Corpo Rights of Shareholders Cases

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RIGHTS OF SHAREHOLDERS

G.R. No. 93695 February 4, 1992

RAMON C. LEE and ANTONIO DM. LACDAO, petitioners, vs.THE HON. COURT OF APPEALS, SACOBA MANUFACTURING CORP., PABLO GONZALES, JR. and THOMAS GONZALES, respondents.

Cayanga, Zuniga & Angel Law Offices for petitioners.

Timbol & Associates for private respondents.

GUTIERREZ, JR., J.:

What is the nature of the voting trust agreement executed between two parties in this case? Who owns the stocks of the corporation under the terms of the voting trust agreement? How long can a voting trust agreement remain valid and effective? Did a director of the corporation cease to be such upon the creation of the voting trust agreement? These are the questions the answers to which are necessary in resolving the principal issue in this petition for certiorari — whether or not there was proper service of summons on Alfa Integrated Textile Mills (ALFA, for short) through the petitioners as president and vice-president, allegedly, of the subject corporation after the execution of a voting trust agreement between ALFA and the Development Bank of the Philippines (DBP, for short).

From the records of the instant case, the following antecedent facts appear:

On November 15, 1985, a complaint for a sum of money was filed by the International Corporate Bank, Inc. against the private respondents who, in turn, filed a third party complaint against ALFA and the petitioners on March 17, 1986.

On September 17, 1987, the petitioners filed a motion to dismiss the third party complaint which the Regional Trial Court of Makati, Branch 58 denied in an Order dated June 27, 1988.

On July 18, 1988, the petitioners filed their answer to the third party complaint.

Meanwhile, on July 12, 1988, the trial court issued an order requiring the issuance of an alias summons upon ALFA through the DBP as a consequence of the petitioner's letter informing the court that the summons for ALFA was erroneously served upon them considering that the management of ALFA had been transferred to the DBP.

In a manifestation dated July 22, 1988, the DBP claimed that it was not authorized to receive summons on behalf of ALFA since the DBP had not taken over the company which has a separate and distinct corporate personality and existence.

On August 4, 1988, the trial court issued an order advising the private respondents to take the appropriate steps to serve the summons to ALFA.

On August 16, 1988, the private respondents filed a Manifestation and Motion for the Declaration of Proper Service of Summons which the trial court granted on August 17, 1988.

On September 12, 1988, the petitioners filed a motion for reconsideration submitting that Rule 14, section 13 of the Revised Rules of Court is not applicable since they were no longer officers of ALFA and that the private respondents should have availed of another mode of service under Rule 14, Section 16 of the said Rules, i.e.,through publication to effect proper service upon ALFA.

In their Comment to the Motion for Reconsideration dated September 27, 1988, the private respondents argued that the voting trust agreement dated March 11, 1981 did not divest the petitioners of their positions as president and executive vice-president of ALFA so that service of summons upon ALFA through the petitioners as corporate officers was proper.

On January 2, 1989, the trial court upheld the validity of the service of summons on ALFA through the petitioners, thus, denying the latter's motion for reconsideration and requiring ALFA to filed its answer through the petitioners as its corporate officers.

On January 19, 1989, a second motion for reconsideration was filed by the petitioners reiterating their stand that by virtue of the voting trust agreement they ceased to be officers and directors of ALFA, hence, they could no longer receive summons or any court processes for or on behalf of ALFA. In support of their second motion for reconsideration, the petitioners attached thereto a copy of the voting trust agreement between all the stockholders of ALFA (the petitioners included), on the one hand, and the DBP, on the other hand, whereby the management and control of ALFA became vested upon the DBP.

On April 25, 1989, the trial court reversed itself by setting aside its previous Order dated January 2, 1989 and declared that service upon the petitioners who were no longer corporate officers of ALFA cannot be considered as proper service of summons on ALFA.

On May 15, 1989, the private respondents moved for a reconsideration of the above Order which was affirmed by the court in its Order dated August 14, 1989 denying the private respondent's motion for reconsideration.

On September 18, 1989, a petition for certiorari was belatedly submitted by the private respondent before the public respondent which, nonetheless, resolved to give due course thereto on September 21, 1989.

On October 17, 1989, the trial court, not having been notified of the pending petition for certiorari with public respondent issued an Order declaring as final the Order dated April 25, 1989. The private respondents in the said Order were required to take positive steps in prosecuting the third party complaint in order that the court would not be constrained to dismiss the same for failure to prosecute. Subsequently, on October 25, 1989 the private respondents filed a motion for reconsideration on which the trial court took no further action.

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On March 19, 1990, after the petitioners filed their answer to the private respondents' petition for certiorari, the public respondent rendered its decision, the dispositive portion of which reads:

WHEREFORE, in view of the foregoing, the orders of respondent judge dated April 25, 1989 and August 14, 1989 are hereby SET ASIDE and respondent corporation is ordered to file its answer within the reglementary period. (CA Decision, p. 8; Rollo, p. 24)

On April 11, 1990, the petitioners moved for a reconsideration of the decision of the public respondent which resolved to deny the same on May 10, 1990. Hence, the petitioners filed this certiorari petition imputing grave abuse of discretion amounting to lack of jurisdiction on the part of the public respondent in reversing the questioned Orders dated April 25, 1989 and August 14, 1989 of the court a quo, thus, holding that there was proper service of summons on ALFA through the petitioners.

In the meantime, the public respondent inadvertently made an entry of judgment on July 16, 1990 erroneously applying the rule that the period during which a motion for reconsideration has been pending must be deducted from the 15-day period to appeal. However, in its Resolution dated January 3, 1991, the public respondent set aside the aforestated entry of judgment after further considering that the rule it relied on applies to appeals from decisions of the Regional Trial Courts to the Court of Appeals, not to appeals from its decision to us pursuant to our ruling in the case of Refractories Corporation of the Philippines v. Intermediate Appellate Court, 176 SCRA 539 [1989]. (CA Rollo, pp. 249-250)

In their memorandum, the petitioners present the following arguments, to wit:

(1) that the execution of the voting trust agreement by a stockholders whereby all his shares to the corporation have been transferred to the trustee deprives the stockholders of his position as director of the corporation; to rule otherwise, as the respondent Court of Appeals did, would be violative of section 23 of the Corporation Code ( Rollo, pp. 270-3273); and

(2) that the petitioners were no longer acting or holding any of the positions provided under Rule 14, Section 13 of the Rules of Court authorized to receive service of summons for and in behalf of the private domestic corporation so that the service of summons on ALFA effected through the petitioners is not valid and ineffective; to maintain the respondent Court of Appeals' position that ALFA was properly served its summons through the petitioners would be contrary to the general principle that a corporation can only be bound by such acts which are within the scope of its officers' or agents' authority (Rollo, pp. 273-275)

In resolving the issue of the propriety of the service of summons in the instant case, we dwell first on the nature of a voting trust agreement and the consequent effects upon its creation in the light of the provisions of the Corporation Code.

A voting trust is defined in Ballentine's Law Dictionary as follows:

(a) trust created by an agreement between a group of the stockholders of a corporation and the trustee or by a group of identical agreements between individual stockholders and a common trustee, whereby it is provided that for a term of years, or for a period contingent upon a certain event, or until the agreement is terminated, control over the stock owned by such stockholders, either for certain purposes or for all purposes, is to be lodged in the trustee, either with or without a reservation to the owners, or persons designated by them, of the power to direct how such control shall be used. (98 ALR 2d. 379 sec. 1 [d]; 19 Am J 2d Corp. sec. 685).

Under Section 59 of the new Corporation Code which expressly recognizes voting trust agreements, a more definitive meaning may be gathered. The said provision partly reads:

Sec. 59. Voting Trusts — One or more stockholders of a stock corporation may create a voting trust for the purpose of conferring upon a trustee or trustees the right to vote and other rights pertaining to the share for a period rights pertaining to the shares for a period not exceeding five (5) years at any one time: Provided, that in the case of a voting trust specifically required as a condition in a loan agreement, said voting trust may be for a period exceeding (5) years but shall automatically expire upon full payment of the loan. A voting trust agreement must be in writing and notarized, and shall specify the terms and conditions thereof. A certified copy of such agreement shall be filed with the corporation and with the Securities and Exchange Commission; otherwise, said agreement is ineffective and unenforceable. The certificate or certificates of stock covered by the voting trust agreement shall be cancelled and new ones shall be issued in the name of the trustee or trustees stating that they are issued pursuant to said agreement. In the books of the corporation, it shall be noted that the transfer in the name of the trustee or trustees is made pursuant to said voting trust agreement.

By its very nature, a voting trust agreement results in the separation of the voting rights of a stockholder from his other rights such as the right to receive dividends, the right to inspect the books of the corporation, the right to sell certain interests in the assets of the corporation and other rights to which a stockholder may be entitled until the liquidation of the corporation. However, in order to distinguish a voting trust agreement from proxies and other voting pools and agreements, it must pass three criteria or tests, namely: (1) that the voting rights of the stock are separated from the other attributes of ownership; (2) that the voting rights granted are intended to be irrevocable for a definite period of time; and (3) that the principal purpose of the grant of voting rights is to acquire voting control of the corporation. (5 Fletcher, Cyclopedia of the Law on Private Corporations, section 2075 [1976] p. 331citing Tankersly v. Albright, 374 F. Supp. 538)

Under section 59 of the Corporation Code, supra, a voting trust agreement may confer upon a trustee not only the stockholder's voting rights but also other rights pertaining to his shares as long as the voting trust agreement is not entered "for the purpose of circumventing the law against monopolies and illegal combinations in restraint of trade or used for purposes of fraud." (section 59, 5th paragraph of the Corporation Code) Thus, the traditional concept of a voting trust agreement primarily intended to single out a stockholder's right to vote from his other rights as such and made irrevocable for

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a limited duration may in practice become a legal device whereby a transfer of the stockholder's shares is effected subject to the specific provision of the voting trust agreement.

The execution of a voting trust agreement, therefore, may create a dichotomy between the equitable or beneficial ownership of the corporate shares of a stockholders, on the one hand, and the legal title thereto on the other hand.

The law simply provides that a voting trust agreement is an agreement in writing whereby one or more stockholders of a corporation consent to transfer his or their shares to a trustee in order to vest in the latter voting or other rights pertaining to said shares for a period not exceeding five years upon the fulfillment of statutory conditions and such other terms and conditions specified in the agreement. The five year-period may be extended in cases where the voting trust is executed pursuant to a loan agreement whereby the period is made contingent upon full payment of the loan.

In the instant case, the point of controversy arises from the effects of the creation of the voting trust agreement. The petitioners maintain that with the execution of the voting trust agreement between them and the other stockholders of ALFA, as one party, and the DBP, as the other party, the former assigned and transferred all their shares in ALFA to DBP, as trustee. They argue that by virtue to of the voting trust agreement the petitioners can no longer be considered directors of ALFA. In support of their contention, the petitioners invoke section 23 of the Corporation Code which provides, in part, that:

Every director must own at least one (1) share of the capital stock of the corporation of which he is a director which share shall stand in his name on the books of the corporation. Any director who ceases to be the owner of at least one (1) share of the capital stock of the corporation of which he is a director shall thereby cease to be director . . . (Rollo, p. 270)

The private respondents, on the contrary, insist that the voting trust agreement between ALFA and the DBP had all the more safeguarded the petitioners' continuance as officers and directors of ALFA inasmuch as the general object of voting trust is to insure permanency of the tenure of the directors of a corporation. They cited the commentaries by Prof. Aguedo Agbayani on the right and status of the transferring stockholders, to wit:

The "transferring stockholder", also called the "depositing stockholder", is equitable owner for the stocks represented by the voting trust certificates and the stock reversible on termination of the trust by surrender. It is said that the voting trust agreement does not destroy the status of the transferring stockholders as such, and thus render them ineligible as directors. But a more accurate statement seems to be that for some purposes the depositing stockholder holding voting trust certificates in lieu of his stock and being the beneficial owner thereof, remains and is treated as a stockholder. It seems to be deducible from the case that he may sue as a stockholder if the suit is in equity or is of an equitable nature, such as, a technical stockholders' suit in right of the corporation. [Commercial Laws of the Philippines by Agbayani, Vol. 3 pp. 492-493, citing 5 Fletcher 326, 327] (Rollo, p. 291)

We find the petitioners' position meritorious.

Both under the old and the new Corporation Codes there is no dispute as to the most immediate effect of a voting trust agreement on the status of a stockholder who is a party to its execution — from legal titleholder or owner of the shares subject of the voting trust agreement, he becomes the equitable or beneficial owner. (Salonga,Philippine Law on Private Corporations, 1958 ed., p. 268; Pineda and Carlos, The Law on Private Corporations and Corporate Practice, 1969 ed., p. 175; Campos and Lopez-Campos, The Corporation Code; Comments, Notes & Selected Cases, 1981, ed., p. 386; Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Philippines, Vol. 3, 1988 ed., p. 536). The penultimate question, therefore, is whether the change in his status deprives the stockholder of the right to qualify as a director under section 23 of the present Corporation Code which deletes the phrase "in his own right." Section 30 of the old Code states that:

Every director must own in his own right at least one share of the capital stock of the stock corporation of which he is a director, which stock shall stand in his name on the books of the corporation. A director who ceases to be the owner of at least one share of the capital stock of a stock corporation of which is a director shall thereby cease to be a director . . . (Emphasis supplied)

Under the old Corporation Code, the eligibility of a director, strictly speaking, cannot be adversely affected by the simple act of such director being a party to a voting trust agreement inasmuch as he remains owner (although beneficial or equitable only) of the shares subject of the voting trust agreement pursuant to which a transfer of the stockholder's shares in favor of the trustee is required (section 36 of the old Corporation Code). No disqualification arises by virtue of the phrase "in his own right" provided under the old Corporation Code.

With the omission of the phrase "in his own right" the election of trustees and other persons who in fact are not beneficial owners of the shares registered in their names on the books of the corporation becomes formally legalized (see Campos and Lopez-Campos, supra, p. 296) Hence, this is a clear indication that in order to be eligible as a director, what is material is the legal title to, not beneficial ownership of, the stock as appearing on the books of the corporation (2 Fletcher, Cyclopedia of the Law of Private Corporations, section 300, p. 92 [1969]citing People v. Lihme, 269 Ill. 351, 109 N.E. 1051).

The facts of this case show that the petitioners, by virtue of the voting trust agreement executed in 1981 disposed of all their shares through assignment and delivery in favor of the DBP, as trustee. Consequently, the petitioners ceased to own at least one share standing in their names on the books of ALFA as required under Section 23 of the new Corporation Code. They also ceased to have anything to do with the management of the enterprise. The petitioners ceased to be directors. Hence, the transfer of the petitioners' shares to the DBP created vacancies in their respective positions as directors of ALFA. The transfer of shares from the stockholder of ALFA to the DBP is the essence of the subject voting trust agreement as evident from the following stipulations:

1. The TRUSTORS hereby assign and deliver to the TRUSTEE the certificate of the shares of the stocks owned by them respectively and shall do all things necessary for the transfer of their respective shares to the TRUSTEE on the books of ALFA.

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2. The TRUSTEE shall issue to each of the TRUSTORS a trust certificate for the number of shares transferred, which shall be transferrable in the same manner and with the same effect as certificates of stock subject to the provisions of this agreement;

3. The TRUSTEE shall vote upon the shares of stock at all meetings of ALFA, annual or special, upon any resolution, matter or business that may be submitted to any such meeting, and shall possess in that respect the same powers as owners of the equitable as well as the legal title to the stock;

4. The TRUSTEE may cause to be transferred to any person one share of stock for the purpose of qualifying such person as director of ALFA, and cause a certificate of stock evidencing the share so transferred to be issued in the name of such person;

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9. Any stockholder not entering into this agreement may transfer his shares to the same trustees without the need of revising this agreement, and this agreement shall have the same force and effect upon that said stockholder. (CA Rollo, pp. 137-138; Emphasis supplied)

Considering that the voting trust agreement between ALFA and the DBP transferred legal ownership of the stock covered by the agreement to the DBP as trustee, the latter became the stockholder of record with respect to the said shares of stocks. In the absence of a showing that the DBP had caused to be transferred in their names one share of stock for the purpose of qualifying as directors of ALFA, the petitioners can no longer be deemed to have retained their status as officers of ALFA which was the case before the execution of the subject voting trust agreement. There appears to be no dispute from the records that DBP has taken over full control and management of the firm.

Moreover, in the Certification dated January 24, 1989 issued by the DBP through one Elsa A. Guevarra, Vice-President of its Special Accounts Department II, Remedial Management Group, the petitioners were no longer included in the list of officers of ALFA "as of April 1982." (CA Rollo, pp. 140-142)

Inasmuch as the private respondents in this case failed to substantiate their claim that the subject voting trust agreement did not deprive the petitioners of their position as directors of ALFA, the public respondent committed a reversible error when it ruled that:

. . . while the individual respondents (petitioners Lee and Lacdao) may have ceased to be president and vice-president, respectively, of the corporation at the time of service of summons on them on August 21, 1987, they were at least up to that time, still directors . . .

The aforequoted statement is quite inaccurate in the light of the express terms of Stipulation No. 4 of the subject voting trust agreement. Both parties, ALFA and the DBP, were aware at the time of the execution of the agreement that by virtue of the transfer

of shares of ALFA to the DBP, all the directors of ALFA were stripped of their positions as such.

There can be no reliance on the inference that the five-year period of the voting trust agreement in question had lapsed in 1986 so that the legal title to the stocks covered by the said voting trust agreement ipso facto reverted to the petitioners as beneficial owners pursuant to the 6th paragraph of section 59 of the new Corporation Code which reads:

Unless expressly renewed, all rights granted in a voting trust agreement shall automatically expire at the end of the agreed period, and the voting trust certificate as well as the certificates of stock in the name of the trustee or trustees shall thereby be deemed cancelled and new certificates of stock shall be reissued in the name of the transferors.

On the contrary, it is manifestly clear from the terms of the voting trust agreement between ALFA and the DBP that the duration of the agreement is contingent upon the fulfillment of certain obligations of ALFA with the DBP. This is shown by the following portions of the agreement.

WHEREAS, the TRUSTEE is one of the creditors of ALFA, and its credit is secured by a first mortgage on the manufacturing plant of said company;

WHEREAS, ALFA is also indebted to other creditors for various financial accomodations and because of the burden of these obligations is encountering very serious difficulties in continuing with its operations.

WHEREAS, in consideration of additional accommodations from the TRUSTEE, ALFA had offered and the TRUSTEE has accepted participation in the management and control of the company and to assure the aforesaid participation by the TRUSTEE, the TRUSTORS have agreed to execute a voting trust covering their shareholding in ALFA in favor of the TRUSTEE;

AND WHEREAS, DBP is willing to accept the trust for the purpose aforementioned.

NOW, THEREFORE, it is hereby agreed as follows:

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6. This Agreement shall last for a period of Five (5) years, and is renewable for as long as the obligations of ALFA with DBP, or any portion thereof, remains outstanding; (CA Rollo, pp. 137-138)

Had the five-year period of the voting trust agreement expired in 1986, the DBP would not have transferred all its rights, titles and interests in ALFA "effective June 30, 1986" to the national government through the Asset Privatization Trust (APT) as attested to in

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a Certification dated January 24, 1989 of the Vice President of the DBP's Special Accounts Department II. In the same certification, it is stated that the DBP, from 1987 until 1989, had handled APT's account which included ALFA's assets pursuant to a management agreement by and between the DBP and APT (CA Rollo, p. 142) Hence, there is evidence on record that at the time of the service of summons on ALFA through the petitioners on August 21, 1987, the voting trust agreement in question was not yet terminated so that the legal title to the stocks of ALFA, then, still belonged to the DBP.

In view of the foregoing, the ultimate issue of whether or not there was proper service of summons on ALFA through the petitioners is readily answered in the negative.

Under section 13, Rule 14 of the Revised Rules of Court, it is provided that:

Sec. 13. Service upon private domestic corporation or partnership. — If the defendant is a corporation organized under the laws of the Philippines or a partnership duly registered, service may be made on the president, manager, secretary, cashier, agent or any of its directors.

It is a basic principle in Corporation Law that a corporation has a personality separate and distinct from the officers or members who compose it. (See Sulo ng Bayan Inc. v. Araneta, Inc., 72 SCRA 347 [1976]; Osias Academy v. Department of Labor and Employment, et al., G.R. Nos. 83257-58, December 21, 1990). Thus, the above rule on service of processes of a corporation enumerates the representatives of a corporation who can validly receive court processes on its behalf. Not every stockholder or officer can bind the corporation considering the existence of a corporate entity separate from those who compose it.

The rationale of the aforecited rule is that service must be made on a representative so integrated with the corporation sued as to make it a priori supposable that he will realize his responsibilities and know what he should do with any legal papers served on him. (Far Corporation v. Francisco, 146 SCRA 197 [1986] citing Villa Rey Transit, Inc. v. Far East Motor Corp. 81 SCRA 303 [1978]).

The petitioners in this case do not fall under any of the enumerated officers. The service of summons upon ALFA, through the petitioners, therefore, is not valid. To rule otherwise, as correctly argued by the petitioners, will contravene the general principle that a corporation can only be bound by such acts which are within the scope of the officer's or agent's authority. (see Vicente v. Geraldez, 52 SCRA 210 [1973]).

WHEREFORE, premises considered, the petition is hereby GRANTED. The appealed decision dated March 19, 1990 and the Court of Appeals' resolution of May 10, 1990 are SET ASIDE and the Orders dated April 25, 1989 and October 17, 1989 issued by the Regional Trial Court of Makati, Branch 58 are REINSTATED.

SO ORDERED.

Feliciano, Bidin, Davide, Jr. and Romero, JJ., concur.

REPUBLIC OF THE PHILIPPINES (PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT), petitioner, vs. THE HONORABLE SANDIGANBAYAN (THIRD DIVISION) and VICTOR AFRICA, respondents.

EROCOM INVESTORS AND MANAGERS, INC., BENITO NIETO, CARLOS NIETO, MANUEL NIETO III, RAMON NIETO, ROSARIO ARELLANO, VICTORIA LEGARDA, ANGELA LOBREGAT, MA. RITA DE LOS REYES, CARMEN TUAZON and RAFAEL VALDEZ, intervenors.

[G. R. No. 147214. April 30, 2003]

VICTOR AFRICA, petitioner, vs. THE HONORABLE SANDIGANBAYAN and THE PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, respondents.

R E S O L U T I O N

CARPIO-MORALES, J.:

These consolidated cases, the first for Certiorari, Mandamus and Prohibition, and the second “for Review on Certiorari” although it is actually one for Certiorari, stem from a Resolution of November 13, 1992 issued by the Sandiganbayan in Civil Case No. 0130,[1] on motion of Victor Africa (Africa) who prayed that said court order the “calling and holding of the Eastern Telecommunications, Philippines, Inc. (ETPI) annual stockholders meeting for 1992 under the [c]ourt’s control and supervision and prescribed guidelines.”

It is gathered that on August 7, 1991, the Presidential Commission on Good Government (PCGG) conducted an ETPI stockholders meeting during which a PCGG controlled board of directors was elected. A special stockholders meeting was later convened by the registered ETPI stockholders wherein another set of board of directors was elected, as a result of which two sets of such board and officers were elected.

Africa, a stockholder of ETPI, alleging that the PCGG had since January 29, 1988 been “illegally ‘exercising’ the rights of stockholders of ETPI,”[2] especially in the election of the members of the board of directors, filed the above-said motion before the Sandiganbayan.

