CORPO CASES VI. Right of Share Holders

CORPO LAW
CASES: VI. 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.
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.
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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.
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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. 331 citing 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."
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(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 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
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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
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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.
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;
xxx
xxx
xxx
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)
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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.
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NOW, THEREFORE, it is hereby agreed as follows:
xxx
xxx
xxx
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 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]).
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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.
[G.R. No. 104768. July 21, 2003]

Republic of the Philippines, petitioner, vs. Sandiganbayan, Major General Josephus Q.
Ramas and Elizabeth Dimaano, respondents.
Before this Court is a petition for review on certiorari seeking to set aside the Resolutions of the
Sandiganbayan (First Division)[1] dated 18 November 1991 and 25 March 1992 in Civil Case
No. 0037. The first Resolution dismissed petitioners Amended Complaint and ordered the return
of the confiscated items to respondent Elizabeth Dimaano, while the second Resolution denied
petitioners Motion for Reconsideration. Petitioner prays for the grant of the reliefs sought in its
Amended Complaint, or in the alternative, for the remand of this case to the Sandiganbayan
(First Division) for further proceedings allowing petitioner to complete the presentation of its
evidence.
Antecedent Facts
Immediately upon her assumption to office following the successful EDSA Revolution, then
President Corazon C. Aquino issued Executive Order No. 1 (EO No. 1) creating the Presidential
Commission on Good Government (PCGG). EO No. 1 primarily tasked the PCGG to recover
all ill-gotten wealth of former President Ferdinand E. Marcos, his immediate family, relatives,
subordinates and close associates. EO No. 1 vested the PCGG with the power (a) to conduct
investigation as may be necessary in order to accomplish and carry out the purposes of this
order and the power (h) to promulgate such rules and regulations as may be necessary to carry
out the purpose of this order. Accordingly, the PCGG, through its then Chairman Jovito R.
Salonga, created an AFP Anti-Graft Board (AFP Board) tasked to investigate reports of
unexplained wealth and corrupt practices by AFP personnel, whether in the active service or
retired.[2]
Based on its mandate, the AFP Board investigated various reports of alleged unexplained wealth
of respondent Major General Josephus Q. Ramas (Ramas). On 27 July 1987, the AFP Board
issued a Resolution on its findings and recommendation on the reported unexplained wealth of
Ramas. The relevant part of the Resolution reads:
10
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III. FINDINGS and EVALUATION:
Evidence in the record showed that respondent is the owner of a house and lot located at 15Yakan St., La Vista, Quezon City. He is also the owner of a house and lot located in Cebu City.
The lot has an area of 3,327 square meters.
The value of the property located in Quezon City may be estimated modestly at P700,000.00.
The equipment/items and communication facilities which were found in the premises of
Elizabeth Dimaano and were confiscated by elements of the PC Command of Batangas were all
covered by invoice receipt in the name of CAPT. EFREN SALIDO, RSO Command Coy, MSC,
PA. These items could not have been in the possession of Elizabeth Dimaano if not given for
her use by respondent Commanding General of the Philippine Army.
Aside from the military equipment/items and communications equipment, the raiding team was
also able to confiscate money in the amount of P2,870,000.00 and $50,000 US Dollars in the
house of Elizabeth Dimaano on 3 March 1986.
Affidavits of members of the Military Security Unit, Military Security Command, Philippine
Army, stationed at Camp Eldridge, Los Baos, Laguna, disclosed that Elizabeth Dimaano is the
mistress of respondent. That respondent usually goes and stays and sleeps in the alleged house
of Elizabeth Dimaano in Barangay Tengga, Itaas, Batangas City and when he arrives, Elizabeth
Dimaano embraces and kisses respondent. That on February 25, 1986, a person who rode in a
car went to the residence of Elizabeth Dimaano with four (4) attache cases filled with money
and owned by MGen Ramas.
Sworn statement in the record disclosed also that Elizabeth Dimaano had no visible means of
income and is supported by respondent for she was formerly a mere secretary.
Taking in toto the evidence, Elizabeth Dimaano could not have used the military
equipment/items seized in her house on March 3, 1986 without the consent of respondent, he
being the Commanding General of the Philippine Army. It is also impossible for Elizabeth
Dimaano to claim that she owns the P2,870,000.00 and $50,000 US Dollars for she had no
visible source of income.
This money was never declared in the Statement of Assets and Liabilities of respondent. There
was an intention to cover the existence of these money because these are all ill-gotten and
unexplained wealth. Were it not for the affidavits of the members of the Military Security Unit
assigned at Camp Eldridge, Los Baos, Laguna, the existence and ownership of these money
would have never been known.
11
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The Statement of Assets and Liabilities of respondent were also submitted for scrutiny and
analysis by the Boards consultant. Although the amount of P2,870,000.00 and $50,000 US
Dollars were not included, still it was disclosed that respondent has an unexplained wealth of
P104,134. 60.
IV. CONCLUSION:
In view of the foregoing, the Board finds that a prima facie case exists against respondent for
ill-gotten and unexplained wealth in the amount of P2,974,134.00 and $50,000 US Dollars.
V. RECOMMENDATION:
Wherefore it is recommended that Maj. Gen. Josephus Q. Ramas (ret.) be prosecuted and tried
for violation of RA 3019, as amended, otherwise known as Anti-Graft and Corrupt Practices Act
and RA 1379, as amended, otherwise known as The Act for the Forfeiture of Unlawfully
Acquired Property.[3]
Thus, on 1 August 1987, the PCGG filed a petition for forfeiture under Republic Act No. 1379
(RA No. 1379) [4] against Ramas.
Before Ramas could answer the petition, then Solicitor General Francisco I. Chavez filed an
Amended Complaint naming the Republic of the Philippines (petitioner), represented by the
PCGG, as plaintiff and Ramas as defendant. The Amended Complaint also impleaded Elizabeth
Dimaano (Dimaano) as co-defendant.
