EDUARDO M. COJUANGCO, JR., MANUEL M. COJUANGCO AND RAFAEL G. ABELLO, PETITIONERS, VS. ANTONIO J. ROXAS, JOSE L. CUISIA, JR., OSCAR HILADO, PRESIDENTIAL COMMISSION ON GOOD GOVERN…

Cojuangco versus Roxas

The Case

This is a consolidated special civil action in the nature of certiorari and quo warranto brought by Eduardo Cojuangco, Junior, Manuel Cojuangco, and Rafael Abello against Antonio Roxas, Jose Cuisia, Junior, Oscar Hilado, and the Presidential Commission on Good Government, together with the directors proclaimed at the annual stockholders' meetings of San Miguel Corporation. The petitioners ask the Supreme Court to strike down the voting by the Presidential Commission on Good Government of shares of stock placed under sequestration, and to undo the election of directors that resulted from that voting. The case matters because it draws the boundary between conservation and ownership: it tells us that a sequestrator holds property in custody, not in dominion, and that the power to vote sequestered shares is a narrow, conditioned exception, never a license to take over a corporation.

Procedural History

After the annual stockholders' meeting of San Miguel Corporation in April 1989, the petitioners filed with the Sandiganbayan a petition for quo warranto against the fifteen candidates proclaimed as directors. Summons was issued only against Roxas, Cuisia, and Hilado, whose election would be affected if the petitioners' claim succeeded. The Sandiganbayan rendered a resolution in November 1989 affirming its jurisdiction but dismissing the petition for lack of cause of action, holding that the Presidential Commission on Good Government had the right to vote the sequestered shares. The petitioners then came to the Supreme Court by petition for certiorari. A second petition for quo warranto arose from the annual meeting of April 1990, raising the same issues, and the Court resolved both together.

Facts

At the annual stockholders' meeting of San Miguel Corporation held in April 1989, fifteen directors were to be elected. Of the shares outstanding, more than ninety-four percent were present in person or by proxy. Over the objection of the representatives of certain corporate shareholders, the Presidential Commission on Good Government was allowed to represent and vote the shares of numerous corporations claimed to be under sequestration, together with the shares of Eduardo Cojuangco, Junior. With those votes, the fifteen candidates receiving the highest number of votes were declared elected, while the petitioners received comparatively negligible votes.

The petitioners alleged that the corporate shares, and the votes corresponding to them, were illegally cast, and that if those votes had been credited to them, they would have obtained enough votes to be elected. They filed a petition for quo warranto with the Sandiganbayan, which dismissed it on the ground that the Commission had the right to vote the sequestered shares.

The following year, at the annual meeting of April 1990, the same pattern repeated. The Commission was again allowed to vote the shares under sequestration, the fifteen candidates with the highest votes were proclaimed, and the petitioners claimed that had their shares been voted, they would have been among the fifteen highest. Rather than return to the Sandiganbayan, and stressing that time was of the essence since they had been denied the right to vote since 1986, the petitioners filed a petition for quo warranto directly with the Supreme Court, raising the same issues.

Issues

• Whether or not the Presidential Commission on Good Government may vote shares of stock under sequestration and elect the members of the board of directors of the corporation concerned.
• Whether or not the Commission may exercise acts of strict ownership, such as voting sequestered shares, on the theory that sequestration aims to prevent the dissipation of corporate assets.
• Whether or not the petitioners are entitled to the relief prayed for, namely the counting of the corporate shares in their favor and the ouster of the directors proclaimed.

Applicable Provisions

The decision rests on the executive orders governing sequestration, freezing, and provisional takeover, which the Court construes and quotes:

That the PCGG cannot exercise acts of dominion over property sequestered, frozen or provisionally taken over.

This is the Court's own restatement of the rule in its earlier decision in BASECO versus PCGG, and it supplies the controlling principle: sequestration does not divest title.

The act of sequestration, freezing or provisional takeover of property does not import or bring about a divestment of title over said property; does not make the PCGG the owner thereof.