The PCGG did not object to Africa’s motion provided that:

1. An Order be issued upholding the right of PCGG to vote all the Class “A” shares of ETPI.

2. In the alternative, in the remote event that PCGG’s right to vote the sequestered shares be not upheld, an Order be issued:

a. Disregarding the Stock and Transfer Book and Booklet of Stock Certificates of ETPI in determining who can vote the shares in an Annual Stockholders Meeting of ETPI,

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b. Allowing PCGG to vote twenty-three and 90/100 percent (23.9%) of the total subscription in ETPI, and

c. Directing the amendment of the Articles of Incorporation and By-laws of ETPI providing for the minimum safeguards for the conservation of assets x x x prior to the calling of a stockholders meeting.[3]

By the assailed Resolution of November 13, 1992,[4] the Sandiganbayan resolved Africa’s motion, the dispositive portion of which reads:

WHEREFORE, it is ordered that an annual stockholders meeting of the Eastern Telecommunications, Philippines, Inc. (ETPI), for 1992 be held on Friday, November 27, 1992, at 2:00 o’clock in the afternoon, at the ETPI Board Room, Telecoms Plaza, 7th Floor, 316 Gil J. Puyat Avenue, Makati, Metro Manila. The Executive Clerk of Court of this Division shall issue the call and notice of annual stockholders meeting of ETPI addressed to all the duly registered/recorded stockholders of ETPI. The stockholders meeting shall be conducted under the supervision and control of this Court, through Mr. Justice Sabino R. de Leon, Jr. In accordance with the Supreme Court ruling in Cojuangco et al vs. Azcuna, et al., supra, only the registered owners, their duly authorized representatives or their proxies may vote their corresponding shares.

The following minimum safeguards must be set in place and carefully maintained until final judicial resolution of the question of whether or not the sequestered shares of stock (or in a proper case the underlying assets of the corporation concerned) constitute ill-gotten wealth:

“a. An independent comptroller must be appointed by the Board of Directors upon nomination of the PCGG as conservator. The comptroller shall not be removable (nor shall his position be abolished or his compensation changed) without the consent of the conservator. The comptroller shall, in addition to his other functions as such, have charge of internal audit.

b. The corporate secretary must be acceptable to the conservator. If the corporate secretary ceases to be acceptable to the conservator, a new one must be appointed by the Board of Directors upon nomination of the conservator.

c. The external auditors of the corporation must be independent and must be acceptable to the conservator. The independent external auditors shall not be changed without the consent of the conservator.

d. The conservator must be represented in the Board of Directors and in the Executive (or equivalent) and Audit Committees of the corporation involved and of its majority-owned subsidiaries or affiliates. The representative of the conservator must be a full director (not merely an honorary or ex-officio director) with the right to vote and all other rights and duties of a member of the Board of Directors under the Corporation Code. The conservator’s representative shall not be removed from the Board of Directors (or the mentioned Committees) without the consent of the conservator. The conservator shall,

however, have the right to remove and change its representative at any time, and the new representative shall be promptly elected to the Board and its mentioned Committees.

e. All transactions involving the disbursement of corporate funds in excess of P5 million must have the prior approval of the director representing the conservator, in order to be valid and effective.

f. The incurring of debt by the corporation, whether in the form of bonds, debentures, commercial paper or any other form, in excess of P5 million, must have the prior approval of the director representing the conservator, in order to be valid and effective.

g. The disposition of a substantial part of assets of the corporation (substantial meaning in excess of P5 million) shall require the prior approval of the director representing the conservator, in order to be valid and effective.

h. The above safeguards must be written into the articles of incorporation and by-laws of the company involved. In other words, the articles of incorporation and by-laws of the company must be amended so as to incorporate the above safeguards.

i. Any amendment of the articles of incorporation or by-laws of the company that will modify in any way any of the above safeguards, shall need the prior approval of the director representing the conservator.”

SO ORDERED.[5] (Underscoring supplied)

Assailing the foregoing resolution, the PCGG filed before this Court the herein first petition, docketed as G. R. No. 107789, anchored upon the following grounds:

I

RESPONDENT SANDIGANBAYAN ACTED WITH GRAVE ABUSE OF DISCRETION IN RULING THAT THE REGISTERED STOCKHOLDERS OF ETPI HAD THE RIGHT TO VOTE IN SPITE OF (A) THE RULING OF THIS HONORABLE COURT IN PCGG V. SEC AND AFRICA (G. R. NO. 82188) AND (B) A CLEAR SHOWING THAT ETPI’S STOCK AND TRANSFER BOOK WAS ALTERED AND CANNOT BE USED AS THE BASIS TO DETERMINE WHO CAN VOTE IN A STOCKHOLDERS’ MEETING.

II

RESPONDENT SANDIGANBAYAN GRAVELY ABUSED ITS DISCRETION AND EXCEEDED ITS JURISDICTION WHEN IT HELD THAT PCGG CANNOT VOTE AT LEAST 23.9% OF THE OUTSTANDING CAPITAL STOCK OF ETPI.

III

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WITHOUT DUE CARE AND IN RECKLESS DISREGARD OF THE INTERESTS OF THE REPUBLIC, RESPONDENT SANDIGANBAYAN GRAVELY ABUSED ITS DISCRETION IN ORDERING THE HOLDING OF A STOCKHOLDERS’ MEETING IN ETPI WITHOUT FIRST SETTING IN PLACE – BY AMENDING THE ARTICLES AND BY-LAWS OF ETPI TO INCORPORATE – THE SAFEGUARDS PRESCRIBED BY THIS HONORABLE COURT IN COJUANGCO V. ROXAS.

IV

THE SANDIGANBAYAN ACTED IN EXCESS OF ITS AUTHORITY AND/OR WITH GRAVE ABUSE OF DISCRETION IN APPOINTING (A) ITS OWN DIVISION CLERK OF COURT TO PERFORM THE DUTIES OF A CORPORATE SECRETARY, AND (B) ITS OWN JUSTICE SABINO DE LEON, JR. TO CONTROL AND SUPERVISE THE STOCKHOLDERS’ MEETING.[6] (Underscoring in the original)

By Resolution of November 26, 1992, this Court enjoined the Sandiganbayan from (a) implementing its Resolution of November 13, 1992, and (b) holding the stockholders’ meeting of ETPI scheduled on November 27, 1992, at 2:00 p.m.

On December 7, 1992, Aerocom Investors and Managers, Inc. (AEROCOM), Benito Nieto, Carlos Nieto, Manuel Nieto III, Ramon Nieto, Rosario Arellano, Victoria Legarda, Angela Lobregat, Ma. Rita de los Reyes, Carmen Tuazon and Rafael Valdez, all stockholders of record of ETPI, filed a motion to intervene in G. R. No. 107789. Their motion was granted by this Court by Resolution of January 14, 1993.

After the parties submitted their respective memoranda, the PCGG, in early 1995, filed a “VERY URGENT PETITION FOR AUTHORITY TO HOLD SPECIAL STOCKHOLDERS’ MEETING FOR [THE] SOLE PURPOSE OF INCREASING [ETPI’s] AUTHORIZED CAPITAL STOCK,” it claiming that the increase in authorized capital stock was necessary in light of the requirements laid down by Executive Order No. 109[7] and Republic Act No. 7975.[8]

By Resolution of May 7, 1996,[9] this Court resolved to refer the PCGG’s very urgent petition to hold the special stockholders’ meeting to the Sandiganbayan for reception of evidence and resolution.

In compliance therewith, the Sandiganbayan issued a Resolution of December 13, 1996,[10] which is being assailed in the herein second petition, granting the PCGG “authority to cause the holding of a special stockholders’ meeting of ETPI for the sole purpose of increasing ETPI’s authorized capital stock and to vote therein the sequestered Class ‘A’ shares of stock. . . .” In said Resolution, the Sandiganbayan held that there was an urgent necessity to increase ETPI’s authorized capital stock; there existed a prima facie factual foundation for the issuance of the writ of sequestration covering the Class “A” shares of stock; and the PCGG was entitled to vote the sequestered shares of stock.

The PCGG-controlled ETPI board of directors thus authorized the ETPI Chair and Corporate Secretary to call the special stockholders meeting. Notices were sent to those entitled to vote for a meeting on March 17, 1997. The meeting was held as scheduled and the increase in ETPI’s authorized capital stock from P250 Million to P2.6 Billion was “unanimously approved.”[11]

On April 1, 1997, Africa filed before this Court a motion to cite the PCGG “and its accomplices” in contempt and “to nullify the ‘stockholders meeting’ called/conducted by PCGG and its accomplices,” he contending that only this Court, and not the Sandiganbayan, has the power to authorize the PCGG to call a stockholders meeting and vote the sequestered shares. Africa went on to contend that, assuming that the Sandiganbayan had such power, its Resolution of December 13, 1996 authorizing the PCGG to hold the stockholders meeting had not yet become final because the motions for reconsideration of said resolution were still pending. Further, Africa alleged that he was not given notice of the meeting, and the PCGG had no right to vote the sequestered Class “A” shares.

A motion for leave to intervene relative to Africa’s “Motion to Cite the PCGG and its Accomplices in Contempt” was filed by ETPI. This Court granted the motion for leave but ETPI never filed any pleading relative to Africa’s motion to cite the PCGG in contempt.

By Resolution of February 16, 2001, the Sandiganbayan finally resolved to deny the motions for reconsideration of its Resolution of December 13, 1996, prompting Africa to file on April 6, 2001 before this Court the herein second petition, [12] docketed as G. R. No. 147214, challenging the Sandiganbayan Resolutions of December 13, 1996 (authorizing the holding of a stockholders meeting to increase ETPI’s authorized capital stock and to vote therein the sequestered Class “A” shares of stock) and February 16, 2001 (denying reconsideration of the December 13, 1996 Resolution).

In his petition in G. R. No. 147214, Africa alleged that the Sandiganbayan committed “grave abuse of discretion” when, by the assailed Resolutions,

a. IT DID NOT ACKNOWLEDGE THE NON-SEQUESTERED STATUS OF THE SHARES [OF “SMALL STOCHHOLDERS” OF WHICH HE IS ONE AND AEROCOM AND POLYGON] AND/OR OWNERS THEREOF[;] [AND]

b. IT DID NOT ACCORD TO THE NON-SEQUESTERED SHARES/OWNERS THE RIGHTS APPURTENANT TO A STOCKHOLDER[.]

He thus prayed that this Court set aside the questioned Resolutions permitting the PCGG to vote the non-sequestered ETPI Class “A” shares and nullify the votes the PCGG had cast in the stockholders meeting held on March 17, 1997.

By Resolution of February 24, 2003,[13] this Court ordered the consolidation of G. R. No. 147214 with G. R. No. 107789, now the subject of the present Resolution.

I

The first issue to be resolved is whether the PCGG can vote the sequestered ETPI Class “A” shares in the stockholders meeting for the election of the board of directors. The leading case on the matter isBataan Shipyard & Engineering Co., Inc. v. Presidential Commission on Good Government[14] where this Court defined the powers of the PCGG as follows:

a. PCGG May Not Exercise Acts of Ownership

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One thing is certain, and should be stated at the outset: the PCGG cannot exercise acts of dominion over property sequestered, frozen or provisionally taken over. As already earlier stressed with no little insistence, the act of sequestration[,] freezing or provisional takeover of property does not import or bring about a divestment of title over said property; [it] does not make the PCGG the owner thereof. In relation to the property sequestered, frozen or provisionally taken over, the PCGG is a conservator, not an owner. Therefore, it can not perform acts of strict ownership; and this is specially true in the situations contemplated by the sequestration rules where, unlike cases of receivership, for example, no court exercises effective supervision or can upon due application and hearing, grant authority for the performance of acts of dominion.

Equally evident is that resort to the provisional remedies in question should entail the least possible interference with business operations or activities so that, in the event that the accusation of the business enterprise being “ill-gotten” be not proven, it may be returned to its rightful owner as far as possible in the same condition as it was at the time of sequestration.

b. PCGG Has Only Powers of Administration

The PCGG may thus exercise only powers of administration over the property or business sequestered or provisionally taken over, much like a court-appointed receiver, such as to bring and defend actions in its own name; receive rents; collect debts due; pay outstanding debts due; and generally do such other acts and things as may be necessary to fulfill its mission as conservator and administrator. In this context, it may in addition enjoin or restrain any actual or threatened commission of acts by any person or entity that may render moot and academic, or frustrate or otherwise make ineffectual its efforts to carry out its task; punish for direct or indirect contempt in accordance with the Rules of Court; and seek and secure the assistance of any office, agency or instrumentality of the government. In the case of sequestered businesses generally (i.e., going concerns, businesses in current operation), as in the case of sequestered objects, its essential role, as already discussed, is that of conservator, caretaker, “watchdog” or overseer. It is not that of manager, or innovator, much less an owner.

c. Powers over Business Enterprises Taken Over by Marcos or Entities or Persons Close to him; Limitations Thereon

Now, in the special instance of a business enterprise shown by evidence to have been “taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos,” the PCGG is given power and authority, as already adverted to, to “provisionally take (it) over in the public interest or to prevent * * (its) disposal or dissipation;” and since the term is obviously employed in reference to going concerns, or business enterprises in operation, something more than mere physical custody is connoted; the PCGG may in this case exercise some measure of control in the operation, running, or management of the business itself. But even in this special situation, the intrusion into management should be restricted to the minimum degree necessary to accomplish the legislative will, which is “to prevent the disposal or dissipation” of the business enterprise. There should be no hasty, indiscriminate, unreasoned replacement or substitution of management officials or change of policies, particularly in respect of viable establishments. In fact, such a replacement or substitution should be avoided if at all possible, and undertaken only when justified by demonstrably tenable grounds and in line with the stated objectives of the PCGG. And it goes without saying that where replacement of management officers may be called for, the greatest prudence, circumspection, care and attention should accompany that

undertaking to the end that truly competent, experienced and honest managers may be recruited. There should be no role to be played in this area by rank amateurs, no matter how well meaning. The road to hell, it has been said, is paved with good intentions. The business is not to be experimented or played around with, not run into the ground, not driven to bankruptcy, not fleeced, not ruined. Sight should never be lost x x x of the ultimate objective of the whole exercise, which is to turn over the business to the Republic, once judicially established to be “ill-gotten.” Reason dictates that it is only under these conditions and circumstances that the supervision, administration and control of business enterprises provisionally taken over may legitimately be exercised.

d. Voting of Sequestered Stock; Conditions Therefor

So, too, it is within the parameters of these conditions and circumstances that the PCGG may properly exercise the prerogative to vote sequestered stock of corporations, granted to it by the President of the Philippines through a Memorandum dated June 26, 1986. That Memorandum authorizes the PCGG, “pending the outcome of proceedings to determine the ownership of * * (sequestered) shares of stock,” “to vote such shares of stock as it may have sequestered in corporations at all stockholders’ meetings called for the election of directors, declaration of dividends, amendment of the Articles of Incorporation, etc.” The Memorandum should be construed in such a manner as to be consistent with, and not contradictory to the Executive Orders earlier promulgated on the same matter. There should be no exercise of the right to vote simply because the right exists, or because the stocks sequestered constitute the controlling or a substantial part of the corporate voting power. The stock is not to be voted to replace directors, or revise the articles or by-laws, or otherwise bring about substantial changes in policy, program or practice of the corporation except for demonstrably weighty and defensible grounds, and always in the context of the stated purposes of sequestration or provisional takeover, i.e., to prevent the dispersion or undue disposal of the corporate assets. Directors are not to be voted out simply because the power to do so exists. Substitution of directors is not to be done without reason or rhyme, should indeed be shunned if at all possible, and undertaken only when essential to prevent disappearance or wastage of corporate property, and always under such circumstances as to assure that replacements are truly possessed of competence, experience and probity.

In the case at bar, there was adequate justification to vote the incumbent directors out of office and elect others in their stead because the evidence showed prima facie that the former were just tools of President Marcos and were no longer owners of any stock in the firm, if they ever were at all. This is why, in its Resolution of October 28, 1986[,] this Court declared that—

“Petitioner has failed to make out a case of grave abuse or excess of jurisdiction in respondents’ calling and holding of a stockholders’ meeting for the election of directors as authorized by the Memorandum of the President * * (to the PCGG) dated June 26, 1986, particularly, where as in this case, the government can, through its designated directors, properly exercise control and management over what appear to be properties and assets owned and belonging to the government itself and over which the persons who appear in this case on behalf of BASECO have failed to show any right or even any shareholding in said corporation.”

It must however be emphasized that the conduct of the PCGG nominees in the BASECO Board in the management of the company’s affairs should henceforth be guided and governed by the norms herein laid down. They should never for a moment allow themselves to forget they are conservators, not owners of the business; they are

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fiduciaries, trustees, of whom the highest degree of diligence and rectitude is, in the premises, required. (Italics in the original)

The PCGG cannot thus vote sequestered shares, except when there are “demonstrably weighty and defensible grounds” or “when essential to prevent disappearance or wastage of corporate property.”[15]

The principle laid down in Baseco was further enhanced in the subsequent cases of Cojuungco v. Calpo[16] and Presidential Commission on Good Government v. Cojuangco, Jr. , [17] where this Court developed a “two-tiered” test in determining whether the PCGG may vote sequestered shares:

The issue of whether PCGG may vote the sequestered shares in SMC necessitates a determination of at least two factual matters:

1. whether there is prima facie evidence showing that the said shares are ill-gotten and thus belong to the state; and

2. whether there is an immediate danger of dissipation thus necessitating their continued sequestration and voting by the PCGG while the main issue pends with the Sandiganbayan.[18]

The two-tiered test, however, does not apply in cases involving funds of “public character.” In such cases, the government is granted the authority to vote said shares, namely:

(1) Where government shares are taken over by private persons or entities who/which registered them in their own names, and

(2) Where the capitalization or shares that were acquired with public funds somehow landed in private hands.[19]

This Court, in Republic v. Cocofed,[20] explained:

The [public character] exceptions are based on the common-sense principle that legal fiction must yield to truth; that public property registered in the names of non-owners is affected with trust relations; and that the prima faciebeneficial owner should be given the privilege of enjoying the rights flowing from the prima facie fact of ownership.

In Baseco, a private corporation known as the Bataan Shipyard and Engineering Co. was placed under sequestration by the PCGG. Explained the Court:

“The facts show that the corporation known as BASECO was owned and controlled by President Marcos ‘during his administration, through nominees, by taking undue advantage of his public office and/or using his powers, authority, or influence,’ and that it was by and through the same means, that BASECO had taken over the business and/or assets of the National Shipyard and Engineering Co., Inc., and other government-owned or controlled entities.”

Given this factual background, the Court discussed PCGG’s right over BASECO in the following manner:

“Now, in the special instance of a business enterprise shown by evidence to have been ‘taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos,’ the PCGG is given power and authority, as already adverted to, to provisionally take (it) over in the public interest or to prevent * * (its) disposal or dissipation;’ and since the term is obviously employed in reference to going concerns, or business enterprises in operation, something more than mere physical custody is connoted; the PCGG may in this case exercise some measure of control in the operation, running, or management of the business itself.”

Citing an earlier Resolution, it ruled further:

“Petitioner has failed to make out a case of grave abuse of excess of jurisdiction in respondent’s calling and holding of a stockholder’s meeting for the election of directors as authorized by the Memorandum of the President * * (to the PCGG) dated June 26, 1986, particularly, where as in this case, the government can, through its designated directors, properly exercise control and management over what appear to be properties and assets owned and belonging to the government itself and over which the persons who appear in this case on behalf of BASECO have failed to show any right or even any shareholding in said corporation.” (Italics supplied)

The Court granted PCGG the right to vote the sequestered shares because they appeared to be “assets belonging to the government itself.” The Concurring Opinion of Justice Ameurfina A. Melencio-Herrera, in which she was joined by Justice Florentino P. Feliciano, explained this principle as follows:

“I have no objection to according the right to vote sequestered stock in case of a take-over of business actually belonging to the government or whose capitalization comes from public funds but which, somehow, landed in the hands of private persons, as in the case of BASECO. To my mind, however, caution and prudence should be exercised in the case of sequestered shares of an on-going private business enterprise, specially the sensitive ones, since the true and real ownership of said shares is yet to be determined and proven more conclusively by the Courts.” (Italics supplied)

The exception was cited again by the Court in Cojuanco-Roxas in this wise:

“The rule in this jurisdiction is, therefore, clear. The PCGG cannot perform acts of strict ownership of sequestered property. It is a mere conservator. It may not vote the shares in a corporation and elect the members of the board of directors. The only conceivable exception is in a case of a takeover of a business belonging to the government or whose capitalization comes from public funds, but which landed in private hands as in BASECO.” (Italics supplied)

The “public character” test was reiterated in many subsequent cases; most recently, in Antiporda v. Sandiganbayan. Expressly citing Cojuanco-Roxas, this Court said that in determining the issue of whether the PCGG should be allowed to vote sequestered shares, it was crucial to find out first whether this were purchased with public funds, as follows:

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“It is thus important to determine first if the sequestered corporate shares came from public funds that landed in private hands.”

This Court summed up the rule in the determination of whether the PCGG has the right to vote sequestered shares as follows:

In short, when sequestered shares registered in the names of private individuals or entities are alleged to have been acquired with ill-gotten wealth, then the two-tiered test is applied. However, when the sequestered shares in the name of private individuals or entities are shown, prima facie, to have been (1) originally government shares, or (2) purchased with public funds or those affected with public interest, then the two-tiered test does not apply. Rather, the public character exception in Baseco v. PCGG and Conjuanco Jr. v. Roxas prevail; that is, the government shall vote the shares.

The PCGG contends, however, that it is entitled to vote the sequestered shares in the election of the board of directors, it invoking this Court’s alleged finding in PCGG et al. v. Securities and Exchange Commission, et al.[21] that Africa had dissipated ETPI’s assets, thus:

Under a consultancy contract, Polygon Investors and Managers, Inc. with Jose L. Africa as Chairman and Victor Africa as President, earned from ETPI as of 1987, more than P57 million. Likewise in 1987, ETPI paid to Jose L. Africa P1,200,000.00 as “professional fees” and Manuel Nieto, Jr. another P1,200,000.00 as “allowances”.[22]

The PCGG’s contention is misleading, This Court made no finding in PCGG v. SEC et al. that Africa dissipated ETPI’s assets. Precisely this Court issued a Resolution of July 28, 1988 in the same case to clarify, upon motion of Africa, that the narration of facts found in the decision therein did not constitute a finding of facts:

The categorical statement in the decision of June 30, 1988 that the “relevant background facts of the case culled from Petitioners’ Urgent Consolidated Petition” was not without a reason or purpose. Precisely this statement was made to impress upon the parties that the narration of facts is just that – a narration, without necessarily judging its truth or veracity. Being based on mere allegations, properly controverted, it is not a finding of facts, but more of a presentation of the complete picture of events which led to the sequestration of Eastern Telecommunications, Philippines, Inc. as well as to the instant petition. This Court, it must be remembered, is not a trier of facts, and particularly so in this case where the facts narrated are precisely the facts in litigation before the Sandiganbayan. (Emphasis supplied.)

Unfortunately, the Sandiganbayan, in its impugned Resolution of November 13, 1992, skirted the question of whether there is evidence of dissipation of ETPI assets, holding instead that:

The issue as to whether the B[enedicto]A[frica]N[ieto] group had dissipated funds of ETPI during its administration of ETPI is a matter which is not in issue herein. Dissipation by the PCGG Board of Directors is also charged by the BAN group. An investigation of the anomalies charged by one against the other may be taken up in another case.[23]

And it further held that the PCGG could not vote the sequestered shares as “only the owners of the shares of stock of subject corporation, their duly authorized representatives or their proxies, may vote the said shares,” [24] relying on this Court’s ruling in Cojuangco, Jr. v. Roxas[25] that:

The rule in this jurisdiction is, therefore, clear. The PCGG cannot perform acts of strict ownership of sequestered property. It is a mere conservator. It may not vote the shares in a corporation and elect members of the board of directors. The only conceivable exception is in a case of a takeover of a business belonging to the government or whose capitalization comes from public funds, but which landed in private hands as in BASECO.

In short, the Sandiganbayan held that the public character exception does not apply, in which case it should have proceeded to apply the two-tiered test. This it failed to do.

The questions thus remain if there is prima facie evidence showing that the subject shares are ill-gotten and if there is imminent danger of dissipation. This Court is not, however, a trier of facts, hence, it is not in a position to rule on the correctness of the PCGG’s contention. Consequently, this issue must be remanded to the Sandiganbayan for resolution.