The Amended Complaint alleged that Ramas was the Commanding General of the Philippine
Army until 1986. On the other hand, Dimaano was a confidential agent of the Military Security
Unit, Philippine Army, assigned as a clerk-typist at the office of Ramas from 1 January 1978 to
February 1979. The Amended Complaint further alleged that Ramas acquired funds, assets and
properties manifestly out of proportion to his salary as an army officer and his other income
from legitimately acquired property by taking undue advantage of his public office and/or using
his power, authority and influence as such officer of the Armed Forces of the Philippines and as
a subordinate and close associate of the deposed President Ferdinand Marcos.[5]
The Amended Complaint also alleged that the AFP Board, after a previous inquiry, found
reasonable ground to believe that respondents have violated RA No. 1379.[6] The Amended
Complaint prayed for, among others, the forfeiture of respondents properties, funds and
equipment in favor of the State.
Ramas filed an Answer with Special and/or Affirmative Defenses and Compulsory
Counterclaim to the Amended Complaint. In his Answer, Ramas contended that his property
consisted only of a residential house at La Vista Subdivision, Quezon City, valued at P700,000,
which was not out of proportion to his salary and other legitimate income. He denied ownership
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of any mansion in Cebu City and the cash, communications equipment and other items
confiscated from the house of Dimaano.
Dimaano filed her own Answer to the Amended Complaint. Admitting her employment as a
clerk-typist in the office of Ramas from January-November 1978 only, Dimaano claimed
ownership of the monies, communications equipment, jewelry and land titles taken from her
house by the Philippine Constabulary raiding team.
After termination of the pre-trial,[7] the court set the case for trial on the merits on 9-11
November 1988.
On 9 November 1988, petitioner asked for a deferment of the hearing due to its lack of
preparation for trial and the absence of witnesses and vital documents to support its case. The
court reset the hearing to 17 and 18 April 1989.
On 13 April 1989, petitioner filed a motion for leave to amend the complaint in order to charge
the delinquent properties with being subject to forfeiture as having been unlawfully acquired by
defendant Dimaano alone x x x.[8]
Nevertheless, in an order dated 17 April 1989, the Sandiganbayan proceeded with petitioners
presentation of evidence on the ground that the motion for leave to amend complaint did not
state when petitioner would file the amended complaint. The Sandiganbayan further stated that
the subject matter of the amended complaint was on its face vague and not related to the
existing complaint. The Sandiganbayan also held that due to the time that the case had been
pending in court, petitioner should proceed to present its evidence.
After presenting only three witnesses, petitioner asked for a postponement of the trial.
On 28 September 1989, during the continuation of the trial, petitioner manifested its inability to
proceed to trial because of the absence of other witnesses or lack of further evidence to present.
Instead, petitioner reiterated its motion to amend the complaint to conform to the evidence
already presented or to change the averments to show that Dimaano alone unlawfully acquired
the monies or properties subject of the forfeiture.
The Sandiganbayan noted that petitioner had already delayed the case for over a year mainly
because of its many postponements. Moreover, petitioner would want the case to revert to its
preliminary stage when in fact the case had long been ready for trial. The Sandiganbayan
ordered petitioner to prepare for presentation of its additional evidence, if any.
During the trial on 23 March 1990, petitioner again admitted its inability to present further
evidence. Giving petitioner one more chance to present further evidence or to amend the
complaint to conform to its evidence, the Sandiganbayan reset the trial to 18 May 1990. The
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Sandiganbayan, however, hinted that the re-setting was without prejudice to any action that
private respondents might take under the circumstances.
However, on 18 May 1990, petitioner again expressed its inability to proceed to trial because it
had no further evidence to present. Again, in the interest of justice, the Sandiganbayan granted
petitioner 60 days within which to file an appropriate pleading. The Sandiganbayan, however,
warned petitioner that failure to act would constrain the court to take drastic action.
Private respondents then filed their motions to dismiss based on Republic v. Migrino.[9] The
Court held in Migrino that the PCGG does not have jurisdiction to investigate and prosecute
military officers by reason of mere position held without a showing that they are subordinates of
former President Marcos.
On 18 November 1991, the Sandiganbayan rendered a resolution, the dispositive portion of
which states:
WHEREFORE, judgment is hereby rendered dismissing the Amended Complaint, without
pronouncement as to costs. The counterclaims are likewise dismissed for lack of merit, but the
confiscated sum of money, communications equipment, jewelry and land titles are ordered
returned to Elizabeth Dimaano.
The records of this case are hereby remanded and referred to the Hon. Ombudsman, who has
primary jurisdiction over the forfeiture cases under R.A. No. 1379, for such appropriate action
as the evidence warrants. This case is also referred to the Commissioner of the Bureau of
Internal Revenue for a determination of any tax liability of respondent Elizabeth Dimaano in
connection herewith.
SO ORDERED.
On 4 December 1991, petitioner filed its Motion for Reconsideration.
In answer to the Motion for Reconsideration, private respondents filed a Joint
Comment/Opposition to which petitioner filed its Reply on 10 January 1992.
On 25 March 1992, the Sandiganbayan rendered a Resolution denying the Motion for
Reconsideration.
Ruling of the Sandiganbayan
The Sandiganbayan dismissed the Amended Complaint on the following grounds:
(1.) The actions taken by the PCGG are not in accordance with the rulings of the Supreme Court
in Cruz, Jr. v. Sandiganbayan[10] and Republic v. Migrino[11] which involve the same issues.
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(2.) No previous inquiry similar to preliminary investigations in criminal cases was conducted
against Ramas and Dimaano.
(3.) The evidence adduced against Ramas does not constitute a prima facie case against him.
(4.) There was an illegal search and seizure of the items confiscated.
The Issues
Petitioner raises the following issues:
A. RESPONDENT COURT SERIOUSLY ERRED IN CONCLUDING THAT PETITIONERS
EVIDENCE CANNOT MAKE A CASE FOR FORFEITURE AND THAT THERE WAS NO
SHOWING OF CONSPIRACY, COLLUSION OR RELATIONSHIP BY CONSANGUINITY
OR AFFINITY BY AND BETWEEN RESPONDENT RAMAS AND RESPONDENT
DIMAANO NOTWITHSTANDING THE FACT THAT SUCH CONCLUSIONS WERE
CLEARLY UNFOUNDED AND PREMATURE, HAVING BEEN RENDERED PRIOR TO
THE COMPLETION OF THE PRESENTATION OF THE EVIDENCE OF THE
PETITIONER.
