Case Digest: REPUBLIC OF THE PHILIPPINES v. SANDIGANBAYAN et al . 402 SCRA 84(2003)

REPUBLIC OF THE PHILIPPINES v. SANDIGANBAYAN et al . 402 SCRA 84(2003)

The PCGG cannot vote sequestered shares to elect the ETPI Board of Directors or to amend the Articles of Incorporation for the purpose of increasing the authorized capital stock unless there is a prima facie evidence showing that said shares are ill-gotten and there is an imminent danger of dissipation.

Two sets of board and officers of Eastern Telecommunications, Philippines, Inc. (ETPI) were elected, one by the Presidential Commission on Good Government (PCGG) and the other by the registered ETPI stockholders.Victor Africa, a stockholder of ETPI filed a petition for Certiorari before the Sandiganbayan alleging that the PCGG had been “illegally exercising the rights of stockholders of ETPI,” in the election of the members of the board of directors. The Sandiganbayan ruled that only the registered owners, their duly authorized representatives or their proxies may vote their corresponding shares. The PCGG filed a petition for certiorari, mandamus and prohibition before the Court which was granted. The Court referred the PCGG’s petition to hold the special stockholders’ meeting to the Sandiganbayan for reception of evidence and resolution. The Sandiganbayan granted the PCGG “authority to cause the holding of a special stockholders’ meeting of ETPI and held that there was an urgent necessity to increase ETPI’s authorized capital stock; there existed a prima facie factual foundation for the issuance of the writ of sequestration covering the Class “A” shares of stock; and the PCGG was entitled to vote the sequestered shares of stock. The PCGG-controlled ETPI board of directors held a meeting and the increase in ETPI’s authorized capital stock from P250 Million to P2.6 Billion was “unanimously approved”. Africa filed a motion to nullify the stockholders meeting, contending that only the Court, and not the Sandiganbayan, has the power to authorize the PCGG to call a stockholders meeting and vote the sequestered shares. The Sandiganbayan denied the motions for reconsideration of prompting Africa to file before the Court a second petition, challenging the Sandiganbayan Resolutions authorizing the holding of a stockholders meeting and the one denying the motion for reconsideration.

ISSUES:

1. Whether or not the Sandiganbayan gravely abused its discretion in ordering the holding of a stockholders meeting to elect the ETPI board of directors without first setting in place, through the amendment of the articles of incorporation and the by-laws of ETPI 2. Whether the PCGG can vote the sequestered ETPI Class “A” shares in the stockholders meeting for the election of the board of directors.

HELD:

First Issue :
On the PCGG’s imputation of grave abuse of discretion upon the Sandiganbayan for ordering the holding of a stockholders meeting to elect the ETPI board of directors without first setting in place, through the amendment of the articles of incorporation and the by-laws of ETPI, the safeguards prescribed in Cojuangco, Jr. v. Roxas. The Court laid down those safeguards because of the obvious need to reconcile the rights of the stockholder whose shares have been sequestered and the duty of the conservator to preserve what could be ill-gotten wealth. There is nothing in the Cojuangco case that would suggest that the above measures should be incorporated in the articles and by-laws before a stockholders meeting for the election of the board of directors is held. The PCGG nonetheless insists that those measures should be written in the articles and by-laws before such meeting, “otherwise, the {Marcos] cronies will elect themselves or their representatives, control the corporation, and for an appreciable period of time, have every opportunity to disburse funds, destroy or alter corporate records, and dissipate assets.” That could be a possibility, but the peculiar circumstances of the case require that the election of the board of directors first be held before the articles of incorporation are amended. Section 16 of the Corporation Code requires the majority vote of the board of directors to amend the articles of incorporation. At the time Africa filed his motion for the holding of the annual stockholders meeting, there were two sets of ETPI directors, one controlled by the PCGG and the other by the registered stockholders. Which of them is the legitimate board of directors? Which of them may rightfully vote to amend the articles of incorporation and integrate the safeguards laid down in Cojuangco? It is essential, therefore, to cure the aberration of two boards of directors sitting in a single corporation before the articles of incorporation are amended to set in place the Cojuangco safeguards. The danger of the so-called Marcos cronies taking control of the corporation and dissipating its assets is, of course, a legitimate concern of the PCGG, charged as it is with the duties of a conservator. Nevertheless, such danger may be averted by the “substantially contemporaneous” amendment of the articles after the election of the board.

Second Issue :
The principle laid down in Baseco vs. PCGG was further enhanced in the subsequent cases of Cojuangco v. Calpo and Presidential Commission on Good Government v. Cojuangco, Jr., where the Court developed a “two-tiered” test in determining whether the PCGG may vote sequestered shares. The issue of whether PCGG may vote the sequestered shares in SMC necessitates a determination of at least two factual matters: a.) whether there is prima facie evidence showing that the said shares are ill-gotten and thus belong to the state; and b.) whether there is an immediate danger of dissipation thus necessitating their continued sequestration and voting by the PCGG while the main issue pends with the Sandiganbayan. The two-tiered test, however, does not apply in cases involving funds of “public character.” In such cases, the government is granted the authority to vote said shares, namely: (1) Where government shares are taken over by private persons or entities who/which registered them in their own names, and (2) Where the capitalization or shares that were acquired with public funds somehow landed in private hands. 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. The rule in the jurisdiction is, therefore, clear. The PCGG cannot perform acts of strict ownership of sequestered property. It is a mere conservator. It may not vote the shares in a corporation and elect members of the board of directors. The only conceivable exception is in a case of a takeover of a business belonging to the government or whose capitalization comes from public funds, but which landed in private hands as in BASECO. In short, the Sandiganbayan held that the public character exception does not apply, in which case it should have proceeded to apply the two-tiered test. This it failed to do. The questions thus remain if there is prima facie evidence showing that the subject shares are ill- gotten and if there is imminent danger of dissipation. The Court is not, however, a trier of facts, hence, it is not in a position to rule on the correctness of the PCGG’s contention. Consequently, the issue must be remanded to the Sandiganbayan for resolution.