II

On the PCGG’s submission that the Stock and Transfer Book should not be used as the basis for determining the voting rights of the shareholders because some entries therein were altered “by substitution”: This Court sees no grave abuse of discretion on the part of the Sandiganbayan in ruling that:

The charge that there were “alterations by substitution” in the Stock and Transfer Book is not a matter which should preclude the Stock and Transfer Book from being the basis or guide to determine who the true owners of the shares of stock in ETPI are. If there be any substitution or alterations, the anomaly, if at all, may be explained by the corporate secretary who made the entries therein. At any rate, the accuracy of the Stock and Transfer Book may be checked by comparing the entries therein with the issued stock certificates. The fact is that any transfer of stock or issuance thereof would necessitate an alteration of the record by substitution. Any anomaly in any entry which may deprive a person or entity of its right to vote may generate a controversy personal to the corporation and the stockholder and should not affect the issue as to whether it is the PCGG or the shareholder who has the right to vote. In other words, should there be a stockholder who feels aggrieved by any alteration by substitution in the Stock and Transfer Book, said stockholder may object thereto at the proper time and before the stockholders meeting.[26]

Whether the ETPI Stock and Transfer Book was falsified and whether such falsification deprives the true owners of the shares of their right to vote are thus issues best settled in a different proceeding instituted by the real parties-in-interest.

III

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On the PCGG’s submission that the Sandiganbayan gravely abused its discretion when it held that it cannot vote at least 23.9% of the outstanding capital stock of ETPI, which percentage is broken down as follows:

Shares ceded to the government by virtue

of the Benedicto compromise - 12.8%

Shares represented by some stock

certificates found in Malacanang (at least) - 3.1%

Shares held and admitted by Manuel Nieto

to belong to then President Marcos - 8.0%

The PCGG alleges that the 12.8% indicated above represents 51% of the combined shareholdings of Roberto S. Benedicto and his controlled corporations amounting to 12.8% of the total equity of ETPI which was ceded to the Republic; the 3.1% represents the shares covered by the ETPI stock certificates endorsed in blank found in Malacañang, now in its (PCGG’s) possession, which it submits it may, under Section 34 of the Negotiable Instruments Law,[27] take title thereto and vote the same in the stockholders meeting; and the 8% represents the shares of Manuel H. Nieto, Jr. which, so it avers, he, in an Affidavit of May 28, 1986, admitted actually belong to former President Marcos:

5. That in relation to and simultaneously with the board meeting of PHILCOMSAT, on March 21, 1986, I declared my concurrence in the disclosures made on the participation of Mr. Ferdinand E. Marcos and associates in the companies covered by the sequestration order dated March 14, 1986 i.e., 39,926.2% (sic) of the total subscribed capital stock of Philippine Overseas Telecommunications Corporation and 40% of the individual shareholdings of Jose L. Africa, Manuel H. Nieto, Jr., & Roberto S. Benedicto in Eastern Telecommunications Philippines, Inc.[28]

On the question of whether the PCGG can vote all the above shares, the Sandiganbayan, finding in the affirmative, held in its Resolution of November 13, 1992:

Considering the Compromise Agreement entered into by the PCGG and Roberto S. Benedicto in Civil Case No. 009 wherein Roberto S. Benedicto assigned and transferred to the Government 12.8% of the shares of stock of ETPI, which Compromise Agreement was made the basis of a judgment of this Court, it is only proper that the PCGG may vote these shares in the stockholders meeting after said judgment shall have become final and executory. Besides, before the PCGG can vote these shares, the transfer to the State of the shares of stock must be entered in the Stock and Transfer Book, the entries therein being the only basis for which the stockholder may vote the said shares.

The same ruling is made in respect to the shares of stock represented by stock certificates found in Malacañang (3.1%) and the shares of stock allegedly admitted by Manuel H. Nieto to belong to former President Ferdinand E. Marcos (8.0%).[29] (Underscoring supplied)

The Sandiganbayan clearly made no ruling proscribing the PCGG from voting the shares representing 12.8% of ETPI’s outstanding capital stock, the only requirement it imposed being that the transfer of the shares be registered in the Stock and Transfer Book and that, in the case of the Benedicto shares, the Compromise Agreement be final and executory.

In requiring that the transfer of the Benedicto shares be first recorded in ETPI’s Stock and Transfer Book before the PCGG may vote them, the Sandiganbayan committed no grave abuse of discretion. For Section 63 of the Corporation Code provides:

Sec. 63. Certificate of stock and transfer of shares. – The capital stock of stock corporations shall be divided into shares for which the certificates signed by the president or vice president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation shall be issued in accordance with the by-laws. Shares of stock so issued are personal property and may be transferred by the delivery of the certificate or certificates endorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer. No transfer, however, shall be valid, except as between the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred.

x x x.

Explaining why registration is a prerequisite for the voting of shares, this Court, in Batangas Laguna Tayabas Bus Company, Inc., v. Bitanga,[30] discoursed:

Indeed, until registration is accomplished, the transfer, though valid between the parties, cannot be effective as against the corporation. Thus, the unrecorded transferee x x x cannot vote nor be voted for. The purpose of registration, therefore, is two-fold: to enable the transferee to exercise all the rights of a stockholder, including the right to vote and to be voted for, and to inform the corporation of any change in share ownership so that it can ascertain the persons entitled to the rights and subject to the liabilities of a stockholder. Until challenged in a proper proceeding, a stockholder of record has a right to participate in any meeting; his vote can be properly counted to determine whether a stockholders’ resolution was approved, despite the claim of the alleged transferee. On the other hand, a person who has purchased stock, and who desires to be recognized as a stockholder for the purpose of voting, must secure such a standing by having the transfer recorded on the corporate books. Until the transfer is registered, the transferee is not a stockholder but an outsider.

Whether the PCGG needs to await the finality of the judgment [31] based on the Republic-Benedicto compromise agreement is now moot since it is not disputed that it had long become final and executory. Accordingly, the PCGG may vote in its name the shares ceded to the Republic by Benedicto pursuant to the said agreement once they are registered in its name.

With respect to the PCGG’s submission that under Section 34 of the Negotiable Instruments Law, it may take title to the shares represented by the blank stock certificates found in Malacanang and vote the same, the same is untenable. The PCGG assumes that stock certificates are negotiable. They are not.

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x x x [A]lthough a stock certificate is sometimes regarded as quasi-negotiable, in the sense that it may be transferred by delivery, it is well settled that the instrument is non-negotiable, because the holder thereof takes it without prejudice to such rights or defenses as the registered owner or creditor may have under the law, except insofar as such rights or defenses are subject to the limitations imposed by the principles governing estoppel.[32]

That the PCGG found the stock certificates endorsed in blank does not necessarily make it the owner of the shares represented therein. Their true ownership has to be ascertained in a proper proceeding. Similarly, the ownership of the Nieto shares has yet to be adjudicated. That they allegedly belong to former President Marcos does not make the PCGG its owner. The PCGG must, in an appropriate proceeding, first establish that they truly belong to the former President and that they were ill- gotten. Pending final judgment over the ownership of these shares, the PCGG may not register and vote the Nieto and the Malacañang shares in its name. If the Sandiganbayan finds, however, that there is evidence of dissipation of these shares, the PCGG may vote the same as conservator thereof.

IV

On the PCGG’s imputation of grave abuse of discretion upon the Sandiganbayan for ordering the holding of a stockholders meeting to elect the ETPI board of directors without first setting in place, through the amendment of the articles of incorporation and the by-laws of ETPI, the safeguards prescribed in Cojuangco, Jr. v. Roxas:[33] This Court laid down those safeguards because of the obvious need to reconcile the rights of the stockholder whose shares have been sequestered and the duty of the conservator to preserve what could be ill-gotten wealth.

It is through the right to vote that the stockholder participates in the management of the corporation. The right to vote, unlike the rights to receive dividends and liquidating distributions, is not a passive thing because management or administration is, under the Corporation Code, vested in the board of directors, with certain reserved powers residing in the stockholders directly. The board of directors and executive committee (or management committee) and the corporate officers selected by the board may make it very difficult if not impossible for the PCGG to carry out its duties as conservator if the Board or officers do not cooperate, are hostile or antagonistic to the conservator’s objectives.

Thus, it is necessary to achieve a balancing of or a reconciliation between the stockholders’ right to vote and the conservator’s statutory duty to recover and in the process thereof, to conserve assets, thought to be ill-gotten wealth, until final judicial determination of the character of such assets or until a final compromise agreement between the parties is reached.

There are, in the main, two (2) types of situations that need to be addressed. The first situation arises where the sequestered shares of stock constitute a distinct minority of the voting shares of the corporation involved, such that the registered owners of such sequestered shares would in any case be able to vote in only a minority of the Board of Directors of the corporation. The second situation arises where the sequestered shares of stock constitute a majority of the voting shares of the corporation concerned, such that the registered owners of such shares of stock would in any case be entitled to elect a majority of the Board of Directors of the corporation involved.

Turning to the first situation, the Court considers and so holds that in order to enable the PCGG to perform its functions as conservator of the sequestered shares of stock pending final determination by the courts as to whether or not the same constitute ill-gotten wealth or a final compromise agreement between the parties, the PCGG must be represented in the Board of Directors of the corporation and to its majority-owned subsidiaries or affiliates and in the Executive Committee (or its equivalent) and the Audit Committee thereof, in at least an ex officio (i.e., non-voting) capacity. The PCGG representative must have a right of full access to and inspection of (including the right to obtain copies of) the books, records and all other papers of the corporation relating to its business, as well as a right to receive copies of reports to the Board of Directors, its Executive (or equivalent) and Audit Committees. By such representation and rights of full access, the PCGG must be able so to observe and monitor the carrying out of the business of the corporation as to discover in a timely manner any move or effort on the part of the registered owners of the sequestered stock alone or in concert with other shareholders, to conceal, waste and dissipate the assets of the corporation, or the sequestered shares themselves, and seasonably to bring such move or effort to the attention of the Sandiganbayan for appropriate action.

In the second situation above referred to, the Court considers and so holds that the following minimum safeguards must be set in place and carefully maintained until final judicial resolution of the question of whether or not the sequestered shares of stock (or, in a proper case, the underlying assets of the corporation concerned) constitute ill-gotten wealth or until a final compromise agreement between the parties is reached:

a. An independent comptroller must be appointed by the Board of Directors upon nomination of the PCGG as conservator. The comptroller shall not be removable (nor shall his position be abolished or his compensation changed) without the consent of the conservator. The comptroller shall, in addition to his other functions as such, have charge of internal audit.

b. The corporate secretary must be acceptable to the conservator. If the corporate secretary ceases to be acceptable to the conservator, a new one must be appointed by the Board of Directors upon nomination of the conservator.

c. The external auditors of the corporation must be independent and must be acceptable to the conservator. The independent external auditors shall not be changed without the consent of the conservator.

d. The conservator must be represented in the Board of Directors and in the Executive (or equivalent) and Audit Committees of the corporation involved and of its majority-owned subsidiaries or affiliates. The representative of the conservator must be a full director (not merely an honorary or ex officio director) with the right to vote and all other rights and duties of a member of the Board of Directors under the Corporation Code. The conservator’s representative shall not be removed from the Board of Directors (or the mentioned Committees) without the consent of the conservator. The conservator shall, however, have the right to remove and change its representative at any time, and the new representative shall be promptly elected to the Board and its mentioned Committees.

e. All transactions involving the disbursement of corporate funds in excess of P5 million must have the prior approval of the director representing the conservator, in order to be valid and effective.

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f. The incurring of debt by the corporation, whether in the form of bonds, debentures, commercial paper or any other form, in excess of P5 million, must have the prior approval of the director representing the conservator, in order to be valid and effective.

g. The disposition of a substantial part of assets of the corporation (substantial meaning in excess of P5 million) shall require the prior approval of the director representing the conservator, in order to be valid and effective.

h. The above safeguards must be written into the articles of incorporation and by-laws of the company involved. In other words, the articles of incorporation and by-laws of the company must be amended so as to incorporate the above safeguards.

i. Any amendment of the articles of incorporation or by-laws of the company that will modify in any way any of the above safeguards, shall need the prior approval of the director representing the conservator.

The amount of P5,000,000.00 referred to in paragraphs (e), (f) and (g) above is intended merely to be indicative. The precise amount may differ depending upon the size of the corporation involved and the reasonable operating requirements of its business.

Whether a particular case falls within the first or the second type of situation described above, the following safeguards are indispensably necessary:

1. The sequestered shares and any stock dividends pertaining to such shares, may not be sold, transferred, alienated, mortgaged, or otherwise disposed of and no such sale, transfer or other disposition shall be registered in the books of the corporation, pending final judicial resolution of the question of ill-gotten wealth or a final compromise agreement between the parties; and

2. Dividend and liquidating distributions shall not be delivered to the registered stockholders of the sequestered shares, including stock dividends pertaining to such shares, but shall instead be deposited in an escrow, interest-bearing, account in a first class bank or banks, acceptable to the Sandiganbayan, to be held by such banks for the benefit of whoever is held by final judicial decision or final compromise agreement, to be entitled to the shares involved. (Italics in the original)

There is nothing in the Cojuangco case that would suggest that the above measures should be incorporated in the articles and by-laws before a stockholders meeting for the election of the board of directors is held. The PCGG nonetheless insists that those measures should be written in the articles and by-laws before such meeting, “otherwise, the [Marcos] cronies will elect themselves or their representatives, control the corporation, and for an appreciable period of time, have every opportunity to disburse funds, destroy or alter corporate records, and dissipate assets.” That could be a possibility, but the peculiar circumstances of this case require that the election of the board of directors first be held before the articles of incorporation are amended. Section 16 of the Corporation Code requires the majority vote of the board of directors to amend the articles of incorporation:

Sec. 16. Amendment of Articles of Incorporation. – Unless otherwise prescribed by this Code or by special law, and for legitimate purposes, any provision or matter stated in the articles of incorporation may be amended by a majority vote of the board of

directors or trustees and the vote or written assent of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, without prejudice to the appraisal right of dissenting stockholders in accordance with the provisions of this Code, or the vote or written assent of at least two thirds (2/3) of the members if it be a non-stock corporation.

x x x. (Emphasis supplied)

At the time Africa filed his motion for the holding of the annual stockholders meeting, there were two sets of ETPI directors, one controlled by the PCGG and the other by the registered stockholders. Which of them is the legitimate board of directors? Which of them may rightfully vote to amend the articles of incorporation and integrate the safeguards laid down in Cojuangco? It is essential, therefore, to cure this aberration of two boards of directors sitting in a single corporation before the articles of incorporation are amended to set in place the Cojuangco safeguards.

The danger of the so-called Marcos cronies taking control of the corporation and dissipating its assets is, of course, a legitimate concern of the PCGG, charged as it is with the duties of a conservator. Nevertheless, such danger may be averted by the “substantially contemporaneous” amendment of the articles after the election of the board. This Court said as much in Cojuangco:

The Court is aware that the implementation of some of the above safeguards may require agreement between the registered stockholders and the PCGG as well as action on the part of the Securities and Exchange Commission. The Court, therefore, directs petitioners and the PCGG to effect the implementation of this decision under the supervision and control of the Sandiganbayan so that the right to vote the sequestered shares and the installation and operation of the safeguards above-specified may be exercised and effected in a substantially contemporaneous manner and with all deliberate dispatch.

V

As for the PCGG’s contention that the Sandiganbayan gravely abused its discretion in ordering the Division Clerk of Court to call the stockholders meeting and in appointing then Sandiganbayan Associate Justice Sabino de Leon, Jr. to control and supervise the same, it is impressed with merit.

The Clerk of Court, who is already saddled with judicial responsibilities, need not be burdened with the additional duties of a corporate secretary. Moreover, the Clerk of Court may not have the requisite knowledge and expertise to discharge the functions of a corporate secretary. It is not thus surprising to find the PCGG complaining that:

x x x ETPI’s By-laws provide:

“Sec. 4. Notice of Meeting. – Except as otherwise provided by law, written or printed notice of all annual and special meetings of stockholders, stating the place and time of the meeting and the general nature of the business to be considered, shall be transmitted by personal delivery, registered air-mail, telegraph, or cable to each stockholder of record entitled to vote thereat at his address last known to the Secretary of the Company, at least ten (10) days before the date of the meeting, if an annual meeting, or at least five (5) days before the date of the meeting, if a special meeting.”

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Here, respondent Victor Africa filed a Motion dated March 30, 1992 asking the Sandiganbayan to “issue the call and Notice of Annual Stockholder’s Meeting in ETPI” because under ETPI’s By-laws such meeting should be held in the month of May. x x x. In the Resolution dated November 13, 1992, the Sandiganbayan granted the Motion and authorized its Division Clerk of Court to issue such “Notice of Annual Stockholder’s Meeting.” However, for inexplicable reasons, the Division Clerk of Court issued a “Notice of Special Stockholder’s Meeting” x x x which requires only a prior 5-day notice, instead of a “notice of (Delayed) Annual Stockholder’s Meeting” which requires a prior 10-day notice.

Instead of sending the Notices to each stockholder at his recorded address, the Division Clerk of Court whimsically sent all the Notices meant for the Class B stockholders to Atty. Eduardo de los Angeles (who returned the Notices because he was not authorized to receive such Notices). According to him x x x, he does not know some of the Class B stockholders for whom notices were sent to him. As a result, at this late stage, no proper notice has been sent to Class B stockholders. Yet, the Sandiganbayan has scheduled and is dead set to supervise a stockholder’s meeting on November 27, 1992. This clearly violates the substantial rights of the Class B stockholders who own 40% of ETPI. Under the Articles of Incorporation x x x and By-laws x x x of ETPI, Class B stockholders are entitled to vote two members of the Board of Directors. Unless properly notified, most of the Class B stockholders who reside in the United Kingdom (and whose shares are not sequestered) will not be able to exercise their right to vote.[34] (Underscoring in the original)

The appointment of a sitting member of the Sandiganbayan is particularly unsound for, as the PCGG points out:

x x x. What then is the reason for him to attend and supervise the meeting? To observe so that he can later testify in the court where he himself sits – in the court which will eventually decide any controversy which may arise from the meeting?[35]

Obviously, under such situation, the justice so appointed would be compelled to inhibit himself from any judicial controversy arising from the stockholders meeting.[36] Worse, if he were to preside at the meeting and rule upon the objections that may be raised by some stockholders, the Sandiganbayan would be faced with the “anomaly”[37] of eventually reviewing the decisions rendered by a member of its court during the stockholders meeting.

This Court appreciates the quandary that the Sandiganbayan faced when it ordered its Division Clerk of Court to call the meeting: ETPI has two sets of officers and, presumably, two corporate secretaries. And given the stakes involved, the stockholders meeting would be contentious, to say the least, hence, the need for an impartial referee to supervise and control the meeting.

Happily, the case of Board of Directors and Election Committee of SMB Workers Savings and Loan Asso., Inc. v. Tan, etc., et al. [38] provides a solution to the Sandiganbayan’s dilemma. There, this Court upheld the creation of a committee empowered to call, conduct and supervise the election of the board of directors:

As regards the creation of a committee of three vested with the authority to call, conduct and supervise the election, and the appointment thereto of Cándido C. Viernes as chairman and representative of the court and one representative each from the parties, the Court in the exercise of its equity jurisdiction may appoint such committee,

it having been shown that the Election Committee that conducted the election annulled by the respondent court if allowed to act as such may jeopardize the rights of the respondents.

In a proper proceeding a court of equity may direct the holding of a stockholders’ meeting under the control of a special master, and the action taken at such a meeting will not be set aside because of a wrongful use of the court’s interlocutory decree, where not brought to the attention of the court prior to the meeting. (18 C.J.S. 1270.)

A court of equity may, on showing of good reason, appoint a master to conduct and supervise an election of directors when it appears that a fair election cannot otherwise be had. Such a court cannot make directions contrary to statute and public policy with respect to the conduct of such election. (19 C.J.S. 41)

This Court also approved a similar action by the Securities and Exchange Commission in Sales v. Securities and Exchange Commission.[39]

Such a committee composed of impartial persons knowledgeable in corporate proceedings would provide the needed expertise and objectivity in the calling and the holding of the meeting without compromising the Sandiganbayan or its officers. The appointment of the committee members and the delineation of the scope of the duties of the committee may be made pursuant to an agreement by the parties or in accordance with the provisions of Rule 9 (Management Committee) of the Interim Rules of Procedure for Intra-Corporate Controversies insofar as they are applicable.

VI

And now, Africa’s motion to cite the PCGG and its “accomplices” in contempt for calling and holding a stockholders meeting to increase ETPI’s authorized capital stock without this Court’s authority and despite the pendency of motions for reconsideration of the Sandiganbayan Resolution of December 13, 1996 granting the PCGG authority to cause the holding of such meeting. In the same motion, Africa asks this Court to nullify the March 17, 1997 stockholders meeting which increased ETPI’s authorized capital stock on the grounds that he, an ETPI stockholder, was not notified of the meeting, and the PCGG voted the sequestered ETPI shares despite the absence of evidence of dissipation of assets. Intervenor AEROCOM has shared Africa’s assertions.

As earlier stated, this Court, by Resolution of May 7, 1996, referred the PCGG’s “VERY URGENT MOTION FOR RECONSIDERATION TO HOLD SPECIAL STOCKHOLDERS MEETING . . .” to the Sandiganbayan for reception of evidence and resolution. The dispositive portion of said Resolution reads:

Taking account of all the foregoing, the Court Resolved to REFER the “VERY URGENT PETITION FOR AUTHORITY TO HOLD SPECIAL STOCKHOLDERS’ MEETING FOR SOLE PURPOSE OF INCREASING EASTERN’S AUTHORIZED CAPITAL STOCK” to the Sandiganbayan for reception of evidence and resolution – WITH ALL DELIBERATE DISPATCH but no longer than sixty (60) days from notice hereof – of the factual issues raised by the parties as herein set out, and such others, factual or otherwise as are relevant, in order to decide the basic question in this proceeding of the necessity and propriety of the holding of the special stockholders’ meeting of EASTERN for the “sole purpose of increasing ** (its) authorized capital stock” and the exercise by the PCGG of the right to vote at said meeting.[40] (Emphasis supplied)

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Clearly, when the PCGG’s “VERY URGENT PETITION TO HOLD SPECIAL STOCKHOLDERS MEETING . . . ” was referred to the Sandiganbayan, this Court gave the latter full authority to decide the issue of whether a stockholders meeting should be held. Implicit in this authority was the power to grant (or deny) the petition. There is thus no need for the parties to seek this Court’s imprimatur to hold the same.

Africa’s motion must thus be denied.

Even assuming arguendo that the holding of the meeting was contemptuous because the December 13, 1996 Sandiganbayan Resolution had not yet attained finality, it was the Sandiganbayan, and not this Court, which was contemned. Consequently, it is the Sandiganbayan, and not this Court, which has jurisdiction over the motion to declare the PCGG and “its accomplices” in contempt.

In whatever context it may arise, contempt of court involves the doing of an act, or the failure to do an act, in such a manner as to create an affront to the court and the sovereign dignity with which it is clothed. As a matter of practical judicial administration, jurisdiction has been felt properly to rest in only one tribunal at a time with respect to a given controversy. Partly because of administrative considerations, and partly to visit the full personal effect of the punishment on a contemnor, the rule has been that no other court than the one contemned will punish a given contempt.

The rationale that is usually advanced for the general rule that the power to punish for contempt rests with the court contemned is that contempt proceedings are sui generic and are triable only by the court against whose authority the contempts are charged; the power to punish for contempt exists for the purpose of enabling a court to compel due decorum and respect in its presence and due obedience to its judgments, orders and processes; and in order that a court may compel obedience to its orders, it must have the right to inquire whether there has been any disobedience thereof, for to submit the question of disobedience to another tribunal would operate to deprive the proceeding of half its efficiency.[41]

The above rule is not of course absolute as it admits exception “when the entire case has already been appealed [in which case] jurisdiction to punish for contempt rests with the appellate court where the appeal completely transfers to proceedings thereto or where there is a tendency to affect the status quo or otherwise interfere with the jurisdiction of the appellate court.”[42] This exception does not, however, apply to Africa’s motion since at the time he filed it on April 1, 1997 before this Court, his petition in G. R. No. L-147214 assailing the December 17, 1996 Resolution of the Sandiganbayan had not yet been filed.