B. RESPONDENT COURT SERIOUSLY ERRED IN HOLDING THAT THE ACTIONS
TAKEN BY THE PETITIONER, INCLUDING THE FILING OF THE ORIGINAL
COMPLAINT AND THE AMENDED COMPLAINT, SHOULD BE STRUCK OUT IN LINE
WITH THE RULINGS OF THE SUPREME COURT IN CRUZ, JR. v. SANDIGANBAYAN,
194 SCRA 474 AND REPUBLIC v. MIGRINO, 189 SCRA 289, NOTWITHSTANDING THE
FACT THAT:
1. The cases of Cruz, Jr. v. Sandiganbayan, supra, and Republic v. Migrino, supra, are clearly
not applicable to this case;
2. Any procedural defect in the institution of the complaint in Civil Case No. 0037 was cured
and/or waived by respondents with the filing of their respective answers with counterclaim; and
3. The separate motions to dismiss were evidently improper considering that they were filed
after commencement of the presentation of the evidence of the petitioner and even before the
latter was allowed to formally offer its evidence and rest its case;
C. RESPONDENT COURT SERIOUSLY ERRED IN HOLDING THAT THE ARTICLES
AND THINGS SUCH AS SUMS OF MONEY, COMMUNICATIONS EQUIPMENT,
JEWELRY AND LAND TITLES CONFISCATED FROM THE HOUSE OF RESPONDENT
DIMAANO WERE ILLEGALLY SEIZED AND THEREFORE EXCLUDED AS EVIDENCE.
[12]
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The Courts Ruling
First Issue: PCGGs Jurisdiction to Investigate Private Respondents
This case involves a revisiting of an old issue already decided by this Court in Cruz, Jr. v.
Sandiganbayan[13] and Republic v. Migrino.[14]
The primary issue for resolution is whether the PCGG has the jurisdiction to investigate and
cause the filing of a forfeiture petition against Ramas and Dimaano for unexplained wealth
under RA No. 1379.
We hold that PCGG has no such jurisdiction.
The PCGG created the AFP Board to investigate the unexplained wealth and corrupt practices
of AFP personnel, whether in the active service or retired.[15] The PCGG tasked the AFP Board
to make the necessary recommendations to appropriate government agencies on the action to be
taken based on its findings.[16] The PCGG gave this task to the AFP Board pursuant to the
PCGGs power under Section 3 of EO No. 1 to conduct investigation as may be necessary in
order to accomplish and to carry out the purposes of this order. EO No. 1 gave the PCGG
specific responsibilities, to wit:
SEC. 2. The Commission shall be charged with the task of assisting the President in regard to
the following matters:
(a) The recovery of all ill-gotten wealth accumulated by former President Ferdinand E. Marcos,
his immediate family, relatives, subordinates and close associates, whether located in the
Philippines or abroad, including the takeover and sequestration of all business enterprises and
entities owned or controlled by them, during his administration, directly or through nominees,
by taking undue advantage of their public office and/ or using their powers, authority, influence,
connections or relationship.
(b) The investigation of such cases of graft and corruption as the President may assign to the
Commission from time to time.
x x x.
The PCGG, through the AFP Board, can only investigate the unexplained wealth and corrupt
practices of AFP personnel who fall under either of the two categories mentioned in Section 2 of
EO No. 1. These are: (1) AFP personnel who have accumulated ill-gotten wealth during the
administration of former President Marcos by being the latters immediate family, relative,
subordinate or close associate, taking undue advantage of their public office or using their
powers, influence x x x;[17] or (2) AFP personnel involved in other cases of graft and
corruption provided the President assigns their cases to the PCGG.[18]
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Petitioner, however, does not claim that the President assigned Ramas case to the PCGG.
Therefore, Ramas case should fall under the first category of AFP personnel before the PCGG
could exercise its jurisdiction over him. Petitioner argues that Ramas was undoubtedly a
subordinate of former President Marcos because of his position as the Commanding General of
the Philippine Army. Petitioner claims that Ramas position enabled him to receive orders
directly from his commander-in-chief, undeniably making him a subordinate of former
President Marcos.
We hold that Ramas was not a subordinate of former President Marcos in the sense
contemplated under EO No. 1 and its amendments.
Mere position held by a military officer does not automatically make him a subordinate as this
term is used in EO Nos. 1, 2, 14 and 14-A absent a showing that he enjoyed close association
with former President Marcos. Migrino discussed this issue in this wise:
A close reading of EO No. 1 and related executive orders will readily show what is
contemplated within the term subordinate. The Whereas Clauses of EO No. 1 express the urgent
need to recover the ill-gotten wealth amassed by former President Ferdinand E. Marcos, his
immediate family, relatives, and close associates both here and abroad.
EO No. 2 freezes all assets and properties in the Philippines in which former President Marcos
and/or his wife, Mrs. Imelda Marcos, their close relatives, subordinates, business associates,
dummies, agents, or nominees have any interest or participation.
Applying the rule in statutory construction known as ejusdem generis that is[W]here general words follow an enumeration of persons or things by words of a particular and
specific meaning, such general words are not to be construed in their widest extent, but are to be
held as applying only to persons or things of the same kind or class as those specifically
mentioned [Smith, Bell & Co, Ltd. vs. Register of Deeds of Davao, 96 Phil. 53, 58, citing Black
on Interpretation of Laws, 2nd Ed., 203].
[T]he term subordinate as used in EO Nos. 1 & 2 refers to one who enjoys a close association
with former President Marcos and/or his wife, similar to the immediate family member, relative,
and close associate in EO No. 1 and the close relative, business associate, dummy, agent, or
nominee in EO No. 2.
xxx
It does not suffice, as in this case, that the respondent is or was a government official or
employee during the administration of former President Marcos. There must be a prima facie
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showing that the respondent unlawfully accumulated wealth by virtue of his close association or
relation with former Pres. Marcos and/or his wife. (Emphasis supplied)
Ramas position alone as Commanding General of the Philippine Army with the rank of Major
General[19] does not suffice to make him a subordinate of former President Marcos for
purposes of EO No. 1 and its amendments. The PCGG has to provide a prima facie showing
that Ramas was a close associate of former President Marcos, in the same manner that business
associates, dummies, agents or nominees of former President Marcos were close to him. Such
close association is manifested either by Ramas complicity with former President Marcos in the
accumulation of ill-gotten wealth by the deposed President or by former President Marcos
acquiescence in Ramas own accumulation of ill-gotten wealth if any.
