HOLIDAY INN (PHILS.), INC., PETITIONER, VS. THE SANDIGANBAYAN (1ST DIVISION), REPUBLIC OF THE PHILIPPINES, REPRESENTED BY THE PHILIPPINE COMMISSION ON GOOD GOVERNMENT (PCGG), RO…

Holiday Inn Philippines versus Sandiganbayan

The Case

This is a petition for review on certiorari, treated as a special civil action for certiorari, brought by Holiday Inn Philippines against the Sandiganbayan. The petitioner challenges the Sandiganbayan's denial of its motion to intervene in a sequestration case filed by the Republic of the Philippines against Roberto Benedicto and others for the recovery of alleged ill-gotten wealth. The case matters because it defines the boundaries of the Sandiganbayan's exclusive jurisdiction over incidents related to sequestration cases, and clarifies when a private party dealing with a sequestered corporation may intervene in the main ill-gotten wealth case.

Procedural History

The Republic of the Philippines, represented by the Presidential Commission on Good Government, filed a sequestration case before the Sandiganbayan against Roberto Benedicto and others, seeking recovery of properties alleged to be ill-gotten wealth. New Riviera Hotel and Development Company was among the firms sequestered in that case. Holiday Inn Philippines filed a motion for intervention with a proposed complaint-in-intervention, questioning the termination of its management contract and seeking recovery of unpaid management fees. On November 11, 1988, the Sandiganbayan denied the motion for lack of jurisdiction. Holiday Inn Philippines then filed the present petition before the Supreme Court, which issued a temporary restraining order on November 16, 1988.

Facts

On January 1, 1976, Holiday Inn Incorporated entered into a management contract with New Riviera Hotel and Development Company for a period of ten years. Article 18 of that agreement granted Holiday Inn a right of first refusal should the owner receive a bona fide offer from a third party to purchase the premises or any interest in the owner. On the same date, both parties assigned all their rights under the agreement to Holiday Inn Philippines.

On April 22, 1986, New Riviera was sequestered by the Presidential Commission on Good Government, which appointed fiscal agents and placed an operating team to monitor the corporation's activities. Due to operational conflicts, the Commission and Roberto Benedicto, perceived to be the controlling stockholder, agreed that two-thirds of the board of directors would be Commission nominees and one-third would be Benedicto nominees. On July 14, 1986, Holiday Inn Philippines and New Riviera entered into an addendum extending the management agreement to an indefinite period on its existing terms, with either party having the right to terminate upon six months prior written notice.

On May 10, 1988, New Riviera served notice terminating the management agreement six months from that date. Holiday Inn Philippines later learned the termination was prompted by New Riviera's decision to have New World Hotel Philippines manage the property instead. Contending there was a breach of Article 18's right of first refusal, Holiday Inn Philippines initiated an action for intervention in the Sandiganbayan sequestration case on November 2, 1988.

Issues

• Whether or not the petitioner has a legal interest in the sequestration case sufficient to justify its intervention therein.
• Whether or not the Sandiganbayan has jurisdiction over the subject matter of the petitioner's proposed complaint-in-intervention.

Applicable Provisions

Section 2 of Rule 12 of the Rules of Court, as quoted by the Sandiganbayan in its resolution, provides:

A person may intervene in a proceeding if that person has a legal interest in the success of either of the parties, or against both, or when a disposition of the property involved would affect the prospective intervenor.

This provision governs the first issue of whether Holiday Inn Philippines possesses a sufficient legal interest to intervene in the main sequestration case.

Ruling

On the first issue, the Supreme Court agreed with the Sandiganbayan that Holiday Inn Philippines failed to show a legal interest sufficient to justify intervention. The subject matter of the main case concerned whether the sequestered properties were ill-gotten or crony properties. The Court held that whether the legality of Benedicto's acquisition is upheld does not affect the rights of third persons who deal with sequestered corporations. The termination of the management contract and the right of first refusal are matters for the board of directors of New Riviera to determine, not matters that would be legally affected by a finding on the lawfulness of Benedicto's acquisition.

On the second issue, the Court likewise agreed with the Sandiganbayan that it lacked jurisdiction over the proposed complaint-in-intervention. The Court explained that the original and exclusive jurisdiction given to the Sandiganbayan over Presidential Commission on Good Government cases pertains to cases filed by the Commission pursuant to its powers under the executive orders and the Constitution, where the principal cause of action is the recovery of ill-gotten wealth, as well as all incidents arising from or related to such cases, and cases filed by those who wish to question the Commission's acts or orders in such cases. The Court stated:

The presence of PCGG representatives in sequestered companies does not automatically tear down the corporate veil that distinguishes the corporation from its officers, directors or stockholders. Corporate officers whether nominated by the PCGG or not act, insofar as third parties are concerned, are corporate officers.

The petitioner's proposed complaint-in-intervention was an ordinary civil case involving interpretation of contract, not directed against the Commission as an entity but against a private corporation. The question of whether the sequestered property was lawfully acquired had no bearing on the legality of the termination of the management contract; the two are independent and unrelated issues.

Doctrine

The Sandiganbayan's exclusive jurisdiction over Presidential Commission on Good Government cases extends only to cases where the principal cause of action is the recovery of ill-gotten wealth and to cases questioning the Commission's acts or orders in such cases. A contract dispute between a private party and a sequestered corporation, even where Commission nominees dominate the corporation's board, is not per se a Commission case and does not fall within the Sandiganbayan's jurisdiction.

The presence of Commission representatives in sequestered companies does not automatically pierce the corporate veil. Corporate officers, whether nominated by the Commission or not, act as corporate officers insofar as third parties are concerned. Their acts are not Commission activities merely because of their nomination.

A party seeking intervention must show a legal interest that would be directly affected by the disposition of the main case. A management contract dispute with a sequestered corporation is independent and unrelated to the question of whether the corporation's properties were ill-gotten.

Disposition

The Supreme Court dismissed the petition, upheld the Sandiganbayan's ruling denying the motion to intervene, and lifted the temporary restraining order, with no costs.

Remember This

Remember that sequestration does not erase the corporate personality of a sequestered company, so contract disputes with third parties remain ordinary civil cases outside the Sandiganbayan's exclusive jurisdiction. Examiners like to use this case to test whether you understand the limits of the Sandiganbayan's jurisdiction over incidents related to ill-gotten wealth cases, and when the corporate veil remains intact despite government takeover.