The motion to nullify the March 17, 1997 stockholders meeting must likewise be denied for lack of jurisdiction. Such motion is but an incident to Sandiganbayan Civil Case No. 0130.[43] As such, jurisdiction over it pertains exclusively and originally to the Sandiganbayan.

Under Section 2 of the President’s Executive Order No. 14 issued on May 7, 1986, all cases of the Commission regarding “the Funds, Moneys, Assets, and Properties Illegally Acquired or Misappropriated by Former President Ferdinand Marcos, Mrs. Imelda Romualdez Marcos, their Close Relatives, Subordinates, Business Associates, Dummies, Agents, or Nominees” whether civil or criminal are lodged within the “exclusive and original jurisdiction of the Sandiganbayan” and all incidents arising from, incidental to, or related to, such cases necessarily fall likewise under the

Sandiganbayan’s exclusive and original jurisdiction, subject to review on certiorari exclusively by the Supreme Court.[44]

This is another reason for the denial of the motion to cite the PCGG and its “accomplices” in contempt.

VII

FINALLY, the question on the validity of the PCCG’s voting the Class “A” shares to increase the authorized capital stock of ETPI.

In his petition in G. R. No. 147214, Africa faults the Sandiganbayan for failing to acknowledge, in its Resolution of February 16, 2001, the Decisions of this Court declaring that his shares in ETPI[45] and those of AEROCOM[46] and POLYGON (Polygon Investors & Managers, Inc.)[47] were not sequestered. Hence, so he contends, they, and not the PCGG, should have been allowed to vote their respective shares during the meeting.

Two matters require clarification at this point. First, that this Court rendered decisions holding that the shares of Africa, AEROCOM and POLYGON are not or are no longer sequestered is of little consequence since the decisions were promulgated after the Sandiganbayan issued its resolution granting the PCGG authority to call and hold the stockholders meeting to increase the authorized capital stock. At that time, the shares were presumed to have been regularly sequestered. The more fundamental question that confronts this Court is: Was the PCGG entitled to vote the sequestered shares in the stockholders meeting of March 17, 1997?

Second, the PCGG correctly argues that Africa has no cause of action to claim on behalf of AEROCOM and POLYGON that these two companies are entitled to vote their respective shares in the stockholders meeting to increase ETPI’s authorized capital stock. The claim is personal to AEROCOM and POLYGON. Nevertheless, this does not preclude Africa from invoking his own right as a “small stockholder” of ETPI to vote in the stockholders meeting for the purpose of increasing ETPI’s authorized capital stock. The PCGG maintains, however, that it is entitled to vote said shares because this Court, by its claim, recognized in PCGG v. SEC, supra, that ETPI’s assets were being dissipated by the BAN (Benedicto, Africa, Nieto) Group, thus:

Under the Management of Cable and Wireless ETPI grew and prospered. But when its dividends, which were paid in dollars to the BAN Group, began to run into millions, said group also started to intervene in the corporation’s operations and management. Requests for employment of family relatives and high salaries for them were made. The BAN Group likewise placed the majority of their individual stockholdings in three separate companies, namely: Aerocom Investors, Universal Molasses, and Polygon, so that in 1986, the ownership of the Class “A” stocks of the corporation was as follows:

Roberto S. Benedicto - 3.3 percent

Universal Molasses Corp. - 16.6 percent

Manuel Nieto, Jr. - 2.2 percent

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Nieto's relatives - 3.3 percent

Aerocom Investors and

Managers Inc. - 17.5 percent

Jose Africa - 2.2 percent

Africa's relatives - .3 percent

Polygon Investors and

Managers Inc. - 17.5 percent

By the end of 1987, the initial capital of P1M of the BAN Group, its corporations and relatives had grown to the astronomical sum of P784,185,198.00. Cash dividends paid to them as of 1986 had amounted to P225,845,000.00 even as another P180,000,000.00 is due them for 1987, for a grand total of P405,845,000.00. In 1984, cash dividends to the BAN Group, et al. in the amount of $1M were remitted to the United States.

Under a consultancy contract, Polygon Investors and Managers with Jose L. Africa as Chairman and his son, Victor Africa as President, earned from ETPI as of 1987 more than P57M. Likewise in 1987, ETPI paid to Jose L. Africa P1,200,000.00 as “professional fees” and Manuel H. Nieto, Jr., another P1,200,000.00 as “allowances”.[48]

As stated early on, however, the foregoing narration does not constitute a finding of fact.

The PCGG further submits that the Sandiganbayan found prima facie evidence for the issuance of the writ of sequestration covering the Class “A” shares of ETPI. Such reliance on the Sandiganbayan’s ruling is misplaced because the issue is not whether there is prima facie evidence to warrant sequestration of the shares, but whether there is prima facie evidence showing that the shares are ill-gotten andwhether there is evidence of dissipation of assets to warrant the voting by the PCGG of sequestered shares. As to the latter issue, the Sandiganbayan held in the affirmative in this wise:

x x x [T]he propriety and legality of allowing the PCGG to cause the holding of a stockholders’ meeting of the ETPI for the purpose of electing a new Board of Directors or effecting changes in the policy, program and practices of said corporation (except for the specified purpose of amending the right of first refusal clause in ETPI’s Articles of Incorporation and By Laws) and impliedly to vote the sequestered shares of stocks has been upheld by the Supreme Court in the case of “PCGG vs. SEC, PCGG vs. Sandiganbayan, et al.”, G.R. No. 82188, promulgated June 30, 1988 x x x.[49] (Underscoring supplied)

The Sandiganbayan proceeded to quote the following pronouncement of this Court in PCGG v. SEC:

But while We find the Sandiganbayan to have acted properly in enjoining the PCGG from holding the stockholders meeting for the specified purpose of amending the “right of first refusal” clause in ETPI's Articles of Incorporation and By-Laws, We find the general injunction imposed by it on the PCGG to desist and refrain from calling a stockholders meeting for the purpose of electing a new Board of Directors of effecting substantial changes in the policy, program or practice of the corporation to be too broad as to taint said order with grave abuse of discretion. Said order completely ties the hands of the PCGG , rendering it virtually helpless in the exercise of its power of conserving and preserving the assets of the corporation. Indeed, of what use is the PCGG if it cannot even do this ? x x x.[50] (Underscoring and italics supplied)

The Sandiganbayan, however, misread this Court’s ruling in the said SEC case. One of the issues raised therein was whether the Sandiganbayan committed grave abuse of discretion in enjoining the PCGG from calling and holding stockholders meetings and voting the sequestered ETPI shares for the purpose of deleting the “right of first refusal” clause in ETPI’s articles of incorporation. In its therein assailed Order, the Sandiganbayan temporarily restrained the PCGG “from calling and/or holding stockholders meetings and voting the sequestered shares thereat for the purpose of amending the articles or by-laws of ETPI, or otherwise effecting substantial changes in policy, programs or practices of said corporation.”

Clearly, the temporary restraining order was too broad. The Sandiganbayan should have limited itself to restraining the calling and holding of the stockholders meeting and voting the shares for the sole purpose of amending the “right of first refusal” clause. It was thus necessary for this Court to make the underscored ruling above. No declaration therein was made that in all instances the PCGG may vote the sequestered shares to effect substantial changes in ETPI policy, programs or practices. In lifting the injunction on that aspect, this Court merely recognized “that situations may arise wherein only through an act of strict ownership can the PCGG be able to prevent the dissipation of the assets of the sequestered corporation or business.”[51]

Moreover, if, as the Sandiganbayan assumed, this Court had come to a conclusion in the SEC case that the BAN Group was guilty of dissipation and that, consequently, the PCGG was entitled to vote the sequestered shares, this Court would not have bothered, in its Resolution of May 7, 1996, to direct said court to decide whether the PCGG has the right to vote in the stockholders meeting for the purpose of increasing ETPI’s authorized capital stock.[52]

This Court notes that, like in Africa’s motion to hold a stockholders meeting (to elect a board of directors), the Sandiganbayan, in the PCGG’s petition to hold a stockholders meeting (to amend the articles of incorporation to increase the authorized capital stock), again failed to apply the two-tiered test. On such determination hinges the validity of the votes cast by the PCGG in the stockholders meeting of March 17, 1997. This lapse by the Sandiganbayan leaves this Court with no other choice but to remand these questions to it for proper determination.

IN SUM, this Court rules that:

(1) The PCGG cannot vote sequestered shares to elect the ETPI Board of Directors or to amend the Articles of Incorporation for the purpose of increasing the authorized

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capital stock unless there is a prima facie evidence showing that said shares are ill-gotten and there is an imminent danger of dissipation.

(2) The ETPI Stock and Transfer Book should be the basis for determining which persons have the right to vote in the stockholders meeting for the election of the ETPI Board of Directors.

(3) The PCGG is entitled to vote the shares ceded to it by Roberto S. Benedicto and his controlled corporations under the Compromise Agreement, provided that the shares are first registered in the name of the PCGG. The PCGG may not register the transfer of the Malacañang and the Nieto shares in the ETPI Stock and Transfer Book; however, it may vote the same as conservator provided that the PCGG satisfies the two-tiered test devised by the Court in Cojuangco v. Calpo, supra.

(4) The safeguards laid down in the case of Cojuangco v. Roxas shall be incorporated in the ETPI Articles of Incorporation substantially contemporaneous to, but not before, the election of the ETPI Board of Directors.

(5) Members of the Sandiganbayan shall not participate in the stockholders meeting for the election of the ETPI Board of Directors. Neither shall a Clerk of Court be appointed to call such meeting and issue notices thereof. The Sandiganbayan shall appoint, or the parties may agree to constitute, a committee of competent and impartial persons to call, send notices and preside at the meeting for the election of the ETPI Board of Directors; and

(6) This Court has no jurisdiction over the motion to cite the PCGG and “its accomplices” in contempt and to nullify the stockholders meeting of March 17, 1997.

WHEREFORE, this Court Resolved to REFER the petitions at bar to the Sandiganbayan for reception of evidence to determine whether there is a prima facie evidence showing that the sequestered shares in question are ill-gotten and there is an imminent danger of dissipation to entitle the PCGG to vote them in a stockholders meeting to elect the ETPI Board of Directors and to amend the ETPI Articles of Incorporation for the sole purpose of increasing the authorized capital stock of ETPI.

The Sandiganbayan shall render a decision thereon within sixty (60) days from receipt of this Resolution and in conformity herewith.

The motion to cite the PCGG and its “accomplices” and to nullify the ETPI Stockholders Meeting of March 17, 1997 filed by Victor Africa is DENIED for lack of jurisdiction.

SO ORDERED.

Davide, Jr., C.J., Bellosillo, Puno, Ynares-Santiago, Sandoval-Gutierrez, Carpio, Austria-Martinez, Corona, and Callejo, Sr., JJ., concur.

Vitug, J., in the result.

Panganiban, J., No part, former counsel of a party.

Quisumbing, J., abroad on official business.

Azcuna, J., No part.

G.R. No. 147062-64 December 14, 2001

REPUBLIC OF THE PHILIPPINES, represented by the PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG), petitioner, vs.COCOFED, ET AL. and BALLARES, ET AL.,1 EDUARDO M. COJUANGCO JR. and the SANDIGANBAYAN (First Division) respondents.

PANGANIBAN, J.:

The right to vote sequestered shares of stock registered in the names of private individuals or entitles and alleged to have been acquired with ill-gotten wealth shall, as a rule, be exercised by the registered owner. The PCGG may, however, be granted such voting right provided in can (1) show prima facie evidence that the wealth and/or the shares are indeed ill-gotten; and (2) demonstrate imminent danger of dissipation of the assets, thus necessitating their continued sequestration and voting by the government until a decision, ruling with finality on their ownership, is promulgated by the proper court.1âwphi1.nêt

However, the foregoing "two-tiered" test does not apply when the sequestered stocks are acquired with funds that are prima facie public in character or, at least, are affected with public interest. Inasmuch as the subject UCPB shares in the present case were undisputably acquired with coco levy funds which are public in character, then the right to vote them shall be exercised by the PCGG. In sum, the "public character" test, not the "two-tiered" one, applies in the instant controversy.

The Case

Before us is a Petition for Certiorari with a prayer for the issuance of a temporary restraining order and/or a writ of preliminary injunction under Rule 65 of the Rules of Court, seeking to set aside the February 28, 2001 Order2 of the First Division of the Sandiganbayan3 in Civil Case Nos. 0033-A, 0033-B and 0033-F. The pertinent portions of the assailed Order read as follows:

"In view hereof, the movants COCOFED, et al. and Ballares, et al. as well as Eduardo Cojuangco, et al., who were acknowledged to be registered stockholders of the UCPB are authorized, as are all other registered stockholders of the United Coconut Planters Bank, until further orders from this Court, to exercise their rights to vote their shares of stock and themselves to be voted upon in the United Coconut Planters Bank (UCPB) at the scheduled Stockholders' Meeting on March 6, 2001 or on any subsequent continuation or resetting thereof, and to perform such acts as will normally follow in the exercise of these rights as registered stockholders.

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"Since by way of form, the pleadings herein had been labeled as praying for an injunction, the right of the movants to exercise their right as abovementioned will be subject to the posting of a nominal bond in the amount of FIFTY THOUSAND PESOS (P50,000.00) jointly for the defendants COCOFED, et al. and Ballares, et al., as well as all other registered stockholders of sequestered shares in that bank, and FIFTY THOUSAND PESOS (P50,000.00) for Eduardo Cojuangco, Jr., et al., to answer for any undue damage or injury to the United Coconut Planters Bank as may be attributed to their exercise of their rights as registered stockholders."4

The Antecedents

The very roots of this case are anchored on the historic events that transpired during the change of government in 1986. Immediately after the 1986 EDSA Revolution, then President Corazon C. Aquino issued Executive Order (EO) Nos. 1,5 26 and 14.7

"On the explicit premise that 'vast resources of the government have been amassed by former President Ferdinand E. Marcos, his immediate family, relatives, and close associates both here and abroad,' the Presidential Commission on Good Government (PCGG) was created by Executive Order No. 1 to assist the President in the recovery of the ill-gotten wealth thus accumulated whether located in the Philippines or abroad."8

Executive Order No. 2 states that the ill-gotten assets and properties are in the form of bank accounts, deposits, trust accounts, shares of stocks, buildings, shopping centers, condominiums, mansions, residences, estates, and other kinds of real and personal properties in the Philippines and in various countries of the world.9

Executive Order No. 14, on the other hand, empowered the PCGG, with the assistance of the Office of the Solicitor General and other government agencies, inter alia, to file and prosecute all cases investigated by it under EO Nos. 1 and 2.

Pursuant to these laws, the PCGG issued and implemented numerous sequestrations, freeze orders and provisional takeovers of allegedly ill-gotten companies, assets and properties, real or personal.10

Among the properties sequestered by the Commission were shares of stock in the United Coconut Planters Bank (UCPB) registered in the names of the alleged "one million coconut farmers," the so-called Coconut Industry Investment Fund companies (CIIF companies) and Private Respondent Eduardo Cojuangco Jr. (hereinafter "Cojuangco").

In connection with the sequestration of the said UCPB shares, the PCGG, on July 31, 1987, instituted an action for reconveyance, reversion, accounting, restitution and damages docketed as Case No. 0033 in the Sandiganbayan.

On November 15, 1990, upon Motion11 of Private Respondent COCOFED, the Sandiganbayan issued a Resolution12 lifting the sequestration of the subject UCPB shares on the ground that herein private respondents – in particular, COCOFED and the so-called CIIF companies – had not been impleaded by the PCGG as parties-defendants in its July 31, 1987 Complaint for reconveyance, reversion, accounting, restitution and damages. The Sandiganbayan ruled that the Writ of Sequestration issued by the Commission was automatically lifted for PCGG's failure to commence the corresponding

judicial action within the six-month period ending on August 2, 1987 provided under Section 26, Article XVIII of the 1987 Constitution. The anti-graft court noted that though these entities were listed in an annex appended to the Complaint, they had not been named as parties-respondents.

This Sandiganbayan Resolution was challenged by the PCGG in a Petition for Certiorari docketed as GR No. 96073 in this Court. Meanwhile, upon motion of Cojuangco, the anti-graft court ordered the holding of elections for the Board of Directors of UCPB. However, the PCGG applied for and was granted by this Court a Restraining Order enjoining the holding of the election. Subsequently, the Court lifted the Restraining Order and ordered the UCPB to proceed with the election of its board of directors. Furthermore, it allowed the sequestered shares to be voted by their registered owners.

The victory of the registered shareholders was fleeting because the Court, acting on the solicitor general's Motion for Clarification/Manifestation, issued a Resolution on February 16, 1993, declaring that "the right of petitioners [herein private respondents] to vote stock in their names at the meetings of the UCPB cannot be conceded at this time. That right still has to be established by them before the Sandiganbayan. Until that is done, they cannot be deemed legitimate owners of UCPB stock and cannot be accorded the right to vote them."13 The dispositive portion of the said Resolution reads as follows:

"IN VIEW OF THE FOREGOING, the Court recalls and sets aside the Resolution dated March 3, 1992 and, pending resolution on the merits of the action at bar, and until further orders, suspends the effectivity of the lifting of the sequestration decreed by the Sandiganbayan on November 15, 1990, and directs the restoration of the status quo ante, so as to allow the PCGG to continue voting the shares of stock under sequestration at the meetings of the United Coconut Planters Bank."14

On January 23, 1995, the Court rendered its final Decision in GR No. 96073, nullifying and setting aside the November 15, 1990 Resolution of the Sandiganbayan which, as earlier stated, lifted the sequestration of the subject UCPB shares. The express impleading of herein Respondents COCOFED et al. was deemed unnecessary because "the judgment may simply be directed against the shares of stock shown to have been issued in consideration of ill-gotten wealth."15 Furthermore, the companies "are simply the res in the actions for the recovery of illegally acquires wealth, and there is, in principle, no cause of action against them and no ground to implead them as defendants in said case."16

A month thereafter, the PCGG – pursuant to an Order of the Sandiganbayan – subdivided Case No. 0033 into eight Complaints and docketed them as Case Nos. 0033-A to 0033-H.

Six years later, on February 13, 2001, the Board of Directors of UCPB received from the ACCRA Law Office a letter written on behalf of the COCOFED and the alleged nameless one million coconut farmers, demanding the holding of a stockholders' meeting for the purpose of, among others, electing the board of directors. In response, the board approved a Resolution calling for a stockholders' meeting on March 6, 2001 at three o'clock in the afternoon.

On February 23, 2001, "COCOFED, et al. and Ballares, et al." filed the "Class Action Omnibus Motion"17 referred to earlier in Sandiganbayan Civil Case Nos. 0033-A, 0033-B and 0033-F, asking the court a quo:

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"1. To enjoin the PCGG from voting the UCPB shares of stock registered in the respective names of the more than one million coconut farmers; and

"2. To enjoin the PCGG from voting the SMC shares registered in the names of the 14 CIIF holding companies including those registered in the name of the PCGG."18

On February 28, 2001, respondent court, after hearing the parties on oral argument, issued the assailed Order.

Hence, this Petition by the Republic of the Philippines represented by the PCGG.19

The case had initially been raffled to this Court's Third Division which, by a vote of 3-2,20 issued a Resolution21requiring the parties to maintain the status quo existing before the issuance of the questioned Sandiganbayan Order dated February 28, 2001. On March 7, 2001, Respondent COCOFED et al. moved that the instant Petition be heard by the Court en banc.22 The Motion was unanimously granted by the Third Division.

On March 13, 2001, the Court en banc resolved to accept the Third Division's referral.23 It heard the case on Oral Argument in Baguio City on April 17, 2001. During the hearing, it admitted the intervention of a group of coconut farmers and farm worker organizations, the Pambansang Koalisyon ng mga Samahang Magsasaka at Manggagawa ng Niyugan (PKSMMN). The coalition claims that its members have been excluded from the benefits of the coconut levy fund. Inter alia, it joined petitioner in praying for the exclusion of private respondents in voting the sequestered shares.

Issues

Petitioner submits the following issues for our consideration:24

"A.

Despite the fact that the subject sequestered shares were purchased with coconut levy funds (which were declared public in character) and the continuing effectivity of Resolution dated February 16, 1993 in G.R. No. 96073 which allows the PCGG to vote said sequestered shares, Respondent Sandiganbayan, with grave abuse of discretion, issued its Order dated February 20, 2001 enjoining PCGG from voting the sequestered shares of stock in UCPB.

"B.

The Respondent Sandiganbayan violated petitioner's right to due process by taking cognizance of the Class Action Omnibus Motion dated 23 February 2001 despite gross lack of sufficient notice and by issuing the writ of preliminary injunction despite the obvious fact that there was no actual pressing necessity or urgency to do so."

In its Resolution dated April 17, 2001, the Court defined the issue to be resolved in the instant case simply as follows:

This Court's Ruling

The Petition is impressed with merit.

Main Issue:

Who May Vote the Sequestered Shares of Stock?

Simply stated, the gut substantive issue to be resolved in the present Petition is: "Who may vote the sequestered UCPB shares while the main case for their reversion to the State is pending in the Sandiganbayan?"

This Court holds that the government should be allowed to continue voting those shares inasmuch as they were purchased with coconut levy funds – that are prima facie public in character or, at the very least, are "clearly affected with public interest."

General Rule: Sequestered Shares

Are Voted by the Registered Holder

At the outset, it is necessary to restate the general rule that the registered owner of the shares of a corporation exercises the right and the privilege of voting.25 This principle applies even to shares that are sequestered by the government, over which the PCGG as a mere conservator cannot, as a general rule, exercise acts of dominion.26On the other hand, it is authorized to vote these sequestered shares registered in the names of private persons and acquired with allegedly ill-gotten wealth, if it is able to satisfy the two-tiered test devised by the Court inCojuangco v. Calpo27 and PCGG v. Cojuangco Jr.,28 as follows:

(1) Is there prima facie evidence showing that the said shares are ill-gotten and thus belong to the State?

(2) Is there an imminent danger of dissipation, thus necessitating their continued sequestration and voting by the PCGG, while the main issue is pending with the Sandiganbayan?

Sequestered Shares Acquired with Public Funds are an Exception

From the foregoing general principle, the Court in Baseco v. PCGG29 (hereinafter "Baseco") and Cojuangco Jr. v. Roxas30 ("Cojuangco-Roxas") has provided two clear "public character" exceptions under which the government is granted the authority to vote the shares:

(1) Where government shares are taken over by private persons or entities who/which registered them in their own names, and

(2) Where the capitalization or shares that were acquired with public funds somehow landed in private hands.

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The exceptions are based on the common-sense principle that legal fiction must yield to truth; that public property registered in the names of non-owners is affected with trust relations; and that the prima facie beneficial owner should be given the privilege of enjoying the rights flowing from the prima facie fact of ownership.