This, the PCGG failed to do.
Petitioners attempt to differentiate the instant case from Migrino does not convince us.
Petitioner argues that unlike in Migrino, the AFP Board Resolution in the instant case states that
the AFP Board conducted the investigation pursuant to EO Nos. 1, 2, 14 and 14-A in relation to
RA No. 1379. Petitioner asserts that there is a presumption that the PCGG was acting within its
jurisdiction of investigating crony-related cases of graft and corruption and that Ramas was
truly a subordinate of the former President. However, the same AFP Board Resolution belies
this contention. Although the Resolution begins with such statement, it ends with the following
recommendation:
V. RECOMMENDATION:
Wherefore it is recommended that Maj. Gen. Josephus Q. Ramas (ret.) be prosecuted and tried
for violation of RA 3019, as amended, otherwise known as Anti-Graft and Corrupt Practices Act
and RA 1379, as amended, otherwise known as The Act for the Forfeiture of Unlawfully
Acquired Property.[20]
Thus, although the PCGG sought to investigate and prosecute private respondents under EO
Nos. 1, 2, 14 and 14-A, the result yielded a finding of violation of Republic Acts Nos. 3019 and
1379 without any relation to EO Nos. 1, 2, 14 and 14-A. This absence of relation to EO No. 1
and its amendments proves fatal to petitioners case. EO No. 1 created the PCGG for a specific
and limited purpose, and necessarily its powers must be construed to address such specific and
limited purpose.
Moreover, the resolution of the AFP Board and even the Amended Complaint do not show that
the properties Ramas allegedly owned were accumulated by him in his capacity as a subordinate
of his commander-in-chief. Petitioner merely enumerated the properties Ramas allegedly owned
and suggested that these properties were disproportionate to his salary and other legitimate
income without showing that Ramas amassed them because of his close association with former
President Marcos. Petitioner, in fact, admits that the AFP Board resolution does not contain a
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finding that Ramas accumulated his wealth because of his close association with former
President Marcos, thus:
10. While it is true that the resolution of the Anti-Graft Board of the New Armed Forces of the
Philippines did not categorically find a prima facie evidence showing that respondent Ramas
unlawfully accumulated wealth by virtue of his close association or relation with former
President Marcos and/or his wife, it is submitted that such omission was not fatal. The
resolution of the Anti-Graft Board should be read in the context of the law creating the same
and the objective of the investigation which was, as stated in the above, pursuant to Republic
Act Nos. 3019 and 1379 in relation to Executive Order Nos. 1, 2, 14 and 14-a;[21] (Emphasis
supplied)
Such omission is fatal. Petitioner forgets that it is precisely a prima facie showing that the illgotten wealth was accumulated by a subordinate of former President Marcos that vests
jurisdiction on PCGG. EO No. 1[22] clearly premises the creation of the PCGG on the urgent
need to recover all ill-gotten wealth amassed by former President Marcos, his immediate family,
relatives, subordinates and close associates. Therefore, to say that such omission was not fatal is
clearly contrary to the intent behind the creation of the PCGG.
In Cruz, Jr. v. Sandiganbayan,[23] the Court outlined the cases that fall under the jurisdiction of
the PCGG pursuant to EO Nos. 1, 2,[24] 14,[25] 14-A:[26]
A careful reading of Sections 2(a) and 3 of Executive Order No. 1 in relation with Sections 1, 2
and 3 of Executive Order No. 14, shows what the authority of the respondent PCGG to
investigate and prosecute covers:
(a) the investigation and prosecution of the civil action for the recovery of ill-gotten wealth
under Republic Act No. 1379, accumulated by former President Marcos, his immediate family,
relatives, subordinates and close associates, whether located in the Philippines or abroad,
including the take-over or sequestration of all business enterprises and entities owned or
controlled by them, during his administration, directly or through his nominees, by taking undue
advantage of their public office and/or using their powers, authority and influence, connections
or relationships; and
(b) the investigation and prosecution of such offenses committed in the acquisition of said illgotten wealth as contemplated under Section 2(a) of Executive Order No. 1.
However, other violations of the Anti-Graft and Corrupt Practices Act not otherwise falling
under the foregoing categories, require a previous authority of the President for the respondent
PCGG to investigate and prosecute in accordance with Section 2 (b) of Executive Order No. 1.
Otherwise, jurisdiction over such cases is vested in the Ombudsman and other duly authorized
investigating agencies such as the provincial and city prosecutors, their assistants, the Chief
State Prosecutor and his assistants and the state prosecutors. (Emphasis supplied)
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The proper government agencies, and not the PCGG, should investigate and prosecute forfeiture
petitions not falling under EO No. 1 and its amendments. The preliminary investigation of
unexplained wealth amassed on or before 25 February 1986 falls under the jurisdiction of the
Ombudsman, while the authority to file the corresponding forfeiture petition rests with the
Solicitor General.[27] The Ombudsman Act or Republic Act No. 6770 (RA No. 6770) vests in
the Ombudsman the power to conduct preliminary investigation and to file forfeiture
proceedings involving unexplained wealth amassed after 25 February 1986.[28]
After the pronouncements of the Court in Cruz, the PCGG still pursued this case despite the
absence of a prima facie finding that Ramas was a subordinate of former President Marcos. The
petition for forfeiture filed with the Sandiganbayan should be dismissed for lack of authority by
the PCGG to investigate respondents since there is no prima facie showing that EO No. 1 and
its amendments apply to respondents. The AFP Board Resolution and even the Amended
Complaint state that there are violations of RA Nos. 3019 and 1379. Thus, the PCGG should
have recommended Ramas case to the Ombudsman who has jurisdiction to conduct the
preliminary investigation of ordinary unexplained wealth and graft cases. As stated in Migrino:
[But] in view of the patent lack of authority of the PCGG to investigate and cause the
prosecution of private respondent for violation of Rep. Acts Nos. 3019 and 1379, the PCGG
must also be enjoined from proceeding with the case, without prejudice to any action that may
be taken by the proper prosecutory agency. The rule of law mandates that an agency of
government be allowed to exercise only the powers granted to it.