This language fixes the Commission's status as conservator, not owner, and therefore bars acts of strict ownership over the sequestered shares.

In relation to the property sequestered, frozen or provisionally taken over, the PCGG is a conservator, not an owner.

This is the sentence on which the entire ruling turns, because the right to vote shares for the election of directors is an attribute of ownership.

The Court also construes the memorandum of the President dated June 26, 1986, authorizing the Commission, pending the outcome of proceedings to determine ownership, to vote sequestered shares at stockholders' meetings called for the election of directors, declaration of dividends, and amendment of the articles of incorporation. That memorandum is the source of the limited voting power, and it must be read consistently with the executive orders, not in contradiction of them.

Ruling

On the first issue, the Court ruled that the Commission may not vote sequestered shares and elect directors as a matter of course. Sequestration does not transfer title; the Commission is a conservator, not an owner, and may not perform acts of strict ownership. The Court held that the Commission may exercise only powers of administration over sequestered property, much like a court-appointed receiver: it may bring and defend actions, receive rents, collect debts, pay outstanding debts, and do what is necessary to fulfill its mission as conservator and administrator. In the special case of a business enterprise shown to have been taken over by the Marcos administration or by persons close to former President Marcos, the Commission may provisionally take it over and exercise some measure of control over its operation, but the intrusion into management must be restricted to the minimum degree necessary to prevent disposal or dissipation. There should be no hasty or indiscriminate replacement of management officials, and no role for rank amateurs, however well meaning.

On the second issue, the Court rejected the Solicitor General's contention that the purpose of sequestration, to prevent dissipation and preserve corporate assets, justifies acts of strict ownership such as voting the shares. The Court held that the power to vote sequestered stock exists, but only within strict limits. There should be no exercise of the right to vote simply because the right exists, or because the sequestered stock constitutes the controlling or a substantial part of the corporate voting power. The stock is not to be voted to replace directors, revise the articles or by-laws, or bring about substantial changes in policy except for demonstrably weighty and defensible grounds, always in the context of the stated purposes of sequestration, namely to prevent the dispersion or undue disposal of corporate assets. Directors are not to be voted out simply because the power to do so exists; substitution of directors should be shunned if at all possible and undertaken only when essential to prevent the disappearance or wastage of corporate property. The Court distinguished its earlier ruling in BASECO, where there was adequate justification to vote the incumbent directors out because the evidence showed prima facie that they were mere tools of President Marcos and were no longer owners of any stock in the firm. No such justification appeared here.

On the third issue, the Court found that there was no proof or indication that the petitioners sought to exercise their rights as stockholders to dissipate, dispose, conceal, destroy, transfer, or encumber their sequestered shares, while there was no doubt that the petitioners had the right to vote their shares. The petitions were therefore impressed with merit.

Doctrine

Sequestration, freezing, or provisional takeover does not divest title. The Presidential Commission on Good Government is a conservator, not an owner, and may exercise only powers of administration over sequestered property, not acts of strict ownership. The election of directors is an act of ownership belonging to the shareholders of record, and the Commission may vote sequestered shares only within the narrow limits of the presidential memorandum, construed consistently with the executive orders, and only for demonstrably weighty and defensible grounds tied to preventing the dissipation of corporate assets. A Bar answer should anchor this rule on the quoted principle that sequestration does not import a divestment of title, and should note that BASECO is the exception justified by prima facie evidence that the incumbent directors were tools of the former President and no longer owners of stock.

Disposition

The Court granted the petitions, holding that the Presidential Commission on Good Government had no right to vote the sequestered shares in the manner it did, and ruled in favor of the petitioners' claim to vote their shares.

Remember This

Memorize the line: the Commission is a conservator, not an owner, so sequestration never carries the right to vote shares as a matter of course. Examiners use this case to test the limits of the Commission's powers over sequestered property and the distinction between administration and acts of dominion.