In Baseco, a private corporation known as the Bataan Shipyard and Engineering Co. was placed under sequestration by the PCGG. Explained the Court:

"The facts show that the corporation known as BASECO was owned and controlled by President Marcos 'during his administration, through nominees, by taking undue advantage of his public office and/or using his powers, authority, or influence,' and that it was by and through the same means, that BASECO had taken over the business and/or assets of the National Shipyard and Engineering Co., Inc., and other government-owned or controlled entities."31

Given this factual background, the Court discussed PCGG's right over BASECO in the following manner:

"Now, in the special instance of a business enterprise shown by evidence to have been 'taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos,' the PCGG is given power and authority, as already adverted to, to 'provisionally take (it) over in the public interest or to prevent * * (its) disposal or dissipation;' and since the term is obviously employed in reference to going concerns, or business enterprises in operation, something more than mere physical custody is connoted; the PCGG may in this case exercise some measure of control in the operation, running, or management of the business itself."32

Citing an earlier Resolution, it ruled further:

"Petitioner has failed to make out a case of grave abuse or excess of jurisdiction in respondents' calling and holding of a stockholders' meeting for the election of directors as authorized by the Memorandum of the President * * (to the PCGG) dated June 26, 1986, particularly, where as in this case, the government can, through its designated directors, properly exercise control and management over what appear to be properties and assets owned and belonging to the government itself and over which the persons who appear in this case on behalf of BASECO have failed to show any right or even any shareholding in said corporation."33 (Italics supplied)

The Court granted PCGG the right to vote the sequestered shares because they appeared to be "assets belonging to the government itself." The Concurring Opinion of Justice Ameurfina A. Melencio-Herrera, in which she was joined by Justice Florentino P. Feliciano, explained this principle as follows:

"I have no objection to according the right to vote sequestered stock in case of a take-over of business actually belonging to the government or whose capitalization comes from public funds but which, somehow, landed in the hands of private persons, as in the case of BASECO. To my mind, however, caution and prudence should be exercised in the case of sequestered shares of an on-going private business enterprise, specially the sensitive ones, since the

true and real ownership of said shares is yet to be determined and proven more conclusively by the Courts."34 (Italics supplied)

The exception was cited again by the Court in Cojuangco-Roxas35 in this wise:

"The rule in this jurisdiction is, therefore, clear. The PCGG cannot perform acts of strict ownership of sequestered property. It is a mere conservator. It may not vote the shares in a corporation and elect the members of the board of directors. The only conceivable exception is in a case of a takeover of a business belonging to the government or whose capitalization comes from public funds, but which landed in private hands as in BASECO."36 (Italics supplied)

The "public character" test was reiterated in many subsequent cases; most recently, in Antiporda v. Sandiganbayan.37 Expressly citing Conjuangco-Roxas,38 this Court said that in determining the issue of whether the PCGG should be allowed to vote sequestered shares, it was crucial to find out first whether these were purchased with public funds, as follows:

"It is thus important to determine first if the sequestered corporate shares came from public funds that landed in private hands."39

In short, when sequestered shares registered in the names of private individuals or entities are alleged to have been acquired with ill-gotten wealth, then the two-tiered test is applied. However, when the sequestered shares in the name of private individuals or entities are shown, prima facie, to have been (1) originally government shares, or (2) purchased with public funds or those affected with public interest, then the two-tiered test does not apply. Rather, the public character exceptions in Baseco v. PCGG and Cojuangco Jr. v. Roxas prevail; that is, the government shall vote the shares.

UCPB Shares Were Acquired With Coconut Levy Funds

In the present case before the Court, it is not disputed that the money used to purchase the sequestered UCPB shares came from the Coconut Consumer Stabilization Fund (CCSF), otherwise known as the coconut levy funds.

This fact was plainly admitted by private respondent's counsel, Atty. Teresita J. Herbosa, during the Oral Arguments held on April 17, 2001 in Baguio City, as follows:

"Justice Panganiban:

"In regard to the theory of the Solicitor General that the funds used to purchase [both] the original 28 million and the subsequent 80 million came from the CCSF, Coconut Consumers Stabilization Fund, do you agree with that?

"Atty. Herbosa:

"Yes, Your Honor.

x x x x x x x x x

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"Justice Panganiban:

"So it seems that the parties [have] agreed up to that point that the funds used to purchase 72% of the former First United Bank came from the Coconut Consumer Stabilization Fund?

"Atty. Herbosa:

"Yes, Your Honor."40

Indeed in Cocofed v. PCGG,41 this Court categorically declared that the UCPB was acquired "with the use of the Coconut Consumers Stabilization Fund in virtue of Presidential Decree No. 755, promulgated on July 29, 1975."

Coconut Levy Funds Are Affected With Public Interest

Having conclusively shown that the sequestered UCPB shares were purchased with coconut levies, we hold that these funds and shares are, at the very least, "affected with public interest."

The Resolution issued by the Court on February 16, 1993 in Republic v. Sandiganbayan42 stated that coconut levy funds were "clearly affected with public interest"; thus, herein private respondents – even if they are the registered shareholders – cannot be accorded the right to vote them. We quote the said Resolution in part, as follows:

"The coconut levy funds being 'clearly affected with public interest, it follows that the corporations formed and organized from those funds, and all assets acquired therefrom should also be regarded as 'clearly affected with public interest.'"43

x x x x x x x x x

"Assuming, however, for purposes of argument merely, the lifting of sequestration to be correct, may it also be assumed that the lifting of sequestration removed the character of the coconut levy companies of being affected with public interest, so that they and their stock and assets may now be considered to be of private ownership? May it be assumed that the lifting of sequestration operated to relieve the holders of stock in the coconut levy companies – affected with public interest – of the obligation of proving how that stock had been legitimately transferred to private ownership, or that those stockholders who had had some part in the collection, administration, or disposition of the coconut levy funds are now deemed qualified to acquire said stock, and freed from any doubt or suspicion that they had taken advantage of their special or fiduciary relation with the agencies in charge of the coconut levies and the funds thereby accumulated? The obvious answer to each of the questions is a negative one. It seems plain that the lifting of sequestration has no relevance to the nature of the coconut levy companies or their stock or property, or to the legality of the acquisition by private persons of their interest therein, or to the latter's capacity or disqualification to acquire stock in the companies or any property acquired from coconut levy funds.

"This being so, the right of the [petitioners] to vote stock in their names at the meetings of the UCPB cannot be conceded at this time. That right still has to be established by them before the Sandiganbayan. Until that is done, they cannot be deemed legitimate owners of UCPB stock and cannot be accorded the right to vote them."44 (Italics supplied)

It is however contended by respondents that this Resolution was in the nature of a temporary restraining order. As such, it was supposedly interlocutory in character and became functus oficio when this Court decided GR No. 96073 on January 23, 1995.

This argument is aptly answered by petitioner in its Memorandum, which we quote:

"The ruling made in the Resolution dated 16 February 1993 confirming the public nature of the coconut levy funds and denying claimants their purported right to vote is an affirmation of doctrines laid down in the cases of COCOFED v. PCGG supra, Baseco v. PCGG, supra, and Cojuangco v. Roxas, supra. Therefore it is of no moment that the Resolution dated 16 February 1993 has not been ratified. Its jurisprudential based remain."45 (Italics supplied)

To repeat, the foregoing juridical situation has not changed. It is still the truth today: "the coconut levy funds are clearly affected with public interest." Private respondents have not "demonstrated satisfactorily that they have legitimately become private funds."

If private respondents really and sincerely believed that the final Decision of the Court in Republic v. Sandiganbayan (GR No. 96073, promulgated on January 23, 1995) granted them the right to vote, why did they wait for the lapse of six long years before definitively asserting it (1) through their letter dated February 13, 2001, addressed to the UCPB Board of Directors, demanding the holding of a shareholders' meeting on March 6, 2001; and (2) through their Omnibus Motion dated February 23, 2001 filed in the court a quo, seeking to enjoin PCGG from voting the subject sequestered shares during the said stockholders' meeting? Certainly, if they even half believed their submission now – that they already had such right in 1995 – why are they suddenly and imperiously claiming it only now?

It should be stressed at this point that the assailed Sandiganbayan Order dated February 28, 2001 – allowing private respondents to vote the sequestered shares – is not based on any finding that the coconut levies and the shares have "legitimately become private funds." Neither is it based on the alleged lifting of the TRO issued by this Court on February 16, 1993. Rather, it is anchored on the grossly mistaken application of the two-tiered test mentioned earlier in this Decision.

To stress, the two-tiered test is applied only when the sequestered asset in the hands of a private person is alleged to have been acquired with ill-gotten wealth. Hence, in PCGG v. Cojuangco,47 we allowed Eduardo Cojuangco Jr. to vote the sequestered shares of the San Miguel Corporation (SMC) registered in his name but alleged to have been acquired with ill-gotten wealth. We did so on his representation that he had acquired them with borrowed funds and upon failure of the PCGG to satisfy the "two-tiered" test. This test was, however, not applied to sequestered SMC shares that were purchased with coco levy funds.

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In the present case, the sequestered UCPB shares are confirmed to have been acquired with coco levies, not with alleged ill-gotten wealth. Hence, by parity of reasoning, the right to vote them is not subject to the "two-tiered test" but to the public character of their acquisition, which per Antiporda v. Sandiganbayan cited earlier, must first be determined.

Coconut Levy Funds Are Prima Facie Public Funds

To avoid misunderstanding and confusion, this Court will even be more categorical and positive than its earlier pronouncements: the coconut levy funds are not only affected with public interest; they are, in fact, prima facie public funds.

Public funds are those moneys belonging to the State or to any political subdivision of the State; more specifically, taxes, customs duties and moneys raised by operation of law for the support of the government or for the discharge of its obligations.48 Undeniably, coconut levy funds satisfy this general definition of public funds, because of the following reasons:

1. Coconut levy funds are raised with the use of the police and taxing powers of the State.

2. They are levies imposed by the State for the benefit of the coconut industry and its farmers.

3. Respondents have judicially admitted that the sequestered shares were purchased with public funds.

4. The Commission on Audit (COA) reviews the use of coconut levy funds.

5. The Bureau of Internal Revenue (BIR), with the acquiescence of private respondents, has treated them as public funds.

6. The very laws governing coconut levies recognize their public character.

We shall now discuss each of the foregoing reasons, any one of which is enough to show their public character.

1. Coconut Levy Funds Are Raised Through the State's Police and Taxing Powers.

Indeed, coconut levy funds partake of the nature of taxes which, in general, are enforced proportional contributions from persons and properties, exacted by the State by virtue of its sovereignty for the support of government and for all public needs.49

Based on this definition, a tax has three elements, namely: a) it is an enforced proportional contribution from persons and properties; b) it is imposed by the State by virtue of its sovereignty; and c) it is levied for the support of the government. The coconut levy funds fall squarely into these elements for the following reasons:

(a) They were generated by virtue of statutory enactments imposed on the coconut farmers requiring the payment of prescribed amounts. Thus, PD No. 276, which created the Coconut Consumer Stabilization Fund (CCSF), mandated the following:

"a. A levy, initially, of P15.00 per 100 kilograms of copra resecada or its equivalent in other coconut products, shall be imposed on every first sale, in accordance with the mechanics established under RA 6260, effective at the start of business hours on August 10, 1973.

"The proceeds from the levy shall be deposited with the Philippine National Bank or any other government bank to the account of the Coconut Consumers Stabilization Fund, as a separate trust fund which shall not form part of the general fund of the government."50

The coco levies were further clarified in amendatory laws, specifically PD No. 96151 and PD No. 146852 – in this wise:

"The Authority (Philippine Coconut Authority) is hereby empowered to impose and collect a levy, to be known as the Coconut Consumers Stabilization Fund Levy, on every one hundred kilos of copra resecada, or its equivalent in other coconut products delivered to, and/or purchased by, copra exporters, oil millers, desiccators and other end-users of copra or its equivalent in other coconut products. The levy shall be paid by such copra exporters, oil millers, desiccators and other end-users of copra or its equivalent in other coconut products under such rules and regulations as the Authority may prescribe. Until otherwise prescribed by the Authority, the current levy being collected shall be continued."53

Like other tax measures, they were not voluntary payments or donations by the people. They were enforced contributions exacted on pain of penal sanctions, as provided under PD No. 276:

"3. Any person or firm who violates any provision of this Decree or the rules and regulations promulgated thereunder, shall, in addition to penalties already prescribed under existing administrative and special law, pay a fine of not less than P2,500 or more than P10,000, or suffer cancellation of licenses to operate, or both, at the discretion of the Court."54

Such penalties were later amended thus:

"Whenever any person or entity willfully and deliberately violates any of the provisions of this Act, or any rule or regulation legally promulgated hereunder by the Authority, the person or persons responsible for such violation shall be punished by a fine of not more than P20,000.00 and by imprisonment of not more than five years. If the offender be a corporation, partnership or a juridical person, the penalty shall be imposed on the officer or officers authorizing, permitting or tolerating the violation. Aliens found guilty of any offenses shall, after having served his sentence, be immediately deported and, in the case of a naturalized citizen, his certificate of naturalization shall be cancelled."55

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(b) The coconut levies were imposed pursuant to the laws enacted by the proper legislative authorities of the State. Indeed, the CCSF was collected under PD No. 276, issued by former President Ferdinand E. Marcos who was then exercising legislative powers.56

(c) They were clearly imposed for a public purpose. There is absolutely no question that they were collected to advance the government's avowed policy of protecting the coconut industry. This Court takes judicial notice of the fact that the coconut industry is one of the great economic pillars of our nation, and coconuts and their byproducts occupy a leading position among the country's export products; that it gives employment to thousands of Filipinos; that it is a great source of the state's wealth; and that it is one of the important sources of foreign exchange needed by our country and, thus, pivotal in the plans of a government committed to a policy of currency stability.

Taxation is done not merely to raise revenues to support the government, but also to provide means for the rehabilitation and the stabilization of a threatened industry, which is so affected with public interest as to be within the police power of the State, as held in Caltex Philippines v. COA57 and Osmeña v. Orbos.58

Even if the money is allocated for a special purpose and raised by special means, it is still public in character. In the case before us, the funds were even used to organize and finance State offices. In Cocofed v. PCGG,59 the Court observed that certain agencies or enterprises "were organized and financed with revenues derived from coconut levies imposed under a succession of laws of the late dictatorship x x x with deposed Ferdinand Marcos and his cronies as the suspected authors and chief beneficiaries of the resulting coconut industry monopoly."60The Court continued: "x x x. It cannot be denied that the coconut industry is one of the major industries supporting the national economy. It is, therefore, the State's concern to make it a strong and secure source not only of the livelihood of a significant segment of the population, but also of export earnings the sustained growth of which is one of the imperatives of economic stability. x x x."61

2. Coconut Funds Are Levied for the Benefit of the Coconut Industry and Its Farmers.

Just like the sugar levy funds, the coconut levy funds constitute state funds even though they may be held for a special public purpose.

In fact, Executive Order No. 481 dated May 1, 1998 specifically likens the coconut levy funds to the sugar levy funds, both being special public funds acquired through the taxing and police powers of the State. The sugar levy funds, which are strikingly similar to the coconut levies in their imposition and purpose, were declared public funds by this Court in Gaston v. Republic Planters Bank,62 from which we quote:

"The stabilization fees collected are in the nature of a tax which is within the power of the state to impose for the promotion of the sugar industry (Lutz vs. Araneta, 98 Phil. 148). They constitute sugar liens (Sec. 7[b], P.D. No. 388). The collections made accrue to a 'Special Fund,' a 'Development and Stabilization Fund,' almost identical to the 'Sugar Adjustment and Stabilization Fund' created under Section 6 of Commonwealth Act 567. The tax collected is not in a pure exercise of the taxing power. It is levied with a regulatory purpose, to provide means for the stabilization of the sugar industry. The levy

is primarily in the exercise of the police power of the State. (Lutz vs. Araneta, supra.)."63

The Court further explained:64

"The stabilization fees in question are levied by the State upon sugar millers, planters and producers for a special purpose – that of 'financing the growth and development of the sugar industry and all its components, stabilization of the domestic market including the foreign market.' The fact that the State has taken possession of moneys pursuant to law is sufficient to constitute them as state funds, even though they are held for a special purpose (Lawrence v. American Surety Co., 263 Mich 586. 294 ALR 535, cited in 42 Am. Jur., Sec. 2., p. 718). Having been levied for a special purpose, the revenues collected are to be treated as a special fund, to be, in the language of the statute, 'administered in trust' for the purpose intended. Once the purpose has been fulfilled or abandoned, the balance, if any, is to be transferred to the general funds of the Government. That is the essence of the trust intended (see 1987 Constitution, Art. VI, Sec. 29[3], lifted from the 1935 Constitution, Article VI, Sec. 23[1]. (Italics supplied)

"The character of the Stabilization Fund as a special fund is emphasized by the fact that the funds are deposited in the Philippine National Bank and not in the Philippine Treasury, moneys from which may be paid out only in pursuance of an appropriation made by law (1987 Constitution, Article VI, Sec. 29[1], 1973 Constitution, Article VIII, Sec. 18[1]).

"That the fees were collected from sugar producers, planters and millers, and that the funds were channeled to the purchase of shares of stock in respondent Bank do not convert the funds into a trust fund for their benefit nor make them the beneficial owners of the shares so purchased. It is but rational that the fees be collected from them since it is also they who are to be benefited from the expenditure of the funds derived from it. The investment in shares of respondent Bank is not alien to the purpose intended because of the Bank's character as a commodity bank for sugar conceived for the industry's growth and development. Furthermore, of note is the fact that one-half (1/2) or P0.50 per picul, of the amount levied under P.D. No. 388 is to be utilized for the 'payment of salaries and wages of personnel, fringe benefits and allowances of officers and employees of PHILSUCOM' thereby immediately negating the claim that the entire amount levied is in trust for sugar, producers, planters and millers.

"To rule in petitioners' favor would contravene the general principle that revenues derived from taxes cannot be used for purely private purposes or for the exclusive benefit of private persons. The Stabilization Fund is to be utilized for the benefit of the entire sugar industry, 'and all its components, stabilization of the domestic market including the foreign market,' the industry being of vital importance to the country's economy and to national interest."

In the same manner, this Court has also ruled that the oil stabilization funds were public in character and subject to audit by COA. It ruled in this wise:

"Hence, it seems clear that while the funds collected may be referred to as taxes, they are exacted in the exercise of the police power of the State.

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Moreover, that the OPSF is a special fund is plain from the special treatment given it by E.O. 137. It is segregated from the general fund; and while it is placed in what the law refers to as a 'trust liability account,' the fund nonetheless remains subject to the scrutiny and review of the COA. The Court is satisfied that these measures comply with the constitutional description of a 'special fund.' Indeed, the practice is not without precedent."65

In his Concurring Opinion in Kilosbayan v. Guingona,66 Justice Florentino P. Feliciano explained that the funds raised by the On-line Lottery System were also public in nature. In his words:

"x x x. In the case presently before the Court, the funds involved are clearly public in nature. The funds to be generated by the proposed lottery are to be raised from the population at large. Should the proposed operation be as successful as its proponents project, those funds will come from well-nigh every town and barrio of Luzon. The funds here involved are public in another very real sense: they will belong to the PCSO, a government owned or controlled corporation and an instrumentality of the government and are destined for utilization in social development projects which, at least in principle, are designed to benefit the general public. x x x. The interest of a private citizen in seeing to it that public funds, from whatever source they may have been derived, go only to the uses directed and permitted by law is as real and personal and substantial as the interest of a private taxpayer in seeing to it that tax monies are not intercepted on their way to the public treasury or otherwise diverted from uses prescribed or allowed by law. It is also pertinent to note that the more successful the government is in raising revenues by non-traditional methods such as PAGCOR operations and privatization measures, the lesser will be the pressure upon the traditional sources of public revenues, i.e., the pocket books of individual taxpayers and importers."67

Thus, the coconut levy funds – like the sugar levy and the oil stabilization funds, as well as the monies generated by the On-line Lottery System – are funds exacted by the State. Being enforced contributions, the are prima faciepublic funds.

3. Respondents Judicially Admit That the Levies Are Government Funds.

Equally important as the fact that the coconut levy funds were raised through the taxing and police powers of the State is respondents' effective judicial admission that these levies are government funds. As shown by the attachments to their pleadings,68 respondents concede that the Coconut Consumers Stabilization Fund (CCSF) and the Coconut Investment Development Fund "constitute government funds x x x for the benefit of coconut farmers."

"Collections on both levies constitute government funds. However, unlike other taxes that the Government levies and collects such as income tax, tariff and customs duties, etc., the collections on the CCSF and CIDF are, by express provision of the laws imposing them, for a definite purpose, not just for any governmental purpose. As stated above part of the collections on the CCSF levy should be spent for the benefit of the coconut farmers. And in respect of the collections on the CIDF levy, P.D. 582 mandatorily requires that the same should be spent exclusively for the establishment, operation and maintenance of a hybrid coconut seed garden and the distribution, for free, to the coconut farmers of the hybrid coconut seednuts produced from that seed garden.

"On the other hand, the laws which impose special levies on specific industries, for example on the mining industry, sugar industry, timber industry, etc., do not, by their terms, expressly require that the collections on those levies be spent exclusively for the benefit of the industry concerned. And if the enabling law thus so provide, the fact remains that the governmental agency entrusted with the duty of implementing the purpose for which the levy is imposed is vested with the discretionary power to determine when and how the collections should be appropriated."69

4. The COA Audit Shows the Public Nature of the Funds.

Under COA Office Order No. 86-9470 dated April 15, 1986,70 the COA reviewed the expenditure and use of the coconut levies allocated for the acquisition of the UCPB. The audit was aimed at ascertaining whether these were utilized for the purpose for which they had been intended.71 Under the 1987 Constitution, the powers of the COA are as follows:

"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 x x x."72

Because these funds have been subjected to COA audit, there can be no other conclusion than that are prima facie public in character.

5. The BIR Has Pronounced That the Coconut Levy Funds Are Taxes.

In response to a query posed by the administrator of the Philippine Coconut Authority regarding the character of the coconut levy funds, the Bureau of Internal Revenue has affirmed that these funds are public in character. It held as follows: "[T]he coconut levy is not a public trust fund for the benefit of the coconut farmers, but is in the nature of a tax and, therefore, x x x public funds that are subject to government administration and disposition."73

Furthermore, the executive branch treats the coconut levies as public funds. Thus, Executive Order No. 277, issued on September 24, 1995, directed the mode of treatment, utilization, administration and management of the coconut levy funds. It provided as follows:

'(a) The coconut levy funds, which include all income, interests, proceeds or profits derived therefrom, as well as all assets, properties and shares of stocks procured or obtained with the use of such funds, shall be treated, utilized, administered and managed as public funds consistent with the uses and purposes under the laws which constituted them and the development priorities of the government, including the government's coconut productivity, rehabilitation, research extension, farmers organizations, and market promotions programs, which are designed to advance the development of the coconut industry and the welfare of the coconut farmers."74 (Italics supplied)

Doctrinally, acts of the executive branch are prima facie valid and binding, unless declared unconstitutional or contrary to law.

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6. Laws Governing Coconut Levies Recognize Their Public Nature.

Finally and tellingly, the very laws governing the coconut levies recognize their public character. Thus, the thirdWhereas clause of PD No. 276 treats them as special funds for a specific public purpose. Furthermore, PD No. 711 transferred to the general funds of the State all existing special and fiduciary funds including the CCSF. On the other hand, PD No. 1234 specifically declared the CCSF as a special fund for a special purpose, which should be treated as a special account in the National Treasury.

Moreover, even President Marcos himself, as the sole legislative/executive authority during the martial law years, struck off the phrase which is a private fund of the coconut farmers from the original copy of Executive Order No. 504 dated May 31, 1978, and we quote:

"WHEREAS, by means of the Coconut Consumers Stabilization Fund ('CCSF'), which is the private fund of the coconut farmers (deleted), essential coconut-based products are made available to household consumers at socialized prices." (Emphasis supplied)

The phrase in bold face -- which is the private fund of the coconut farmers – was crossed out and duly initialed by its author, former, President Marcos. This deletion, clearly visible in "Attachment C" of petitioner's Memorandum,75 was a categorical legislative intent to regard the CCSF as public, not private, funds.

Having Been Acquired With Public Funds, UCPB Shares Belong, Prima Facie, to the Government

Having shown that the coconut levy funds are not only affected with public interest, but are in fact prima faciepublic funds, this Court believes that the government should be allowed to vote the questioned shares, because they belong to it as the prima facie beneficial and true owner.

As stated at the beginning, voting is an act of dominion that should be exercised by the share owner. One of the recognized rights of an owner is the right to vote at meetings of the corporation. The right to vote is classified as the right to control.76 Voting rights may be for the purpose of, among others, electing or removing directors, amending a charter, or making or amending by laws.77 Because the subject UCPB shares were acquired with government funds, the government becomes their prima facie beneficial and true owner.

Ownership includes the right to enjoy, dispose of, exclude and recover a thing without limitations other than those established by law or by the owner.78 Ownership has been aptly described as the most comprehensive of all real rights.79 And the right to vote shares is a mere incident of ownership. In the present case, the government has been shown to be the prima facie owner of the funds used to purchase the shares. Hence, it should be allowed the rights and privileges flowing from such fact.

And paraphrasing Cocofed v. PCGG, already cited earlier, the Republic should continue to vote those shares until and unless private respondents are able to demonstrate, in the main cases pending before the Sandiganbayan, that "they [the sequestered UCPB shares] have legitimately become private."