Petitioners argument that private respondents have waived any defect in the filing of the
forfeiture petition by submitting their respective Answers with counterclaim deserves no merit
as well.
Petitioner has no jurisdiction over private respondents. Thus, there is no jurisdiction to waive in
the first place. The PCGG cannot exercise investigative or prosecutorial powers never granted
to it. PCGGs powers are specific and limited. Unless given additional assignment by the
President, PCGGs sole task is only to recover the ill-gotten wealth of the Marcoses, their
relatives and cronies.[29] Without these elements, the PCGG cannot claim jurisdiction over a
case.
Private respondents questioned the authority and jurisdiction of the PCGG to investigate and
prosecute their cases by filing their Motion to Dismiss as soon as they learned of the
pronouncement of the Court in Migrino. This case was decided on 30 August 1990, which
explains why private respondents only filed their Motion to Dismiss on 8 October 1990.
Nevertheless, we have held that the parties may raise lack of jurisdiction at any stage of the
proceeding.[30] Thus, we hold that there was no waiver of jurisdiction in this case. Jurisdiction
is vested by law and not by the parties to an action.[31]
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Consequently, the petition should be dismissed for lack of jurisdiction by the PCGG to conduct
the preliminary investigation. The Ombudsman may still conduct the proper preliminary
investigation for violation of RA No. 1379, and if warranted, the Solicitor General may file the
forfeiture petition with the Sandiganbayan.[32] The right of the State to forfeit unexplained
wealth under RA No. 1379 is not subject to prescription, laches or estoppel.[33]
Second Issue: Propriety of Dismissal of Case
Before Completion of Presentation of Evidence
Petitioner also contends that the Sandiganbayan erred in dismissing the case before completion
of the presentation of petitioners evidence.
We disagree.
Based on the findings of the Sandiganbayan and the records of this case, we find that petitioner
has only itself to blame for non-completion of the presentation of its evidence. First, this case
has been pending for four years before the Sandiganbayan dismissed it. Petitioner filed its
Amended Complaint on 11 August 1987, and only began to present its evidence on 17 April
1989. Petitioner had almost two years to prepare its evidence. However, despite this sufficient
time, petitioner still delayed the presentation of the rest of its evidence by filing numerous
motions for postponements and extensions. Even before the date set for the presentation of its
evidence, petitioner filed, on 13 April 1989, a Motion for Leave to Amend the Complaint.[34]
The motion sought to charge the delinquent properties (which comprise most of petitioners
evidence) with being subject to forfeiture as having been unlawfully acquired by defendant
Dimaano alone x x x.
The Sandiganbayan, however, refused to defer the presentation of petitioners evidence since
petitioner did not state when it would file the amended complaint. On 18 April 1989, the
Sandiganbayan set the continuation of the presentation of evidence on 28-29 September and 911 October 1989, giving petitioner ample time to prepare its evidence. Still, on 28 September
1989, petitioner manifested its inability to proceed with the presentation of its evidence. The
Sandiganbayan issued an Order expressing its view on the matter, to wit:
The Court has gone through extended inquiry and a narration of the above events because this
case has been ready for trial for over a year and much of the delay hereon has been due to the
inability of the government to produce on scheduled dates for pre-trial and for trial documents
and witnesses, allegedly upon the failure of the military to supply them for the preparation of
the presentation of evidence thereon. Of equal interest is the fact that this Court has been held to
task in public about its alleged failure to move cases such as this one beyond the preliminary
stage, when, in view of the developments such as those of today, this Court is now faced with a
situation where a case already in progress will revert back to the preliminary stage, despite a
five-month pause where appropriate action could have been undertaken by the plaintiff
Republic.[35]
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On 9 October 1989, the PCGG manifested in court that it was conducting a preliminary
investigation on the unexplained wealth of private respondents as mandated by RA No. 1379.
[36] The PCGG prayed for an additional four months to conduct the preliminary investigation.
The Sandiganbayan granted this request and scheduled the presentation of evidence on 26-29
March 1990. However, on the scheduled date, petitioner failed to inform the court of the result
of the preliminary investigation the PCGG supposedly conducted. Again, the Sandiganbayan
gave petitioner until 18 May 1990 to continue with the presentation of its evidence and to
inform the court of what lies ahead insofar as the status of the case is concerned x x x.[37] Still
on the date set, petitioner failed to present its evidence. Finally, on 11 July 1990, petitioner filed
its Re-Amended Complaint.[38] The Sandiganbayan correctly observed that a case already
pending for years would revert to its preliminary stage if the court were to accept the ReAmended Complaint.
Based on these circumstances, obviously petitioner has only itself to blame for failure to
complete the presentation of its evidence. The Sandiganbayan gave petitioner more than
sufficient time to finish the presentation of its evidence. The Sandiganbayan overlooked
petitioners delays and yet petitioner ended the long-string of delays with the filing of a ReAmended Complaint, which would only prolong even more the disposition of the case.
Moreover, the pronouncements of the Court in Migrino and Cruz prompted the Sandiganbayan
to dismiss the case since the PCGG has no jurisdiction to investigate and prosecute the case
against private respondents. This alone would have been sufficient legal basis for the
Sandiganbayan to dismiss the forfeiture case against private respondents.
Thus, we hold that the Sandiganbayan did not err in dismissing the case before completion of
the presentation of petitioners evidence.
Third Issue: Legality of the Search and Seizure
Petitioner claims that the Sandiganbayan erred in declaring the properties confiscated from
Dimaanos house as illegally seized and therefore inadmissible in evidence. This issue bears a
significant effect on petitioners case since these properties comprise most of petitioners
evidence against private respondents. Petitioner will not have much evidence to support its case
against private respondents if these properties are inadmissible in evidence.
