REPUBLIC OF THE PHILIPPINES, REPRESENTED BY THE PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG), PETITIONER, VS. COCOFED ET AL. AND BALLARES ET AL., EDUARDO M. COJUANGCO JR. A…

Republic versus Cojuangco

The Case

This is a special civil action for certiorari under Rule 65 of the Rules of Court, brought by the Republic of the Philippines through the Presidential Commission on Good Government against COCOFED and the Ballares group, together with Eduardo Cojuangco Jr. and the other registered stockholders of the United Coconut Planters Bank. The Republic asks the Supreme Court to annul a Sandiganbayan order that allowed the private respondents, as registered stockholders, to vote sequestered UCPB shares at an approaching stockholders' meeting. The case matters because it draws the line between two tests for voting sequestered stock: the ordinary two-tiered test for allegedly ill-gotten shares, and the public character exception that applies when the shares were bought with coconut levy funds.

Procedural History

After the change of government in 1986, the Commission sequestered UCPB shares registered in the names of the alleged one million coconut farmers, the Coconut Industry Investment Fund companies, and Eduardo Cojuangco Jr. On July 31, 1987, the Commission filed before the Sandiganbayan an action for reconveyance, reversion, accounting, restitution and damages. On November 15, 1990, the Sandiganbayan lifted the sequestration because the private respondents had not been impleaded as defendants. The Commission challenged that resolution before the Supreme Court, which first allowed the registered owners to vote, then recalled that ruling on February 16, 1993 and restored the status quo by letting the Commission continue voting the shares. On January 23, 1995, the Supreme Court nullified the Sandiganbayan resolution lifting the sequestration. The case was then subdivided into eight complaints.

Six years later, the private respondents demanded a stockholders' meeting and filed a class action omnibus motion to stop the Commission from voting. On February 28, 2001, the Sandiganbayan issued the assailed order authorizing the registered stockholders to vote their shares, subject to nominal bonds. The Republic came to the Supreme Court on certiorari. The case was initially raffled to the Third Division, which ordered the parties to maintain the status quo, then referred the matter to the Court en banc, which heard oral argument in Baguio City in April 2001 and admitted the intervention of a coalition of coconut farmers and farm workers.

Facts

After the 1986 EDSA Revolution, President Corazon Aquino issued Executive Orders Numbered 1, 2 and 14, creating the Presidential Commission on Good Government to recover wealth amassed by former President Ferdinand Marcos, his family, relatives and close associates. Pursuant to these laws, the Commission sequestered, among other properties, UCPB shares registered in the names of the alleged one million coconut farmers, the Coconut Industry Investment Fund companies, and Eduardo Cojuangco Jr.

The Commission sued for reconveyance, reversion, accounting, restitution and damages. The Sandiganbayan at first lifted the sequestration for failure to implead the registered holders, but the Supreme Court set that aside and, in a February 1993 resolution, held that the registered holders could not yet be conceded the right to vote because their ownership still had to be established. In its final decision in January 1995, the Court nullified the lifting of sequestration, holding that the shares themselves were the res of the action.

In February 2001, the private respondents demanded a stockholders' meeting, and the UCPB board called one for March 6, 2001. The private respondents then moved to enjoin the Commission from voting the shares. The Sandiganbayan granted the motion on February 28, 2001, authorizing the registered stockholders to vote their shares and to be voted upon, subject to nominal bonds of 50,000 pesos each. Hence this petition.

Issues

• Whether or not the Sandiganbayan committed grave abuse of discretion in issuing its February 28, 2001 order allowing the private respondents to vote the UCPB shares registered in their names, despite the coconut levy funds used to purchase them and the continuing force of the February 16, 1993 resolution allowing the Commission to vote those shares.
• Whether or not the Sandiganbayan violated the Republic's right to due process by acting on the class action omnibus motion despite insufficient notice and by issuing injunctive relief where there was no pressing necessity.

Applicable Provisions

Section 26, Article Eighteen of the 1987 Constitution, which fixes the period within which the Commission must bring the corresponding judicial action, provides:

Sec. 26. The authority to issue sequestration or freeze orders under Proclamation No. 3 dated March 25, 1986 in relation to the recovery of ill-gotten wealth shall remain operative for not more than eighteen months after the ratification of this Constitution. However, in the national interest, as certified by the President, the Congress may extend said period.

This provision bears on the case because the Sandiganbayan had earlier lifted the sequestration on the ground that the judicial action was not commenced within the period it fixes.

Executive Order Number 1, which created the Commission, provides:

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 is created to assist the President in the recovery of the ill-gotten wealth thus accumulated whether located in the Philippines or abroad.

This provision bears on the case because it is the source of the Commission's authority to sequester and to conserve the assets in question.

Executive Order Number 2, describing the forms the ill-gotten assets may take, provides:

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.

This provision bears on the case because it expressly includes shares of stock among the properties subject to recovery.

Presidential Decree Number 755, cited by the Court, provides:

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.

This provision bears on the case because it anchors the finding that the sequestered shares were purchased with coconut levy funds.

Ruling

On the first issue, the Court ruled in favor of the Republic. It began with the general rule that the registered owner of shares exercises the right to vote, and that the Commission, as a mere conservator, cannot as a rule perform acts of strict ownership. The Commission may vote sequestered shares acquired with allegedly ill-gotten wealth only if it satisfies the two-tiered test: first, prima facie evidence that the shares are ill-gotten and belong to the State; and second, imminent danger of dissipation necessitating continued sequestration and voting by the government while the main case is pending.

The Court then carved out the exception. Where the sequestered shares are shown prima facie to have been originally government shares, or to have been purchased with public funds or funds affected with public interest, the two-tiered test does not apply. Instead, the public character test governs, and the government shall vote the shares. The Court rested this 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 enjoy the rights flowing from prima facie ownership.

Applying this to the facts, the Court found it undisputed that the UCPB shares were purchased with coconut levy funds. Private respondents' counsel conceded this at oral argument, and the Court had already declared in an earlier case that the bank was acquired with the Coconut Consumers Stabilization Fund. The Court held that these funds and shares are, at the very least, affected with public interest, quoting its own earlier resolution:

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.

The Court rejected the argument that the February 1993 resolution had lost force as a mere interlocutory order, holding that its jurisprudential bases remain and that the coconut levy funds are still clearly affected with public interest. Private respondents had not satisfactorily demonstrated that the funds had legitimately become private. On the second issue, the Court found the petition impressed with merit, the Sandiganbayan having acted with grave abuse of discretion in issuing the disputed order.

Doctrine

Three rules must be retained. First, as a general rule, the registered owner of sequestered shares exercises the right to vote them, and the Commission as conservator cannot perform acts of strict ownership. Second, the Commission may vote sequestered shares acquired with allegedly ill-gotten wealth only upon satisfying the two-tiered test: prima facie evidence that the shares are ill-gotten, and imminent danger of dissipation. Third, the public character exception applies where the shares were originally government shares or were purchased with public funds or funds affected with public interest; there the two-tiered test does not apply, and the government votes the shares. Coconut levy funds, raised under the State's police and taxing powers, are clearly affected with public interest until it is satisfactorily shown that they have legitimately become private funds.

Disposition

The Court granted the petition, set aside the February 28, 2001 order of the Sandiganbayan, and allowed the Presidential Commission on Good Government to continue voting the sequestered UCPB shares.

Remember This

The one line to memorize: the two-tiered test governs allegedly ill-gotten shares, but the public character test governs shares bought with coconut levy funds, and under it the government votes. Examiners use this case to test the distinction between the Commission as conservator and as voter of sequestered stock, and the exception for shares acquired with public funds.