WHO MAY EXERCISE

EN BANC

G.R. No. 176579               October 9, 2012

HEIRS OF WILSON P. GAMBOA,* Petitioners,

vs.
FINANCE SECRETARYMARGARITO B. TEVES, FINANCE UNDERSECRETARYJOHN P. SEVILLA, AND COMMISSIONER RICARDO ABCEDE
OF THE PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT(PCGG) IN THEIR CAPACITIES AS CHAIR AND MEMBERS,
RESPECTIVELY, OF THE PRIVATIZATION COUNCIL, CHAIRMAN ANTHONI SALIM OF FIRST PACIFIC CO., LTD. IN HIS CAPACITY AS
DIRECTOR OF METRO PACIFIC ASSET HOLDINGS INC., CHAIRMAN MANUEL V. PANGILINAN OF PHILIPPINE LONG DISTANCE
TELEPHONE COMPANY (PLDT) IN HIS CAPACITY AS MANAGING DIRECTOR OF FIRST PACIFIC CO., LTD., PRESIDENT NAPOLEON L.
NAZARENO OF PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, CHAIR FE BARIN OF THE SECURITIES AND EXCHANGE
COMMISSION, and PRESIDENT FRANCIS LIM OF THE PHILIPPINE STOCK EXCHANGE, Respondents.

PABLITO V. SANIDAD and ARNO V. SANIDAD, Petitioner-in-Intervention.

RESOLUTION

CARPIO, J.:

This resolves the motions for reconsideration of the 28 June 2011 Decision filed by (1) the Philippine Stock Exchange's (PSE)
President, 1 (2) Manuel V. Pangilinan (Pangilinan),2 (3) Napoleon L. Nazareno (Nazareno ), 3 and ( 4) the Securities and Exchange
Commission (SEC)4 (collectively, movants ).

The Office of the Solicitor General (OSG) initially filed a motion for reconsideration on behalfofthe SEC, 5 assailing the 28 June 2011
Decision. However, it subsequently filed a Consolidated Comment on behalf of the State, 6 declaring expressly that it agrees with the
Court's definition of the term "capital" in Section 11, Article XII of the Constitution. During the Oral Arguments on 26 June 2012, the
OSG reiterated its position consistent with the Court's 28 June 2011 Decision.

We deny the motions for reconsideration.

I.
Far-reaching implications of the legal issue justify
treatment of petition for declaratory relief as one for mandamus.

As we emphatically stated in the 28 June 2011 Decision, the interpretation of the term "capital" in Section 11, Article XII of the
Constitution has far-reaching implications to the national economy. In fact, a resolution of this issue will determine whether Filipinos
are masters, or second-class citizens, in their own country. What is at stake here is whether Filipinos or foreigners will have effective
control  of the Philippine national economy. Indeed, if ever there is a legal issue that has far-reaching implications to the entire
nation, and to future generations of Filipinos, it is the threshold legal issue presented in this case.

Contrary to Pangilinan’s narrow view, the serious economic consequences resulting in the interpretation of the term "capital" in
Section 11, Article XII of the Constitution undoubtedly demand an immediate adjudication of this issue. Simply put, the far-reaching
implications of this issue justify the treatment of the petition as one for mandamus. 7

In Luzon Stevedoring Corp. v. Anti-Dummy Board,8 the Court deemed it wise and expedient to resolve the case although the petition
for declaratory relief could be outrightly dismissed for being procedurally defective. There, appellant admittedly had already
committed a breach of the Public Service Act in relation to the Anti-Dummy Law since it had been employing non- American aliens
long before the decision in a prior similar case. However, the main issue in Luzon Stevedoring was of transcendental importance,
involving the exercise or enjoyment of rights, franchises, privileges, properties and businesses which only Filipinos and qualified
corporations could exercise or enjoy under the Constitution and the statutes. Moreover, the same issue could be raised by appellant
in an appropriate action. Thus, in Luzon Stevedoring  the Court deemed it necessary to finally dispose of the case for the guidance of
all concerned, despite the apparent procedural flaw in the petition.
The circumstances surrounding the present case, such as the supposed procedural defect of the petition and the pivotal legal issue
involved, resemble those in Luzon Stevedoring. Consequently, in the interest of substantial justice and faithful adherence to the
Constitution, we opted to resolve this case for the guidance of the public and all concerned parties.

II.
No change of any long-standing rule;
thus, no redefinition of the term "capital."

Movants contend that the term "capital" in Section 11, Article XII of the Constitution has long been settled and defined to refer to
the total outstanding shares of stock, whether voting or non-voting. In fact, movants claim that the SEC, which is the administrative
agency tasked to enforce the 60-40 ownership requirement in favor of Filipino citizens in the Constitution and various statutes, has
consistently adopted this particular definition in its numerous opinions. Movants point out that with the 28 June 2011 Decision, the
Court in effect introduced a "new" definition or "midstream redefinition" 9 of the term "capital" in Section 11, Article XII of the
Constitution.

This is egregious error.

For more than 75 years since the 1935 Constitution, the Court has not interpreted or defined the term "capital" found in various
economic provisions of the 1935, 1973 and 1987 Constitutions. There has never been a judicial precedent interpreting the term
"capital" in the 1935, 1973 and 1987 Constitutions, until now. Hence, it is patently wrong and utterly baseless to claim that the Court
in defining the term "capital" in its 28 June 2011 Decision modified, reversed, or set aside the purported long-standing definition of
the term "capital," which supposedly refers to the total outstanding shares of stock, whether voting or non-voting. To repeat, until
the present case there has never been a Court ruling categorically defining the term "capital" found in the various economic
provisions of the 1935, 1973 and 1987 Philippine Constitutions.

The opinions of the SEC, as well as of the Department of Justice (DOJ), on the definition of the term "capital" as referring to both
voting and non-voting shares (combined total of common and preferred shares) are, in the first place, conflicting and inconsistent.
There is no basis whatsoever to the claim that the SEC and the DOJ have consistently and uniformly adopted a definition of the term
"capital" contrary to the definition that this Court adopted in its 28 June 2011 Decision.

In DOJ Opinion No. 130, s. 1985,10 dated 7 October 1985, the scope of the term "capital" in Section 9, Article XIV of the 1973
Constitution was raised, that is, whether the term "capital" includes "both preferred and common stocks." The issue was raised in
relation to a stock-swap transaction between a Filipino and a Japanese corporation, both stockholders of a domestic corporation
that owned lands in the Philippines. Then Minister of Justice Estelito P. Mendoza ruled that the resulting ownership structure of the
corporation would be unconstitutional because 60% of the voting stock would be owned by Japanese while Filipinos would own only
40% of the voting stock, although when the non-voting stock is added, Filipinos would own 60% of the combined voting and non-
voting stock. This ownership structure is remarkably similar to the current ownership structure of PLDT. Minister Mendoza ruled:

xxxx

Thus, the Filipino group still owns sixty (60%) of the entire subscribed capital stock (common and preferred) while the Japanese
investors control sixty percent (60%) of the common (voting) shares.

It is your position that x x x since Section 9, Article XIV of the Constitution uses the word "capital," which is construed "to include
both preferred and common shares" and "that where the law does not distinguish, the courts shall not distinguish."

xxxx

In light of the foregoing jurisprudence, it is my opinion that the stock-swap transaction in question may not be constitutionally
upheld. While it may be ordinary corporate practice to classify corporate shares into common voting shares and preferred non-
voting shares, any arrangement which attempts to defeat the constitutional purpose should be eschewed. Thus, the resultant equity
arrangement which would place ownership of 60%11 of the common (voting) shares in the Japanese group, while retaining 60% of
the total percentage of common and preferred shares in Filipino hands would amount to circumvention of the principle of control
by Philippine stockholders that is implicit in the 60% Philippine nationality requirement in the Constitution. (Emphasis supplied)

In short, Minister Mendoza categorically rejected the theory that the term "capital" in Section 9, Article XIV of the 1973 Constitution
includes "both preferred and common stocks" treated as the same class of shares regardless of differences in voting rights and
privileges. Minister Mendoza stressed that the 60-40 ownership requirement in favor of Filipino citizens in the Constitution is not
complied with unless the corporation "satisfies the criterion of beneficial ownership" and that in applying the same "the primordial
consideration is situs of control."

On the other hand, in Opinion No. 23-10 dated 18 August 2010, addressed to Castillo Laman Tan Pantaleon & San Jose, then SEC
General Counsel Vernette G. Umali-Paco applied the Voting Control Test, that is, using only the voting stock to determine whether a
corporation is a Philippine national. The Opinion states:

Applying the foregoing, particularly the Control Test, MLRC is deemed as a Philippine national because: (1) sixty percent (60%) of
its outstanding capital stock entitled to vote is owned by a Philippine national, the Trustee; and (2) at least sixty percent (60%) of
the ERF will accrue to the benefit of Philippine nationals. Still pursuant to the Control Test, MLRC’s investment in 60% of BFDC’s
outstanding capital stock entitled to vote shall be deemed as of Philippine nationality, thereby qualifying BFDC to own private
land.

Further, under, and for purposes of, the FIA, MLRC and BFDC are both Philippine nationals, considering that: (1) sixty percent (60%)
of their respective outstanding capital stock entitled to vote  is owned by a Philippine national (i.e., by the Trustee, in the case of
MLRC; and by MLRC, in the case of BFDC); and (2) at least 60% of their respective board of directors are Filipino citizens. (Boldfacing
and italicization supplied)

Clearly, these DOJ and SEC opinions are compatible with the Court’s interpretation of the 60-40 ownership requirement in favor of
Filipino citizens mandated by the Constitution for certain economic activities. At the same time, these opinions highlight the
conflicting, contradictory, and inconsistent positions taken by the DOJ and the SEC on the definition of the term "capital" found in
the economic provisions of the Constitution.

The opinions issued by SEC legal officers do not have the force and effect of SEC rules and regulations because only the SEC en
banc  can adopt rules and regulations. As expressly provided in Section 4.6 of the Securities Regulation Code, 12 the SEC cannot
delegate to any of its individual Commissioner or staff the power to adopt any rule or regulation. Further, under Section 5.1 of the
same Code, it is the SEC as a collegial body, and not any of its legal officers, that is empowered to issue opinions  and approve
rules and regulations. Thus:

4.6. The Commission may, for purposes of efficiency, delegate any of its functions to any department or office of the Commission, an
individual Commissioner or staff member of the Commission except its review or appellate authority and its power to adopt, alter
and supplement any rule or regulation.

The Commission may review upon its own initiative or upon the petition of any interested party any action of any department or
office, individual Commissioner, or staff member of the Commission.

SEC. 5. Powers and Functions of the Commission.- 5.1. The Commission shall act with transparency and shall have the powers and
functions provided by this Code, Presidential Decree No. 902-A, the Corporation Code, the Investment Houses Law, the Financing
Company Act and other existing laws. Pursuant thereto the Commission shall have, among others, the following powers and
functions:

xxxx

(g) Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions  and provide guidance on and supervise
compliance with such rules, regulations and orders;

x x x x (Emphasis supplied)

Thus, the act of the individual Commissioners or legal officers of the SEC in issuing opinions that have the effect of SEC rules or
regulations is ultra vires. Under Sections 4.6 and 5.1(g) of the Code, only the SEC en banc can "issue opinions" that have the force
and effect of rules or regulations. Section 4.6 of the Code bars the SEC en banc from delegating to any individual Commissioner or
staff the power to adopt rules or regulations. In short, any opinion of individual Commissioners or SEC legal officers does not
constitute a rule or regulation of the SEC.

The SEC admits during the Oral Arguments that only the SEC en banc, and not any of its individual commissioners or legal staff, is
empowered to issue opinions which have the same binding effect as SEC rules and regulations, thus:
JUSTICE CARPIO:

So, under the law, it is the Commission En Banc that can issue an

SEC Opinion, correct?

COMMISSIONER GAITE:13

That’s correct, Your Honor.

JUSTICE CARPIO:

Can the Commission En Banc delegate this function to an SEC officer?

COMMISSIONER GAITE:

Yes, Your Honor, we have delegated it to the General Counsel.

JUSTICE CARPIO:

It can be delegated. What cannot be delegated by the Commission En Banc to a commissioner or an individual
employee of the Commission?

COMMISSIONER GAITE:

Novel opinions that [have] to be decided by the En Banc...

JUSTICE CARPIO:

What cannot be delegated, among others, is the power to adopt or amend rules and regulations, correct?

COMMISSIONER GAITE:

That’s correct, Your Honor.

JUSTICE CARPIO:

So, you combine the two (2), the SEC officer, if delegated that power, can issue an opinion but that opinion does
not constitute a rule or regulation, correct?

COMMISSIONER GAITE:

Correct, Your Honor.

JUSTICE CARPIO:

So, all of these opinions that you mentioned they are not rules and regulations, correct?

COMMISSIONER GAITE:

They are not rules and regulations.

JUSTICE CARPIO:
 If they are not rules and regulations, they apply only to that particular situation and will not constitute a
precedent, correct?

COMMISSIONER GAITE:

Yes, Your Honor.14 (Emphasis supplied)

Significantly, the SEC en banc, which is the collegial body statutorily empowered to issue rules and opinions on behalf of the SEC, has
adopted even the Grandfather Rule in determining compliance with the 60-40 ownership requirement in favor of Filipino citizens
mandated by the Constitution for certain economic activities. This prevailing SEC ruling, which the SEC correctly adopted to thwart
any circumvention of the required Filipino "ownership and control," is laid down in the 25 March 2010 SEC en banc  ruling
in Redmont Consolidated Mines, Corp. v. McArthur Mining, Inc., et al.,15 to wit:

The avowed purpose of the Constitution is to place in the hands of Filipinos the exploitation of our natural resources. Necessarily,
therefore, the Rule interpreting the constitutional provision should not diminish that right through the legal fiction of corporate
ownership and control. But the constitutional provision, as interpreted and practiced via the 1967 SEC Rules, has favored foreigners
contrary to the command of the Constitution. Hence, the Grandfather Rule must be applied to accurately determine the actual
participation, both direct and indirect, of foreigners in a corporation engaged in a nationalized activity or business.

Compliance with the constitutional limitation(s) on engaging in nationalized activities must be determined by ascertaining if 60% of
the investing corporation’s outstanding capital stock is owned by "Filipino citizens", or as interpreted, by natural or individual Filipino
citizens. If such investing corporation is in turn owned to some extent by another investing corporation, the same process must be
observed. One must not stop until the citizenships of the individual or natural stockholders of layer after layer of investing
corporations have been established, the very essence of the Grandfather Rule.

Lastly, it was the intent of the framers of the 1987 Constitution to adopt the Grandfather Rule. In one of the discussions on what is
now Article XII of the present Constitution, the framers made the following exchange:

MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign equity; namely, 60-40 in Section 3,
60-40 in Section 9, and 2/3-1/3 in Section 15.

MR. VILLEGAS. That is right.

MR. NOLLEDO. In teaching law, we are always faced with the question: ‘Where do we base the equity requirement, is it on the
authorized capital stock, on the subscribed capital stock, or on the paid-up capital stock of a corporation’? Will the Committee please
enlighten me on this?

MR. VILLEGAS. We have just had a long discussion with the members of the team from the UP Law Center who provided us a draft.
The phrase that is contained here which we adopted from the UP draft is ‘60 percent of voting stock.’

MR. NOLLEDO. That must be based on the subscribed capital stock, because unless declared delinquent, unpaid capital stock shall be
entitled to vote.

MR. VILLEGAS. That is right.

MR. NOLLEDO. Thank you. With respect to an investment by one corporation in another corporation, say, a corporation with 60-40
percent equity invests in another corporation which is permitted by the Corporation Code, does the Committee adopt the
grandfather rule?

MR. VILLEGAS. Yes, that is the understanding of the Committee.

MR. NOLLEDO. Therefore, we need additional Filipino capital?

MR. VILLEGAS. Yes. (Boldfacing and underscoring supplied; italicization in the original)
This SEC en banc  ruling conforms to our 28 June 2011 Decision that the 60-40 ownership requirement in favor of Filipino citizens in
the Constitution to engage in certain economic activities applies not only to voting control of the corporation, but also to the
beneficial ownership of the corporation. Thus, in our 28 June 2011 Decision we stated:

Mere legal title is insufficient to meet the 60 percent Filipinoowned "capital" required in the Constitution. Full beneficial ownership
of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is required. The legal and beneficial
ownership of 60 percent of the outstanding capital stock must rest in the hands of Filipino nationals in accordance with the
constitutional mandate. Otherwise, the corporation is "considered as non-Philippine national[s]." (Emphasis supplied)

Both the Voting Control Test and the Beneficial Ownership Test must be applied to determine whether a corporation is a "Philippine
national."

The interpretation by legal officers of the SEC of the term "capital," embodied in various opinions which respondents relied upon, is
merely preliminary and an opinion only of such officers. To repeat, any such opinion does not constitute an SEC rule or regulation. In
fact, many of these opinions contain a disclaimer which expressly states: "x x x the foregoing opinion is based solely on facts
disclosed in your query and relevant only to the particular issue raised therein and shall not be used in the nature of a standing rule
binding upon the Commission in other cases whether of similar or dissimilar circumstances."16 Thus, the opinions clearly make
a caveat  that they do not constitute binding precedents on any one, not even on the SEC itself.

Likewise, the opinions of the SEC en banc, as well as of the DOJ, interpreting the law are neither conclusive nor controlling and thus,
do not bind the Court. It is hornbook doctrine that any interpretation of the law that administrative or quasi-judicial agencies make
is only preliminary, never conclusive on the Court. The power to make a final interpretation of the law, in this case the term "capital"
in Section 11, Article XII of the 1987 Constitution, lies with this Court, not with any other government entity.

In his motion for reconsideration, the PSE President cites the cases of National Telecommunications Commission v. Court of
Appeals17 and Philippine Long Distance Telephone Company v. National Telecommunications Commission 18 in arguing that the Court
has already defined the term "capital" in Section 11, Article XII of the 1987 Constitution. 19

The PSE President is grossly mistaken. In both cases of National Telecommunications v. Court of Appeals 20 and Philippine Long
Distance Telephone Company v. National Telecommunications Commission, 21 the Court did not define the term "capital" as found in
Section 11, Article XII of the 1987 Constitution. In fact, these two cases never mentioned, discussed or cited Section 11, Article XII
of the Constitution or any of its economic provisions, and thus cannot serve as precedent in the interpretation of Section 11,
Article XII of the Constitution. These two cases dealt solely with the determination of the correct regulatory fees under Section
40(e) and (f) of the Public Service Act, to wit:

(e) For annual reimbursement of the expenses incurred by the Commission in the supervision of other public services and/or in the
regulation or fixing of their rates, twenty centavos for each one hundred pesos or fraction thereof, of the capital stock subscribed or
paid, or if no shares have been issued, of the capital invested, or of the property and equipment whichever is higher.

(f) For the issue or increase of capital stock, twenty centavos for each one hundred pesos or fraction thereof, of the increased
capital. (Emphasis supplied)

The Court’s interpretation in these two cases of the terms "capital stock subscribed or paid," "capital stock" and "capital" does not
pertain to, and cannot control, the definition of the term "capital" as used in Section 11, Article XII of the Constitution, or any of the
economic provisions of the Constitution where the term "capital" is found. The definition of the term "capital" found in the
Constitution must not be taken out of context. A careful reading of these two cases reveals that the terms "capital stock subscribed
or paid," "capital stock" and "capital" were defined solely to determine the basis for computing the supervision and regulation fees
under Section 40(e) and (f) of the Public Service Act.