On 3 March 1986, the Constabulary raiding team served at Dimaanos residence a search
warrant captioned Illegal Possession of Firearms and Ammunition. Dimaano was not present
during the raid but Dimaanos cousins witnessed the raid. The raiding team seized the items
detailed in the seizure receipt together with other items not included in the search warrant. The
raiding team seized these items: one baby armalite rifle with two magazines; 40 rounds of 5.56
ammunition; one pistol, caliber .45; communications equipment, cash consisting of P2,870,000
and US$50,000, jewelry, and land titles.
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Petitioner wants the Court to take judicial notice that the raiding team conducted the search and
seizure on March 3, 1986 or five days after the successful EDSA revolution.[39] Petitioner
argues that a revolutionary government was operative at that time by virtue of Proclamation No.
1 announcing that President Aquino and Vice President Laurel were taking power in the name
and by the will of the Filipino people.[40] Petitioner asserts that the revolutionary government
effectively withheld the operation of the 1973 Constitution which guaranteed private
respondents exclusionary right.
Moreover, petitioner argues that the exclusionary right arising from an illegal search applies
only beginning 2 February 1987, the date of ratification of the 1987 Constitution. Petitioner
contends that all rights under the Bill of Rights had already reverted to its embryonic stage at
the time of the search. Therefore, the government may confiscate the monies and items taken
from Dimaano and use the same in evidence against her since at the time of their seizure,
private respondents did not enjoy any constitutional right.
Petitioner is partly right in its arguments.
The EDSA Revolution took place on 23-25 February 1986. As succinctly stated in President
Aquinos Proclamation No. 3 dated 25 March 1986, the EDSA Revolution was done in defiance
of the provisions of the 1973 Constitution.[41] The resulting government was indisputably a
revolutionary government bound by no constitution or legal limitations except treaty obligations
that the revolutionary government, as the de jure government in the Philippines, assumed under
international law.
The correct issues are: (1) whether the revolutionary government was bound by the Bill of
Rights of the 1973 Constitution during the interregnum, that is, after the actual and effective
take-over of power by the revolutionary government following the cessation of resistance by
loyalist forces up to 24 March 1986 (immediately before the adoption of the Provisional
Constitution); and (2) whether the protection accorded to individuals under the International
Covenant on Civil and Political Rights (Covenant) and the Universal Declaration of Human
Rights (Declaration) remained in effect during the interregnum.
We hold that the Bill of Rights under the 1973 Constitution was not operative during the
interregnum. However, we rule that the protection accorded to individuals under the Covenant
and the Declaration remained in effect during the interregnum.
During the interregnum, the directives and orders of the revolutionary government were the
supreme law because no constitution limited the extent and scope of such directives and orders.
With the abrogation of the 1973 Constitution by the successful revolution, there was no
municipal law higher than the directives and orders of the revolutionary government. Thus,
during the interregnum, a person could not invoke any exclusionary right under a Bill of Rights
23
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because there was neither a constitution nor a Bill of Rights during the interregnum. As the
Court explained in Letter of Associate Justice Reynato S. Puno:[42]
A revolution has been defined as the complete overthrow of the established government in any
country or state by those who were previously subject to it or as a sudden, radical and
fundamental change in the government or political system, usually effected with violence or at
least some acts of violence. In Kelsen's book, General Theory of Law and State, it is defined as
that which occurs whenever the legal order of a community is nullified and replaced by a new
order . . . a way not prescribed by the first order itself.
It was through the February 1986 revolution, a relatively peaceful one, and more popularly
known as the people power revolution that the Filipino people tore themselves away from an
existing regime. This revolution also saw the unprecedented rise to power of the Aquino
government.
From the natural law point of view, the right of revolution has been defined as an inherent right
of a people to cast out their rulers, change their policy or effect radical reforms in their system
of government or institutions by force or a general uprising when the legal and constitutional
methods of making such change have proved inadequate or are so obstructed as to be
unavailable. It has been said that the locus of positive law-making power lies with the people of
the state and from there is derived the right of the people to abolish, to reform and to alter any
existing form of government without regard to the existing constitution.
xxx
It is widely known that Mrs. Aquinos rise to the presidency was not due to constitutional
processes; in fact, it was achieved in violation of the provisions of the 1973 Constitution as a
Batasang Pambansa resolution had earlier declared Mr. Marcos as the winner in the 1986
presidential election. Thus it can be said that the organization of Mrs. Aquinos Government
which was met by little resistance and her control of the state evidenced by the appointment of
the Cabinet and other key officers of the administration, the departure of the Marcos Cabinet
officials, revamp of the Judiciary and the Military signaled the point where the legal system
then in effect, had ceased to be obeyed by the Filipino. (Emphasis supplied)
To hold that the Bill of Rights under the 1973 Constitution remained operative during the
interregnum would render void all sequestration orders issued by the Philippine Commission on
Good Government (PCGG) before the adoption of the Freedom Constitution. The sequestration
orders, which direct the freezing and even the take-over of private property by mere executive
issuance without judicial action, would violate the due process and search and seizure clauses of
the Bill of Rights.
During the interregnum, the government in power was concededly a revolutionary government
bound by no constitution. No one could validly question the sequestration orders as violative of
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the Bill of Rights because there was no Bill of Rights during the interregnum. However, upon
the adoption of the Freedom Constitution, the sequestered companies assailed the sequestration
orders as contrary to the Bill of Rights of the Freedom Constitution.
In Bataan Shipyard & Engineering Co. Inc. vs. Presidential Commission on Good Government,
[43] petitioner Baseco, while conceding there was no Bill of Rights during the interregnum,
questioned the continued validity of the sequestration orders upon adoption of the Freedom
Constitution in view of the due process clause in its Bill of Rights. The Court ruled that the
Freedom Constitution, and later the 1987 Constitution, expressly recognized the validity of
sequestration orders, thus:
If any doubt should still persist in the face of the foregoing considerations as to the validity and
propriety of sequestration, freeze and takeover orders, it should be dispelled by the fact that
these particular remedies and the authority of the PCGG to issue them have received
constitutional approbation and sanction. As already mentioned, the Provisional or Freedom
Constitution recognizes the power and duty of the President to enact measures to achieve the
mandate of the people to . . . (r)ecover ill-gotten properties amassed by the leaders and
supporters of the previous regime and protect the interest of the people through orders of
sequestration or freezing of assets or accounts. And as also already adverted to, Section 26,
Article XVIII of the 1987 Constitution treats of, and ratifies the authority to issue sequestration
or freeze orders under Proclamation No. 3 dated March 25, 1986.
