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Case Digest - RP Vs Sandiganbayan

This document summarizes a court case regarding two competing boards of directors elected for Eastern Telecommunications Philippines, Inc (ETPI). [1] The Presidential Commission on Good Government (PCGG) voted to elect one board, while registered stockholders voted to elect another. [2] The court ruled the Sandiganbayan erred in allowing the PCGG to vote sequestered shares and elect a board without determining if the shares were ill-gotten wealth. [3] The case was remanded to the Sandiganbayan to apply the two-tiered test to evaluate the status of the shares.

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461 views

Case Digest - RP Vs Sandiganbayan

This document summarizes a court case regarding two competing boards of directors elected for Eastern Telecommunications Philippines, Inc (ETPI). [1] The Presidential Commission on Good Government (PCGG) voted to elect one board, while registered stockholders voted to elect another. [2] The court ruled the Sandiganbayan erred in allowing the PCGG to vote sequestered shares and elect a board without determining if the shares were ill-gotten wealth. [3] The case was remanded to the Sandiganbayan to apply the two-tiered test to evaluate the status of the shares.

Uploaded by

Vic Rabaya
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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G.R. No.

104768 July 21, 2003

REPUBLIC OF THE PHILIPPINES, Petitioner,


vs.
SANDIGANBAYAN, MAJOR GENERAL JOSEPHUS Q. RAMAS and ELIZABETH
DIMAANO, Respondents.

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. WoN the Sandiganbayan gravely abusedits 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. WoN 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.

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