Procedural and Incidental Issues:

Grave Abuse of Discretion, Improper Arguments and Intervenors' Relief

Procedurally, respondents argue that petitioner has failed to demonstrate that the Sandiganbayan committed grave abuse of discretion, a demonstration required in every petition under Rule 65.80

We disagree. We hold that the Sandiganbayan gravely abused its discretion when it contravened the rulings of this Court in Baseco and Cojuangco-Roxas – thereby unlawfully, capriciously and arbitrarily depriving the government of its right to vote sequestered shares purchased with coconut levy funds which are prima faciepublic funds.

Indeed, grave abuse of discretion may arise when a lower court or tribunal violates or contravenes the Constitution, the law or existing jurisprudence. In one case,81 this Court ruled that the lower court's resolution was "tantamount to overruling a judicial pronouncement of the highest Court x x x and unmistakably a very grave abuse of discretion."82

The Public Character of Shares Is a Valid Issue

Private respondents also contend that the public nature of the coconut levy funds was not raised as an issue before the Sandiganbayan. Hence, it could not be taken up before this Court.

Again we disagree. By ruling that the two-tiered test should be applied in evaluating private respondents' claim of exercising voting rights over the sequestered shares, the Sandiganbayan effectively held that the subject assets were private in character. Thus, to meet this issue, the Office of the Solicitor General countered that the shares were not private in character, and that quite the contrary, they were and are public in nature because they were acquired with coco levy funds which are public in character. In short, the main issue of who may vote the shares cannot be determined without passing upon the question of the public/private character of the shares and the funds used to acquire them. The latter issue, although not specifically raised in the Court a quo, should still be resolved in order to fully adjudicate the main issue.

Indeed, this Court has "the authority to waive the lack of proper assignment of errors if the unassigned errors closely relate to errors properly pinpointed out or if the unassigned errors refer to matters upon which the determination of the questions raised by the errors properly assigned depend."83

Therefore, "where the issues already raised also rest on other issues not specifically presented as long as the latter issues bear relevance and close relation to the former and as long as they arise from matters on record, the Court has the authority to include them in its discussion of the controversy as well as to pass upon them."84

No Positive Relief For Intervenors

Intervenors anchor their interest in this case on an alleged right that they are trying to enforce in another Sandiganbayan case docketed as SB Case No. 0187.85 In that case,

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they seek the recovery of the subject UCPB shares from herein private respondents and the corporations controlled by them. Therefore, the rights sought to be protected and the reliefs prayed for by intervenors are still being litigated in the said case. The purported rights they are invoking are mere expectancies wholly dependent on the outcome of that case in the Sandiganbayan.

Clearly, we cannot rule on intervenors' alleged right to vote at this time and in this case. That right is dependent upon the Sandiganbayan's resolution of their action for the recovery of said sequestered shares. Given the patent fact that intervenors are not registered stockholders of UCPB as of the moment, their asserted rights cannot be ruled upon in the present proceedings. Hence, no positive relief can be given them now, except insofar as they join petitioner in barring private respondents from voting the subject shares.

Epilogue

In sum, we hold that the Sandiganbayan committed grave abuse of discretion in grossly contradicting and effectively reversing existing jurisprudence, and in depriving the government of its right to vote the sequestered UCPB shares which are prima facie public in character.

In making this ruling, we are in no way preempting the proceedings the Sandiganbayan may conduct or the final judgment it may promulgate in Civil Case Nos. 0033-A, 0033-B and 0033-F. Our determination here is merelyprima facie, and should not bar the anti-graft court from making a final ruling, after proper trial and hearing, on the issues and prayers in the said civil cases, particularly in reference to the ownership of the subject shares.

We also lay down the caveat that, in declaring the coco levy funds to be prima facie public in character, we are not ruling in any final manner on their classification – whether they are general or trust or special funds – since such classification is not at issue here. Suffice it to say that the public nature of the coco levy funds is decreed by the Court only for the purpose of determining the right to vote the shares, pending the final outcome of the said civil cases.

Neither are we resolving in the present case the question of whether the shares held by Respondent Cojuangco are, as he claims, the result of private enterprise. This factual matter should also be taken up in the final decision in the cited cases that are pending in the court a quo. Again suffice it to say that the only issue settled here is the right of PCGG to vote the sequestered shares, pending the final outcome of said cases.

This matter involving the coconut levy funds and the sequestered UCPB shares has been straddling the courts for about 15 years. What we are discussing in the present Petition, we stress, is just an incident of the main cases which are pending in the anti-graft court – the cases for the reconveyance, reversion and restitution to the State of these UCPB shares.

The resolution of the main cases has indeed been long overdue. Every effort, both by the parties and the Sandiganbayan, should be exerted to finally settle this controversy.

WHEREFORE, the Petition is hereby GRANTED and the assailed Order SET ASIDE. The PCGG shall continue voting the sequestered shares until Sandiganbayan Civil Case Nos.

0033-A, 0033-B and 0033-F are finally and completely resolved. Furthermore, the Sandiganbayan is ORDERED to decide with finality the aforesaid civil cases within a period of six (6) months from notice. It shall report to this Court on the progress of the said cases every three (3) months, on pain of contempt. The Petition in Intervention is DISMISSED inasmuch as the reliefs prayed for are not covered by the main issues in this case. No costs.

SO ORDERED.

Davide, Jr., Bellosillo, Melo, Puno, Vitug, Kapunan, Mendoza, Quisumbing, Pardo, Buena, Ynares-Santiago, De Leon, Jr., and Sandoval-Gutierrez, JJ., concur.

Footnotes

1 According to Section 1, Rule 7 of the 1997 Rules of Court, "[t]he title of the action indicates the names of the parties. They shall all be named in the original complaint or petition; x x x." Furthermore, Section 2, Rule 3 of the same Rules, states that "[e]very action must be prosecuted or defended in the name of the real party in interest." The said Rule defines a real party in interest as "the party who stands to be benefited or injured by the judgment in the-suit, or the party entitled to the avails of the suit." The Court however notes that the names of all the private respondents have never been specifically stated or identified. Often, they are merely referred to as the "one million coconut farmers," but no names have been listed here or in the Sandiganbayan pleadings submitted as annexes to the submissions in this case.

May 19, 1950

G.R. No. L-1721JUAN D. EVANGELISTA ET AL., plaintiffs-appellants, vs.RAFAEL SANTOS, defendant-appellee.

Antonio Gonzales for appellants.Benjamin H. Tirol for appellee.

REYES, J.:

This is an action by the minority stockholders of a corporation against its principal officer for damages resulting from his mismanagement of its affairs and misuse of its assets.

The complaint alleges that plaintiffs are minority stockholders of the Vitali Lumber Company, Inc., a Philippine corporation organized for the exploitation of a lumber concession in Zamboanga, Philippines; that defendant holds more than 50 per cent of the stocks of said corporation and also is and always has been the president, manager, and treasurer thereof; and that defendant, in such triple capacity, through fault,

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neglect, and abandonment allowed its lumber concession to lapse and its properties and assets, among them machineries, buildings, warehouses, trucks, etc., to disappear, thus causing the complete ruin of the corporation and total depreciation of its stocks. The complaint therefore prays for judgment requiring defendant: (1) to render an account of his administration of the corporate affairs and assets: (2) to pay plaintiffs the value of t heir respective participation in said assets on the basis of the value of the stocks held by each of them; and (3) to pay the costs of suit. Plaintiffs also ask for such other remedy as may be and equitable.

The complaint does not give plaintiffs' residence, but, but purposes of venue, alleges that defendant resides at 2112 Dewey Boulevard, corner Libertad Street, Pasay, province of Rizal. Having been served with summons at that place, defendant filed a motion for the dismissal of the complaint on the ground of improper venue and also on the ground that the complaint did not state a cause of action in favor of plaintiffs.

In support of the objection to the venue, the motion, which is under oath, states that defendant is a resident of Iloilo City and not of Pasay, and at the hearing of the motion defendant also presented further affidavit to the effect that while he has a house in Pasay, where members of his family who are studying in Manila live and where he himself is sojourning for the purpose of attending to his interests in Manila, yet he has permanent residence in the City of Iloilo where he is registered as a voter for election purposes and has been paying his residence certificate. Plaintiffs opposed the motion for dismissal but presented no counter proof and merely called attention to the Sheriff's return showing service of summons on defendant personally at his alleged residence at No. 2112 Dewey Boulevard, Pasay.

After hearing, the lower court rendered its order, granting the motion for dismissal upon the two grounds alleged by defendant, and reconsideration of this order having been denied, plaintiffs have appealed to this Court.

The appeal presents two questions. The first refers to venue and the second, to the right of the plaintiffs to bring this action for their benefit.

As to the first question, it is important to remember that the laying of the venue of an action is not left to plaintiff's caprice. The matter is regulated by the Rules of Court. And in actions like the present, which is one in personam, the regulation applicable is that contained in section 1 of Rule 5, which provides:

Civil actions in Courts of First Instance may be commenced and tried where the defendant or any of the defendant resides or may be found, or where the plaintiff or any of the plaintiffs resides, at the election of the plaintiff.

Objection to improper venue may be interposed at any time prior to the trial. (Moran's Comments on the Rules of Court, Vol. I, 2nd ed., p. 108.)

Believing that defendant resided in the province of Rizal, herein plaintiffs brought their action in the Court of First Instance of that province. But that belief proved erroneous, for the lower court found after hearing that defendant had his residence in Iloilo. The finding is based on defendant's sworn statement not rebutted by any proof to the contrary.

There is nothing to the contention that defendant's motion to dismiss necessarily presupposes a hypothetical admission of the allegations of the complaint, among them the averment that defendant is a resident of Rizal province, for the motion precisely denies that averment and alleges that his real residence is in Iloilo City. This, defendant had the right to do in objecting to the court's jurisdiction on the ground of improper venue.

Section 1 of Rule 5 may seem, at first blush, to authorize the laying of the venue in the province where the defendant "may be found." But this phrase has already been held to have a limited application. It is the same phrase used in section 377 of Act 190 from which section 1 of Rule 5 was taken, and as construed by this Court it applies only to cases where defendant has no residence in the Philippine Islands. This was the construction adopted in the case of Cohen vs . Benguet Commercial Co., Ltd., 34 Phil. 526, which was an action brought in Manila by a nonresident against a corporation which had its residence for legal purposes in Baguio but whose President was found in Manila and there served with summons. This Court there said:

Section 377 provides that actions of this character "may be brought in any province where the defendants or any necessary party defendant may reside or be found, or in any province where the plaintiff or one of the plaintiffs resides, at the election of the plaintiff." The plaintiff in this action has no residence in the Philippine Islands. Only one of the parties to the action resides here. There can be, therefore, no election by plaintiff as to the trial. It must be in the province where the defendant resides. The defendant resides, in the eye of the law, in Baguio. Was it "found" in the city of Manila under section 377, its president being in that city where the service of summons was made? We think not. The word "found" as used section 377 has a different meaning that belongs to it as used in section 394, which refers exclusively to the place where the summons may be served. As we have said a summons may be legally served on a defendant wherever he may be "found," i. e., wherever he may be, provided he be in the Philippine Islands; but the venue cannot be laid wherever the defendant may be "found." There is an element entering in section 377 which is not present in section 394, that is a residence. Residence of the plaintiff or defendant does not affect the place where a summons may be served; but residence is the vital thing when we deal with venue. The venue must be laid in the province where one of the parties resides. If the plaintiff is a nonresident the venue must laid in the province of the defendant's residence. The venue can be laid in the province where defendant is "found" only when defendant has no residence in the Philippine Islands. A defendant can not have a residence in one province and be "found" in another. As long as he has a residence in the Philippine Islands he can be "found," for the purposes of section 377, only in the province of his residence. In such case the words "residence" and "found" are synonymous. If he is a nonresident then the venue may laid in the province where he is "found" at the time venue the action is commenced or in the province of plaintiff's residence. This applies also to a domestic corporation.

While the service of the summons was good in either Baguio or Manila we are of the opinion that the objection of the defendant to the place of trial was proper in both cases and that the trial court should have held that the venue was improperly laid.

And elaborating on the point when the case came up for reconsideration, the Court further said:

The moving party contends that the venue was properly laid under section 377 in that was laid in the province where the defendant was found at the time summons was served on its president, he having been found and served with process in the city of

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Manila. for the purpose of the discussion we assumed in the main case, as the plaintiff claimed, that the defendant was in fact and in law found in the city of Manila; and proceeded to decide the cause upon the theory that, even if the defendant were found in the city of Manila, that did not justify, under the facts of the case, the laying of the venue in the city of Manila.

We do not believe that the moving party's objection that our construction deprives the word "found" of all significance and results, in effect, in eliminating it from the statue, is sound. We do not deprive it of all significance and effect and do not eliminate it from the statue. We give it the only effect which can be given it and still accord with the other provisions of the section which give defendant the right to have the venue laid in the province of his residence, the effect which it was intended by the legislature they should have. We held that the word "found" was applicable in certain cases, and in such cases gave it full significance and effect. We declared that it was applicable and effective in cases where the defendant is a nonresident. In such cases where the defendant is a nonresident. In such cases the venue may be laid wherever he may be found in the Philippine Islands at the time of the service of the process, but we also held that where he is a resident of the Philippine Islands the word "found" has no application and the venue must be laid in the province where he resides.

The construction which the moving party asks us to place on that provision of section 377 above quoted would result in the destruction of the privilege conferred by the section upon a resident defendant which requires the venue to be laid in the province where he resides. This is clear; for, if the venue may be laid in any province where the defendant, although a resident of some other province, any be found at the time process is served on him, then the provision that it shall be laid in the province where he resides is no value to him. If a defendant residing in the province of Rizal is helpless when the venue is laid in the province of Mindoro in an action in which the plaintiff is a nonresident or resides in Manila, what is the value of a residence in Rizal? If a defendant residing in Jolo is without remedy when a nonresident plaintiff or a plaintiff residing in Jolo lays the venue in Bontoc because the defendant happens to be found there, of what significance is a residence in Jolo? The phrases "where the defendant ... may reside" and "or be found" must be construed together and in such manner that both may be given effect. The construction asked for by the moving party would deprive the phrase "where the defendant ... may reside" of all significance, as the plaintiff could always elect to lay the venue in the province where the defendant was "found" and not where he resided; whereas the construction which we place upon these phrases permits both to have effect. We declare that, when the defendant is a resident of the Philippine Islands, the venue must be laid either in the province where the plaintiff resides or in the province where the defendant resides, and in no other province. Where, however, the defendant is a nonresident the venue may be laid wherever defendant may be found in the Philippine Islands. This construction gives both phrases their proper and legitimate effect without doing violence to the spirit which informs all laws relating to venue and which insists always that the action shall tried in the place where the greater convenience of the parties will be served. Ordinarily a defendant's witness are found where the defendant resides; and plaintiff's witnesses are generally found where he resides or where the defendant resides. It is, therefore, generally desirable to have the action tried where on of the resides. Where the plaintiff is a nonresident and the contract upon which suit is brought was made in the Philippine Islands it may safely be asserted that the convenience of the defendant would be best served by a trial in the province where he resides.

The fact that defendant was sojourning in Pasay t the time he was served with summons does not make him a resident of that place for purposes of venue. Residence is "the permanent home, the place to which, whenever absent for business or pleasure,

one intends to return, ..." (67 C.J., pp. 123-124.) A man can have but one domicile at a time (Alcantara vs . Secretary of Interior, 61 Phil., 459 ), and residence is anonymous with domicile under section 1 of Rule 5 (Moran's Comments, supra, p. 104).

In view of the foregoing, we hold that the objection to the venue was correctly sustained by the lower court.

As to the second question, the complaint shows that the action is for damages resulting from mismanagement of the affairs and assets of the corporation by its principal officer, it being alleged that defendant's maladministration has brought about the ruin of the corporation and the consequent loss of value of its stocks. The injury complained of is thus primarily to the corporation, so that the suit for the damages claimed should be by the corporation rather than by the stockholders (3 Fletcher, Cyclopedia of Corporation pp. 977-980). The stockholders may not directly claim those damages for themselves for that would result in the appropriation by, and the distribution among them of part of the corporate assets before the dissolution of the corporation and the liquidation of its debts and liabilities, something which cannot be legally done in view of section 16 of the Corporation Law, which provides:

No shall corporation shall make or declare any stock or bond dividend or any dividend whatsoever from the profits arising from its business, or divide or distribute its capital stock or property other than actual profits among its members or stockholders until after the payment of its debts and the termination of its existence by limitation or lawful dissolution.

But while it is to the corporation that the action should pertain in cases of this nature, however, if the officers of the corporation, who are the ones called upon to protect their rights, refuse to sue, or where a demand upon them to file the necessary suit would be futile because they are the very ones to be sued or because they hold the controlling interest in the corporation, then in that case any one of the stockholders is allowed to bring suit (3 Fletcher's Cyclopedia of Corporations, pp. 977-980). But in that case it is the corporation itself and not the plaintiff stockholder that is the real property in interest, so that such damages as may be recovered shall pertain to the corporation (Pascual vs . Del Saz Orosco, 19 Phil. 82, 85 ). In other words, it is a derivative suit brought by a stockholder as the nominal party plaintiff for the benefit of the corporation, which is the real property in interest (13 Fletcher, Cyclopedia of Corporations, p. 295).

In the present case, the plaintiff stockholders have brought the action not for the benefit of the corporation but for their own benefit, since they ask that the defendant make good the losses occasioned by his mismanagement and pay to them the value of their respective participation in the corporate assets on the basis of their respective holdings. Clearly, this cannot be done until all corporate debts, if there be any, are paid and the existence of the corporation terminated by the limitation of its charter or by lawful dissolution in view of the provisions of section 16 of the Corporation Law.

It results that plaintiff's complaint shows no cause of action in their favor so that the lower court did not err in dismissing the complaint on that ground.

While plaintiffs ask for remedy to which they are not entitled unless the requirement of section 16 of the Corporation Law be first complied with, we note that the action stated in their complaint is susceptible of being converted into a derivative suit for the benefit of the corporation by a mere change in the prayer. Such amendment, however, is not

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possible now, since the complaint has been filed in the wrong court, so that the same last to be dismissed.

The order appealed from is therefore affirmed, but without prejudice to the filing of the proper action in which the venue shall be laid in the proper province. Appellant's shall pay costs. So ordered.

Moran, C.J., Ozaeta, Pablo, Bengzon, Tuason, and Montemayor, JJ., concur.

FRANCIS CHUA, petitioner, vs. HON. COURT OF APPEALS and LYDIA C. HAO, respondents.

D E C I S I O N

QUISUMBING, J.:

Petitioner assails the Decision,[1] dated June 14, 2001, of the Court of Appeals in CA-G.R. SP No. 57070, affirming the Order, dated October 5, 1999, of the Regional Trial Court (RTC) of Manila, Branch 19. The RTC reversed the Order, dated April 26, 1999, of the Metropolitan Trial Court (MeTC) of Manila, Branch 22. Also challenged by herein petitioner is the CA Resolution,[2] dated November 20, 2001, denying his Motion for Reconsideration.

The facts, as culled from the records, are as follows:

On February 28, 1996, private respondent Lydia Hao, treasurer of Siena Realty Corporation, filed a complaint-affidavit with the City Prosecutor of Manila charging Francis Chua and his wife, Elsa Chua, of four counts of falsification of public documents pursuant to Article 172[3] in relation to Article 171[4] of the Revised Penal Code. The charge reads:

That on or about May 13, 1994, in the City of Manila, Philippines, the said accused, being then a private individual, did then and there willfully, unlawfully and feloniously commit acts of falsification upon a public document, to wit: the said accused prepared, certified, and falsified the Minutes of the Annual Stockholders meeting of the Board of Directors of the Siena Realty Corporation, duly notarized before a Notary Public, Atty. Juanito G. Garcia and entered in his Notarial Registry as Doc No. 109, Page 22, Book No. IV and Series of 1994, and therefore, a public document, by making or causing it to appear in said Minutes of the Annual Stockholders Meeting that one LYDIA HAO CHUA was present and has participated in said proceedings, when in truth and in fact, as the said accused fully well knew that said Lydia C. Hao was never present during the Annual Stockholders Meeting held on April 30, 1994 and neither has participated in the proceedings thereof to the prejudice of public interest and in violation of public faith and destruction of truth as therein proclaimed.

CONTRARY TO LAW.[5]

Thereafter, the City Prosecutor filed the Information docketed as Criminal Case No. 285721[6] for falsification of public document, before the Metropolitan Trial Court (MeTC) of Manila, Branch 22, against Francis Chua but dismissed the accusation against Elsa Chua.

Herein petitioner, Francis Chua, was arraigned and trial ensued thereafter.

During the trial in the MeTC, private prosecutors Atty. Evelyn Sua-Kho and Atty. Ariel Bruno Rivera appeared as private prosecutors and presented Hao as their first witness.

After Hao’s testimony, Chua moved to exclude complainant’s counsels as private prosecutors in the case on the ground that Hao failed to allege and prove any civil liability in the case.

In an Order, dated April 26, 1999, the MeTC granted Chua’s motion and ordered the complainant’s counsels to be excluded from actively prosecuting Criminal Case No. 285721. Hao moved for reconsideration but it was denied.

Hence, Hao filed a petition for certiorari docketed as SCA No. 99-94846,[7] entitled Lydia C. Hao, in her own behalf and for the benefit of Siena Realty Corporation v. Francis Chua, and the Honorable Hipolito dela Vega, Presiding Judge, Branch 22, Metropolitan Trial Court of Manila, before the Regional Trial Court (RTC) of Manila, Branch 19.

The RTC gave due course to the petition and on October 5, 1999, the RTC in an order reversed the MeTC Order. The dispositive portion reads:

WHEREFORE, the petition is GRANTED. The respondent Court is ordered to allow the intervention of the private prosecutors in behalf of petitioner Lydia C. Hao in the prosecution of the civil aspect of Crim. Case No. 285721, before Br. 22 [MeTC], Manila, allowing Attys. Evelyn Sua-Kho and Ariel Bruno Rivera to actively participate in the proceedings.

SO ORDERED.[8]

Chua moved for reconsideration which was denied.

Dissatisfied, Chua filed before the Court of Appeals a petition for certiorari. The petition alleged that the lower court acted with grave abuse of discretion in: (1) refusing to consider material facts; (2) allowing Siena Realty Corporation to be impleaded as co-petitioner in SCA No. 99-94846 although it was not a party to the criminal complaint in Criminal Case No. 285721; and (3) effectively amending the information against the accused in violation of his constitutional rights.

On June 14, 2001, the appellate court promulgated its assailed Decision denying the petition, thus:

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WHEREFORE, premises considered, the petition is hereby DENIED DUE COURSE and DISMISSED. The Order, dated October 5, 1999 as well as the Order, dated December 3, 1999, are hereby AFFIRMED in toto.

SO ORDERED.[9]

Petitioner had argued before the Court of Appeals that respondent had no authority whatsoever to bring a suit in behalf of the Corporation since there was no Board Resolution authorizing her to file the suit.

For her part, respondent Hao claimed that the suit was brought under the concept of a derivative suit. Respondent maintained that when the directors or trustees refused to file a suit even when there was a demand from stockholders, a derivative suit was allowed.

The Court of Appeals held that the action was indeed a derivative suit, for it alleged that petitioner falsified documents pertaining to projects of the corporation and made it appear that the petitioner was a stockholder and a director of the corporation. According to the appellate court, the corporation was a necessary party to the petition filed with the RTC and even if private respondent filed the criminal case, her act should not divest the Corporation of its right to be a party and present its own claim for damages.

Petitioner moved for reconsideration but it was denied in a Resolution dated November 20, 2001.