III.
Filipinization of Public Utilities

The Preamble of the 1987 Constitution, as the prologue of the supreme law of the land, embodies the ideals that the Constitution
intends to achieve.22 The Preamble reads:

We, the sovereign Filipino people, imploring the aid of Almighty God, in order to build a just and humane society, and establish a
Government that shall embody our ideals and aspirations, promote the common good, conserve and develop our patrimony, and
secure to ourselves and our posterity, the blessings of independence and democracy under the rule of law and a regime of truth,
justice, freedom, love, equality, and peace, do ordain and promulgate this Constitution. (Emphasis supplied)

Consistent with these ideals, Section 19, Article II of the 1987 Constitution declares as State policy the development of a national
economy "effectively controlled" by Filipinos:

Section 19. The State shall develop a self-reliant and independent national economy effectively controlled by Filipinos.

Fortifying the State policy of a Filipino-controlled economy, the Constitution decrees:

Section 10. The Congress shall, upon recommendation of the economic and planning agency, when the national interest dictates,
reserve to citizens of the Philippines or to corporations or associations at least sixty per centum of whose capital is owned by such
citizens, or such higher percentage as Congress may prescribe, certain areas of investments. The Congress shall enact measures that
will encourage the formation and operation of enterprises whose capital is wholly owned by Filipinos.

In the grant of rights, privileges, and concessions covering the national economy and patrimony, the State shall give preference to
qualified Filipinos.

The State shall regulate and exercise authority over foreign investments within its national jurisdiction and in accordance with its
national goals and priorities.23

Under Section 10, Article XII of the 1987 Constitution, Congress may "reserve to citizens of the Philippines or to corporations or
associations at least sixty per centum  of whose capital is owned by such citizens, or such higher percentage as Congress may
prescribe, certain areas of investments." Thus, in numerous laws Congress has reserved certain areas of investments to Filipino
citizens or to corporations at least sixty percent of the "capital" of which is owned by Filipino citizens. Some of these laws are: (1)
Regulation of Award of Government Contracts or R.A. No. 5183; (2) Philippine Inventors Incentives Act or R.A. No. 3850; (3) Magna
Carta for Micro, Small and Medium Enterprises or R.A. No. 6977; (4) Philippine Overseas Shipping Development Act or R.A. No. 7471;
(5) Domestic Shipping Development Act of 2004 or R.A. No. 9295; (6) Philippine Technology Transfer Act of 2009 or R.A. No. 10055;
and (7) Ship Mortgage Decree or P.D. No. 1521.

With respect to public utilities, the 1987 Constitution specifically ordains:

Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except
to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per
centum  of whose capital is owned by such citizens; nor shall such franchise, certificate, or authorization be exclusive in character or
for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be
subject to amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity
participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility
enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation
or association must be citizens of the Philippines. (Emphasis supplied)

This provision, which mandates the Filipinization of public utilities, requires that any form of authorization for the operation of public
utilities shall be granted only to "citizens of the Philippines or to corporations or associations organized under the laws of the
Philippines at least sixty per centum of whose capital is owned by such citizens." "The provision is [an express] recognition of the
sensitive and vital position of public utilities both in the national economy and for national security." 24

The 1987 Constitution reserves the ownership and operation of public utilities exclusively to (1) Filipino citizens, or (2) corporations
or associations at least 60 percent of whose "capital" is owned by Filipino citizens. Hence, in the case of individuals, only Filipino
citizens can validly own and operate a public utility. In the case of corporations or associations, at least 60 percent of their "capital"
must be owned by Filipino citizens. In other words, under Section 11, Article XII of the 1987 Constitution, to own and operate a
public utility a corporation’s capital must at least be 60 percent owned by Philippine nationals.

IV.
Definition of "Philippine National"

Pursuant to the express mandate of Section 11, Article XII of the 1987 Constitution, Congress enacted Republic Act No. 7042 or
the Foreign Investments Act of 1991 (FIA), as amended, which defined a "Philippine national" as follows:
SEC. 3. Definitions. - As used in this Act:

a. The term "Philippine national"  shall mean a citizen of the Philippines; or a domestic partnership or association wholly owned by
citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at least sixty percent (60%) of the
capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines; or a corporation organized abroad
and registered as doing business in the Philippines under the Corporation Code of which one hundred percent (100%) of the capital
stock outstanding and entitled to vote is wholly owned by Filipinos or a trustee of funds for pension or other employee retirement or
separation benefits, where the trustee is a Philippine national and at least sixty percent (60%) of the fund will accrue to the benefit
of Philippine nationals: Provided, That where a corporation and its non-Filipino stockholders own stocks in a Securities and Exchange
Commission (SEC) registered enterprise, at least sixty percent (60%) of the capital stock outstanding and entitled to vote of each of
both corporations must be owned and held by citizens of the Philippines and at least sixty percent (60%) of the members of the
Board of Directors of each of both corporations must be citizens of the Philippines, in order that the corporation, shall be considered
a "Philippine national." (Boldfacing, italicization and underscoring supplied)

Thus, the FIA clearly and unequivocally defines a "Philippine national" as a Philippine citizen, or a domestic corporation at least "60%
of the capital stock outstanding and entitled to vote" is owned by Philippine citizens.

The definition of a "Philippine national" in the FIA reiterated the meaning of such term as provided in its predecessor statute,
Executive Order No. 226 or the Omnibus Investments Code of 1987,25 which was issued by then President Corazon C. Aquino. Article
15 of this Code states:

Article 15. "Philippine national" shall mean a citizen of the Philippines or a diplomatic partnership or association wholly-owned by
citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at least sixty per cent (60%) of the
capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines; or a trustee of funds for pension or
other employee retirement or separation benefits, where the trustee is a Philippine national and at least sixty per cent (60%) of the
fund will accrue to the benefit of Philippine nationals: Provided, That where a corporation and its non-Filipino stockholders own
stock in a registered enterprise, at least sixty per cent (60%) of the capital stock outstanding and entitled to vote of both
corporations must be owned and held by the citizens of the Philippines and at least sixty per cent (60%) of the members of the Board
of Directors of both corporations must be citizens of the Philippines in order that the corporation shall be considered a Philippine
national. (Boldfacing, italicization and underscoring supplied)

Under Article 48(3)26 of the Omnibus Investments Code of 1987, "no corporation x x x which is not a ‘Philippine national’ x x x shall do
business

x x x in the Philippines x x x without first securing from the Board of Investments a written certificate to the effect that such business
or economic activity x x x would not conflict with the Constitution or laws of the Philippines." 27 Thus, a "non-Philippine national"
cannot own and operate a reserved economic activity like a public utility. This means, of course, that only a "Philippine national" can
own and operate a public utility.

In turn, the definition of a "Philippine national" under Article 15 of the Omnibus Investments Code of 1987 was a reiteration of the
meaning of such term as provided in Article 14 of the Omnibus Investments Code of 1981,28 to wit:

Article 14. "Philippine national" shall mean a citizen of the Philippines; or a domestic partnership or association wholly owned by
citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at least sixty per cent (60%) of the
capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines; or a trustee of funds for pension or
other employee retirement or separation benefits, where the trustee is a Philippine national and at least sixty per cent (60%) of the
fund will accrue to the benefit of Philippine nationals: Provided, That where a corporation and its non-Filipino stockholders own
stock in a registered enterprise, at least sixty per cent (60%) of the capital stock outstanding and entitled to vote of both
corporations must be owned and held by the citizens of the Philippines and at least sixty per cent (60%) of the members of the Board
of Directors of both corporations must be citizens of the Philippines in order that the corporation shall be considered a Philippine
national. (Boldfacing, italicization and underscoring supplied)

Under Article 69(3) of the Omnibus Investments Code of 1981, "no corporation x x x which is not a ‘Philippine national’ x x x shall do
business x x x in the Philippines x x x without first securing a written certificate from the Board of Investments to the effect that such
business or economic activity x x x would not conflict with the Constitution or laws of the Philippines." 29 Thus, a "non-Philippine
national" cannot own and operate a reserved economic activity like a public utility. Again, this means that only a "Philippine
national" can own and operate a public utility.
Prior to the Omnibus Investments Code of 1981, Republic Act No. 5186 30 or the Investment Incentives Act, which took effect on 16
September 1967, contained a similar definition of a "Philippine national," to wit:

(f) "Philippine National" shall mean a citizen of the Philippines; or a partnership or association wholly owned by citizens of the
Philippines; or a corporation organized under the laws of the Philippines of which at least sixty per cent of the capital stock
outstanding and entitled to vote  is owned and held by citizens of the Philippines; or a trustee of funds for pension or other
employee retirement or separation benefits, where the trustee is a Philippine National and at least sixty per cent of the fund will
accrue to the benefit of Philippine Nationals: Provided, That where a corporation and its non-Filipino stockholders own stock in a
registered enterprise, at least sixty per cent of the capital stock outstanding and entitled to vote of both corporations must be
owned and held by the citizens of the Philippines and at least sixty per cent of the members of the Board of Directors of both
corporations must be citizens of the Philippines in order that the corporation shall be considered a Philippine National. (Boldfacing,
italicization and underscoring supplied)

Under Section 3 of Republic Act No. 5455 or the Foreign Business Regulations Act, which took effect on 30 September 1968, if the
investment in a domestic enterprise by non-Philippine nationals exceeds 30% of its outstanding capital stock, such enterprise must
obtain prior approval from the Board of Investments before accepting such investment. Such approval shall not be granted if the
investment "would conflict with existing constitutional provisions and laws regulating the degree of required ownership by
Philippine nationals in the enterprise."31 A "non-Philippine national" cannot own and operate a reserved economic activity like a
public utility. Again, this means that only a "Philippine national" can own and operate a public utility.

The FIA, like all its predecessor statutes, clearly defines a "Philippine national" as a Filipino citizen, or a domestic corporation "at
least sixty percent (60%) of the capital stock outstanding and entitled to vote" is owned by Filipino citizens. A domestic corporation
is a "Philippine national" only if at least 60% of its voting stock is owned by Filipino citizens. This definition of a "Philippine national"
is crucial in the present case because the FIA reiterates and clarifies Section 11, Article XII of the 1987 Constitution, which limits the
ownership and operation of public utilities to Filipino citizens or to corporations or associations at least 60% Filipino-owned.

The FIA is the basic law governing foreign investments in the Philippines, irrespective of the nature of business and area of
investment. The FIA spells out the procedures by which non-Philippine nationals can invest in the Philippines. Among the key
features of this law is the concept of a negative list or the Foreign Investments Negative List. 32 Section 8 of the law states:

SEC. 8. List of Investment Areas Reserved to Philippine Nationals [Foreign Investment Negative List].  - The Foreign Investment
Negative List shall have two 2 component lists: A and B:

a. List A shall enumerate the areas of activities reserved to Philippine nationals by mandate of the Constitution and specific laws.

b. List B  shall contain the areas of activities and enterprises regulated pursuant to law:

1. which are defense-related activities, requiring prior clearance and authorization from the Department of National Defense [DND]
to engage in such activity, such as the manufacture, repair, storage and/or distribution of firearms, ammunition, lethal weapons,
military ordinance, explosives, pyrotechnics and similar materials; unless such manufacturing or repair activity is specifically
authorized, with a substantial export component, to a non-Philippine national by the Secretary of National Defense; or

2. which have implications on public health and morals, such as the manufacture and distribution of dangerous drugs; all forms of
gambling; nightclubs, bars, beer houses, dance halls, sauna and steam bathhouses and massage clinics. (Boldfacing, underscoring
and italicization supplied)

Section 8 of the FIA enumerates the investment areas "reserved to Philippine nationals." Foreign Investment Negative List A
consists of "areas of activities reserved to Philippine nationals by mandate of the Constitution and specific laws," where foreign
equity participation in any enterprise shall be limited to the maximum percentage expressly prescribed by the Constitution and
other specific laws. In short, to own and operate a public utility in the Philippines one must be a "Philippine national" as defined
in the FIA. The FIA is abundant notice to foreign investors to what extent they can invest in public utilities in the Philippines.

To repeat, among the areas of investment covered by the Foreign Investment Negative List A is the ownership and operation of
public utilities, which the Constitution expressly reserves to Filipino citizens and to corporations at least 60% owned by Filipino
citizens. In other words, Negative List A of the FIA reserves the ownership and operation of public utilities only to "Philippine
nationals," defined in Section 3(a) of the FIA as "(1) a citizen of the Philippines; x x x or (3) a corporation organized under the laws
of the Philippines of which at least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and held by
citizens of the Philippines; or (4) a corporation organized abroad and registered as doing business in the Philippines under the
Corporation Code of which one hundred percent (100%) of the capital stock outstanding and entitled to vote is wholly owned by
Filipinos or a trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine
national and at least sixty percent (60%) of the fund will accrue to the benefit of Philippine nationals."

Clearly, from the effectivity of the Investment Incentives Act of 1967 to the adoption of the Omnibus Investments Code of 1981, to
the enactment of the Omnibus Investments Code of 1987, and to the passage of the present Foreign Investments Act of 1991, or for
more than four decades, the statutory definition of the term "Philippine national" has been uniform and consistent: it means a
Filipino citizen, or a domestic corporation at least 60% of the voting stock is owned by Filipinos. Likewise, these same statutes
have uniformly and consistently required that only "Philippine nationals" could own and operate public utilities in the
Philippines. The following exchange during the Oral Arguments is revealing:

JUSTICE CARPIO:

Counsel, I have some questions. You are aware of the Foreign Investments Act of 1991, x x x? And the FIA of 1991
took effect in 1991, correct? That’s over twenty (20) years ago, correct?

COMMISSIONER GAITE:

Correct, Your Honor.

JUSTICE CARPIO:

And Section 8 of the Foreign Investments Act of 1991 states that []only Philippine nationals can own and operate
public utilities[], correct?

COMMISSIONER GAITE:

Yes, Your Honor.

JUSTICE CARPIO:

And the same Foreign Investments Act of 1991 defines a "Philippine national" either as a citizen of the Philippines,
or if it is a corporation at least sixty percent (60%) of the voting stock is owned by citizens of the Philippines,
correct?

COMMISSIONER GAITE:

Correct, Your Honor.

JUSTICE CARPIO:

And, you are also aware that under the predecessor law of the Foreign Investments Act of 1991, the Omnibus
Investments Act of 1987, the same provisions apply: x x x only Philippine nationals can own and operate a public
utility and the Philippine national, if it is a corporation, x x x sixty percent (60%) of the capital stock of that
corporation must be owned by citizens of the Philippines, correct?

COMMISSIONER GAITE:

Correct, Your Honor.

JUSTICE CARPIO:

And even prior to the Omnibus Investments Act of 1987, under the Omnibus Investments Act of 1981, the same
rules apply: x x x only a Philippine national can own and operate a public utility and a Philippine national, if it is a
corporation, sixty percent (60%) of its x x x voting stock, must be owned by citizens of the Philippines, correct?
COMMISSIONER GAITE:

Correct, Your Honor.

JUSTICE CARPIO:

And even prior to that, under [the]1967 Investments Incentives Act and the Foreign Company Act of 1968, the
same rules applied, correct?

COMMISSIONER GAITE:

Correct, Your Honor.

JUSTICE CARPIO:

So, for the last four (4) decades, x x x, the law has been very consistent – only a Philippine national can own and
operate a public utility, and a Philippine national, if it is a corporation, x x x at least sixty percent (60%) of the
voting stock must be owned by citizens of the Philippines, correct?

COMMISSIONER GAITE:

Correct, Your Honor.33 (Emphasis supplied)

Government agencies like the SEC cannot simply ignore Sections 3(a) and 8 of the FIA which categorically prescribe that certain
economic activities, like the ownership and operation of public utilities, are reserved to corporations "at least sixty percent (60%) of
the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines." Foreign Investment Negative List
A refers to "activities reserved to Philippine nationals by mandate of the Constitution and specific laws." The FIA is the basic statute
regulating foreign investments in the Philippines. Government agencies tasked with regulating or monitoring foreign investments,
as well as counsels of foreign investors, should start with the FIA in determining to what extent a particular foreign investment is
allowed in the Philippines. Foreign investors and their counsels who ignore the FIA do so at their own peril. Foreign investors and
their counsels who rely on opinions of SEC legal officers that obviously contradict the FIA do so also at their own peril.

Occasional opinions of SEC legal officers that obviously contradict the FIA should immediately raise a red flag. There are already
numerous opinions of SEC legal officers that cite the definition of a "Philippine national" in Section 3(a) of the FIA in determining
whether a particular corporation is qualified to own and operate a nationalized or partially nationalized business in the Philippines.
This shows that SEC legal officers are not only aware of, but also rely on and invoke, the provisions of the FIA in ascertaining the
eligibility of a corporation to engage in partially nationalized industries. The following are some of such opinions:

1. Opinion of 23 March 1993, addressed to Mr. Francis F. How;

2. Opinion of 14 April 1993, addressed to Director Angeles T. Wong of the Philippine Overseas Employment Administration;

3. Opinion of 23 November 1993, addressed to Messrs. Dominador Almeda and Renato S. Calma;

4. Opinion of 7 December 1993, addressed to Roco Bunag Kapunan Migallos & Jardeleza;

5. SEC Opinion No. 49-04, addressed to Romulo Mabanta Buenaventura Sayoc & De Los Angeles;

6. SEC-OGC Opinion No. 17-07, addressed to Mr. Reynaldo G. David; and

7. SEC-OGC Opinion No. 03-08, addressed to Attys. Ruby Rose J. Yusi and Rudyard S. Arbolado.

The SEC legal officers’ occasional but blatant disregard of the definition of the term "Philippine national" in the FIA signifies their lack
of integrity and competence in resolving issues on the 60-40 ownership requirement in favor of Filipino citizens in Section 11, Article
XII of the Constitution.
The PSE President argues that the term "Philippine national" defined in the FIA should be limited and interpreted to refer to
corporations seeking to avail of tax and fiscal incentives under investment incentives laws and cannot be equated with the term
"capital" in Section 11, Article XII of the 1987 Constitution. Pangilinan similarly contends that the FIA and its predecessor statutes do
not apply to "companies which have not registered and obtained special incentives under the schemes established by those laws."

Both are desperately grasping at straws. The FIA does not grant tax or fiscal incentives to any enterprise. Tax and fiscal incentives to
investments are granted separately under the Omnibus Investments Code of 1987, not under the FIA. In fact, the FIA expressly
repealed Articles 44 to 56 of Book II of the Omnibus Investments Code of 1987, which articles previously regulated foreign
investments in nationalized or partially nationalized industries.

The FIA is the applicable law regulating foreign investments in nationalized or partially nationalized industries. There is nothing in the
FIA, or even in the Omnibus Investments Code of 1987 or its predecessor statutes, that states, expressly or impliedly, that the FIA or
its predecessor statutes do not apply to enterprises not availing of tax and fiscal incentives under the Code. The FIA and its
predecessor statutes apply to investments in all domestic enterprises, whether or not such enterprises enjoy tax and fiscal incentives
under the Omnibus Investments Code of 1987 or its predecessor statutes. The reason is quite obvious – mere non-availment of tax
and fiscal incentives by a non-Philippine national cannot exempt it from Section 11, Article XII of the Constitution regulating
foreign investments in public utilities. In fact, the Board of Investments’ Primer on Investment Policies in the Philippines,34 which is
given out to foreign investors, provides:

PART III. FOREIGN INVESTMENTS WITHOUT INCENTIVES

Investors who do not seek incentives and/or whose chosen activities do not qualify for incentives, (i.e., the activity is not listed in the
IPP, and they are not exporting at least 70% of their production) may go ahead and make the investments without seeking
incentives. They only have to be guided by the Foreign Investments Negative List (FINL).