The framers of both the Freedom Constitution and the 1987 Constitution were fully aware that
the sequestration orders would clash with the Bill of Rights. Thus, the framers of both
constitutions had to include specific language recognizing the validity of the sequestration
orders. The following discourse by Commissioner Joaquin G. Bernas during the deliberations of
the Constitutional Commission is instructive:
FR. BERNAS: Madam President, there is something schizophrenic about the arguments in
defense of the present amendment.
For instance, I have carefully studied Minister Salongas lecture in the Gregorio Araneta
University Foundation, of which all of us have been given a copy. On the one hand, he argues
that everything the Commission is doing is traditionally legal. This is repeated by
Commissioner Romulo also. Minister Salonga spends a major portion of his lecture developing
that argument. On the other hand, almost as an afterthought, he says that in the end what matters
are the results and not the legal niceties, thus suggesting that the PCGG should be allowed to
make some legal shortcuts, another word for niceties or exceptions.
Now, if everything the PCGG is doing is legal, why is it asking the CONCOM for special
protection? The answer is clear. What they are doing will not stand the test of ordinary due
process, hence they are asking for protection, for exceptions. Grandes malos, grandes remedios,
fine, as the saying stands, but let us not say grandes malos, grande y malos remedios. That is not
an allowable extrapolation. Hence, we should not give the exceptions asked for, and let me
elaborate and give three reasons:
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First, the whole point of the February Revolution and of the work of the CONCOM is to hasten
constitutional normalization. Very much at the heart of the constitutional normalization is the
full effectivity of the Bill of Rights. We cannot, in one breath, ask for constitutional
normalization and at the same time ask for a temporary halt to the full functioning of what is at
the heart of constitutionalism. That would be hypocritical; that would be a repetition of
Marcosian protestation of due process and rule of law. The New Society word for that is
backsliding. It is tragic when we begin to backslide even before we get there.
Second, this is really a corollary of the first. Habits tend to become ingrained. The committee
report asks for extraordinary exceptions from the Bill of Rights for six months after the
convening of Congress, and Congress may even extend this longer.
Good deeds repeated ripen into virtue; bad deeds repeated become vice. What the committee
report is asking for is that we should allow the new government to acquire the vice of
disregarding the Bill of Rights.
Vices, once they become ingrained, become difficult to shed. The practitioners of the vice begin
to think that they have a vested right to its practice, and they will fight tooth and nail to keep the
franchise. That would be an unhealthy way of consolidating the gains of a democratic
revolution.
Third, the argument that what matters are the results and not the legal niceties is an argument
that is very disturbing. When it comes from a staunch Christian like Commissioner Salonga, a
Minister, and repeated verbatim by another staunch Christian like Commissioner Tingson, it
becomes doubly disturbing and even discombobulating. The argument makes the PCGG an
auctioneer, placing the Bill of Rights on the auction block. If the price is right, the search and
seizure clause will be sold. Open your Swiss bank account to us and we will award you the
search and seizure clause. You can keep it in your private safe.
Alternatively, the argument looks on the present government as hostage to the hoarders of
hidden wealth. The hoarders will release the hidden health if the ransom price is paid and the
ransom price is the Bill of Rights, specifically the due process in the search and seizure clauses.
So, there is something positively revolving about either argument. The Bill of Rights is not for
sale to the highest bidder nor can it be used to ransom captive dollars. This nation will survive
and grow strong, only if it would become convinced of the values enshrined in the Constitution
of a price that is beyond monetary estimation.
For these reasons, the honorable course for the Constitutional Commission is to delete all of
Section 8 of the committee report and allow the new Constitution to take effect in full vigor. If
Section 8 is deleted, the PCGG has two options. First, it can pursue the Salonga and the Romulo
argument that what the PCGG has been doing has been completely within the pale of the law. If
sustained, the PCGG can go on and should be able to go on, even without the support of Section
8. If not sustained, however, the PCGG has only one honorable option, it must bow to the
majesty of the Bill of Rights.
The PCGG extrapolation of the law is defended by staunch Christians. Let me conclude with
what another Christian replied when asked to toy around with the law. From his prison cell,
Thomas More said, "I'll give the devil benefit of law for my nations safety sake. I ask the
Commission to give the devil benefit of law for our nations sake. And we should delete Section
8.
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Thank you, Madam President. (Emphasis supplied)
Despite the impassioned plea by Commissioner Bernas against the amendment excepting
sequestration orders from the Bill of Rights, the Constitutional Commission still adopted the
amendment as Section 26,[44] Article XVIII of the 1987 Constitution. The framers of the
Constitution were fully aware that absent Section 26, sequestration orders would not stand the
test of due process under the Bill of Rights.
Thus, to rule that the Bill of Rights of the 1973 Constitution remained in force during the
interregnum, absent a constitutional provision excepting sequestration orders from such Bill of
Rights, would clearly render all sequestration orders void during the interregnum. Nevertheless,
even during the interregnum the Filipino people continued to enjoy, under the Covenant and the
Declaration, almost the same rights found in the Bill of Rights of the 1973 Constitution.
The revolutionary government, after installing itself as the de jure government, assumed
responsibility for the States good faith compliance with the Covenant to which the Philippines
is a signatory. Article 2(1) of the Covenant requires each signatory State to respect and to ensure
to all individuals within its territory and subject to its jurisdiction the rights[45] recognized in
the present Covenant. Under Article 17(1) of the Covenant, the revolutionary government had
the duty to insure that [n]o one shall be subjected to arbitrary or unlawful interference with his
privacy, family, home or correspondence.
The Declaration, to which the Philippines is also a signatory, provides in its Article 17(2) that
[n]o one shall be arbitrarily deprived of his property. Although the signatories to the Declaration
did not intend it as a legally binding document, being only a declaration, the Court has
interpreted the Declaration as part of the generally accepted principles of international law and
binding on the State.[46] Thus, the revolutionary government was also obligated under
international law to observe the rights[47] of individuals under the Declaration.