Hence, this petition alleging that the Court of Appeals committed reversible errors:

I. … IN RULING THAT LYDIA HAO’S FILING OF CRIMINAL CASE NO. 285721 WAS IN THE NATURE OF A DERIVATIVE SUIT

II. … IN UPHOLDING THE RULING OF JUDGE DAGUNA THAT SIENA REALTY WAS A PROPER PETITIONER IN SCA NO. [99-94846]

III. … IN UPHOLDING JUDGE DAGUNA’S DECISION ALLOWING LYDIA HAO’S COUNSEL TO CONTINUE AS PRIVATE PROSECUTORS IN CRIMINAL CASE NO. 285721

IV. … IN [OMITTING] TO CONSIDER AND RULE UPON THE ISSUE THAT JUDGE DAGUNA ACTED IN GRAVE ABUSE OF DISCRETION IN NOT DISMISSING THE PETITION IN SCA NO. [99-94846] FOR BEING A SHAM PLEADING.[10]

The pertinent issues in this petition are the following: (1) Is the criminal complaint in the nature of a derivative suit? (2) Is Siena Realty Corporation a proper petitioner in SCA No. 99-94846? and (3) Should private prosecutors be allowed to actively participate in the trial of Criminal Case No. 285721.

On the first issue, petitioner claims that the Court of Appeals erred when (1) it sustained the lower court in giving due course to respondent’s petition in SCA No. 99-94846 despite the fact that the Corporation was not the private complainant in Criminal

Case No. 285721, and (2) when it ruled that Criminal Case No. 285721 was in the nature of a derivative suit.

Petitioner avers that a derivative suit is by nature peculiar only to intra-corporate proceedings and cannot be made part of a criminal action. He cites the case of Western Institute of Technology, Inc. v. Salas,[11] where the court said that an appeal on the civil aspect of a criminal case cannot be treated as a derivative suit. Petitioner asserts that in this case, the civil aspect of a criminal case cannot be treated as a derivative suit, considering that Siena Realty Corporation was not the private complainant.

Petitioner misapprehends our ruling in Western Institute. In that case, we said:

Here, however, the case is not a derivative suit but is merely an appeal on the civil aspect of Criminal Cases Nos. 37097 and 37098 filed with the RTC of Iloilo for estafa and falsification of public document. Among the basic requirements for a derivative suit to prosper is that the minority shareholder who is suing for and on behalf of the corporation must allege in his complaint before the proper forum that he is suing on a derivative cause of action on behalf of the corporation and all other shareholders similarly situated who wish to join. . . .This was not complied with by the petitioners either in their complaint before the court a quo nor in the instant petition which, in part, merely states that “this is a petition for review on certiorari on pure questions of law to set aside a portion of the RTC decision in Criminal Cases Nos. 37097 and 37098” since the trial court’s judgment of acquittal failed to impose civil liability against the private respondents. By no amount of equity considerations, if at all deserved, can a mere appeal on the civil aspect of a criminal case be treated as a derivative suit.[12]

Moreover, in Western Institute, we said that a mere appeal in the civil aspect cannot be treated as a derivative suit because the appeal lacked the basic requirement that it must be alleged in the complaint that the shareholder is suing on a derivative cause of action for and in behalf of the corporation and other shareholders who wish to join.

Under Section 36[13] of the Corporation Code, read in relation to Section 23,[14] where a corporation is an injured party, its power to sue is lodged with its board of directors or trustees.[15] An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds stocks in order to protect or vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are the ones to be sued, or hold the control of the corporation. In such actions, the suing stockholder is regarded as a nominal party, with the corporation as the real party in interest.[16]

A derivative action is a suit by a shareholder to enforce a corporate cause of action. The corporation is a necessary party to the suit. And the relief which is granted is a judgment against a third person in favor of the corporation. Similarly, if a corporation has a defense to an action against it and is not asserting it, a stockholder may intervene and defend on behalf of the corporation.[17]

Under the Revised Penal Code, every person criminally liable for a felony is also civilly liable.[18] When a criminal action is instituted, the civil action for the recovery of civil liability arising from the offense charged shall be deemed instituted with the criminal action, unless the offended party waives the civil action, reserves the right to institute it separately or institutes the civil action prior to the criminal action.[19]












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In Criminal Case No. 285721, the complaint was instituted by respondent against petitioner for falsifying corporate documents whose subject concerns corporate projects of Siena Realty Corporation. Clearly, Siena Realty Corporation is an offended party. Hence, Siena Realty Corporation has a cause of action. And the civil case for the corporate cause of action is deemed instituted in the criminal action.

However, the board of directors of the corporation in this case did not institute the action against petitioner. Private respondent was the one who instituted the action. Private respondent asserts that she filed a derivative suit in behalf of the corporation. This assertion is inaccurate. Not every suit filed in behalf of the corporation is a derivative suit. For a derivative suit to prosper, it is required that the minority stockholder suing for and on behalf of the corporation must allege in his complaint that he is suing on a derivative cause of action on behalf of the corporation and all other stockholders similarly situated who may wish to join him in the suit. [20] It is a condition sine qua non that the corporation be impleaded as a party because not only is the corporation an indispensable party, but it is also the present rule that it must be served with process. The judgment must be made binding upon the corporation in order that the corporation may get the benefit of the suit and may not bring subsequent suit against the same defendants for the same cause of action. In other words, the corporation must be joined as party because it is its cause of action that is being litigated and because judgment must be a res adjudicata against it.[21]

In the criminal complaint filed by herein respondent, nowhere is it stated that she is filing the same in behalf and for the benefit of the corporation. Thus, the criminal complaint including the civil aspect thereof could not be deemed in the nature of a derivative suit.

We turn now to the second issue, is the corporation a proper party in the petition for certiorari under Rule 65 before the RTC? Note that the case was titled “Lydia C. Hao, in her own behalf and for the benefit of Siena Realty Corporation v. Francis Chua, and the Honorable Hipolito dela Vega, Presiding Judge, Branch 22, Metropolitan Trial Court of Manila.” Petitioner before us now claims that the corporation is not a private complainant in Criminal Case No. 285721, and thus cannot be included as appellant in SCA No. 99-94846.

Petitioner invokes the case of Ciudad Real & Dev’t. Corporation v. Court of Appeals.[22] In Ciudad Real, it was ruled that the Court of Appeals committed grave abuse of discretion when it upheld the standing of Magdiwang Realty Corporation as a party to the petition for certiorari, even though it was not a party-in-interest in the civil case before the lower court.

In the present case, respondent claims that the complaint was filed by her not only in her personal capacity, but likewise for the benefit of the corporation. Additionally, she avers that she has exhausted all remedies available to her before she instituted the case, not only to claim damages for herself but also to recover the damages caused to the company.

Under Rule 65 of the Rules of Civil Procedure,[23] when a trial court commits a grave abuse of discretion amounting to lack or excess of jurisdiction, the person aggrieved can file a special civil action for certiorari. The aggrieved parties in such a case are the State and the private offended party or complainant.[24]

In a string of cases, we consistently ruled that only a party-in-interest or those aggrieved may file certiorari cases. It is settled that the offended parties in criminal cases have sufficient interest and personality as “person(s) aggrieved” to file special civil action of prohibition and certiorari.[25]

In Ciudad Real, cited by petitioner, we held that the appellate court committed grave abuse of discretion when it sanctioned the standing of a corporation to join said petition for certiorari, despite the finality of the trial court’s denial of its Motion for Intervention and the subsequent Motion to Substitute and/or Join as Party/Plaintiff.

Note, however, that in Pastor, Jr. v. Court of Appeals[26] we held that if aggrieved, even a non-party may institute a petition for certiorari. In that case, petitioner was the holder in her own right of three mining claims and could file a petition for certiorari, the fastest and most feasible remedy since she could not intervene in the probate of her father-in-law’s estate.[27]

In the instant case, we find that the recourse of the complainant to the respondent Court of Appeals was proper. The petition was brought in her own name and in behalf of the Corporation. Although, the corporation was not a complainant in the criminal action, the subject of the falsification was the corporation’s project and the falsified documents were corporate documents. Therefore, the corporation is a proper party in the petition for certiorari because the proceedings in the criminal case directly and adversely affected the corporation.

We turn now to the third issue. Did the Court of Appeals and the lower court err in allowing private prosecutors to actively participate in the trial of Criminal Case No. 285721?

Petitioner cites the case of Tan, Jr. v. Gallardo,[28] holding that where from the nature of the offense or where the law defining and punishing the offense charged does not provide for an indemnity, the offended party may not intervene in the prosecution of the offense.

Petitioner’s contention lacks merit. Generally, the basis of civil liability arising from crime is the fundamental postulate that every man criminally liable is also civilly liable. When a person commits a crime he offends two entities namely (1) the society in which he lives in or the political entity called the State whose law he has violated; and (2) the individual member of the society whose person, right, honor, chastity or property has been actually or directly injured or damaged by the same punishable act or omission. An act or omission is felonious because it is punishable by law, it gives rise to civil liability not so much because it is a crime but because it caused damage to another. Additionally, what gives rise to the civil liability is really the obligation and the moral duty of everyone to repair or make whole the damage caused to another by reason of his own act or omission, whether done intentionally or negligently. The indemnity which a person is sentenced to pay forms an integral part of the penalty imposed by law for the commission of the crime.[29] The civil action involves the civil liability arising from the offense charged which includes restitution, reparation of the damage caused, and indemnification for consequential damages.[30]

Under the Rules, where the civil action for recovery of civil liability is instituted in the criminal action pursuant to Rule 111, the offended party may intervene by counsel in the prosecution of the offense.[31]Rule 111(a) of the Rules of Criminal Procedure provides that, “[w]hen a criminal action is instituted, the civil action arising from the













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offense charged shall be deemed instituted with the criminal action unless the offended party waives the civil action, reserves the right to institute it separately, or institutes the civil action prior to the criminal action.”

Private respondent did not waive the civil action, nor did she reserve the right to institute it separately, nor institute the civil action for damages arising from the offense charged. Thus, we find that the private prosecutors can intervene in the trial of the criminal action.

Petitioner avers, however, that respondent’s testimony in the inferior court did not establish nor prove any damages personally sustained by her as a result of petitioner’s alleged acts of falsification. Petitioner adds that since no personal damages were proven therein, then the participation of her counsel as private prosecutors, who were supposed to pursue the civil aspect of a criminal case, is not necessary and is without basis.

When the civil action is instituted with the criminal action, evidence should be taken of the damages claimed and the court should determine who are the persons entitled to such indemnity. The civil liability arising from the crime may be determined in the criminal proceedings if the offended party does not waive to have it adjudged or does not reserve the right to institute a separate civil action against the defendant. Accordingly, if there is no waiver or reservation of civil liability, evidence should be allowed to establish the extent of injuries suffered.[32]

In the case before us, there was neither a waiver nor a reservation made; nor did the offended party institute a separate civil action. It follows that evidence should be allowed in the criminal proceedings to establish the civil liability arising from the offense committed, and the private offended party has the right to intervene through the private prosecutors.

WHEREFORE, the instant petition is DENIED. The Decision, dated June 14, 2001, and the Resolution, dated November 20, 2001, of the Court of Appeals in CA-G.R. SP No. 57070, affirming the Order, dated October 5, 1999, of the Regional Trial Court (RTC) of Manila, Branch 19, are AFFIRMED. Accordingly, the private prosecutors are hereby allowed to intervene in behalf of private respondent Lydia Hao in the prosecution of the civil aspect of Criminal Case No. 285721 before Branch 22, of Metropolitan Trial Court (MeTC) of Manila. Costs against petitioner.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ., concur.

[G.R. No. 152392. May 26, 2005]

EXPERTRAVEL & TOURS, INC., petitioner, vs. COURT OF APPEALS and KOREAN AIRLINES, respondents.

D E C I S I O N

CALLEJO, SR., J.:

Before us is a petition for review on certiorari of the Decision[1] of the Court of Appeals (CA) in CA-G.R. SP No. 61000 dismissing the petition for certiorari and mandamus filed by Expertravel and Tours, Inc. (ETI).

The Antecedents

Korean Airlines (KAL) is a corporation established and registered in the Republic of South Korea and licensed to do business in the Philippines. Its general manager in the Philippines is Suk Kyoo Kim, while its appointed counsel was Atty. Mario Aguinaldo and his law firm.

On September 6, 1999, KAL, through Atty. Aguinaldo, filed a Complaint [2] against ETI with the Regional Trial Court (RTC) of Manila, for the collection of the principal amount of P260,150.00, plus attorney’s fees and exemplary damages. The verification and certification against forum shopping was signed by Atty. Aguinaldo, who indicated therein that he was the resident agent and legal counsel of KAL and had caused the preparation of the complaint.

ETI filed a motion to dismiss the complaint on the ground that Atty. Aguinaldo was not authorized to execute the verification and certificate of non-forum shopping as required by Section 5, Rule 7 of the Rules of Court. KAL opposed the motion, contending that Atty. Aguinaldo was its resident agent and was registered as such with the Securities and Exchange Commission (SEC) as required by the Corporation Code of the Philippines. It was further alleged that Atty. Aguinaldo was also the corporate secretary of KAL. Appended to the said opposition was the identification card of Atty. Aguinaldo, showing that he was the lawyer of KAL.

During the hearing of January 28, 2000, Atty. Aguinaldo claimed that he had been authorized to file the complaint through a resolution of the KAL Board of Directors approved during a special meeting held on June 25, 1999. Upon his motion, KAL was given a period of 10 days within which to submit a copy of the said resolution. The trial court granted the motion. Atty. Aguinaldo subsequently filed other similar motions, which the trial court granted.

Finally, KAL submitted on March 6, 2000 an Affidavit[3] of even date, executed by its general manager Suk Kyoo Kim, alleging that the board of directors conducted a special teleconference on June 25, 1999, which he and Atty. Aguinaldo attended. It was also averred that in that same teleconference, the board of directors approved a resolution authorizing Atty. Aguinaldo to execute the certificate of non-forum shopping and to file the complaint. Suk Kyoo Kim also alleged, however, that the corporation had no written copy of the aforesaid resolution.

On April 12, 2000, the trial court issued an Order[4] denying the motion to dismiss, giving credence to the claims of Atty. Aguinaldo and Suk Kyoo Kim that the KAL Board of Directors indeed conducted a teleconference on June 25, 1999, during which it approved a resolution as quoted in the submitted affidavit.

ETI filed a motion for the reconsideration of the Order, contending that it was inappropriate for the court to take judicial notice of the said teleconference without any prior hearing. The trial court denied the motion in its Order[5] dated August 8, 2000.

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ETI then filed a petition for certiorari and mandamus, assailing the orders of the RTC. In its comment on the petition, KAL appended a certificate signed by Atty. Aguinaldo dated January 10, 2000, worded as follows:

SECRETARY’S/RESIDENT AGENT’S CERTIFICATE

KNOW ALL MEN BY THESE PRESENTS:

I, Mario A. Aguinaldo, of legal age, Filipino, and duly elected and appointed Corporate Secretary and Resident Agent of KOREAN AIRLINES, a foreign corporation duly organized and existing under and by virtue of the laws of the Republic of Korea and also duly registered and authorized to do business in the Philippines, with office address at Ground Floor, LPL Plaza Building, 124 Alfaro St., Salcedo Village, Makati City, HEREBY CERTIFY that during a special meeting of the Board of Directors of the Corporation held on June 25, 1999 at which a quorum was present, the said Board unanimously passed, voted upon and approved the following resolution which is now in full force and effect, to wit:

RESOLVED, that Mario A. Aguinaldo and his law firm M.A. Aguinaldo & Associates or any of its lawyers are hereby appointed and authorized to take with whatever legal action necessary to effect the collection of the unpaid account of Expert Travel & Tours. They are hereby specifically authorized to prosecute, litigate, defend, sign and execute any document or paper necessary to the filing and prosecution of said claim in Court, attend the Pre-Trial Proceedings and enter into a compromise agreement relative to the above-mentioned claim.

IN WITNESS WHEREOF, I have hereunto affixed my signature this 10 th day of January, 1999, in the City of Manila, Philippines.

(Sgd.)

MARIO A. AGUINALDO

Resident Agent

SUBSCRIBED AND SWORN to before me this 10th day of January, 1999, Atty. Mario A. Aguinaldo exhibiting to me his Community Tax Certificate No. 14914545, issued on January 7, 2000 at Manila, Philippines.

(Sgd.)

Doc. No. 119; ATTY. HENRY D. ADASA

Page No. 25; Notary Public

Book No. XXIV Until December 31, 2000

Series of 2000. PTR #889583/MLA 1/3/2000[6]

On December 18, 2001, the CA rendered judgment dismissing the petition, ruling that the verification and certificate of non-forum shopping executed by Atty. Aguinaldo was sufficient compliance with the Rules of Court. According to the appellate court, Atty. Aguinaldo had been duly authorized by the board resolution approved on June 25, 1999, and was the resident agent of KAL. As such, the RTC could not be faulted for taking judicial notice of the said teleconference of the KAL Board of Directors.

ETI filed a motion for reconsideration of the said decision, which the CA denied. Thus, ETI, now the petitioner, comes to the Court by way of petition for review on certiorari and raises the following issue:

DID PUBLIC RESPONDENT COURT OF APPEALS DEPART FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS WHEN IT RENDERED ITS QUESTIONED DECISION AND WHEN IT ISSUED ITS QUESTIONED RESOLUTION, ANNEXES A AND B OF THE INSTANT PETITION?[7]

The petitioner asserts that compliance with Section 5, Rule 7, of the Rules of Court can be determined only from the contents of the complaint and not by documents or pleadings outside thereof. Hence, the trial court committed grave abuse of discretion amounting to excess of jurisdiction, and the CA erred in considering the affidavit of the respondent’s general manager, as well as the Secretary’s/Resident Agent’s Certification and the resolution of the board of directors contained therein, as proof of compliance with the requirements of Section 5, Rule 7 of the Rules of Court. The petitioner also maintains that the RTC cannot take judicial notice of the said teleconference without prior hearing, nor any motion therefor. The petitioner reiterates its submission that the teleconference and the resolution adverted to by the respondent was a mere fabrication.

The respondent, for its part, avers that the issue of whether modern technology is used in the field of business is a factual issue; hence, cannot be raised in a petition for review on certiorari under Rule 45 of the Rules of Court. On the merits of the petition, it insists that Atty. Aguinaldo, as the resident agent and corporate secretary, is authorized to sign and execute the certificate of non-forum shopping required by Section 5, Rule 7 of the Rules of Court, on top of the board resolution approved during the teleconference of June 25, 1999. The respondent insists that “technological advances in this time and age are as commonplace as daybreak.” Hence, the courts may take judicial notice that the Philippine Long Distance Telephone Company, Inc. had provided a record of corporate conferences and meetings through FiberNet using fiber-optic transmission technology, and that such technology facilitates voice and image transmission with ease; this makes constant communication between a foreign-based office and its Philippine-based branches faster and easier, allowing for cost-cutting in terms of travel concerns. It points out that even the E-Commerce Law has recognized this modern technology. The respondent posits that the courts are aware of this development in technology; hence, may take judicial notice thereof without need of hearings. Even if such hearing is required, the requirement is nevertheless satisfied if a party is allowed to file pleadings by way of comment or opposition thereto.

In its reply, the petitioner pointed out that there are no rulings on the matter of teleconferencing as a means of conducting meetings of board of directors for purposes of passing a resolution; until and after teleconferencing is recognized as a legitimate means of gathering a quorum of board of directors, such cannot be taken judicial notice of by the court. It asserts that safeguards must first be set up to prevent any mischief on the public or to protect the general public from any possible fraud. It further proposes possible amendments to the Corporation Code to give recognition to such



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manner of board meetings to transact business for the corporation, or other related corporate matters; until then, the petitioner asserts, teleconferencing cannot be the subject of judicial notice.

The petitioner further avers that the supposed holding of a special meeting on June 25, 1999 through teleconferencing where Atty. Aguinaldo was supposedly given such an authority is a farce, considering that there was no mention of where it was held, whether in this country or elsewhere. It insists that the Corporation Code requires board resolutions of corporations to be submitted to the SEC. Even assuming that there was such a teleconference, it would be against the provisions of the Corporation Code not to have any record thereof.

The petitioner insists that the teleconference and resolution adverted to by the respondent in its pleadings were mere fabrications foisted by therespondent and its counsel on the RTC, the CA and this Court.

The petition is meritorious.

Section 5, Rule 7 of the Rules of Court provides:

SEC. 5. Certification against forum shopping.— The plaintiff or principal party shall certify under oath in the complaint or other initiatory pleading asserting a claim for relief, or in a sworn certification annexed thereto and simultaneously filed therewith: (a) that he has not theretofore commenced any action or filed any claim involving the same issues in any court, tribunal or quasi-judicial agency and, to the best of his knowledge, no such other action or claim is pending therein; (b) if there is such other pending action or claim, a complete statement of the present status thereof; and (c) if he should thereafter learn that the same or similar action or claim has been filed or is pending, he shall report that fact within five (5) days therefrom to the court wherein his aforesaid complaint or initiatory pleading has been filed.

Failure to comply with the foregoing requirements shall not be curable by mere amendment of the complaint or other initiatory pleading but shall be cause for the dismissal of the case without prejudice, unless otherwise provided, upon motion and after hearing. The submission of a false certification or non-compliance with any of the undertakings therein shall constitute indirect contempt of court, without prejudice to the corresponding administrative and criminal actions. If the acts of the party or his counsel clearly constitute willful and deliberate forum shopping, the same shall be ground for summary dismissal with prejudice and shall constitute direct contempt, as well as a cause for administrative sanctions.

It is settled that the requirement to file a certificate of non-forum shopping is mandatory[8] and that the failure to comply with this requirement cannot be excused. The certification is a peculiar and personal responsibility of the party, an assurance given to the court or other tribunal that there are no other pending cases involving basically the same parties, issues and causes of action. Hence, the certification must be accomplished by the party himself because he has actual knowledge of whether or not he has initiated similar actions or proceedings in different courts or tribunals. Even his counsel may be unaware of such facts. [9] Hence, the requisite certification executed by the plaintiff’s counsel will not suffice.[10]

In a case where the plaintiff is a private corporation, the certification may be signed, for and on behalf of the said corporation, by a specifically authorized person, including its retained counsel, who has personal knowledge of the facts required to be established by the documents. The reason was explained by the Court in National Steel Corporation v. Court of Appeals,[11] as follows:

Unlike natural persons, corporations may perform physical actions only through properly delegated individuals; namely, its officers and/or agents.

…

The corporation, such as the petitioner, has no powers except those expressly conferred on it by the Corporation Code and those that are implied by or are incidental to its existence. In turn, a corporation exercises said powers through its board of directors and/or its duly-authorized officers and agents. Physical acts, like the signing of documents, can be performed only by natural persons duly-authorized for the purpose by corporate by-laws or by specific act of the board of directors. “All acts within the powers of a corporation may be performed by agents of its selection; and except so far as limitations or restrictions which may be imposed by special charter, by-law, or statutory provisions, the same general principles of law which govern the relation of agency for a natural person govern the officer or agent of a corporation, of whatever status or rank, in respect to his power to act for the corporation; and agents once appointed, or members acting in their stead, are subject to the same rules, liabilities and incapacities as are agents of individuals and private persons.”

…

… For who else knows of the circumstances required in the Certificate but its own retained counsel. Its regular officers, like its board chairman and president, may not even know the details required therein.

Indeed, the certificate of non-forum shopping may be incorporated in the complaint or appended thereto as an integral part of the complaint. The rule is that compliance with the rule after the filing of the complaint, or the dismissal of a complaint based on its non-compliance with the rule, is impermissible. However, in exceptional circumstances, the court may allow subsequent compliance with the rule. [12] If the authority of a party’s counsel to execute a certificate of non-forum shopping is disputed by the adverse party, the former is required to show proof of such authority or representation.

In this case, the petitioner, as the defendant in the RTC, assailed the authority of Atty. Aguinaldo to execute the requisite verification and certificate of non-forum shopping as the resident agent and counsel of the respondent. It was, thus, incumbent upon the respondent, as the plaintiff, to allege and establish that Atty. Aguinaldo had such authority to execute the requisite verification and certification for and in its behalf. The respondent, however, failed to do so.