The FINL clearly defines investment areas requiring at least 60% Filipino ownership. All other areas outside of this list are fully open
to foreign investors. (Emphasis supplied)

V.
Right to elect directors, coupled with beneficial ownership,
translates to effective control.

The 28 June 2011 Decision declares that the 60 percent Filipino ownership required by the Constitution to engage in certain
economic activities applies not only to voting control of the corporation, but also to the beneficial ownership of the corporation. To
repeat, we held:

Mere legal title is insufficient to meet the 60 percent Filipino-owned "capital" required in the Constitution. Full beneficial ownership
of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is required. The legal and beneficial
ownership of 60 percent of the outstanding capital stock must rest in the hands of Filipino nationals in accordance with the
constitutional mandate. Otherwise, the corporation is "considered as non-Philippine national[s]." (Emphasis supplied)

This is consistent with Section 3 of the FIA which provides that where 100% of the capital stock is held by "a trustee of funds for
pension or other employee retirement or separation benefits," the trustee is a Philippine national if "at least sixty percent (60%) of
the fund will accrue to the benefit of Philippine nationals." Likewise, Section 1(b) of the Implementing Rules of the FIA provides that
"for stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title is not enough to meet the
required Filipino equity. Full beneficial ownership of the stocks, coupled with appropriate voting rights, is essential."

Since the constitutional requirement of at least 60 percent Filipino ownership applies not only to voting control of the corporation
but also to the beneficial ownership of the corporation, it is therefore imperative that such requirement apply uniformly and across
the board to all classes of shares, regardless of nomenclature and category, comprising the capital of a corporation. Under the
Corporation Code, capital stock35 consists of all classes of shares issued to stockholders, that is, common shares as well as preferred
shares, which may have different rights, privileges or restrictions as stated in the articles of incorporation. 36

The Corporation Code allows denial of the right to vote to preferred and redeemable shares, but disallows denial of the right to vote
in specific corporate matters. Thus, common shares have the right to vote in the election of directors, while preferred shares may be
denied such right. Nonetheless, preferred shares, even if denied the right to vote in the election of directors, are entitled to vote on
the following corporate matters: (1) amendment of articles of incorporation; (2) increase and decrease of capital stock; (3) incurring,
creating or increasing bonded indebtedness; (4) sale, lease, mortgage or other disposition of substantially all corporate assets; (5)
investment of funds in another business or corporation or for a purpose other than the primary purpose for which the corporation
was organized; (6) adoption, amendment and repeal of by-laws; (7) merger and consolidation; and (8) dissolution of corporation. 37

Since a specific class of shares may have rights and privileges or restrictions different from the rest of the shares in a corporation, the
60-40 ownership requirement in favor of Filipino citizens in Section 11, Article XII of the Constitution must apply not only to shares
with voting rights but also to shares without voting rights. Preferred shares, denied the right to vote in the election of directors, are
anyway still entitled to vote on the eight specific corporate matters mentioned above. Thus, if a corporation, engaged in a partially
nationalized industry, issues a mixture of common and preferred non-voting shares, at least 60 percent of the common shares
and at least 60 percent of the preferred non-voting shares must be owned by Filipinos. Of course, if a corporation issues only a
single class of shares, at least 60 percent of such shares must necessarily be owned by Filipinos. In short, the 60-40 ownership
requirement in favor of Filipino citizens must apply separately to each class of shares, whether common, preferred non-voting,
preferred voting or any other class of shares. This uniform application of the 60-40 ownership requirement in favor of Filipino
citizens clearly breathes life to the constitutional command that the ownership and operation of public utilities shall be reserved
exclusively to corporations at least 60 percent of whose capital is Filipino-owned. Applying uniformly the 60-40 ownership
requirement in favor of Filipino citizens to each class of shares, regardless of differences in voting rights, privileges and restrictions,
guarantees effective Filipino control of public utilities, as mandated by the Constitution.

Moreover, such uniform application to each class of shares insures that the "controlling interest" in public utilities always lies in the
hands of Filipino citizens. This addresses and extinguishes Pangilinan’s worry that foreigners, owning most of the non-voting shares,
will exercise greater control over fundamental corporate matters requiring two-thirds or majority vote of all shareholders.

VI.
Intent of the framers of the Constitution

While Justice Velasco quoted in his Dissenting Opinion 38 a portion of the deliberations of the Constitutional Commission to support
his claim that the term "capital" refers to the total outstanding shares of stock, whether voting or non-voting, the following excerpts
of the deliberations reveal otherwise. It is clear from the following exchange that the term "capital" refers to controlling interest of
a corporation, thus:

MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign equity; namely, 60-40 in Section 3,
60-40 in Section 9 and 2/3-1/3 in Section 15.

MR. VILLEGAS. That is right.

MR. NOLLEDO. In teaching law, we are always faced with this question: "Where do we base the equity requirement, is it on the
authorized capital stock, on the subscribed capital stock, or on the paid-up capital stock of a corporation"? Will the Committee
please enlighten me on this?

MR. VILLEGAS. We have just had a long discussion with the members of the team from the UP Law Center who provided us a
draft. The phrase that is contained here which we adopted from the UP draft is "60 percent of voting stock."

MR. NOLLEDO. That must be based on the subscribed capital stock, because unless declared delinquent, unpaid capital stock shall be
entitled to vote.

MR. VILLEGAS. That is right.

MR. NOLLEDO. Thank you.

With respect to an investment by one corporation in another corporation, say, a corporation with 60-40 percent equity invests in
another corporation which is permitted by the Corporation Code, does the Committee adopt the grandfather rule?

MR. VILLEGAS. Yes, that is the understanding of the Committee.

MR. NOLLEDO. Therefore, we need additional Filipino capital?

MR. VILLEGAS. Yes.39

xxxx

MR. AZCUNA. May I be clarified as to that portion that was accepted by the Committee.

MR. VILLEGAS. The portion accepted by the Committee is the deletion of the phrase "voting stock or controlling interest."

MR. AZCUNA. Hence, without the Davide amendment, the committee report would read: "corporations or associations at least sixty
percent of whose CAPITAL is owned by such citizens."

MR. VILLEGAS. Yes.

MR. AZCUNA. So if the Davide amendment is lost, we are stuck with 60 percent of the capital to be owned by citizens.

MR. VILLEGAS. That is right.

MR. AZCUNA. But the control can be with the foreigners even if they are the minority. Let us say 40 percent of the capital is
owned by them, but it is the voting capital, whereas, the Filipinos own the nonvoting shares. So we can have a situation where
the corporation is controlled by foreigners despite being the minority because they have the voting capital. That is the anomaly
that would result here.

MR. BENGZON. No, the reason we eliminated the word "stock" as stated in the 1973 and 1935 Constitutions is that according to
Commissioner Rodrigo, there are associations that do not have stocks. That is why we say "CAPITAL."

MR. AZCUNA. We should not eliminate the phrase "controlling interest."

MR. BENGZON. In the case of stock corporations, it is assumed. 40 (Boldfacing and underscoring supplied)

Thus, 60 percent of the "capital" assumes, or should result in, a "controlling interest" in the corporation.

The use of the term "capital" was intended to replace the word "stock" because associations without stocks can operate public
utilities as long as they meet the 60-40 ownership requirement in favor of Filipino citizens prescribed in Section 11, Article XII of the
Constitution. However, this did not change the intent of the framers of the Constitution to reserve exclusively to Philippine nationals
the "controlling interest" in public utilities.

During the drafting of the 1935 Constitution, economic protectionism was "the battle-cry of the nationalists in the Convention." 41 The
same battle-cry resulted in the nationalization of the public utilities. 42 This is also the same intent of the framers of the 1987
Constitution who adopted the exact formulation embodied in the 1935 and 1973 Constitutions on foreign equity limitations in
partially nationalized industries.

The OSG, in its own behalf and as counsel for the State, 43 agrees fully with the Court’s interpretation of the term "capital." In its
Consolidated Comment, the OSG explains that the deletion of the phrase "controlling interest" and replacement of the word "stock"
with the term "capital" were intended specifically to extend the scope of the entities qualified to operate public utilities to include
associations without stocks. The framers’ omission of the phrase "controlling interest" did not mean the inclusion of all shares of
stock, whether voting or non-voting. The OSG reiterated essentially the Court’s declaration that the Constitution reserved exclusively
to Philippine nationals the ownership and operation of public utilities consistent with the State’s policy to "develop a self-reliant and
independent national economy effectively controlled by Filipinos."

As we held in our 28 June 2011 Decision, to construe broadly the term "capital" as the total outstanding capital stock, treated as
a single class regardless of the actual classification of shares, grossly contravenes the intent and letter of the Constitution that the
"State shall develop a self-reliant and independent national economy effectively controlled  by Filipinos." We illustrated the glaring
anomaly which would result in defining the term "capital" as the total outstanding capital stock of a corporation, treated as
a single class of shares regardless of the actual classification of shares, to wit:
Let us assume that a corporation has 100 common shares owned by foreigners and 1,000,000 non-voting preferred shares owned by
Filipinos, with both classes of share having a par value of one peso (₱ 1.00) per share. Under the broad definition of the term
"capital," such corporation would be considered compliant with the 40 percent constitutional limit on foreign equity of public
utilities since the overwhelming majority, or more than 99.999 percent, of the total outstanding capital stock is Filipino owned. This
is obviously absurd.

In the example given, only the foreigners holding the common shares have voting rights in the election of directors, even if they hold
only 100 shares. The foreigners, with a minuscule equity of less than 0.001 percent, exercise control over the public utility. On the
other hand, the Filipinos, holding more than 99.999 percent of the equity, cannot vote in the election of directors and hence, have
no control over the public utility. This starkly circumvents the intent of the framers of the Constitution, as well as the clear language
of the Constitution, to place the control of public utilities in the hands of Filipinos. x x x

Further, even if foreigners who own more than forty percent of the voting shares elect an all-Filipino board of directors, this
situation does not guarantee Filipino control and does not in any way cure the violation of the Constitution. The independence of the
Filipino board members so elected by such foreign shareholders is highly doubtful. As the OSG pointed out, quoting Justice George
Sutherland’s words in Humphrey’s Executor v. US,44 "x x x it is quite evident that one who holds his office only during the pleasure of
another cannot be depended upon to maintain an attitude of independence against the latter’s will." Allowing foreign shareholders
to elect a controlling majority of the board, even if all the directors are Filipinos, grossly circumvents the letter and intent of the
Constitution and defeats the very purpose of our nationalization laws.

VII.
Last sentence of Section 11, Article XII of the Constitution

The last sentence of Section 11, Article XII of the 1987 Constitution reads:

The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate
share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines.

During the Oral Arguments, the OSG emphasized that there was never a question on the intent of the framers of the Constitution to
limit foreign ownership, and assure majority Filipino ownership and control of public utilities. The OSG argued, "while the delegates
disagreed as to the percentage threshold to adopt, x x x the records show they clearly understood that Filipino control of the public
utility corporation can only be and is obtained only through the election of a majority of the members of the board."

Indeed, the only point of contention during the deliberations of the Constitutional Commission on 23 August 1986 was the extent of
majority Filipino control of public utilities. This is evident from the following exchange:

THE PRESIDENT. Commissioner Jamir is recognized.

MR. JAMIR. Madam President, my proposed amendment on lines 20 and 21 is to delete the phrase "two thirds of whose voting stock
or controlling interest," and instead substitute the words "SIXTY PERCENT OF WHOSE CAPITAL" so that the sentence will read: "No
franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the
Philippines or to corporations or associations organized under the laws of the Philippines at least SIXTY PERCENT OF WHOSE CAPITAL
is owned by such citizens."

xxxx

THE PRESIDENT: Will Commissioner Jamir first explain?

MR. JAMIR. Yes, in this Article on National Economy and Patrimony, there were two previous sections in which we fixed the Filipino
equity to 60 percent as against 40 percent for foreigners. It is only in this Section 15 with respect to public utilities that the
committee proposal was increased to two-thirds. I think it would be better to harmonize this provision by providing that even in the
case of public utilities, the minimum equity for Filipino citizens should be 60 percent.

MR. ROMULO. Madam President.

THE PRESIDENT. Commissioner Romulo is recognized.

MR. ROMULO. My reason for supporting the amendment is based on the discussions I have had with representatives of the Filipino
majority owners of the international record carriers, and the subsequent memoranda they submitted to me. x x x

Their second point is that under the Corporation Code, the management and control of a corporation is vested in the board of
directors, not in the officers but in the board of directors. The officers are only agents of the board. And they believe that with 60
percent of the equity, the Filipino majority stockholders undeniably control the board. Only on important corporate acts can the 40-
percent foreign equity exercise a veto, x x x.

x x x x45

MS. ROSARIO BRAID. Madam President.

THE PRESIDENT. Commissioner Rosario Braid is recognized.

MS. ROSARIO BRAID. Yes, in the interest of equal time, may I also read from a memorandum by the spokesman of the Philippine
Chamber of Communications on why they would like to maintain the present equity, I am referring to the 66 2/3. They would prefer
to have a 75-25 ratio but would settle for 66 2/3. x x x

xxxx

THE PRESIDENT. Just to clarify, would Commissioner Rosario Braid support the proposal of two-thirds rather than the 60 percent?

MS. ROSARIO BRAID. I have added a clause that will put management in the hands of Filipino citizens.

x x x x46

While they had differing views on the percentage of Filipino ownership of capital, it is clear that the framers of the Constitution
intended public utilities to be majority Filipino-owned and controlled. To ensure that Filipinos control public utilities, the framers of
the Constitution approved, as additional safeguard, the inclusion of the last sentence of Section 11, Article XII of the Constitution
commanding that "[t]he participation of foreign investors in the governing body of any public utility enterprise shall be limited to
their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be
citizens of the Philippines." In other words, the last sentence of Section 11, Article XII of the Constitution mandates that (1) the
participation of foreign investors in the governing body of the corporation or association shall be limited to their proportionate share
in the capital of such entity; and (2) all officers of the corporation or association must be Filipino citizens.

Commissioner Rosario Braid proposed the inclusion of the phrase requiring the managing officers of the corporation or association
to be Filipino citizens specifically to prevent management contracts, which were designed primarily to circumvent the Filipinization
of public utilities, and to assure Filipino control of public utilities, thus:

MS. ROSARIO BRAID. x x x They also like to suggest that we amend this provision by adding a phrase which states: "THE
MANAGEMENT BODY OF EVERY CORPORATION OR ASSOCIATION SHALL IN ALL CASES BE CONTROLLED BY CITIZENS OF THE
PHILIPPINES." I have with me their position paper.

THE PRESIDENT. The Commissioner may proceed.

MS. ROSARIO BRAID. The three major international record carriers in the Philippines, which Commissioner Romulo mentioned –
Philippine Global Communications, Eastern Telecommunications, Globe Mackay Cable – are 40-percent owned by foreign
multinational companies and 60-percent owned by their respective Filipino partners. All three, however, also have management
contracts with these foreign companies – Philcom with RCA, ETPI with Cable and Wireless PLC, and GMCR with ITT. Up to the present
time, the general managers of these carriers are foreigners. While the foreigners in these common carriers are only minority owners,
the foreign multinationals are the ones managing and controlling their operations by virtue of their management contracts and by
virtue of their strength in the governing bodies of these carriers. 47

xxxx
MR. OPLE. I think a number of us have agreed to ask Commissioner Rosario Braid to propose an amendment with respect to the
operating management of public utilities, and in this amendment, we are associated with Fr. Bernas, Commissioners Nieva and
Rodrigo. Commissioner Rosario Braid will state this amendment now.

Thank you.

MS. ROSARIO BRAID. Madam President.

THE PRESIDENT. This is still on Section 15.

MS. ROSARIO BRAID. Yes.

MR. VILLEGAS. Yes, Madam President.

xxxx

MS. ROSARIO BRAID. Madam President, I propose a new section to read: ‘THE MANAGEMENT BODY OF EVERY CORPORATION OR
ASSOCIATION SHALL IN ALL CASES BE CONTROLLED BY CITIZENS OF THE PHILIPPINES."

This will prevent management contracts and assure control by Filipino citizens. Will the committee assure us that this amendment
will insure that past activities such as management contracts will no longer be possible under this amendment?

xxxx

FR. BERNAS. Madam President.

THE PRESIDENT. Commissioner Bernas is recognized.

FR. BERNAS. Will the committee accept a reformulation of the first part?

MR. BENGZON. Let us hear it.

FR. BERNAS. The reformulation will be essentially the formula of the 1973 Constitution which reads: "THE PARTICIPATION OF
FOREIGN INVESTORS IN THE GOVERNING BODY OF ANY PUBLIC UTILITY ENTERPRISE SHALL BE LIMITED TO THEIR PROPORTIONATE
SHARE IN THE CAPITAL THEREOF AND..."

MR. VILLEGAS. "ALL THE EXECUTIVE AND MANAGING OFFICERS OF SUCH CORPORATIONS AND ASSOCIATIONS MUST BE CITIZENS OF
THE PHILIPPINES."

MR. BENGZON. Will Commissioner Bernas read the whole thing again?

FR. BERNAS. "THE PARTICIPATION OF FOREIGN INVESTORS IN THE GOVERNING BODY OF ANY PUBLIC UTILITY ENTERPRISE SHALL BE
LIMITED TO THEIR PROPORTIONATE SHARE IN THE CAPITAL THEREOF..." I do not have the rest of the copy.

MR. BENGZON. "AND ALL THE EXECUTIVE AND MANAGING OFFICERS OF SUCH CORPORATIONS OR ASSOCIATIONS MUST BE
CITIZENS OF THE PHILIPPINES." Is that correct?

MR. VILLEGAS. Yes.

MR. BENGZON. Madam President, I think that was said in a more elegant language. We accept the amendment. Is that all right with
Commissioner Rosario Braid?

MS. ROSARIO BRAID. Yes.

xxxx
MR. DE LOS REYES. The governing body refers to the board of directors and trustees.

MR. VILLEGAS. That is right.

MR. BENGZON. Yes, the governing body refers to the board of directors.

MR. REGALADO. It is accepted.

MR. RAMA. The body is now ready to vote, Madam President.

VOTING

xxxx

The results show 29 votes in favor and none against; so the proposed amendment is approved.

xxxx

THE PRESIDENT. All right. Can we proceed now to vote on Section 15?

MR. RAMA. Yes, Madam President.

THE PRESIDENT. Will the chairman of the committee please read Section 15?

MR. VILLEGAS. The entire Section 15, as amended, reads: "No franchise, certificate, or any other form of authorization for the
operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under
the laws of the Philippines at least 60 PERCENT OF WHOSE CAPITAL is owned by such citizens." May I request Commissioner Bengzon
to please continue reading.

MR. BENGZON. "THE PARTICIPATION OF FOREIGN INVESTORS IN THE GOVERNING BODY OF ANY PUBLIC UTILITY ENTERPRISE SHALL
BE LIMITED TO THEIR PROPORTIONATE SHARE IN THE CAPITAL THEREOF AND ALL THE EXECUTIVE AND MANAGING OFFICERS OF
SUCH CORPORATIONS OR ASSOCIATIONS MUST BE CITIZENS OF THE PHILIPPINES."

MR. VILLEGAS. "NOR SHALL SUCH FRANCHISE, CERTIFICATE OR AUTHORIZATION BE EXCLUSIVE IN CHARACTER OR FOR A PERIOD
LONGER THAN TWENTY-FIVE YEARS RENEWABLE FOR NOT MORE THAN TWENTY-FIVE YEARS. Neither shall any such franchise or
right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by Congress when the
common good so requires. The State shall encourage equity participation in public utilities by the general public."

VOTING

xxxx

The results show 29 votes in favor and 4 against; Section 15, as amended, is approved. 48 (Emphasis supplied)

The last sentence of Section 11, Article XII of the 1987 Constitution, particularly the provision on the limited participation of foreign
investors in the governing body of public utilities, is a reiteration of the last sentence of Section 5, Article XIV of the 1973
Constitution,49 signifying its importance in reserving ownership and control of public utilities to Filipino citizens.