The revolutionary government did not repudiate the Covenant or the Declaration during the
interregnum. Whether the revolutionary government could have repudiated all its obligations
under the Covenant or the Declaration is another matter and is not the issue here. Suffice it to
say that the Court considers the Declaration as part of customary international law, and that
Filipinos as human beings are proper subjects of the rules of international law laid down in the
Covenant. The fact is the revolutionary government did not repudiate the Covenant or the
Declaration in the same way it repudiated the 1973 Constitution. As the de jure government, the
revolutionary government could not escape responsibility for the States good faith compliance
with its treaty obligations under international law.
It was only upon the adoption of the Provisional Constitution on 25 March 1986 that the
directives and orders of the revolutionary government became subject to a higher municipal law
that, if contravened, rendered such directives and orders void. The Provisional Constitution
adopted verbatim the Bill of Rights of the 1973 Constitution.[48] The Provisional Constitution
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served as a self-limitation by the revolutionary government to avoid abuses of the absolute
powers entrusted to it by the people.
During the interregnum when no constitution or Bill of Rights existed, directives and orders
issued by government officers were valid so long as these officers did not exceed the authority
granted them by the revolutionary government. The directives and orders should not have also
violated the Covenant or the Declaration. In this case, the revolutionary government
presumptively sanctioned the warrant since the revolutionary government did not repudiate it.
The warrant, issued by a judge upon proper application, specified the items to be searched and
seized. The warrant is thus valid with respect to the items specifically described in the warrant.
However, the Constabulary raiding team seized items not included in the warrant. As admitted
by petitioners witnesses, the raiding team confiscated items not included in the warrant, thus:
The seizure of these items was therefore void, and unless these items are contraband per se,[53]
and they are not, they must be returned to the person from whom the raiding seized them.
However, we do not declare that such person is the lawful owner of these items, merely that the
search and seizure warrant could not be used as basis to seize and withhold these items from the
possessor. We thus hold that these items should be returned immediately to Dimaano.
WHEREFORE, the petition for certiorari is DISMISSED. The questioned Resolutions of the
Sandiganbayan dated 18 November 1991 and 25 March 1992 in Civil Case No. 0037,
remanding the records of this case to the Ombudsman for such appropriate action as the
evidence may warrant, and referring this case to the Commissioner of the Bureau of Internal
Revenue for a determination of any tax liability of respondent Elizabeth Dimaano, are
AFFIRMED.
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.
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.1wphi1.nt
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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.
"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
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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,
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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:
"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.
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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 Resolution21 requiring 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.
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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.26 On 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 in
Cojuangco 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.
33
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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
34
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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,
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."
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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
xxx
xxx
xxx
"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:
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"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 illgotten 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.
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
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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:
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"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
(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
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(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 Osmea 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."60 The
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
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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:
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"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. 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 facie public 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
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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:
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'(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.
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 third Whereas 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 facie public 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
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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 facie public 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
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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, 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 0033F. Our determination here is merely prima facie, and should not bar the anti-graft court from
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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. 0033A, 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.
G.R. No. L-1721
May 19, 1950
JUAN D. EVANGELISTA ET AL., plaintiffs-appellants,
vs.RAFAEL SANTOS, defendant-appellee.
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
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that defendant, in such triple capacity, through fault, 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.)
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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
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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 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
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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.
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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 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.
G.R. No. 150793

November 19, 2004
FRANCIS CHUA, petitioner,
vs.HON. COURT OF APPEALS and LYDIA C. HAO, respondents.
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
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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 1723 in
relation to Article 1714 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. 2857216
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
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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
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:
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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. 28572
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
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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 3613 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
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
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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 Appeals26 we held that if aggrieved, even a nonparty 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
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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 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
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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.
G.R. No. 152392

May 26, 2005
EXPERTRAVEL & TOURS, INC., petitioner,
vs.COURT OF APPEALS and KOREAN AIRLINES, respondent.
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 Complaint2 against ETI with the
Regional Trial Court (RTC) of Manila, for the collection of the principal amount of
P260,150.00, plus attorneys fees and exemplary damages. The verification and certification
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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 Affidavit3 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 Order4 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 Order5 dated August 8, 2000.
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,
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
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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 respondents general manager,
as well as the Secretarys/Resident Agents 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 Philippinebased 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;
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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 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 the respondent 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.
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It is settled that the requirement to file a certificate of non-forum shopping is mandatory8 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 plaintiffs 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 partys 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.
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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.
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 respondents 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 nonforum 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
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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 respondents Board of Directors in South Korea on June 25, 1999. The CA, likewise,
gave credence to the respondents claim that such a teleconference took place, as contained in
the affidavit of Suk Kyoo Kim, as well as Atty. Aguinaldos 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 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
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A teleconference represents a unique alternative to face-to-face (FTF) meetings. It was first
introduced in the 1960s with American Telephone and Telegraphs 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.
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 respondents 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.
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
card25 of Atty. Aguinaldo which the respondent appended to its pleading merely showed that he
is the company lawyer of the respondents 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 Order27 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
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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 respondents 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 Secretarys/Resident Agents Certificate
signed by Atty. Aguinaldo. However, no such resolution was appended to the said certificate.
The respondents 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
Secretarys/Resident Agents 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 Secretarys/Resident
Agents Certificate30 dated January 10, 2000.
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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 respondents 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.
G.R. No. L-33320 May 30, 1983
RAMON A. GONZALES, petitioner,
Vs THE PHILIPPINE NATIONAL BANK, respondent.
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 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
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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.
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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:
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.
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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'
71
CORPO LAW
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.
WHEREFORE, the petition is hereby DISMISSED, without costs.
72

CORPO CASES VI. Right of Share Holders

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CORPO CASES VI. Right of Share Holders

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CORPO LAW

CASES: VI. Rights of Shareholders

[G.R. No. 104768. July 21, 2003]

G.R. No. 147062-64

G.R. No. 150793

G.R. No. 152392

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