The verification and certificate of non-forum shopping which was incorporated in the complaint and signed by Atty. Aguinaldo reads:








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I, Mario A. Aguinaldo of legal age, Filipino, with office address at Suite 210 Gedisco Centre, 1564 A. Mabini cor. P. Gil Sts., Ermita, Manila, after having sworn to in accordance with law hereby deposes and say: THAT -

1. I am the Resident Agent and Legal Counsel of the plaintiff in the above entitled case and have caused the preparation of the above complaint;

2. I have read the complaint and that all the allegations contained therein are true and correct based on the records on files;

3. I hereby further certify that I have not commenced any other action or proceeding involving the same issues in the Supreme Court, the Court of Appeals, or different divisions thereof, or any other tribunal or agency. If I subsequently learned that a similar action or proceeding has been filed or is pending before the Supreme Court, the Court of Appeals, or different divisions thereof, or any tribunal or agency, I will notify the court, tribunal or agency within five (5) days from such notice/knowledge.

(Sgd.)

MARIO A. AGUINALDO

Affiant

CITY OF MANILA

SUBSCRIBED AND SWORN TO before me this 30th day of August, 1999, affiant exhibiting to me his Community Tax Certificate No. 00671047 issued on January 7, 1999 at Manila, Philippines.

(Sgd.)

Doc. No. 1005; ATTY. HENRY D. ADASA

Page No. 198; Notary Public

Book No. XXI Until December 31, 2000

Series of 1999. PTR No. 320501 Mla. 1/4/99[13]

As gleaned from the aforequoted certification, there was no allegation that Atty. Aguinaldo had been authorized to execute the certificate of non-forum shopping by the respondent’s Board of Directors; moreover, no such board resolution was appended thereto or incorporated therein.

While Atty. Aguinaldo is the resident agent of the respondent in the Philippines, this does not mean that he is authorized to execute the requisite certification against forum shopping. Under Section 127, in relation to Section 128 of the Corporation Code, the authority of the resident agent of a foreign corporation with license to do business in the Philippines is to receive, for and in behalf of the foreign corporation, services and

other legal processes in all actions and other legal proceedings against such corporation, thus:

SEC. 127. Who may be a resident agent. – A resident agent may either be an individual residing in the Philippines or a domestic corporation lawfully transacting business in the Philippines: Provided, That in the case of an individual, he must be of good moral character and of sound financial standing.

SEC. 128. Resident agent; service of process. – The Securities and Exchange Commission shall require as a condition precedent to the issuance of the license to transact business in the Philippines by any foreign corporation that such corporation file with the Securities and Exchange Commission a written power of attorney designating some persons who must be a resident of the Philippines, on whom any summons and other legal processes may be served in all actions or other legal proceedings against such corporation, and consenting that service upon such resident agent shall be admitted and held as valid as if served upon the duly-authorized officers of the foreign corporation as its home office.[14]

Under the law, Atty. Aguinaldo was not specifically authorized to execute a certificate of non-forum shopping as required by Section 5, Rule 7 of the Rules of Court. This is because while a resident agent may be aware of actions filed against his principal (a foreign corporation doing business in the Philippines), such resident may not be aware of actions initiated by its principal, whether in the Philippines against a domestic corporation or private individual, or in the country where such corporation was organized and registered, against a Philippine registered corporation or a Filipino citizen.

The respondent knew that its counsel, Atty. Aguinaldo, as its resident agent, was not specifically authorized to execute the said certification. It attempted to show its compliance with the rule subsequent to the filing of its complaint by submitting, on March 6, 2000, a resolution purporting to have been approved by its Board of Directors during a teleconference held on June 25, 1999, allegedly with Atty. Aguinaldo and Suk Kyoo Kim in attendance. However, such attempt of the respondent casts veritable doubt not only on its claim that such a teleconference was held, but also on the approval by the Board of Directors of the resolution authorizing Atty. Aguinaldo to execute the certificate of non-forum shopping.

In its April 12, 2000 Order, the RTC took judicial notice that because of the onset of modern technology, persons in one location may confer with other persons in other places, and, based on the said premise, concluded that Suk Kyoo Kim and Atty. Aguinaldo had a teleconference with the respondent’s Board of Directors in South Korea on June 25, 1999. The CA, likewise, gave credence to the respondent’s claim that such a teleconference took place, as contained in the affidavit of Suk Kyoo Kim, as well as Atty. Aguinaldo’s certification.

Generally speaking, matters of judicial notice have three material requisites: (1) the matter must be one of common and general knowledge; (2) it must be well and authoritatively settled and not doubtful or uncertain; and (3) it must be known to be within the limits of the jurisdiction of the court. The principal guide in determining what facts may be assumed to be judicially known is that of notoriety. Hence, it can be said that judicial notice is limited to facts evidenced by public records and facts of general notoriety.[15] Moreover, a judicially noticed fact must be one not subject to a reasonable dispute in that it is either: (1) generally known within the territorial jurisdiction of the




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trial court; or (2) capable of accurate and ready determination by resorting to sources whose accuracy cannot reasonably be questionable.[16]

Things of “common knowledge,” of which courts take judicial matters coming to the knowledge of men generally in the course of the ordinary experiences of life, or they may be matters which are generally accepted by mankind as true and are capable of ready and unquestioned demonstration. Thus, facts which are universally known, and which may be found in encyclopedias, dictionaries or other publications, are judicially noticed, provided, they are of such universal notoriety and so generally understood that they may be regarded as forming part of the common knowledge of every person. As the common knowledge of man ranges far and wide, a wide variety of particular facts have been judicially noticed as being matters of common knowledge. But a court cannot take judicial notice of any fact which, in part, is dependent on the existence or non-existence of a fact of which the court has no constructive knowledge.[17]

In this age of modern technology, the courts may take judicial notice that business transactions may be made by individuals through teleconferencing. Teleconferencing is interactive group communication (three or more people in two or more locations) through an electronic medium. In general terms, teleconferencing can bring people together under one roof even though they are separated by hundreds of miles. [18] This type of group communication may be used in a number of ways, and have three basic types: (1) video conferencing - television-like communication augmented with sound; (2) computer conferencing - printed communication through keyboard terminals, and (3) audio-conferencing-verbal communication via the telephone with optional capacity for telewriting or telecopying.[19]

A teleconference represents a unique alternative to face-to-face (FTF) meetings. It was first introduced in the 1960’s with American Telephone and Telegraph’s Picturephone. At that time, however, no demand existed for the new technology. Travel costs were reasonable and consumers were unwilling to pay the monthly service charge for using the picturephone, which was regarded as more of a novelty than as an actual means for everyday communication.[20] In time, people found it advantageous to hold teleconferencing in the course of business and corporate governance, because of the money saved, among other advantages include:

1. People (including outside guest speakers) who wouldn’t normally attend a distant FTF meeting can participate.

2. Follow-up to earlier meetings can be done with relative ease and little expense.

3. Socializing is minimal compared to an FTF meeting; therefore, meetings are shorter and more oriented to the primary purpose of the meeting.

4. Some routine meetings are more effective since one can audio-conference from any location equipped with a telephone.

5. Communication between the home office and field staffs is maximized.

6. Severe climate and/or unreliable transportation may necessitate teleconferencing.

7. Participants are generally better prepared than for FTF meetings.

8. It is particularly satisfactory for simple problem-solving, information exchange, and procedural tasks.

9. Group members participate more equally in well-moderated teleconferences than an FTF meeting.[21]

On the other hand, other private corporations opt not to hold teleconferences because of the following disadvantages:

1. Technical failures with equipment, including connections that aren’t made.

2. Unsatisfactory for complex interpersonal communication, such as negotiation or bargaining.

3. Impersonal, less easy to create an atmosphere of group rapport.

4. Lack of participant familiarity with the equipment, the medium itself, and meeting skills.

5. Acoustical problems within the teleconferencing rooms.

6. Difficulty in determining participant speaking order; frequently one person monopolizes the meeting.

7. Greater participant preparation time needed.

8. Informal, one-to-one, social interaction not possible.[22]

Indeed, teleconferencing can only facilitate the linking of people; it does not alter the complexity of group communication. Although it may be easier to communicate via teleconferencing, it may also be easier to miscommunicate. Teleconferencing cannot satisfy the individual needs of every type of meeting.[23]

In the Philippines, teleconferencing and videoconferencing of members of board of directors of private corporations is a reality, in light of Republic Act No. 8792. The Securities and Exchange Commission issued SEC Memorandum Circular No. 15, on November 30, 2001, providing the guidelines to be complied with related to such conferences.[24] Thus, the Court agrees with the RTC that persons in the Philippines may have a teleconference with a group of persons in South Korea relating to business transactions or corporate governance.

Even given the possibility that Atty. Aguinaldo and Suk Kyoo Kim participated in a teleconference along with the respondent’s Board of Directors, the Court is not convinced that one was conducted; even if there had been one, the Court is not inclined to believe that a board resolution was duly passed specifically authorizing Atty. Aguinaldo to file the complaint and execute the required certification against forum shopping.










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The records show that the petitioner filed a motion to dismiss the complaint on the ground that the respondent failed to comply with Section 5, Rule 7 of the Rules of Court. The respondent opposed the motion on December 1, 1999, on its contention that Atty. Aguinaldo, its resident agent, was duly authorized to sue in its behalf. The respondent, however, failed to establish its claim that Atty. Aguinaldo was its resident agent in the Philippines. Even the identification card[25] of Atty. Aguinaldo which the respondent appended to its pleading merely showed that he is the company lawyer of the respondent’s Manila Regional Office.

The respondent, through Atty. Aguinaldo, announced the holding of the teleconference only during the hearing of January 28, 2000; Atty. Aguinaldo then prayed for ten days, or until February 8, 2000, within which to submit the board resolution purportedly authorizing him to file the complaint and execute the required certification against forum shopping. The court granted the motion.[26] The respondent, however, failed to comply, and instead prayed for 15 more days to submit the said resolution, contending that it was with its main office in Korea. The court granted the motion per its Order[27] dated February 11, 2000. The respondent again prayed for an extension within which to submit the said resolution, until March 6, 2000. [28] It was on the said date that the respondent submitted an affidavit of its general manager Suk Kyoo Kim, stating, inter alia, that he and Atty. Aguinaldo attended the said teleconference on June 25, 1999, where the Board of Directors supposedly approved the following resolution:

RESOLVED, that Mario A. Aguinaldo and his law firm M.A. Aguinaldo & Associates or any of its lawyers are hereby appointed and authorized to take with whatever legal action necessary to effect the collection of the unpaid account of Expert Travel & Tours. They are hereby specifically authorized to prosecute, litigate, defend, sign and execute any document or paper necessary to the filing and prosecution of said claim in Court, attend the Pre-trial Proceedings and enter into a compromise agreement relative to the above-mentioned claim.[29]

But then, in the same affidavit, Suk Kyoo Kim declared that the respondent “do[es] not keep a written copy of the aforesaid Resolution” because no records of board resolutions approved during teleconferences were kept. This belied the respondent’s earlier allegation in its February 10, 2000 motion for extension of time to submit the questioned resolution that it was in the custody of its main office in Korea. The respondent gave the trial court the impression that it needed time to secure a copy of the resolution kept in Korea, only to allege later (via the affidavit of Suk Kyoo Kim) that it had no such written copy. Moreover, Suk Kyoo Kim stated in his affidavit that the resolution was embodied in the Secretary’s/Resident Agent’s Certificate signed by Atty. Aguinaldo. However, no such resolution was appended to the said certificate.

The respondent’s allegation that its board of directors conducted a teleconference on June 25, 1999 and approved the said resolution (with Atty. Aguinaldo in attendance) is incredible, given the additional fact that no such allegation was made in the complaint. If the resolution had indeed been approved on June 25, 1999, long before the complaint was filed, the respondent should have incorporated it in its complaint, or at least appended a copy thereof. The respondent failed to do so. It was only on January 28, 2000 that the respondent claimed, for the first time, that there was such a meeting of the Board of Directors held on June 25, 1999; it even represented to the Court that a copy of its resolution was with its main office in Korea, only to allege later that no written copy existed. It was only on March 6, 2000 that the respondent alleged, for the first time, that the meeting of the Board of Directors where the resolution was approved was held via teleconference.

Worse still, it appears that as early as January 10, 1999, Atty. Aguinaldo had signed a Secretary’s/Resident Agent’s Certificate alleging that the board of directors held a teleconference on June 25, 1999. No such certificate was appended to the complaint, which was filed on September 6, 1999. More importantly, the respondent did not explain why the said certificate was signed by Atty. Aguinaldo as early as January 9, 1999, and yet was notarized one year later (on January 10, 2000); it also did not explain its failure to append the said certificate to the complaint, as well as to its Compliance dated March 6, 2000. It was only on January 26, 2001 when the respondent filed its comment in the CA that it submitted the Secretary’s/Resident Agent’s Certificate[30] dated January 10, 2000.

The Court is, thus, more inclined to believe that the alleged teleconference on June 25, 1999 never took place, and that the resolution allegedly approved by the respondent’s Board of Directors during the said teleconference was a mere concoction purposefully foisted on the RTC, the CA and this Court, to avert the dismissal of its complaint against the petitioner.

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. SP No. 61000 is REVERSED and SET ASIDE. The Regional Trial Court of Manila is hereby ORDERED to dismiss, without prejudice, the complaint of the respondent.

SO ORDERED.

Puno, Acting C.J., (Chairman), Austria-Martinez, and Chico-Nazario, JJ., concur.

Tinga, J., out of the country.

G.R. No. L-33320 May 30, 1983

RAMON A. GONZALES, petitioner, vs.THE PHILIPPINE NATIONAL BANK, respondent.

Ramon A. Gonzales in his own behalf.

Juan Diaz for respondent.

VASQUEZ, J.:

Petitioner Ramon A. Gonzales instituted in the erstwhile Court of First Instance of Manila a special civil action for mandamus against the herein respondent praying that the latter be ordered to allow him to look into the books and records of the respondent bank in order to satisfy himself as to the truth of the published reports that the respondent has guaranteed the obligation of Southern Negros Development Corporation in the purchase of a US$ 23 million sugar-mill to be financed by Japanese suppliers and







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financiers; that the respondent is financing the construction of the P 21 million Cebu-Mactan Bridge to be constructed by V.C. Ponce, Inc., and the construction of Passi Sugar Mill at Iloilo by the Honiron Philippines, Inc., as well as to inquire into the validity of Id transactions. The petitioner has alleged hat his written request for such examination was denied by the respondent. The trial court having dismissed the petition for mandamus, the instant appeal to review the said dismissal was filed.

The facts that gave rise to the subject controversy have been set forth by the trial court in the decision herein sought to be reviewed, as follows:

Briefly stated, the following facts gathered from the stipulation of the parties served as the backdrop of this proceeding.

Previous to the present action, the petitioner instituted several cases in this Court questioning different transactions entered into by the Bark with other parties. First among them is Civil Case No. 69345 filed on April 27, 1967, by petitioner as a taxpayer versus Sec. Antonio Raquiza of Public Works and Communications, the Commissioner of Public Highways, the Bank, Continental Ore Phil., Inc., Continental Ore, Huber Corporation, Allis Chalmers and General Motors Corporation In the course of the hearing of said case on August 3, 1967, the personality of herein petitioner to sue the bank and question the letters of credit it has extended for the importation by the Republic of the Philippines of public works equipment intended for the massive development program of the President was raised. In view thereof, he expressed and made known his intention to acquire one share of stock from Congressman Justiniano Montano which, on the following day, August 30, 1967, was transferred in his name in the books of the Bank.

Subsequent to his aforementioned acquisition of one share of stock of the Bank, petitioner, in his dual capacity as a taxpayer and stockholder, filed the following cases involving the bank or the members of its Board of Directors to wit:

l. On October l8,1967, Civil Case No. 71044 versus the Board of Directors of the Bank; the National Investment and Development Corp., Marubeni Iida Co., Ltd., and Agro-Inc. Dev. Co. or Saravia;

2. On May 11, 1968, Civil Case No. 72936 versus Roberto Benedicto and other Directors of the Bank, Passi (Iloilo) Sugar Central, Inc., Calinog-Lambunao Sugar Mill Integrated Farming, Inc., Talog sugar Milling Co., Inc., Safary Central, Inc., and Batangas Sugar Central Inc.;

3. On May 8, 1969, Civil Case No. 76427 versus Alfredo Montelibano and the Directors of both the PNB and DBP;

On January 11, 1969, however, petitioner addressed a letter to the President of the Bank (Annex A, Pet.), requesting submission to look into the records of its transactions covering the purchase of a sugar central by the Southern Negros Development Corp. to be financed by Japanese suppliers and financiers; its financing of the Cebu-Mactan

Bridge to be constructed by V.C. Ponce, Inc. and the construction of the Passi Sugar Mills in Iloilo. On January 23, 1969, the Asst. Vice-President and Legal Counsel of the Bank answered petitioner's letter denying his request for being not germane to his interest as a one-share stockholder and for the cloud of doubt as to his real intention and purpose in acquiring said share. (Annex B, Pet.) In view of the Bank's refusal the petitioner instituted this action.' (Rollo, pp. 16-18.)

The petitioner has adopted the above finding of facts made by the trial court in its brief which he characterized as having been "correctly stated." (Petitioner-Appellant"s Brief, pp. 57.)

The court a quo denied the prayer of the petitioner that he be allowed to examine and inspect the books and records of the respondent bank regarding the transactions mentioned on the grounds that the right of a stockholder to inspect the record of the business transactions of a corporation granted under Section 51 of the former Corporation Law (Act No. 1459, as amended) is not absolute, but is limited to purposes reasonably related to the interest of the stockholder, must be asked for in good faith for a specific and honest purpose and not gratify curiosity or for speculative or vicious purposes; that such examination would violate the confidentiality of the records of the respondent bank as provided in Section 16 of its charter, Republic Act No. 1300, as amended; and that the petitioner has not exhausted his administrative remedies.

Assailing the conclusions of the lower court, the petitioner has assigned the single error to the lower court of having ruled that his alleged improper motive in asking for an examination of the books and records of the respondent bank disqualifies him to exercise the right of a stockholder to such inspection under Section 51 of Act No. 1459, as amended. Said provision reads in part as follows:

Sec. 51. ... The record of all business transactions of the corporation and the minutes of any meeting shall be open to the inspection of any director, member or stockholder of the corporation at reasonable hours.

Petitioner maintains that the above-quoted provision does not justify the qualification made by the lower court that the inspection of corporate records may be denied on the ground that it is intended for an improper motive or purpose, the law having granted such right to a stockholder in clear and unconditional terms. He further argues that, assuming that a proper motive or purpose for the desired examination is necessary for its exercise, there is nothing improper in his purpose for asking for the examination and inspection herein involved.

Petitioner may no longer insist on his interpretation of Section 51 of Act No. 1459, as amended, regarding the right of a stockholder to inspect and examine the books and records of a corporation. The former Corporation Law (Act No. 1459, as amended) has been replaced by Batas Pambansa Blg. 68, otherwise known as the "Corporation Code of the Philippines."

The right of inspection granted to a stockholder under Section 51 of Act No. 1459 has been retained, but with some modifications. The second and third paragraphs of Section 74 of Batas Pambansa Blg. 68 provide the following:

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The records of all business transactions of the corporation and the minutes of any meeting shag be open to inspection by any director, trustee, stockholder or member of the corporation at reasonable hours on business days and he may demand, in writing, for a copy of excerpts from said records or minutes, at his expense.

Any officer or agent of the corporation who shall refuse to allow any director, trustee, stockholder or member of the corporation to examine and copy excerpts from its records or minutes, in accordance with the provisions of this Code, shall be liable to such director, trustee, stockholder or member for damages, and in addition, shall be guilty of an offense which shall be punishable under Section 144 of this Code: Provided, That if such refusal is made pursuant to a resolution or order of the board of directors or trustees, the liability under this section for such action shall be imposed upon the directors or trustees who voted for such refusal; and Provided, further, That it shall be a defense to any action under this section that the person demanding to examine and copy excerpts from the corporation's records and minutes has improperly used any information secured through any prior examination of the records or minutes of such corporation or of any other corporation, or was not acting in good faith or for a legitimate purpose in making his demand.

As may be noted from the above-quoted provisions, among the changes introduced in the new Code with respect to the right of inspection granted to a stockholder are the following the records must be kept at the principal office of the corporation; the inspection must be made on business days; the stockholder may demand a copy of the excerpts of the records or minutes; and the refusal to allow such inspection shall subject the erring officer or agent of the corporation to civil and criminal liabilities. However, while seemingly enlarging the right of inspection, the new Code has prescribed limitations to the same. It is now expressly required as a condition for such examination that the one requesting it must not have been guilty of using improperly any information through a prior examination, and that the person asking for such examination must be "acting in good faith and for a legitimate purpose in making his demand."

The unqualified provision on the right of inspection previously contained in Section 51, Act No. 1459, as amended, no longer holds true under the provisions of the present law. The argument of the petitioner that the right granted to him under Section 51 of the former Corporation Law should not be dependent on the propriety of his motive or purpose in asking for the inspection of the books of the respondent bank loses whatever validity it might have had before the amendment of the law. If there is any doubt in the correctness of the ruling of the trial court that the right of inspection granted under Section 51 of the old Corporation Law must be dependent on a showing of proper motive on the part of the stockholder demanding the same, it is now dissipated by the clear language of the pertinent provision contained in Section 74 of Batas Pambansa Blg. 68.

Although the petitioner has claimed that he has justifiable motives in seeking the inspection of the books of the respondent bank, he has not set forth the reasons and the purposes for which he desires such inspection, except to satisfy himself as to the truth of published reports regarding certain transactions entered into by the respondent bank and to inquire into their validity. The circumstances under which he acquired one share of stock in the respondent bank purposely to exercise the right of inspection do not

argue in favor of his good faith and proper motivation. Admittedly he sought to be a stockholder in order to pry into transactions entered into by the respondent bank even before he became a stockholder. His obvious purpose was to arm himself with materials which he can use against the respondent bank for acts done by the latter when the petitioner was a total stranger to the same. He could have been impelled by a laudable sense of civic consciousness, but it could not be said that his purpose is germane to his interest as a stockholder.

We also find merit in the contention of the respondent bank that the inspection sought to be exercised by the petitioner would be violative of the provisions of its charter. (Republic Act No. 1300, as amended.) Sections 15, 16 and 30 of the said charter provide respectively as follows:

Sec. 15. Inspection by Department of Supervision and Examination of the Central Bank. — The National Bank shall be subject to inspection by the Department of Supervision and Examination of the Central Bank'

Sec. 16. Confidential information. —The Superintendent of Banks and the Auditor General, or other officers designated by law to inspect or investigate the condition of the National Bank, shall not reveal to any person other than the President of the Philippines, the Secretary of Finance, and the Board of Directors the details of the inspection or investigation, nor shall they give any information relative to the funds in its custody, its current accounts or deposits belonging to private individuals, corporations, or any other entity, except by order of a Court of competent jurisdiction,'

Sec. 30. Penalties for violation of the provisions of this Act.— Any director, officer, employee, or agent of the Bank, who violates or permits the violation of any of the provisions of this Act, or any person aiding or abetting the violations of any of the provisions of this Act, shall be punished by a fine not to exceed ten thousand pesos or by imprisonment of not more than five years, or both such fine and imprisonment.

The Philippine National Bank is not an ordinary corporation. Having a charter of its own, it is not governed, as a rule, by the Corporation Code of the Philippines. Section 4 of the said Code provides:

SEC. 4. Corporations created by special laws or charters. — Corporations created by special laws or charters shall be governed primarily by the provisions of the special law or charter creating them or applicable to them. supplemented by the provisions of this Code, insofar as they are applicable.

The provision of Section 74 of Batas Pambansa Blg. 68 of the new Corporation Code with respect to the right of a stockholder to demand an inspection or examination of the books of the corporation may not be reconciled with the abovequoted provisions of the charter of the respondent bank. It is not correct to claim, therefore, that the right of inspection under Section 74 of the new Corporation Code may apply in a supplementary capacity to the charter of the respondent bank.

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WHEREFORE, the petition is hereby DISMISSED, without costs.

Melencio-Herrera, Plana and Gutierrez, Jr., JJ., concur.

Teehankee (Chairman), concurs in the result.

Relova, J., is on leave.

Corpo Rights of Shareholders Cases

Documents

Transcript of Corpo Rights of Shareholders Cases