VIII.
The undisputed facts

There is no dispute, and respondents do not claim the contrary, that (1) foreigners own 64.27% of the common shares of PLDT,
which class of shares exercises the sole right to vote in the election of directors, and thus foreigners control PLDT; (2) Filipinos own
only 35.73% of PLDT’s common shares, constituting a minority of the voting stock, and thus Filipinos do not control PLDT; (3)
preferred shares, 99.44% owned by Filipinos, have no voting rights; (4) preferred shares earn only 1/70 of the dividends that
common shares earn;50 (5) preferred shares have twice the par value of common shares; and (6) preferred shares constitute 77.85%
of the authorized capital stock of PLDT and common shares only 22.15%.

Despite the foregoing facts, the Court did not decide, and in fact refrained from ruling on the question of whether PLDT violated the
60-40 ownership requirement in favor of Filipino citizens in Section 11, Article XII of the 1987 Constitution. Such question
indisputably calls for a presentation and determination of evidence through a hearing, which is generally outside the province of the
Court’s jurisdiction, but well within the SEC’s statutory powers. Thus, for obvious reasons, the Court limited its decision on the purely
legal and threshold issue on the definition of the term "capital" in Section 11, Article XII of the Constitution and directed the SEC to
apply such definition in determining the exact percentage of foreign ownership in PLDT.

IX.
PLDT is not an indispensable party;
SEC is impleaded in this case.

In his petition, Gamboa prays, among others:

xxxx

5. For the Honorable Court to issue a declaratory relief that ownership of common or voting shares is the sole basis in determining
foreign equity in a public utility and that any other government rulings, opinions, and regulations inconsistent with this declaratory
relief be declared unconstitutional and a violation of the intent and spirit of the 1987 Constitution;

6. For the Honorable Court to declare null and void all sales of common stocks to foreigners in excess of 40 percent of the total
subscribed common shareholdings; and

7. For the Honorable Court to direct the Securities and Exchange Commission and Philippine Stock Exchange to require PLDT to
make a public disclosure of all of its foreign shareholdings and their actual and real beneficial owners.

Other relief(s) just and equitable are likewise prayed for. (Emphasis supplied)

As can be gleaned from his prayer, Gamboa clearly asks this Court to compel the SEC to perform its statutory duty to investigate
whether "the required percentage of ownership of the capital stock to be owned by citizens of the Philippines has been complied
with [by PLDT] as required by x x x the Constitution."51 Such plea clearly negates SEC’s argument that it was not impleaded.

Granting that only the SEC Chairman was impleaded in this case, the Court has ample powers to order the SEC’s compliance with its
directive contained in the 28 June 2011 Decision in view of the far-reaching implications of this case. In Domingo v. Scheer,52 the
Court dispensed with the amendment of the pleadings to implead the Bureau of Customs considering (1) the unique backdrop of the
case; (2) the utmost need to avoid further delays; and (3) the issue of public interest involved. The Court held:

The Court may be curing the defect in this case by adding the BOC as party-petitioner. The petition should not be dismissed because
the second action would only be a repetition of the first. In Salvador, et al., v. Court of Appeals, et al., we held that this Court has full
powers, apart from that power and authority which is inherent, to amend the processes, pleadings, proceedings and decisions by
substituting as party-plaintiff the real party-in-interest. The Court has the power to avoid delay in the disposition of this case, to
order its amendment as to implead the BOC as party-respondent. Indeed, it may no longer be necessary to do so taking into
account the unique backdrop in this case, involving as it does an issue of public interest. After all, the Office of the Solicitor General
has represented the petitioner in the instant proceedings, as well as in the appellate court, and maintained the validity of the
deportation order and of the BOC’s Omnibus Resolution. It cannot, thus, be claimed by the State that the BOC was not afforded its
day in court, simply because only the petitioner, the Chairperson of the BOC, was the respondent in the CA, and the petitioner in the
instant recourse. In Alonso v. Villamor,  we had the occasion to state:

There is nothing sacred about processes or pleadings, their forms or contents. Their sole purpose is to facilitate the application of
justice to the rival claims of contending parties. They were created, not to hinder and delay, but to facilitate and promote, the
administration of justice. They do not constitute the thing itself, which courts are always striving to secure to litigants. They are
designed as the means best adapted to obtain that thing. In other words, they are a means to an end. When they lose the character
of the one and become the other, the administration of justice is at fault and courts are correspondingly remiss in the performance
of their obvious duty.53 (Emphasis supplied)
In any event, the SEC has expressly manifested 54 that it will abide by the Court’s decision and defer to the Court’s definition of the
term "capital" in Section 11, Article XII of the Constitution. Further, the SEC entered its special appearance in this case and argued
during the Oral Arguments, indicating its submission to the Court’s jurisdiction. It is clear, therefore, that there exists no legal
impediment against the proper and immediate implementation of the Court’s directive to the SEC.

PLDT is an indispensable party only insofar as the other issues, particularly the factual questions, are concerned. In other words,
PLDT must be impleaded in order to fully resolve the issues on (1) whether the sale of 111,415 PTIC shares to First Pacific violates the
constitutional limit on foreign ownership of PLDT; (2) whether the sale of common shares to foreigners exceeded the 40 percent
limit on foreign equity in PLDT; and (3) whether the total percentage of the PLDT common shares with voting rights complies with
the 60-40 ownership requirement in favor of Filipino citizens under the Constitution for the ownership and operation of PLDT. These
issues indisputably call for an examination of the parties’ respective evidence, and thus are clearly within the jurisdiction of the SEC.
In short, PLDT must be impleaded, and must necessarily be heard, in the proceedings before the SEC where the factual issues will be
thoroughly threshed out and resolved.

Notably, the foregoing issues were left untouched by the Court. The Court did not rule on the factual issues raised by Gamboa,
except the single and purely legal issue on the definition of the term "capital" in Section 11, Article XII of the Constitution. The Court
confined the resolution of the instant case to this threshold legal issue in deference to the fact-finding power of the SEC.

Needless to state, the Court can validly, properly, and fully dispose of the fundamental legal issue in this case even without the
participation of PLDT since defining the term "capital" in Section 11, Article XII of the Constitution does not, in any way, depend on
whether PLDT was impleaded. Simply put, PLDT is not indispensable for a complete resolution of the purely legal question in this
case.55 In fact, the Court, by treating the petition as one for mandamus, 56 merely directed the SEC to apply the Court’s definition of
the term "capital" in Section 11, Article XII of the Constitution in determining whether PLDT committed any violation of the said
constitutional provision. The dispositive portion of the Court’s ruling is addressed not to PLDT but solely to the SEC, which is the
administrative agency tasked to enforce the 60-40 ownership requirement in favor of Filipino citizens in Section 11, Article XII of
the Constitution.

Since the Court limited its resolution on the purely legal issue on the definition of the term "capital" in Section 11, Article XII of the
1987 Constitution, and directed the SEC to investigate any violation by PLDT of the 60-40 ownership requirement in favor of Filipino
citizens under the Constitution,57 there is no deprivation of PLDT’s property or denial of PLDT’s right to due process, contrary to
Pangilinan and Nazareno’s misimpression. Due process will be afforded to PLDT when it presents proof to the SEC that it complies, as
it claims here, with Section 11, Article XII of the Constitution.

X.
Foreign Investments in the Philippines

Movants fear that the 28 June 2011 Decision would spell disaster to our economy, as it may result in a sudden flight of existing
foreign investors to "friendlier" countries and simultaneously deterring new foreign investors to our country. In particular, the PSE
claims that the 28 June 2011 Decision may result in the following: (1) loss of more than ₱ 630 billion in foreign investments in PSE-
listed shares; (2) massive decrease in foreign trading transactions; (3) lower PSE Composite Index; and (4) local investors not
investing in PSE-listed shares.58

Dr. Bernardo M. Villegas, one of the amici curiae  in the Oral Arguments, shared movants’ apprehension. Without providing specific
details, he pointed out the depressing state of the Philippine economy compared to our neighboring countries which boast of
growing economies. Further, Dr. Villegas explained that the solution to our economic woes is for the government to "take-over"
strategic industries, such as the public utilities sector, thus:

JUSTICE CARPIO:

I would like also to get from you Dr. Villegas if you have additional information on whether this high FDI 59 countries in East Asia have
allowed foreigners x x x control [of] their public utilities, so that we can compare apples with apples.

DR. VILLEGAS:

Correct, but let me just make a comment. When these neighbors of ours find an industry strategic, their solution is not to "Filipinize"
or "Vietnamize" or "Singaporize." Their solution is to make sure that those industries are in the hands of state enterprises. So, in
these countries, nationalization means the government takes over. And because their governments are competent and honest
enough to the public, that is the solution. x x x 60 (Emphasis supplied)

If government ownership of public utilities is the solution, then foreign investments in our public utilities serve no purpose.
Obviously, there can never be foreign investments in public utilities if, as Dr. Villegas claims, the "solution is to make sure that those
industries are in the hands of state enterprises." Dr. Villegas’s argument that foreign investments in telecommunication companies
like PLDT are badly needed to save our ailing economy contradicts his own theory that the solution is for government to take over
these companies. Dr. Villegas is barking up the wrong tree since State ownership of public utilities and foreign investments in such
industries are diametrically opposed concepts, which cannot possibly be reconciled.

In any event, the experience of our neighboring countries cannot be used as argument to decide the present case differently for two
reasons. First, the governments of our neighboring countries have, as claimed by Dr. Villegas, taken over ownership and control of
their strategic public utilities like the telecommunications industry. Second, our Constitution has specific provisions limiting foreign
ownership in public utilities which the Court is sworn to uphold regardless of the experience of our neighboring countries.

In our jurisdiction, the Constitution expressly reserves the ownership and operation of public utilities to Filipino citizens, or
corporations or associations at least 60 percent of whose capital belongs to Filipinos. Following Dr. Villegas’s claim, the Philippines
appears to be more liberal in allowing foreign investors to own 40 percent of public utilities, unlike in other Asian countries whose
governments own and operate such industries.

XI.
Prospective Application of Sanctions

In its Motion for Partial Reconsideration, the SEC sought to clarify the reckoning period of the application and imposition of
appropriate sanctions against PLDT if found violating Section 11, Article XII of the Constitution.1avvphi1

As discussed, the Court has directed the SEC to investigate and determine whether PLDT violated Section 11, Article XII of the
Constitution. Thus, there is no dispute that it is only after the SEC has determined PLDT’s violation, if any exists at the time of the
commencement of the administrative case or investigation, that the SEC may impose the statutory sanctions against PLDT. In other
words, once the 28 June 2011 Decision becomes final, the SEC shall impose the appropriate sanctions only if it finds after due
hearing that, at the start of the administrative case or investigation, there is an existing violation of Section 11, Article XII of the
Constitution. Under prevailing jurisprudence, public utilities that fail to comply with the nationality requirement under Section 11,
Article XII and the FIA can cure their deficiencies prior to the start of the administrative case or investigation. 61

XII.
Final Word

The Constitution expressly declares as State policy the development of an economy "effectively controlled" by Filipinos. Consistent
with such State policy, the Constitution explicitly reserves the ownership and operation of public utilities to Philippine nationals, who
are defined in the Foreign Investments Act of 1991 as Filipino citizens, or corporations or associations at least 60 percent of whose
capital with voting rights belongs to Filipinos. The FIA’s implementing rules explain that "[f]or stocks to be deemed owned and held
by Philippine citizens or Philippine nationals, mere legal title is not enough to meet the required Filipino equity. Full beneficial
ownership of the stocks, coupled with appropriate voting rights is essential." In effect, the FIA clarifies, reiterates and confirms the
interpretation that the term "capital" in Section 11, Article XII of the 1987 Constitution refers to shares with voting rights, as well as
with full beneficial ownership. This is precisely because the right to vote in the election of directors, coupled with full beneficial
ownership of stocks, translates to effective control of a corporation.

Any other construction of the term "capital" in Section 11, Article XII of the Constitution contravenes the letter and intent of the
Constitution. Any other meaning of the term "capital" openly invites alien domination of economic activities reserved exclusively to
Philippine nationals. Therefore, respondents’ interpretation will ultimately result in handing over effective control of our national
economy to foreigners in patent violation of the Constitution, making Filipinos second-class citizens in their own country.

Filipinos have only to remind themselves of how this country was exploited under the Parity Amendment, which gave Americans the
same rights as Filipinos in the exploitation of natural resources, and in the ownership and control of public utilities, in the
Philippines. To do this the 1935 Constitution, which contained the same 60 percent Filipino ownership and control requirement as
the present 1987 Constitution, had to be amended to give Americans parity rights with Filipinos. There was bitter opposition to the
Parity Amendment62 and many Filipinos eagerly awaited its expiration. In late 1968, PLDT was one of the American-controlled public
utilities that became Filipino-controlled when the controlling American stockholders divested in anticipation of the expiration of the
Parity Amendment on 3 July 1974.63 No economic suicide happened when control of public utilities and mining corporations passed
to Filipinos’ hands upon expiration of the Parity Amendment.

Movants’ interpretation of the term "capital" would bring us back to the same evils spawned by the Parity Amendment, effectively
giving foreigners parity rights with Filipinos, but this time even without any amendment to the present Constitution. Worse,
movants’ interpretation opens up our national economy to effective control  not only by Americans but also by all foreigners, be
they Indonesians, Malaysians or Chinese, even in the absence of reciprocal treaty arrangements. At least the Parity Amendment,
as implemented by the Laurel-Langley Agreement, gave the capital-starved Filipinos theoretical parity – the same rights as
Americans to exploit natural resources, and to own and control public utilities, in the United States of America. Here, movants’
interpretation would effectively mean a unilateral opening up of our national economy to all foreigners, without any reciprocal
arrangements. That would mean that Indonesians, Malaysians and Chinese nationals could effectively control our mining companies
and public utilities while Filipinos, even if they have the capital, could not control similar corporations in these countries.

The 1935, 1973 and 1987 Constitutions have the same 60 percent Filipino ownership and control requirement for public utilities like
PLOT. Any deviation from this requirement necessitates an amendment to the Constitution as exemplified by the Parity Amendment.
This Court has no power to amend the Constitution for its power and duty is only to faithfully apply and interpret the Constitution.

WHEREFORE, we DENY the motions for reconsideration WITH FINALITY. No further pleadings shall be entertained.

SO ORDERED.

EN BANC

G.R. Nos. 177857-58               February 11, 2010

PHILIPPINE COCONUT PRODUCERS FEDERATION, INC. (COCOFED), MANUEL V. DEL ROSARIO, DOMINGO P. ESPINA, SALVADOR P.
BALLARES, JOSELITO A. MORALEDA, PAZ M. YASON, VICENTE A. CADIZ, CESARIA DE LUNA TITULAR, and RAYMUNDO C. DE
VILLA, Petitioners,
vs.
REPUBLIC OF THE PHILIPPINES, Respondent.
JOVITO R. SALONGA, WIGBERTO E. TAÑADA, OSCAR F. SANTOS, ANA THERESIA HONTIVEROS, and TEOFISTO L. GUINGONA
III, Oppositors-Intervenors.
WIGBERTO E. TAÑADA, OSCAR F. SANTOS, SURIGAO DEL SUR FEDERATION OF AGRICULTURAL COOPERATIVES (SUFAC) and MORO
FARMERS ASSOCIATION OF ZAMBOANGA DEL SUR (MOFAZS), represented by ROMEO C. ROYANDOYAN; and PAMBANSANG
KILUSAN NG MGA SAMAHAN NG MAGSASAKA (PAKISAMA), represented by VICENTE FABE, Movants-Intervenors.

x - - - - - - - - - - - - - - - - - - - - - - -x

G.R. No. 178193

DANILO B. URUSA, Petitioner,
vs.
REPUBLIC OF THE PHILIPPINES, Respondent.

x - - - - - - - - - - - - - - - - - - - - - - -x

G.R. No. 180705

EDUARDO M. COJUANGCO, JR., Petitioner,

vs.
REPUBLIC OF THE PHILIPPINES, Respondent.

RESOLUTION

VELASCO, JR., J.:
Before us is the motion for reconsideration 1 of the Resolution of the Court dated September 17, 2009, interposed by oppositors-
intervenors Jovito R. Salonga, Wigberto E. Tañada, Oscar F. Santos, Ana Theresa Hontiveros, and Teofisto L. Guingona III.

As may be recalled, the Court, in its resolution adverted to, approved, upon motion of petitioner Philippine Coconut Producers
Federation, Inc. (COCOFED), the conversion of the sequestered 753,848,312 Class "A" and "B" common shares of San Miguel
Corporation (SMC), registered in the name of Coconut Industry Investment Fund (CIIF) Holding Companies (hereunder referred to as
SMC Common Shares), into 753,848,312 SMC Series 1 Preferred Shares.

Oppositors-intervenors Salonga, et al. anchor their plea for reconsideration on the following submission or issues:

The conversion of the shares is patently disadvantageous to the government and the coconut farmers, given that SMC’s option to
redeem ensures that the shares will be bought at less than their market value.

The honorable court overlooks the value of the fact that the government, as opposed to the current administration, is the winning
party in the case below and thus has no incentive to convert. 2

The Court is not inclined to reconsider.

The two (2) issues and the arguments and citations in support thereof are, for the most part and with slight variations, clearly
replications of oppositors-intervenors’ previous position presented in opposition to COCOFED’s motion for approval of the
conversion in question. They have been amply considered, discussed at length, and found to be bereft of merit.

Oppositors-intervenors harp on the perceived economic disadvantages and harm that the government would likely suffer by the
approval of the proposed conversion. Pursuing this point, it is argued that the Court missed the fact that the current value of the
shares in question is increasing and the "perceived advantages of pegging the issue price at PhP 75 are dwindling on a daily basis." 3

Oppositors-intervenors’ concerns, encapsulated above, have been adequately addressed in some detail in the resolution subject of
this motion. For reference we reproduce what we wrote:

Salonga, et al. also argue that the proposed redemption is a right to buy the preferred shares at less than the market value. That the
market value of the preferred shares may be higher than the issue price of PhP 75 per share at the time of redemption is possible.
But then the opposite scenario is also possible. Again, the Court need not delve into policy decisions of government agencies
because of their expertise and special knowledge of these matters. Suffice it to say that all indications show that SMC will redeem
said preferred shares in the third year and not later because the dividend rate of 8% it has to pay on said shares is higher than the
interest it will pay to the banks in case it simply obtains a loan. When market prices of shares are low, it is possible that interest rate
on loans will likewise be low. On the other hand, if SMC has available cash, it would be prudent for it to use such cash to redeem the
shares than place it in a regular bank deposit which will earn lower interests. It is plainly expensive and costly for SMC to keep on
paying the 8% dividend rate annually in the hope that the market value of the shares will go up before it redeems the shares.
Likewise, the conclusion that respondent Republic will suffer a loss corresponding to the difference between a high market value and
the issue price does not take into account the dividends to be earned by the preferred shares for the three years prior to
redemption. The guaranteed PhP 6 per share dividend multiplied by three years will amount to PhP 18. If one adds PhP 18 to the
issue price of PhP 75, then the holders of the preferred shares will have actually attained a price of PhP 93 which hews closely to the
speculative PhP 100 per share price indicated by movants-intervenors. 4 (Emphasis added.)

Elaborating on how the value of the sequestered shares will be preserved and conserved, we said:

Moreover, the conversion may be viewed as a sound business strategy to preserve and conserve the value of the government’s
interests in CIIF SMC shares. Preservation is attained by fixing the value today at a significant premium over the market price and
ensuring that such value is not going to decline despite negative market conditions. Conservation is realized thru an improvement in
the earnings value via the 8% per annum dividends versus the uncertain and most likely lower dividends on common shares.
In this recourse, it would appear that oppositors-intervenors seem unable to accept, in particular, the soundness angle of the
conversion. But as we have explained, the conversion of the shares along with the safeguards attached thereto will ensure that the
value of the shares will be preserved. In effect, due to the nature of stocks in general and the prevailing business conditions, the
government, through the Presidential Commission on Good Government (PCGG), chose not to speculate with the CIIF SMC shares, as
prima facie public property, in the hope that there would be a brighter economy in the future, and that the value of the shares
would increase. We must respect the decision of the executive department, absent a clear showing of grave abuse of discretion.

