, taking advantage of his official position, shall falsify a document by co
- ART. 171. Falsification by public officer, employee or notary or ecclesiastic minister.