Next, oppositors-intervenors argue that:

The very reason why the PCGG and the OSG [Office of Solicitor General] are before this Honorable Court is precisely because, on
their own, they have no authority to alter the nature of the sequestered shares. This fact ought not to be novel to this Honorable
Court because it is the Court itself that established such jurisprudence. Thus, the reference to separation of powers is rather
gratuitous.5

The Court to be sure agrees with the thesis that, under present state of things, the PCGG and the Office of the Solicitor General have
no power, by themselves, to convert the sequestered shares of stock. That portion, however, about the reference to the separation
of powers being gratuitous does not commend itself for concurrence. As may be noted, the reference to the separation of powers
concept was made in the context that the ownership of the subject sequestered shares is the subject of a case before this Court;
hence, the need of the Court’s approval for the desired conversion is effected.

Apropos the separation of powers doctrine and its relevance to this case, it may well be appropriate to again quote the following
excerpts from our decision in JG Summit Holdings, Inc. v. Court of Appeals, 6 to wit:

The role of the Courts is to ascertain whether a branch or instrumentality of the Government has transgressed its constitutional
boundaries. But the Courts will not interfere with executive or legislative discretion exercised within those boundaries. Otherwise, it
strays into the realm of policy decision-making.

and our complementary holding in Ledesma v. Court of Appeals, 7 thus:

x x x [A] court is without power to directly decide matters over which full discretionary authority has been delegated to the
legislative or executive branch of the government. It is not empowered to substitute its judgment for that of Congress or of the
President. It may, however, look into the question of whether such exercise has been made in grave abuse of discretion.

The point, in fine, is: while it may, in appropriate cases, look into the question of whether or not the PCGG acted in grave abuse of
discretion, the Court is not empowered to review and go into the wisdom of the policy decision or choices of PCGG and other
executive agencies of the government. This is the limited mandate of this Court. And as we have determined in our Resolution, the
PCGG thoroughly studied and considered the effects of conversion and, based upon such study, concluded that it would best serve
the purpose of maintaining and preserving the value of the shares of stock to convert the same. It was proved that the PCGG had
exercised proper diligence in reviewing the pros and cons of the conversion. The efforts PCGG have taken with respect to the desired
stock conversion argue against the notion of grave abuse of discretion.1avvphi1

Anent the second issue that it is the government, as opposed to the current administration of President Gloria Macapagal-Arroyo,
that is the winning party in the case below and has no incentive to convert, the Court finds that this argument has no merit.

The current administration, or any administration for that matter, cannot be detached from the government. In the final analysis,
the seat of executive powers is located in the sitting President who heads the government and/or the "administration." Under the
government established under the Constitution, it is the executive branch, either pursuant to the residual power of the President or
by force of her enumerated powers under the laws, that has control over all matters pertaining to the disposition of government
property or, in this case, sequestered assets under the administration of the PCGG. Surely, such control is neither legislative nor
judicial. As the Court aptly held in Springer v. Government of the Philippine Islands, 8 resolving the issue as to which between the
Governor-General, as head of the executive branch, and the Legislature may vote the shares of stock held by the government:

It is clear that they are not legislative in character, and still more clear that they are not judicial. The fact that they do not fall within
the authority of either of these two constitutes legal ground for concluding that they do fall within that of the remaining one among
which the powers of the government are divided.
The executive branch, through the PCGG, has given its assent to the conversion and such decision may be deemed to be the decision
of the government. The notion suggested by oppositors-intervenors that the current administration, thru the PCGG, is without
power to decide and act on the conversion on the theory that the head of the current administration is not government, cannot be
sustained for lack of legal basis.

Likewise, before the Court is the Motion to Admit Motion for Reconsideration with Motion for Reconsideration [Re: Conversion of
SMC Shares] dated October 16, 20099 filed by movants-intervenors Wigberto E. Tañada; Oscar F. Santos; Surigao del Sur Federation
of Agricultural Cooperatives (SUFAC) and Moro Farmers Association of Zamboanga del Sur (MOFAZS); and Pambansang Kilusan ng
mga Samahan ng Magsasaka (PAKISAMA).

In filing their motion, movants-intervenors explain that:

Messrs. Tañada and Santos earlier joined an opposition filed by a group led by former Senate President Jovito R. Salonga, by way of
solidarity and without desire or intent of trifling with judicial processes as, in fact, the instant Motion for Reconsideration is filed by
herein movants-intervenors, through counsel, Atty. Tañada, and also by way of supplement and support to the Opposition earlier
filed by Salonga, et al., and the Opposition originally intended to be filed by herein Movants-intervenors. 10 (Emphasis supplied.)

Movants-intervenors argue further that the Court allowed them to intervene in a Resolution in G.R. No. 180702, which also arose
from Sandiganbayan Civil Case No. 0033-F and, thus, should similarly be allowed to intervene in the instant case. 11

This motion of Tañada, et al. must fail.

As it were, Atty. Tañada and Oscar Santos admit having joined oppositors-intervenors Salonga, et al. in the latter’s October 7, 2009
motion for reconsideration. Accordingly, they should have voiced out all their arguments in the Salonga motion for reconsideration
following the Omnibus Motion Rule. The filing of yet another motion for reconsideration by way of supplement to the Salonga
motion for reconsideration is a clear deviation from the Omnibus Motion Rule and cannot be countenanced.

Even the joinder of SUFAC, MOFAZS, and PAKISAMA with co-intervenors Tañada and Santos will not cure the flawed motion. In Heirs
of Geronimo Restrivera v. De Guzman,12 the Court explained why:

Indeed, the right of intervention should be accorded to any one having title to property "which is the subject of litigation, provided
that his right will be substantially affected by the direct legal operation and effect of the decision, and provided also that it is
reasonably necessary for him to safeguard an interest of his own which no other party on record is interested in protecting."
(Emphasis supplied.)

SUFAC, MOFAZS, and PAKISAMA all failed to demonstrate that none of the existing parties, that are similarly situated as they, would
not defend their common interest. In the instant case, COCOFED, the federation of farmers’ associations recognized by the
Philippine Coconut Authority, has actively participated in the instant case, vigorously defending their rights and those of all the
coconut farmers who are supposedly stockholders of SMC.

The Court can extend to the instant motion of Tañada, et al. the benefit of the liberal application of procedural rules and entertain
the motion and resolve the issues therein. Nonetheless, an examination of the issues raised in the Tañada motion for
reconsideration would show that the same have been more than adequately addressed in our Resolution of September 19, 2009.

Movants-intervenors contend that the challenged resolution violates the Court’s holding in San Miguel Corporation v.
Sandiganbayan,13 as the conversion of the sequestered common shares into treasury shares would destroy the character of the
shares of stock.

The invocation of San Miguel Corporation is quite misplaced, it being inapplicable since it is not on all fours factually with the instant
case.

San Miguel Corporation involved the sale by the 14 CIIF Companies, through the United Coconut Planters Bank (UCPB), of
33,133,266 SMC shares, to the SMC. Before the perfection of the sale, however, the said shares were sequestered. Thus, the SMC
group suspended payment of the purchase price of the shares, while the UCPB group rescinded the sale. Later, the SMC and UCPB
groups entered into a Compromise Agreement and Amicable Settlement, whereby they undertook to continue with the sale of the
subject shares of stock. The parties, over the opposition of both the Republic and the COCOFED, then moved for the approval of this
agreement by the Sandiganbayan where the case was then pending. Later, UCPB and the SMC groups implemented their agreement
extra-judicially, withdrawing, at the same time, their petition for the approval of their aforementioned compromise agreement.
Thereafter, the Sandiganbayan issued an Order dated August 5, 1991, directing the SMC to deliver to the graft court the sequestered
SMC shares that it bought from UCPB. This was followed by another Order dated March 18, 1992, for the delivery to the court of
dividends pertaining to the subject SMC shares. It was these two delivery Orders that were submitted for the consideration of the
Court.

An examination of the facts of San Miguel Corporation would show the factual dissimilarities of such case to the instant controversy.
First, in San Miguel Corporation, the Court did not even pass upon the validity of the Compromise Agreement, while, in the instant
case, the Court approved the conversion. Second, in the instant case, court approval was sought before the execution of the
conversion, while in San Miguel Corporation, no court approval was sought for the Compromise Agreement. And third, in San Miguel
Corporation, both the Republic and COCOFED opposed the Compromise Agreement, while, in the instant case, they both agreed to
the conversion. Clearly, San Miguel Corporation finds no application to the instant case.

Moreover, our ruling in San Miguel Corporation did not per se forbid the conversion of sequestered common shares into
preferred/treasury shares. As we held thereat, the changes that are unacceptable are those "of any permanent character that will
alter their being sequestered shares and, therefore, in ‘custodia legis,’ that is to say, under the control and disposition of this Court."
Here, the SMC Series 1 Preferred Shares will also be sequestered in exchange for the common shares originally sequestered. Thus,
the approval of the conversion of the subject SMC shares in the instant case does not run counter, as movants insist otherwise, to
the ruling in San Miguel Corporation.

Movants-intervenors also assail the conversion of the SMC shares from common to preferred on another angle, thus:

Simply, there is no right to vote: There is no greater alteration of the very nature of a common share. In a very real sense, therefore,
a common share with all its rights, is reduced to a mere promissory note; worse, an unsecured and conditional promissory note, the
returns on which is dependent on available retained earnings and the over-all viability of SMC. 14

The assault is without merit.

Again, by their very nature, shares of common stock, while giving the stockholder the right to vote, do not guarantee that the vote of
the stockholder will prevail. That is non sequitur. This we explained in the Resolution subject of reconsideration:

The mere presence of four (4) PCGG nominated directors in the SMC Board does not mean it can prevent board actions that are
viewed to fritter away the company assets. Even under the status quo, PCGG has no controlling sway in the SMC Board, let alone a
veto power at 24% of the stockholdings. In relinquishing the voting rights, the government, through the PCGG, is not in reality ceding
control.

Moreover, PCGG has ample powers to address alleged strategies to thwart recovery of ill-gotten wealth. Thus, the loss of voting
rights has no significant effect on PCGG’s function to recover ill-gotten wealth or prevent dissipation of sequestered
assets.151avvphi1

Movants-intervenors likewise challenge the legality of the conversion in light of Commission on Audit (COA) Circular No. 89-296,
which provides that the divestment or disposal of government property shall be undertaken primarily through public auction.

The postulation has no merit, for there is, in the first place, no divestment or disposal of the SMC shares. The CIIF companies shall
remain the registered owners of the SMC Series 1 Preferred Shares after conversion, although the shares are still subject of
sequestration. To state the obvious, these SMC shares are not yet government assets as ownership thereof are still to be
peremptorily determined. Hence, COA Circular No. 89-296, which covers only the disposition of government property, cannot
plausibly be made to govern the conversion of the SMC shares in question, assuming for the nonce that the challenged conversion is
equivalent to disposition. As explained in the September 17, 2009 Resolution, the sequestered assets are akin to property subject of
preliminary attachment or receivership. As stated in the assailed resolution, the Court is authorized to allow the conversion of the
subject shares under Rule 57, Sec. 11, in relation to Rule 59, Sec. 6 of the Rules of Court. And as may be recalled, the Court, in Palm
Avenue Realty Development Corporation v. PCGG,16 allowed the sale of sequestered properties without an auction sale given that, as
here, the sequestered assets would not have fetched the correct market price. In the instant case, the same is also true. It is highly
doubtful that anyone other than SMC would purchase the sequestered shares at market value.

Finally, Tañada, et al. posit the view that the conversion of shares needs the acquiescence of the 14 CIIF companies.
The contention is untenable.

It should be remembered that the SMC shares allegedly owned by the CIIF companies are sequestered assets under the control and
supervision of the PCGG pursuant to Executive Order No. 1, Series of 1986. Be that as it may, it is the duty of the PCGG to preserve
the sequestered assets and prevent their dissipation. In the exercise of its powers, the PCGG need not seek or obtain the consent or
even the acquiescence of the sequestered assets owner with respect to any of its acts intended to preserve such assets. Otherwise,
it would be well-nigh impossible for PCGG to perform its duties and exercise its powers under existing laws, for the owner of the
sequestered assets will more often than not oppose or resist PCGG’s actions if their consent is a condition precedent. The act of
PCGG of proposing the conversion of the sequestered SMC shares to Series 1 Preferred Shares was clearly an exercise of its mandate
under existing laws, where the consent of the CIIF Companies is rendered unnecessary.

Additionally, the above contention has been rendered moot with the filing on October 26, 2009 of the Manifestation dated October
23, 2009. Attached to such Manifestation is the Secretary’s Certificate of the 14 CIIF companies approving the conversion of the SMC
Common Shares into Series 1 Preferred Shares.17

As a final consideration, the Court also takes note of the  Motion for Leave to Intervene and to File and Admit Attached Motion for
Partial Reconsideration dated October 5, 2009 and the Motion for Partial Reconsideration dated October 6, 2009 filed by movant-
intervenor UCPB. UCPB claims to have direct interest in the SMC shares subject of the instant case, being the statutory
administrator, pursuant to Presidential Decree No. (PD) 1468, of the Coconut Industry Investment Fund and as an investor in the CIIF
companies.

UCPB argues that, as the statutory administrator of the CIIF, the proceeds of the net dividend earnings of, and/or redemption
proceeds from, the Series 1 Preferred Shares of SMC should be deposited in escrow with it rather than, as directed by the Court in its
September 17, 2009 Resolution, with the Development Bank of the Philippines (DBP) or the Land Bank of the Philippines (LBP).

Concededly, UCPB is the administrator of the CIIF, which invested in the subject Series 1 Preferred Shares of SMC. UCPB’s legal
authority as such administrator does not, however, include its being made the exclusive depository bank of the proceeds of
dividends, interest, or income from the investments solely with UCPB. To be sure, the relevant decrees, PD Nos. 775, 961, and 1468,
did not constitute UCPB—the bank acquired for the coconut farmers under PD 755—to be the sole depositary of the proceeds of the
returns of the investments authorized under Sec. 9, Art. III of PD 1468.

Besides, since the subject sequestered SMC shares are under custodia legis, the Court has certain control over them and their fruits.
Nonetheless, the PCGG, having administrative control over the subject sequestered shares pending resolution of the actual
ownership thereof, possesses discretion, taking into account the greater interest of the government and the farmers, to decide on
where to deposit on escrow the net dividend earnings of, and/or redemption proceeds from, the Series 1 Preferred Shares of SMC.
The depository bank may be the DBP/LBP or the UCPB.

WHEREFORE, the Court resolves to DENY for lack of merit the: (1) Motion for Reconsideration dated October 7, 2009 filed by
oppositors-intervenors Jovito R. Salonga, Wigberto E. Tañada, Oscar F. Santos, Ana Theresa Hontiveros, and Teofisto L. Guingona III;
and (2) Motion to Admit Motion for Reconsideration with Motion for Reconsideration [Re: Conversion of SMC Shares] dated October
16, 2009 filed by movants-intervenors Wigberto E. Tañada, Oscar F. Santos, SUFAC, MOFAZS, represented by Romeo C. Royandoyan,
and PAKISAMA, represented by Vicente Fabe.

The Court PARTIALLY GRANTS the Motion for Leave to Intervene and to File and Admit Attached Motion for Partial Reconsideration
dated October 5, 2009, and the Motion for Partial Reconsideration dated October 6, 2009 filed by movant-intervenor UCPB.

The Court AMENDS its Resolution dated September 17, 2009 to give to the PCGG the discretion in depositing on escrow the net
dividend earnings on, and/or redemption proceeds from, the Series 1 Preferred Shares of SMC, either with the Development Bank of
the Philippines/Land Bank of the Philippines or with the United Coconut Planters Bank, having in mind the greater interest of the
government and the coconut farmers.

SO ORDERED.

EN BANC

G.R. No. 147062-64      December 14, 2001

REPUBLIC OF THE PHILIPPINES, represented by the PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG), petitioner,
vs.
COCOFED, ET AL. and BALLARES, ET AL.,1 EDUARDO M. COJUANGCO JR. and the SANDIGANBAYAN (First Division) respondents.

PANGANIBAN, J.:

The right to vote sequestered shares of stock registered in the names of private individuals or entitles and  alleged to have been
acquired with ill-gotten wealth shall, as a rule, be exercised by the registered owner. The PCGG may, however, be granted such
voting right provided in can (1) show prima facie evidence that the wealth and/or the shares are indeed ill-gotten; and (2)
demonstrate imminent danger of dissipation of the assets, thus necessitating their continued sequestration and voting by the
government until a decision, ruling with finality on their ownership, is promulgated by the proper court.1âwphi1.nêt

However, the foregoing "two-tiered" test does not apply when the sequestered stocks are acquired with funds that are prima
facie public in character or, at least, are affected with public interest. Inasmuch as the subject UCPB shares in the present case were
undisputably acquired with coco levy funds which are public in character, then the right to vote them shall be exercised by the
PCGG. In sum, the "public character" test, not the "two-tiered" one, applies in the instant controversy.

The Case

Before us is a Petition for Certiorari with a prayer for the issuance of a temporary restraining order and/or a writ of preliminary
injunction under Rule 65 of the Rules of Court, seeking to set aside the February 28, 2001 Order 2 of the First Division of the
Sandiganbayan3 in Civil Case Nos. 0033-A, 0033-B and 0033-F. The pertinent portions of the assailed Order read as follows:

"In view hereof, the movants COCOFED, et al. and Ballares, et al. as well as Eduardo Cojuangco, et al., who were
acknowledged to be registered stockholders of the UCPB are authorized, as are all other registered stockholders of the
United Coconut Planters Bank, until further orders from this Court, to exercise their rights to vote their shares of stock and
themselves to be voted upon in the United Coconut Planters Bank (UCPB) at the scheduled Stockholders' Meeting on March
6, 2001 or on any subsequent continuation or resetting thereof, and to perform such acts as will normally follow in the
exercise of these rights as registered stockholders.

"Since by way of form, the pleadings herein had been labeled as praying for an injunction, the right of the movants to
exercise their right as abovementioned will be subject to the posting of a nominal bond in the amount of FIFTY THOUSAND
PESOS (P50,000.00) jointly for the defendants COCOFED, et al. and Ballares, et al., as well as all other registered
stockholders of sequestered shares in that bank, and FIFTY THOUSAND PESOS (P50,000.00) for Eduardo Cojuangco, Jr., et
al., to answer for any undue damage or injury to the United Coconut Planters Bank as may be attributed to their exercise of
their rights as registered stockholders." 4

The Antecedents

The very roots of this case are anchored on the historic events that transpired during the change of government in 1986.
Immediately after the 1986 EDSA Revolution, then President Corazon C. Aquino issued Executive Order (EO) Nos. 1, 5 26 and 14.7

"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 (PCGG)
was created by Executive Order No. 1 to assist the President in the recovery of the ill-gotten wealth thus accumulated whether
located in the Philippines or abroad."8

Executive Order No. 2 states that 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. 9

Executive Order No. 14, on the other hand, empowered the PCGG, with the assistance of the Office of the Solicitor General and
other government agencies, inter alia, to file and prosecute all cases investigated by it under EO Nos. 1 and 2.

Pursuant to these laws, the PCGG issued and implemented numerous sequestrations, freeze orders and provisional takeovers of
allegedly ill-gotten companies, assets and properties, real or personal. 10
Among the properties sequestered by the Commission were shares of stock in the United Coconut Planters Bank (UCPB) registered
in the names of the alleged "one million coconut farmers," the so-called Coconut Industry Investment Fund companies (CIIF
companies) and Private Respondent Eduardo Cojuangco Jr. (hereinafter "Cojuangco").

In connection with the sequestration of the said UCPB shares, the PCGG, on July 31, 1987, instituted an action for reconveyance,
reversion, accounting, restitution and damages docketed as Case No. 0033 in the Sandiganbayan.

On November 15, 1990, upon Motion11 of Private Respondent COCOFED, the Sandiganbayan issued a Resolution 12 lifting the
sequestration of the subject UCPB shares on the ground that herein private respondents – in particular, COCOFED and the so-called
CIIF companies – had not been impleaded by the PCGG as parties-defendants in its July 31, 1987 Complaint for reconveyance,
reversion, accounting, restitution and damages. The Sandiganbayan ruled that the Writ of Sequestration issued by the Commission
was automatically lifted for PCGG's failure to commence the corresponding judicial action within the six-month period ending on
August 2, 1987 provided under Section 26, Article XVIII of the 1987 Constitution. The anti-graft court noted that though these
entities were listed in an annex appended to the Complaint, they had not been named as parties-respondents.

This Sandiganbayan Resolution was challenged by the PCGG in a Petition for Certiorari docketed as GR No. 96073 in this Court.
Meanwhile, upon motion of Cojuangco, the anti-graft court ordered the holding of elections for the Board of Directors of UCPB.
However, the PCGG applied for and was granted by this Court a Restraining Order enjoining the holding of the election.
Subsequently, the Court lifted the Restraining Order and ordered the UCPB to proceed with the election of its board of directors.
Furthermore, it allowed the sequestered shares to be voted by their registered owners.

The victory of the registered shareholders was fleeting because the Court, acting on the solicitor general's Motion for
Clarification/Manifestation, issued a Resolution on February 16, 1993, declaring that "the right of petitioners [herein private
respondents] to vote stock in their names at the meetings of the UCPB cannot be conceded at this time. That right still has to be
established by them before the Sandiganbayan. Until that is done, they cannot be deemed legitimate owners of UCPB stock and
cannot be accorded the right to vote them." 13 The dispositive portion of the said Resolution reads as follows:

"IN VIEW OF THE FOREGOING, the Court recalls and sets aside the Resolution dated March 3, 1992 and, pending resolution
on the merits of the action at bar, and until further orders, suspends the effectivity of the lifting of the sequestration
decreed by the Sandiganbayan on November 15, 1990, and directs the restoration of the status quo ante, so as to allow the
PCGG to continue voting the shares of stock under sequestration at the meetings of the United Coconut Planters Bank." 14

On January 23, 1995, the Court rendered its final Decision in GR No. 96073, nullifying and setting aside the November 15, 1990
Resolution of the Sandiganbayan which, as earlier stated, lifted the sequestration of the subject UCPB shares. The express
impleading of herein Respondents COCOFED et al. was deemed unnecessary because "the judgment may simply be directed against
the shares of stock shown to have been issued in consideration of ill-gotten wealth." 15 Furthermore, the companies "are simply
the res in the actions for the recovery of illegally acquires wealth, and there is, in principle, no cause of action against them and no
ground to implead them as defendants in said case." 16

A month thereafter, the PCGG – pursuant to an Order of the Sandiganbayan – subdivided Case No. 0033 into eight Complaints and
docketed them as Case Nos. 0033-A to 0033-H.

Six years later, on February 13, 2001, the Board of Directors of UCPB received from the ACCRA Law Office a letter written on behalf
of the COCOFED and the alleged nameless one million coconut farmers, demanding the holding of a stockholders' meeting for the
purpose of, among others, electing the board of directors. In response, the board approved a Resolution calling for a stockholders'
meeting on March 6, 2001 at three o'clock in the afternoon.

On February 23, 2001, "COCOFED, et al. and Ballares, et al." filed the "Class Action Omnibus Motion" 17 referred to earlier in
Sandiganbayan Civil Case Nos. 0033-A, 0033-B and 0033-F, asking the court a quo:

"1. To enjoin the PCGG from voting the UCPB shares of stock registered in the respective names of the more than one
million coconut farmers; and

"2. To enjoin the PCGG from voting the SMC shares registered in the names of the 14 CIIF holding companies including
those registered in the name of the PCGG." 18

On February 28, 2001, respondent court, after hearing the parties on oral argument, issued the assailed Order.
Hence, this Petition by the Republic of the Philippines represented by the PCGG. 19

The case had initially been raffled to this Court's Third Division which, by a vote of 3-2, 20 issued a Resolution21 requiring the parties to
maintain the status quo existing before the issuance of the questioned Sandiganbayan Order dated February 28, 2001. On March 7,
2001, Respondent COCOFED et al. moved that the instant Petition be heard by the Court en banc. 22 The Motion was unanimously
granted by the Third Division.

On March 13, 2001, the Court en banc resolved to accept the Third Division's referral. 23 It heard the case on Oral Argument in Baguio
City on April 17, 2001. During the hearing, it admitted the intervention of a group of coconut farmers and farm worker organizations,
the Pambansang Koalisyon ng mga Samahang Magsasaka at Manggagawa ng Niyugan (PKSMMN). The coalition claims that its
members have been excluded from the benefits of the coconut levy fund. Inter alia, it joined petitioner in praying for the exclusion
of private respondents in voting the sequestered shares.

Issues

Petitioner submits the following issues for our consideration: 24

"A.

Despite the fact that the subject sequestered shares were purchased with coconut levy funds (which were declared public
in character) and the continuing effectivity of Resolution dated February 16, 1993 in G.R. No. 96073 which allows the PCGG
to vote said sequestered shares, Respondent Sandiganbayan, with grave abuse of discretion, issued its Order dated
February 20, 2001 enjoining PCGG from voting the sequestered shares of stock in UCPB.

"B.

The Respondent Sandiganbayan violated petitioner's right to due process by taking cognizance of the Class Action Omnibus
Motion dated 23 February 2001 despite gross lack of sufficient notice and by issuing the writ of preliminary injunction
despite the obvious fact that there was no actual pressing necessity or urgency to do so."

In its Resolution dated April 17, 2001, the Court defined the issue to be resolved in the instant case simply as follows:

This Court's Ruling

The Petition is impressed with merit.

Main Issue:

Who May Vote the Sequestered Shares of Stock?

Simply stated, the gut substantive issue to be resolved in the present Petition is: "Who may vote the sequestered UCPB shares while
the main case for their reversion to the State is pending in the Sandiganbayan?"

This Court holds that the government should be allowed to continue voting those shares inasmuch as they were purchased with
coconut levy funds – that are prima facie public in character or, at the very least, are "clearly affected with public interest."

General Rule: Sequestered Shares

Are Voted by the Registered Holder

At the outset, it is necessary to restate the general rule that the registered owner of the shares of a corporation exercises the right
and the privilege of voting.25 This principle applies even to shares that are sequestered by the government, over which the PCGG as a
mere conservator cannot, as a general rule, exercise acts of dominion. 26 On the other hand, it is authorized to vote these
sequestered shares registered in the names of private persons and acquired with allegedly ill-gotten wealth, if it is able to satisfy
the two-tiered test devised by the Court in Cojuangco v. Calpo27 and PCGG v. Cojuangco Jr.,28 as follows:
 (1) Is there prima facie evidence showing that the said shares are ill-gotten and thus belong to the State?

(2) Is there an imminent danger of dissipation, thus necessitating their continued sequestration and voting by the PCGG,
while the main issue is pending with the Sandiganbayan?

Sequestered Shares Acquired with Public Funds are an Exception

From the foregoing general principle, the Court in Baseco v. PCGG29 (hereinafter "Baseco") and Cojuangco Jr. v. Roxas30 ("Cojuangco-
Roxas") has provided two clear "public character" exceptions under which the government is granted the authority to vote the
shares:

(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.

The exceptions are based 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 be given the privilege of
enjoying the rights flowing from the prima facie fact of ownership.

In Baseco, a private corporation known as the Bataan Shipyard and Engineering Co. was placed under sequestration by the PCGG.
Explained the Court:

"The facts show that the corporation known as BASECO was owned and controlled by President Marcos 'during his
administration, through nominees, by taking undue advantage of his public office and/or using his powers, authority, or
influence,' and that it was by and through the same means, that BASECO had taken over the business and/or assets of the
National Shipyard and Engineering Co., Inc., and other government-owned or controlled entities." 31

Given this factual background, the Court discussed PCGG's right over BASECO in the following manner:

"Now, in the special instance of a business enterprise shown by evidence to have been 'taken over by the government of
the Marcos Administration or by entities or persons close to former President Marcos,' the PCGG is given power and
authority, as already adverted to, to 'provisionally take (it) over in the public interest or to prevent * * (its) disposal or
dissipation;' and since the term is obviously employed in reference to going concerns, or business enterprises in operation,
something more than mere physical custody is connoted; the PCGG may in this case exercise some measure of control in
the operation, running, or management of the business itself." 32

Citing an earlier Resolution, it ruled further:

"Petitioner has failed to make out a case of grave abuse or excess of jurisdiction in respondents' calling and holding of a
stockholders' meeting for the election of directors as authorized by the Memorandum of the President * * (to the PCGG)
dated June 26, 1986, particularly, where as in this case, the government can, through its designated directors, properly
exercise control and management over what appear to be properties and assets owned and belonging to the government
itself and over which the persons who appear in this case on behalf of BASECO have failed to show any right or even any
shareholding in said corporation."33 (Italics supplied)

The Court granted PCGG the right to vote the sequestered shares because they appeared to be "assets belonging to the government
itself." The Concurring Opinion of Justice Ameurfina A. Melencio-Herrera, in which she was joined by Justice Florentino P. Feliciano,
explained this principle as follows:

"I have no objection to according the right to vote sequestered stock in case of a take-over of business actually belonging to
the government or whose capitalization comes from public funds but which, somehow, landed in the hands of private
persons, as in the case of BASECO. To my mind, however, caution and prudence should be exercised in the case of
sequestered shares of an on-going private business enterprise, specially the sensitive ones, since the true and real
ownership of said shares is yet to be determined and proven more conclusively by the Courts." 34 (Italics supplied)
The exception was cited again by the Court in Cojuangco-Roxas35 in this wise:

"The rule in this 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 the 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."36 (Italics supplied)

The "public character" test was reiterated in many subsequent cases; most recently, in Antiporda v. Sandiganbayan.37 Expressly
citing Conjuangco-Roxas,38 this Court said that in determining the issue of whether the PCGG should be allowed to vote sequestered
shares, it was crucial to find out first whether these were purchased with public funds, as follows:

"It is thus important to determine first if the sequestered corporate shares came from public funds that landed in private
hands."39

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. Rather, the public character exceptions in Baseco v.
PCGG and Cojuangco Jr. v. Roxas prevail; that is, the government shall vote the shares.

UCPB Shares Were Acquired With Coconut Levy Funds

In the present case before the Court, it is not disputed that the money used to purchase the sequestered UCPB shares came from
the Coconut Consumer Stabilization Fund (CCSF), otherwise known as the coconut levy funds.

This fact was plainly admitted by private respondent's counsel, Atty. Teresita J. Herbosa, during the Oral Arguments held on April 17,
2001 in Baguio City, as follows:

"Justice Panganiban:

"In regard to the theory of the Solicitor General that the funds used to purchase [both] the original 28 million and the
subsequent 80 million came from the CCSF, Coconut Consumers Stabilization Fund, do you agree with that?

"Atty. Herbosa:

"Yes, Your Honor.

x x x      x x x      x x x

"Justice Panganiban:

"So it seems that the parties [have] agreed up to that point that the funds used to purchase 72% of the former First United
Bank came from the Coconut Consumer Stabilization Fund?

"Atty. Herbosa:

"Yes, Your Honor."40

Indeed in Cocofed v. PCGG,41 this Court categorically declared that 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."

Coconut Levy Funds Are Affected With Public Interest

Having conclusively shown that the sequestered UCPB shares were purchased with coconut levies, we hold that these funds and
shares are, at the very least, "affected with public interest."
The Resolution issued by the Court on February 16, 1993 in Republic v. Sandiganbayan42 stated that coconut levy funds were "clearly
affected with public interest"; thus, herein private respondents – even if they are the registered shareholders – cannot be accorded
the right to vote them. We quote the said Resolution in part, as follows:

"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.'" 43

x x x      x x x      x x x

"Assuming, however, for purposes of argument merely, the lifting of sequestration to be correct, may it also be assumed
that the lifting of sequestration removed the character of the coconut levy companies of being affected with public interest,
so that they and their stock and assets may now be considered to be of private ownership? May it be assumed that the
lifting of sequestration operated to relieve the holders of stock in the coconut levy companies – affected with public
interest – of the obligation of proving how that stock had been legitimately transferred to private ownership, or that those
stockholders who had had some part in the collection, administration, or disposition of the coconut levy funds are now
deemed qualified to acquire said stock, and freed from any doubt or suspicion that they had taken advantage of their
special or fiduciary relation with the agencies in charge of the coconut levies and the funds thereby accumulated? The
obvious answer to each of the questions is a negative one. It seems plain that the lifting of sequestration has no relevance
to the nature of the coconut levy companies or their stock or property, or to the legality of the acquisition by private
persons of their interest therein, or to the latter's capacity or disqualification to acquire stock in the companies or any
property acquired from coconut levy funds.

"This being so, the right of the [petitioners] to vote stock in their names at the meetings of the UCPB cannot be conceded at
this time. That right still has to be established by them before the Sandiganbayan. Until that is done, they cannot be deemed
legitimate owners of UCPB stock and cannot be accorded the right to vote them." 44 (Italics supplied)

It is however contended by respondents that this Resolution was in the nature of a temporary restraining order. As such, it was
supposedly interlocutory in character and became functus oficio when this Court decided GR No. 96073 on January 23, 1995.

This argument is aptly answered by petitioner in its Memorandum, which we quote:

"The ruling made in the Resolution dated 16 February 1993 confirming the public nature of the coconut levy funds and
denying claimants their purported right to vote is an affirmation of doctrines laid down in the cases of COCOFED v.
PCGG supra,  Baseco v. PCGG, supra, and Cojuangco v. Roxas, supra. Therefore it is of no moment that the Resolution dated
16 February 1993 has not been ratified. Its jurisprudential based remain."45 (Italics supplied)

To repeat, the foregoing juridical situation has not changed. It is still the truth today: "the coconut levy funds are clearly affected
with public interest." Private respondents have not "demonstrated satisfactorily that they have legitimately become private funds."

If private respondents really and sincerely believed that the final  Decision of the Court in Republic v. Sandiganbayan (GR No. 96073,
promulgated on January 23, 1995) granted them the right to vote, why did they wait for the lapse of six long years before definitively
asserting it (1) through their letter dated February 13, 2001, addressed to the UCPB Board of Directors, demanding the holding of a
shareholders' meeting on March 6, 2001; and (2) through their Omnibus Motion dated February 23, 2001 filed in the court a quo,
seeking to enjoin PCGG from voting the subject sequestered shares during the said stockholders' meeting? Certainly, if they even
half believed their submission now – that they already had such right in 1995 – why are they suddenly and imperiously claiming
it only now?

It should be stressed at this point that the assailed Sandiganbayan Order dated February 28, 2001 – allowing private respondents to
vote the sequestered shares – is not based on any finding that the coconut levies and the shares have "legitimately become private
funds." Neither is it based on the alleged lifting of the TRO issued by this Court on February 16, 1993. Rather, it is anchored on the
grossly mistaken application of the two-tiered test mentioned earlier in this Decision.

To stress, the two-tiered test is applied only when the sequestered asset in the hands of a private person is alleged to have been
acquired with ill-gotten wealth. Hence, in PCGG v. Cojuangco,47 we allowed Eduardo Cojuangco Jr. to vote the sequestered shares of
the San Miguel Corporation (SMC) registered in his name but alleged to have been acquired with ill-gotten wealth. We did so on his
representation that he had acquired them with borrowed funds and upon failure of the PCGG to satisfy the "two-tiered" test. This
test was, however, not applied to sequestered SMC shares that were purchased with coco levy funds.
In the present case, the sequestered UCPB shares are confirmed to have been acquired with coco levies, not with alleged ill-gotten
wealth. Hence, by parity of reasoning, the right to vote them is not subject to the "two-tiered test" but to the public character of
their acquisition, which per Antiporda v. Sandiganbayan cited earlier, must first be determined.

Coconut Levy Funds Are Prima Facie Public Funds

To avoid misunderstanding and confusion, this Court will even be more categorical and positive than its earlier pronouncements: the
coconut levy funds are not only affected with public interest; they are, in fact, prima facie  public funds.

Public funds are those moneys belonging to the State or to any political subdivision of the State; more specifically, taxes, customs
duties and moneys raised by operation of law for the support of the government or for the discharge of its
obligations.48 Undeniably, coconut levy funds satisfy this general definition of public funds, because of the following reasons:

1. Coconut levy funds are raised with the use of the police and taxing powers of the State.

2. They are levies imposed by the State for the benefit of the coconut industry and its farmers.

3. Respondents have judicially admitted that the sequestered shares were purchased with public funds.

4. The Commission on Audit (COA) reviews the use of coconut levy funds.

5. The Bureau of Internal Revenue (BIR), with the acquiescence of private respondents, has treated them as public funds.

6. The very laws governing coconut levies recognize their public character.

We shall now discuss each of the foregoing reasons, any one of which is enough to show their public character.

1. Coconut Levy Funds Are Raised Through the State's Police and Taxing Powers.

Indeed, coconut levy funds partake of the nature of taxes which, in general, are enforced proportional contributions from persons
and properties, exacted by the State by virtue of its sovereignty for the support of government and for all public needs. 49

Based on this definition, a tax has three elements, namely: a) it is an enforced proportional contribution from persons and
properties; b) it is imposed by the State by virtue of its sovereignty; and c) it is levied for the support of the government. The
coconut levy funds fall squarely into these elements for the following reasons:

(a) They were generated by virtue of statutory enactments imposed on the coconut farmers requiring the payment of
prescribed amounts. Thus, PD No. 276, which created the Coconut Consumer Stabilization Fund (CCSF), mandated the
following:

"a. A levy, initially, of P15.00 per 100 kilograms of copra resecada or its equivalent in other coconut products, shall be
imposed on every first sale, in accordance with the mechanics established under RA 6260, effective at the start of business
hours on August 10, 1973.

"The proceeds from the levy shall be deposited with the Philippine National Bank or any other government bank to the
account of the Coconut Consumers Stabilization Fund, as a separate trust fund which shall not form part of the general fund
of the government."50

The coco levies were further clarified in amendatory laws, specifically PD No. 961 51 and PD No. 146852 – in this wise:

"The Authority (Philippine Coconut Authority) is hereby empowered to impose and collect a levy, to be known as the
Coconut Consumers Stabilization Fund Levy, on every one hundred kilos of copra resecada, or its equivalent in other
coconut products delivered to, and/or purchased by, copra exporters, oil millers, desiccators and other end-users of copra
or its equivalent in other coconut products. The levy shall be paid by such copra exporters, oil millers, desiccators and other
end-users of copra or its equivalent in other coconut products under such rules and regulations as the Authority may
prescribe. Until otherwise prescribed by the Authority, the current levy being collected shall be continued." 53
 Like other tax measures, they were not voluntary payments or donations by the people. They were enforced contributions
exacted on pain of penal sanctions, as provided under PD No. 276:

"3. Any person or firm who violates any provision of this Decree or the rules and regulations promulgated thereunder, shall,
in addition to penalties already prescribed under existing administrative and special law, pay a fine of not less than P2,500
or more than P10,000, or suffer cancellation of licenses to operate, or both, at the discretion of the Court." 54

Such penalties were later amended thus:

"Whenever any person or entity willfully and deliberately violates any of the provisions of this Act, or any rule or regulation
legally promulgated hereunder by the Authority, the person or persons responsible for such violation shall be punished by a
fine of not more than P20,000.00 and by imprisonment of not more than five years. If the offender be a corporation,
partnership or a juridical person, the penalty shall be imposed on the officer or officers authorizing, permitting or tolerating
the violation. Aliens found guilty of any offenses shall, after having served his sentence, be immediately deported and, in
the case of a naturalized citizen, his certificate of naturalization shall be cancelled." 55

(b) The coconut levies were imposed pursuant to the laws enacted by the proper legislative authorities of the State. Indeed,
the CCSF was collected under PD No. 276, issued by former President Ferdinand E. Marcos who was then exercising
legislative powers.56

(c) They were clearly imposed for a public purpose. There is absolutely no question that they were collected to advance the
government's avowed policy of protecting the coconut industry. This Court takes judicial notice of the fact that the coconut
industry is one of the great economic pillars of our nation, and coconuts and their byproducts occupy a leading position
among the country's export products; that it gives employment to thousands of Filipinos; that it is a great source of the
state's wealth; and that it is one of the important sources of foreign exchange needed by our country and, thus, pivotal in
the plans of a government committed to a policy of currency stability.

Taxation is done not merely to raise revenues to support the government, but also to provide means for the rehabilitation and the
stabilization of a threatened industry, which is so affected with public interest as to be within the police power of the State, as held
in Caltex Philippines v. COA57 and Osmeña v. Orbos.58

Even if the money is allocated for a special purpose and raised by special means, it is still public in character. In the case before us,
the funds were even used to organize and finance State offices. In Cocofed v. PCGG,59 the Court observed that certain agencies or
enterprises "were organized and financed with revenues derived from coconut levies imposed under a succession of laws of the late
dictatorship x x x with deposed Ferdinand Marcos and his cronies as the suspected authors and chief beneficiaries of the resulting
coconut industry monopoly."60 The Court continued: "x x x. It cannot be denied that the coconut industry is one of the major
industries supporting the national economy. It is, therefore, the State's concern to make it a strong and secure source not only of the
livelihood of a significant segment of the population, but also of export earnings the sustained growth of which is one of the
imperatives of economic stability. x x x." 61

2. Coconut Funds Are Levied for the Benefit of the Coconut Industry and Its Farmers.

Just like the sugar levy funds, the coconut levy funds constitute state funds even though they may be held for a special public
purpose.

In fact, Executive Order No. 481 dated May 1, 1998 specifically likens the coconut levy funds to the sugar levy funds, both being
special public funds acquired through the taxing and police powers of the State. The sugar levy funds, which are strikingly similar to
the coconut levies in their imposition and purpose, were declared public funds by this Court in Gaston v. Republic Planters
Bank,62 from which we quote:

"The stabilization fees collected are in the nature of a tax which is within the power of the state to impose for the
promotion of the sugar industry (Lutz vs. Araneta, 98 Phil. 148). They constitute sugar liens (Sec. 7[b], P.D. No. 388). The
collections made accrue to a 'Special Fund,' a 'Development and Stabilization Fund,' almost identical to the 'Sugar
Adjustment and Stabilization Fund' created under Section 6 of Commonwealth Act 567. The tax collected is not in a pure
exercise of the taxing power. It is levied with a regulatory purpose, to provide means for the stabilization of the sugar
industry. The levy is primarily in the exercise of the police power of the State. (Lutz vs. Araneta, supra.)."63
The Court further explained:64

"The stabilization fees in question are levied by the State upon sugar millers, planters and producers for a special purpose –
that of 'financing the growth and development of the sugar industry and all its components, stabilization of the domestic
market including the foreign market.' The fact that the State has taken possession of moneys pursuant to law is sufficient to
constitute them as state funds, even though they are held for a special purpose (Lawrence v. American Surety Co., 263 Mich
586. 294 ALR 535, cited in 42 Am. Jur., Sec. 2., p. 718). Having been levied for a special purpose, the revenues collected are
to be treated as a special fund, to be, in the language of the statute, 'administered in trust' for the purpose intended. Once
the purpose has been fulfilled or abandoned, the balance, if any, is to be transferred to the general funds of the
Government. That is the essence of the trust intended (see 1987 Constitution, Art. VI, Sec. 29[3], lifted from the 1935
Constitution, Article VI, Sec. 23[1]. (Italics supplied)

"The character of the Stabilization Fund as a special fund is emphasized by the fact that the funds are deposited in the
Philippine National Bank and not in the Philippine Treasury, moneys from which may be paid out only in pursuance of an
appropriation made by law (1987 Constitution, Article VI, Sec. 29[1], 1973 Constitution, Article VIII, Sec. 18[1]).

"That the fees were collected from sugar producers, planters and millers, and that the funds were channeled to the
purchase of shares of stock in respondent Bank do not convert the funds into a trust fund for their benefit nor make them
the beneficial owners of the shares so purchased. It is but rational that the fees be collected from them since it is also they
who are to be benefited from the expenditure of the funds derived from it. The investment in shares of respondent Bank is
not alien to the purpose intended because of the Bank's character as a commodity bank for sugar conceived for the
industry's growth and development. Furthermore, of note is the fact that one-half (1/2) or P0.50 per picul, of the amount
levied under P.D. No. 388 is to be utilized for the 'payment of salaries and wages of personnel, fringe benefits and
allowances of officers and employees of PHILSUCOM' thereby immediately negating the claim that the entire amount levied
is in trust for sugar, producers, planters and millers.

"To rule in petitioners' favor would contravene the general principle that revenues derived from taxes cannot be used for
purely private purposes or for the exclusive benefit of private persons. The Stabilization Fund is to be utilized for the benefit
of the entire sugar industry, 'and all its components, stabilization of the domestic market including the foreign market,' the
industry being of vital importance to the country's economy and to national interest."

In the same manner, this Court has also ruled that the oil stabilization funds were public in character and subject to audit by COA. It
ruled in this wise:

"Hence, it seems clear that while the funds collected may be referred to as taxes, they are exacted in the exercise of the
police power of the State. Moreover, that the OPSF is a special fund is plain from the special treatment given it by E.O. 137.
It is segregated from the general fund; and while it is placed in what the law refers to as a 'trust liability account,' the fund
nonetheless remains subject to the scrutiny and review of the COA. The Court is satisfied that these measures comply with
the constitutional description of a 'special fund.' Indeed, the practice is not without precedent." 65

In his Concurring Opinion in Kilosbayan v. Guingona,66 Justice Florentino P. Feliciano explained that the funds raised by the On-line
Lottery System were also public in nature. In his words:

"x x x. In the case presently before the Court, the funds involved are clearly public in nature. The funds to be generated by
the proposed lottery are to be raised from the population at large. Should the proposed operation be as successful as its
proponents project, those funds will come from well-nigh every town and barrio of Luzon. The funds here involved are
public in another very real sense: they will belong to the PCSO, a government owned or controlled corporation and an
instrumentality of the government and are destined for utilization in social development projects which, at least in
principle, are designed to benefit the general public. x x x. The interest of a private citizen in seeing to it that public funds,
from whatever source they may have been derived, go only to the uses directed and permitted by law is as real and
personal and substantial as the interest of a private taxpayer in seeing to it that tax monies are not intercepted on their way
to the public treasury or otherwise diverted from uses prescribed or allowed by law. It is also pertinent to note that the
more successful the government is in raising revenues by non-traditional methods such as PAGCOR operations and
privatization measures, the lesser will be the pressure upon the traditional sources of public revenues, i.e., the pocket
books of individual taxpayers and importers."67
Thus, the coconut levy funds – like the sugar levy and the oil stabilization funds, as well as the monies generated by the On-line
Lottery System – are funds exacted by the State. Being enforced contributions, the are prima facie public funds.

3. Respondents Judicially Admit That the Levies Are Government Funds.

Equally important as the fact that the coconut levy funds were raised through the taxing and police powers of the State is
respondents' effective judicial admission that these levies are government funds. As shown by the attachments to their
pleadings,68 respondents concede that the Coconut Consumers Stabilization Fund (CCSF) and the Coconut Investment Development
Fund "constitute government funds x x x for the benefit of coconut farmers."

"Collections on both levies constitute government funds. However, unlike other taxes that the Government levies and
collects such as income tax, tariff and customs duties, etc., the collections on the CCSF and CIDF are, by express provision of
the laws imposing them, for a definite purpose, not just for any governmental purpose. As stated above part of the
collections on the CCSF levy should be spent for the benefit of the coconut farmers. And in respect of the collections on the
CIDF levy, P.D. 582 mandatorily requires that the same should be spent exclusively for the establishment, operation and
maintenance of a hybrid coconut seed garden and the distribution, for free, to the coconut farmers of the hybrid coconut
seednuts produced from that seed garden.

"On the other hand, the laws which impose special levies on specific industries, for example on the mining industry, sugar
industry, timber industry, etc., do not, by their terms, expressly require that the collections on those levies be spent
exclusively for the benefit of the industry concerned. And if the enabling law thus so provide, the fact remains that the
governmental agency entrusted with the duty of implementing the purpose for which the levy is imposed is vested with the
discretionary power to determine when and how the collections should be appropriated." 69

4. The COA Audit Shows the Public Nature of the Funds.

Under COA Office Order No. 86-9470 dated April 15, 1986, 70 the COA reviewed the expenditure and use of the coconut levies
allocated for the acquisition of the UCPB. The audit was aimed at ascertaining whether these were utilized for the purpose for which
they had been intended.71 Under the 1987 Constitution, the powers of the COA are as follows:

"The Commission on Audit shall have the power, authority, and duty to examine, audit, and settle all accounts pertaining to
the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the
Government, or any of its subdivisions, agencies, or instrumentalities x x x." 72

Because these funds have been subjected to COA audit, there can be no other conclusion than that are prima facie public in
character.

5. The BIR Has Pronounced That the Coconut Levy Funds Are Taxes.

In response to a query posed by the administrator of the Philippine Coconut Authority regarding the character of the coconut levy
funds, the Bureau of Internal Revenue has affirmed that these funds are public in character. It held as follows: "[T]he coconut levy is
not a public trust fund for the benefit of the coconut farmers, but is in the nature of a tax and, therefore, x x x public funds that are
subject to government administration and disposition." 73

Furthermore, the executive branch treats the coconut levies as public funds. Thus, Executive Order No. 277, issued on September 24,
1995, directed the mode of treatment, utilization, administration and management of the coconut levy funds. It provided as follows:

'(a) The coconut levy funds, which include all income, interests, proceeds or profits derived therefrom, as well as all assets,
properties and shares of stocks procured or obtained with the use of such funds, shall be treated, utilized, administered and
managed as public funds consistent with the uses and purposes under the laws which constituted them and the
development priorities of the government, including the government's coconut productivity, rehabilitation, research
extension, farmers organizations, and market promotions programs, which are designed to advance the development of the
coconut industry and the welfare of the coconut farmers." 74 (Italics supplied)

Doctrinally, acts of the executive branch are prima facie valid and binding, unless declared unconstitutional or contrary to law.
6. Laws Governing Coconut Levies Recognize Their Public Nature.

Finally and tellingly, the very laws governing the coconut levies recognize their public character. Thus, the third Whereas clause of
PD No. 276 treats them as special funds for a specific public purpose. Furthermore, PD No. 711 transferred to the general funds of
the State all existing special and fiduciary funds including the CCSF. On the other hand, PD No. 1234 specifically declared the CCSF as
a special fund for a special purpose, which should be treated as a special account in the National Treasury.

Moreover, even President Marcos himself, as the sole legislative/executive authority during the martial law years, struck off the
phrase which is a private fund of the coconut farmers from the original copy of Executive Order No. 504 dated May 31, 1978, and we
quote:

"WHEREAS, by means of the Coconut Consumers Stabilization Fund ('CCSF'), which is the private fund of the coconut
farmers (deleted), essential coconut-based products are made available to household consumers at socialized prices."
(Emphasis supplied)

The phrase in bold face -- which is the private fund of the coconut farmers – was crossed out and duly initialed by its author, former,
President Marcos. This deletion, clearly visible in "Attachment C" of petitioner's Memorandum, 75 was a categorical legislative intent
to regard the CCSF as public, not private, funds.

Having Been Acquired With Public Funds, UCPB Shares Belong, Prima Facie, to the Government

Having shown that the coconut levy funds are not only affected with public interest, but are in fact prima facie public funds, this
Court believes that the government should be allowed to vote the questioned shares, because they belong to it as the prima
facie beneficial and true owner.

As stated at the beginning, voting is an act of dominion that should be exercised by the share owner. One of the recognized rights of
an owner is the right to vote at meetings of the corporation. The right to vote is classified as the right to control. 76 Voting rights may
be for the purpose of, among others, electing or removing directors, amending a charter, or making or amending by laws. 77 Because
the subject UCPB shares were acquired with government funds, the government becomes their prima facie beneficial and true
owner.

Ownership includes the right to enjoy, dispose of, exclude and recover a thing without limitations other than those established by
law or by the owner.78 Ownership has been aptly described as the most comprehensive of all real rights. 79 And the right to vote
shares is a mere incident of ownership. In the present case, the government has been shown to be the prima facie owner of the
funds used to purchase the shares. Hence, it should be allowed the rights and privileges flowing from such fact.

And paraphrasing Cocofed v. PCGG, already cited earlier, the Republic should continue to vote those shares until and unless private
respondents are able to demonstrate, in the main cases pending before the Sandiganbayan, that "they [the sequestered UCPB
shares] have legitimately become private."

Procedural and Incidental Issues:

Grave Abuse of Discretion, Improper Arguments and Intervenors' Relief

Procedurally, respondents argue that petitioner has failed to demonstrate that the Sandiganbayan committed grave abuse of
discretion, a demonstration required in every petition under Rule 65. 80

We disagree. We hold that the Sandiganbayan gravely abused its discretion when it contravened the rulings of this Court
in Baseco and Cojuangco-Roxas – thereby unlawfully, capriciously and arbitrarily depriving the government of its right to vote
sequestered shares purchased with coconut levy funds which are prima facie public funds.

Indeed, grave abuse of discretion may arise when a lower court or tribunal violates or contravenes the Constitution, the law or
existing jurisprudence. In one case,81 this Court ruled that the lower court's resolution was "tantamount to overruling a judicial
pronouncement of the highest Court x x x and unmistakably a very grave abuse of discretion." 82

The Public Character of Shares Is a Valid Issue

Private respondents also contend that the public nature of the coconut levy funds was not raised as an issue before the
Sandiganbayan. Hence, it could not be taken up before this Court.

Again we disagree. By ruling that the two-tiered test should be applied in evaluating private respondents' claim of exercising voting
rights over the sequestered shares, the Sandiganbayan effectively held that the subject assets were private in character. Thus, to
meet this issue, the Office of the Solicitor General countered that the shares were not private in character, and that quite the
contrary, they were and are public in nature because they were acquired with coco levy funds which are public in character. In short,
the main issue of who may vote the shares cannot be determined without passing upon the question of the public/private character
of the shares and the funds used to acquire them. The latter issue, although not specifically raised in the Court a quo, should still be
resolved in order to fully adjudicate the main issue.

Indeed, this Court has "the authority to waive the lack of proper assignment of errors if the unassigned errors closely relate to errors
properly pinpointed out or if the unassigned errors refer to matters upon which the determination of the questions raised by the
errors properly assigned depend."83

Therefore, "where the issues already raised also rest on other issues not specifically presented as long as the latter issues bear
relevance and close relation to the former and as long as they arise from matters on record, the Court has the authority to include
them in its discussion of the controversy as well as to pass upon them." 84

No Positive Relief For Intervenors

Intervenors anchor their interest in this case on an alleged right that they are trying to enforce in another Sandiganbayan case
docketed as SB Case No. 0187.85 In that case, they seek the recovery of the subject UCPB shares from herein private respondents and
the corporations controlled by them. Therefore, the rights sought to be protected and the reliefs prayed for by intervenors are still
being litigated in the said case. The purported rights they are invoking are mere expectancies wholly dependent on the outcome of
that case in the Sandiganbayan.

Clearly, we cannot rule on intervenors' alleged right to vote at this time and in this case. That right is dependent upon the
Sandiganbayan's resolution of their action for the recovery of said sequestered shares. Given the patent fact that intervenors are not
registered stockholders of UCPB as of the moment, their asserted rights cannot be ruled upon in the present proceedings. Hence, no
positive relief can be given them now, except insofar as they join petitioner in barring private respondents from voting the subject
shares.

Epilogue

In sum, we hold that the Sandiganbayan committed grave abuse of discretion in grossly contradicting and effectively reversing
existing jurisprudence, and in depriving the government of its right to vote the sequestered UCPB shares which are prima
facie public in character.

In making this ruling, we are in no way preempting the proceedings the Sandiganbayan may conduct or the final judgment it may
promulgate in Civil Case Nos. 0033-A, 0033-B and 0033-F. Our determination here is merely prima facie, and should not bar the anti-
graft court from making a final ruling, after proper trial and hearing, on the issues and prayers in the said civil cases, particularly in
reference to the ownership of the subject shares.

We also lay down the caveat that, in declaring the coco levy funds to be prima facie public in character, we are not ruling in any final
manner on their classification – whether they are general or trust or special funds – since such classification is not at issue here.
Suffice it to say that the public nature of the coco levy funds is decreed by the Court only for the purpose of determining the right to
vote the shares, pending the final outcome of the said civil cases.

Neither are we resolving in the present case the question of whether the shares held by Respondent Cojuangco are, as he claims, the
result of private enterprise. This factual matter should also be taken up in the final decision in the cited cases that are pending in the
court a quo. Again suffice it to say that the only issue settled here is the right of PCGG to vote the sequestered shares, pending the
final outcome of said cases.

This matter involving the coconut levy funds and the sequestered UCPB shares has been straddling the courts for about 15 years.
What we are discussing in the present Petition, we stress, is just an incident of the main cases which are pending in the anti-graft
court – the cases for the reconveyance, reversion and restitution to the State of these UCPB shares.
The resolution of the main cases has indeed been long overdue. Every effort, both by the parties and the Sandiganbayan, should be
exerted to finally settle this controversy.

WHEREFORE, the Petition is hereby GRANTED and the assailed Order SET ASIDE. The PCGG shall continue voting the sequestered
shares until Sandiganbayan Civil Case Nos. 0033-A, 0033-B and 0033-F are finally and completely resolved. Furthermore, the
Sandiganbayan is ORDERED to decide with finality the aforesaid civil cases within a period of six (6) months from notice. It shall
report to this Court on the progress of the said cases every three (3) months, on pain of contempt. The Petition in Intervention
is DISMISSED inasmuch as the reliefs prayed for are not covered by the main issues in this case. No costs.

SO ORDERED.

THIRD DIVISION

G.R. No. 93695 February 4, 1992

RAMON C. LEE and ANTONIO DM. LACDAO, petitioners,

vs.
THE HON. COURT OF APPEALS, SACOBA MANUFACTURING CORP., PABLO GONZALES, JR. and THOMAS GONZALES, respondents.

Cayanga, Zuniga & Angel Law Offices for petitioners.

Timbol & Associates for private respondents.

GUTIERREZ, JR., J.:

What is the nature of the voting trust agreement executed between two parties in this case? Who owns the stocks of the
corporation under the terms of the voting trust agreement? How long can a voting trust agreement remain valid and effective? Did a
director of the corporation cease to be such upon the creation of the voting trust agreement? These are the questions the answers
to which are necessary in resolving the principal issue in this petition for  certiorari  — whether or not there was proper service of
summons on Alfa Integrated Textile Mills (ALFA, for short) through the petitioners as president and vice-president, allegedly, of the
subject corporation after the execution of a voting trust agreement between ALFA and the Development Bank of the Philippines
(DBP, for short).

From the records of the instant case, the following antecedent facts appear:

On November 15, 1985, a complaint for a sum of money was filed by the International Corporate Bank, Inc. against the private
respondents who, in turn, filed a third party complaint against ALFA and the petitioners on March 17, 1986.

On September 17, 1987, the petitioners filed a motion to dismiss the third party complaint which the Regional Trial Court of Makati,
Branch 58 denied in an Order dated June 27, 1988.

On July 18, 1988, the petitioners filed their answer to the third party complaint.

Meanwhile, on July 12, 1988, the trial court issued an order requiring the issuance of an alias summons upon ALFA through the DBP
as a consequence of the petitioner's letter informing the court that the summons for ALFA was erroneously served upon them
considering that the management of ALFA had been transferred to the DBP.

In a manifestation dated July 22, 1988, the DBP claimed that it was not authorized to receive summons on behalf of ALFA since the
DBP had not taken over the company which has a separate and distinct corporate personality and existence.

On August 4, 1988, the trial court issued an order advising the private respondents to take the appropriate steps to serve the
summons to ALFA.
On August 16, 1988, the private respondents filed a Manifestation and Motion for the Declaration of Proper Service of Summons
which the trial court granted on August 17, 1988.

On September 12, 1988, the petitioners filed a motion for reconsideration submitting that Rule 14, section 13 of the Revised Rules of
Court is not applicable since they were no longer officers of ALFA and that the private respondents should have availed of another
mode of service under Rule 14, Section 16 of the said Rules, i.e., through publication to effect proper service upon ALFA.

In their Comment to the Motion for Reconsideration dated September 27, 1988, the private respondents argued that the voting
trust agreement dated March 11, 1981 did not divest the petitioners of their positions as president and executive vice-president of
ALFA so that service of summons upon ALFA through the petitioners as corporate officers was proper.

On January 2, 1989, the trial court upheld the validity of the service of summons on ALFA through the petitioners, thus, denying the
latter's motion for reconsideration and requiring ALFA to filed its answer through the petitioners as its corporate officers.

On January 19, 1989, a second motion for reconsideration was filed by the petitioners reiterating their stand that by virtue of the
voting trust agreement they ceased to be officers and directors of ALFA, hence, they could no longer receive summons or any court
processes for or on behalf of ALFA. In support of their second motion for reconsideration, the petitioners attached thereto a copy of
the voting trust agreement between all the stockholders of ALFA (the petitioners included), on the one hand, and the DBP, on the
other hand, whereby the management and control of ALFA became vested upon the DBP.

On April 25, 1989, the trial court reversed itself by setting aside its previous Order dated January 2, 1989 and declared that service
upon the petitioners who were no longer corporate officers of ALFA cannot be considered as proper service of summons on ALFA.

On May 15, 1989, the private respondents moved for a reconsideration of the above Order which was affirmed by the court in its
Order dated August 14, 1989 denying the private respondent's motion for reconsideration.

On September 18, 1989, a petition for certiorari was belatedly submitted by the private respondent before the public respondent
which, nonetheless, resolved to give due course thereto on September 21, 1989.

On October 17, 1989, the trial court, not having been notified of the pending petition for certiorari with public respondent issued an
Order declaring as final the Order dated April 25, 1989. The private respondents in the said Order were required to take positive
steps in prosecuting the third party complaint in order that the court would not be constrained to dismiss the same for failure to
prosecute. Subsequently, on October 25, 1989 the private respondents filed a motion for reconsideration on which the trial court
took no further action.

On March 19, 1990, after the petitioners filed their answer to the private respondents' petition for certiorari, the public respondent
rendered its decision, the dispositive portion of which reads:

WHEREFORE, in view of the foregoing, the orders of respondent judge dated April 25, 1989 and August 14, 1989
are hereby SET ASIDE and respondent corporation is ordered to file its answer within the reglementary period. (CA
Decision, p. 8; Rollo, p. 24)

On April 11, 1990, the petitioners moved for a reconsideration of the decision of the public respondent which resolved to deny the
same on May 10, 1990. Hence, the petitioners filed this certiorari  petition imputing grave abuse of discretion amounting to lack of
jurisdiction on the part of the public respondent in reversing the questioned Orders dated April 25, 1989 and August 14, 1989 of the
court a quo, thus, holding that there was proper service of summons on ALFA through the petitioners.

In the meantime, the public respondent inadvertently made an entry of judgment on July 16, 1990 erroneously applying the rule
that the period during which a motion for reconsideration has been pending must be deducted from the 15-day period to appeal.
However, in its Resolution dated January 3, 1991, the public respondent set aside the aforestated entry of judgment after further
considering that the rule it relied on applies to appeals from decisions of the Regional Trial Courts to the Court of Appeals, not to
appeals from its decision to us pursuant to our ruling in the case of Refractories Corporation of the Philippines v.  Intermediate
Appellate Court, 176 SCRA 539 [1989]. (CA Rollo, pp. 249-250)

In their memorandum, the petitioners present the following arguments, to wit:

 (1) that the execution of the voting trust agreement by a stockholders whereby all his shares to the corporation
have been transferred to the trustee deprives the stockholders of his position as director of the corporation; to
rule otherwise, as the respondent Court of Appeals did, would be violative of section 23 of the Corporation Code
( Rollo, pp. 270-3273); and

(2) that the petitioners were no longer acting or holding any of the positions provided under Rule 14, Section 13 of
the Rules of Court authorized to receive service of summons for and in behalf of the private domestic corporation
so that the service of summons on ALFA effected through the petitioners is not valid and ineffective; to maintain
the respondent Court of Appeals' position that ALFA was properly served its summons through the petitioners
would be contrary to the general principle that a corporation can only be bound by such acts which are within the
scope of its officers' or agents' authority (Rollo, pp. 273-275)

In resolving the issue of the propriety of the service of summons in the instant case, we dwell first on the nature of a voting trust
agreement and the consequent effects upon its creation in the light of the provisions of the Corporation Code.

A voting trust is defined in Ballentine's Law Dictionary as follows:

(a) trust created by an agreement between a group of the stockholders of a corporation and the trustee or by a
group of identical agreements between individual stockholders and a common trustee, whereby it is provided that
for a term of years, or for a period contingent upon a certain event, or until the agreement is terminated, control
over the stock owned by such stockholders, either for certain purposes or for all purposes, is to be lodged in the
trustee, either with or without a reservation to the owners, or persons designated by them, of the power to direct
how such control shall be used. (98 ALR 2d. 379 sec. 1 [d]; 19 Am J 2d Corp. sec. 685).

Under Section 59 of the new Corporation Code which expressly recognizes voting trust agreements, a more definitive meaning may
be gathered. The said provision partly reads:

Sec. 59. Voting Trusts — One or more stockholders of a stock corporation may create a voting trust for the purpose
of conferring upon a trustee or trustees the right to vote and other rights pertaining to the share for a period rights
pertaining to the shares for a period not exceeding five (5) years at any one time: Provided, that in the case of a
voting trust specifically required as a condition in a loan agreement, said voting trust may be for a period exceeding
(5) years but shall automatically expire upon full payment of the loan. A voting trust agreement must be in writing
and notarized, and shall specify the terms and conditions thereof. A certified copy of such agreement shall be filed
with the corporation and with the Securities and Exchange Commission; otherwise, said agreement is ineffective
and unenforceable. The certificate or certificates of stock covered by the voting trust agreement shall be cancelled
and new ones shall be issued in the name of the trustee or trustees stating that they are issued pursuant to said
agreement. In the books of the corporation, it shall be noted that the transfer in the name of the trustee or
trustees is made pursuant to said voting trust agreement.

By its very nature, a voting trust agreement results in the separation of the voting rights of a stockholder from his other rights such
as the right to receive dividends, the right to inspect the books of the corporation, the right to sell certain interests in the assets of
the corporation and other rights to which a stockholder may be entitled until the liquidation of the corporation. However, in order to
distinguish a voting trust agreement from proxies and other voting pools and agreements, it must pass three criteria or tests,
namely: (1) that the voting rights of the stock are separated from the other attributes of ownership; (2) that the voting rights granted
are intended to be irrevocable for a definite period of time; and (3) that the principal purpose of the grant of voting rights is to
acquire voting control of the corporation. (5 Fletcher, Cyclopedia of the Law on Private Corporations, section 2075 [1976] p.
331 citing Tankersly v. Albright, 374 F. Supp. 538)

Under section 59 of the Corporation Code, supra, a voting trust agreement may confer upon a trustee not only the stockholder's
voting rights but also other rights pertaining to his shares as long as the voting trust agreement is not entered "for the purpose of
circumventing the law against monopolies and illegal combinations in restraint of trade or used for purposes of fraud." (section 59,
5th paragraph of the Corporation Code) Thus, the traditional concept of a voting trust agreement primarily intended to single out a
stockholder's right to vote from his other rights as such and made irrevocable for a limited duration may in practice become a legal
device whereby a transfer of the stockholder's shares is effected subject to the specific provision of the voting trust agreement.

The execution of a voting trust agreement, therefore, may create a dichotomy between the equitable or beneficial ownership of the
corporate shares of a stockholders, on the one hand, and the legal title thereto on the other hand.
The law simply provides that a voting trust agreement is an agreement in writing whereby one or more stockholders of a corporation
consent to transfer his or their shares to a trustee in order to vest in the latter voting or other rights pertaining to said shares for a
period not exceeding five years upon the fulfillment of statutory conditions and such other terms and conditions specified in the
agreement. The five year-period may be extended in cases where the voting trust is executed pursuant to a loan agreement whereby
the period is made contingent upon full payment of the loan.

In the instant case, the point of controversy arises from the effects of the creation of the voting trust agreement. The petitioners
maintain that with the execution of the voting trust agreement between them and the other stockholders of ALFA, as one party, and
the DBP, as the other party, the former assigned and transferred all their shares in ALFA to DBP, as trustee. They argue that by virtue
to of the voting trust agreement the petitioners can no longer be considered directors of ALFA. In support of their contention, the
petitioners invoke section 23 of the Corporation Code which provides, in part, that:

Every director must own at least one (1) share of the capital stock of the corporation of which he is a director
which share shall stand in his name on the books of the corporation. Any director who ceases to be the owner of at
least one (1) share of the capital stock of the corporation of which he is a director shall thereby cease to be
director . . . (Rollo, p. 270)

The private respondents, on the contrary, insist that the voting trust agreement between ALFA and the DBP had all the more
safeguarded the petitioners' continuance as officers and directors of ALFA inasmuch as the general object of voting trust is to insure
permanency of the tenure of the directors of a corporation. They cited the commentaries by Prof. Aguedo Agbayani on the right and
status of the transferring stockholders, to wit:

The "transferring stockholder", also called the "depositing stockholder", is equitable owner for the stocks
represented by the voting trust certificates and the stock reversible on termination of the trust by surrender. It is
said that the voting trust agreement does not destroy the status of the transferring stockholders as such, and thus
render them ineligible as directors. But a more accurate statement seems to be that for some purposes the
depositing stockholder holding voting trust certificates in lieu of his stock and being the beneficial owner thereof,
remains and is treated as a stockholder. It seems to be deducible from the case that he may sue as a stockholder if
the suit is in equity or is of an equitable nature, such as, a technical stockholders' suit in right of the corporation.
[Commercial Laws of the Philippines by Agbayani, Vol. 3 pp. 492-493, citing 5 Fletcher 326, 327] (Rollo, p. 291)

We find the petitioners' position meritorious.

Both under the old and the new Corporation Codes there is no dispute as to the most immediate effect of a voting trust agreement
on the status of a stockholder who is a party to its execution — from legal titleholder or owner of the shares subject of the voting
trust agreement, he becomes the equitable or beneficial owner. (Salonga, Philippine Law on Private Corporations, 1958 ed., p. 268;
Pineda and Carlos, The Law on Private Corporations and Corporate Practice, 1969 ed., p. 175; Campos and Lopez-Campos, The
Corporation Code; Comments, Notes & Selected Cases, 1981, ed., p. 386; Agbayani, Commentaries and Jurisprudence on the
Commercial Laws of the Philippines, Vol. 3, 1988 ed., p. 536). The penultimate question, therefore, is whether the change in his
status deprives the stockholder of the right to qualify as a director under section 23 of the present Corporation Code which deletes
the phrase "in his own right." Section 30 of the old Code states that:

Every director must own in his own right  at least one share of the capital stock of the stock corporation of which
he is a director, which stock shall stand in his name on the books of the corporation. A director who ceases to be
the owner of at least one share of the capital stock of a stock corporation of which is a director shall thereby cease
to be a director . . . (Emphasis supplied)

Under the old Corporation Code, the eligibility of a director, strictly speaking, cannot be adversely affected by the simple act of such
director being a party to a voting trust agreement inasmuch as he remains owner (although beneficial or equitable only) of the
shares subject of the voting trust agreement pursuant to which a transfer of the stockholder's shares in favor of the trustee is
required (section 36 of the old Corporation Code). No disqualification arises by virtue of the phrase "in his own right" provided under
the old Corporation Code.

With the omission of the phrase "in his own right" the election of trustees and other persons who in fact are not beneficial owners of
the shares registered in their names on the books of the corporation becomes formally legalized (see Campos and Lopez-
Campos, supra, p. 296) Hence, this is a clear indication that in order to be eligible as a director, what is material is the legal title to,
not beneficial ownership of, the stock as appearing on the books of the corporation (2 Fletcher, Cyclopedia of the Law of Private
Corporations, section 300, p. 92 [1969] citing People v. Lihme, 269 Ill. 351, 109 N.E. 1051).

The facts of this case show that the petitioners, by virtue of the voting trust agreement executed in 1981 disposed of all their shares
through assignment and delivery in favor of the DBP, as trustee. Consequently, the petitioners ceased to own at least one share
standing in their names on the books of ALFA as required under Section 23 of the new Corporation Code. They also ceased to have
anything to do with the management of the enterprise. The petitioners ceased to be directors. Hence, the transfer of the petitioners'
shares to the DBP created vacancies in their respective positions as directors of ALFA. The transfer of shares from the stockholder of
ALFA to the DBP is the essence of the subject voting trust agreement as evident from the following stipulations:

1. The TRUSTORS hereby assign and deliver to the TRUSTEE the certificate of the shares of the stocks owned by
them respectively and shall do all things necessary for the transfer of their respective shares to the TRUSTEE on the
books of ALFA.

2. The TRUSTEE shall issue to each of the TRUSTORS a trust certificate for the number of shares transferred, which
shall be transferrable in the same manner and with the same effect as certificates of stock subject to the provisions
of this agreement;

3. The TRUSTEE shall vote upon the shares of stock at all meetings of ALFA, annual or special, upon any resolution,
matter or business that may be submitted to any such meeting, and shall possess in that respect the same powers
as owners of the equitable as well as the legal title to the stock;

4. The TRUSTEE may cause to be transferred to any person one share of stock for the purpose of qualifying such
person as director of ALFA, and cause a certificate of stock evidencing the share so transferred to be issued in the
name of such person;

xxx xxx xxx

9. Any stockholder not entering into this agreement may transfer his shares to the same trustees without the need
of revising this agreement, and this agreement shall have the same force and effect upon that said stockholder.
(CA Rollo, pp. 137-138; Emphasis supplied)

Considering that the voting trust agreement between ALFA and the DBP transferred legal ownership of the stock covered by the
agreement to the DBP as trustee, the latter became the stockholder of record with respect to the said shares of stocks. In the
absence of a showing that the DBP had caused to be transferred in their names one share of stock for the purpose of qualifying as
directors of ALFA, the petitioners can no longer be deemed to have retained their status as officers of ALFA which was the case
before the execution of the subject voting trust agreement. There appears to be no dispute from the records that DBP has taken
over full control and management of the firm.

Moreover, in the Certification dated January 24, 1989 issued by the DBP through one Elsa A. Guevarra, Vice-President of its Special
Accounts Department II, Remedial Management Group, the petitioners were no longer included in the list of officers of ALFA "as of
April 1982." (CA Rollo, pp. 140-142)

Inasmuch as the private respondents in this case failed to substantiate their claim that the subject voting trust agreement did not
deprive the petitioners of their position as directors of ALFA, the public respondent committed a reversible error when it ruled that:

. . . while the individual respondents (petitioners Lee and Lacdao) may have ceased to be president and vice-
president, respectively, of the corporation at the time of service of summons on them on August 21, 1987, they
were at least up to that time, still directors . . .

The aforequoted statement is quite inaccurate in the light of the express terms of Stipulation No. 4 of the subject voting trust
agreement. Both parties, ALFA and the DBP, were aware at the time of the execution of the agreement that by virtue of the transfer
of shares of ALFA to the DBP, all the directors of ALFA were stripped of their positions as such.

There can be no reliance on the inference that the five-year period of the voting trust agreement in question had lapsed in 1986 so
that the legal title to the stocks covered by the said voting trust agreement ipso facto reverted to the petitioners as beneficial
owners pursuant to the 6th paragraph of section 59 of the new Corporation Code which reads:
 Unless expressly renewed, all rights granted in a voting trust agreement shall automatically expire at the end of the
agreed period, and the voting trust certificate as well as the certificates of stock in the name of the trustee or
trustees shall thereby be deemed cancelled and new certificates of stock shall be reissued in the name of the
transferors.

On the contrary, it is manifestly clear from the terms of the voting trust agreement between ALFA and the DBP that the duration of
the agreement is contingent upon the fulfillment of certain obligations of ALFA with the DBP. This is shown by the following portions
of the agreement.

WHEREAS, the TRUSTEE is one of the creditors of ALFA, and its credit is secured by a first mortgage on the
manufacturing plant of said company;

WHEREAS, ALFA is also indebted to other creditors for various financial accomodations and because of the burden
of these obligations is encountering very serious difficulties in continuing with its operations.

WHEREAS, in consideration of additional accommodations from the TRUSTEE, ALFA had offered and the TRUSTEE
has accepted participation in the management and control of the company and to assure the aforesaid
participation by the TRUSTEE, the TRUSTORS have agreed to execute a voting trust covering their shareholding in
ALFA in favor of the TRUSTEE;

AND WHEREAS, DBP is willing to accept the trust for the purpose aforementioned.

NOW, THEREFORE, it is hereby agreed as follows:

xxx xxx xxx

6. This Agreement shall last for a period of Five (5) years, and is renewable for as long as the obligations of ALFA
with DBP, or any portion thereof, remains outstanding; (CA Rollo, pp. 137-138)

Had the five-year period of the voting trust agreement expired in 1986, the DBP would not have transferred all its rights, titles and
interests in ALFA "effective June 30, 1986" to the national government through the Asset Privatization Trust (APT) as attested to in a
Certification dated January 24, 1989 of the Vice President of the DBP's Special Accounts Department II. In the same certification, it is
stated that the DBP, from 1987 until 1989, had handled APT's account which included ALFA's assets pursuant to a management
agreement by and between the DBP and APT (CA Rollo, p. 142) Hence, there is evidence on record that at the time of the service of
summons on ALFA through the petitioners on August 21, 1987, the voting trust agreement in question was not yet terminated so
that the legal title to the stocks of ALFA, then, still belonged to the DBP.

In view of the foregoing, the ultimate issue of whether or not there was proper service of summons on ALFA through the petitioners
is readily answered in the negative.

Under section 13, Rule 14 of the Revised Rules of Court, it is provided that:

Sec. 13. Service upon private domestic corporation or partnership. — If the defendant is a corporation organized
under the laws of the Philippines or a partnership duly registered, service may be made on the president, manager,
secretary, cashier, agent or any of its directors.

It is a basic principle in Corporation Law that a corporation has a personality separate and distinct from the officers or members who
compose it. (See Sulo ng Bayan Inc. v. Araneta, Inc., 72 SCRA 347 [1976]; Osias Academy v. Department of Labor and Employment, et
al., G.R. Nos. 83257-58, December 21, 1990). Thus, the above rule on service of processes of a corporation enumerates the
representatives of a corporation who can validly receive court processes on its behalf. Not every stockholder or officer can bind the
corporation considering the existence of a corporate entity separate from those who compose it.

The rationale of the aforecited rule is that service must be made on a representative so integrated with the corporation sued as to
make it a priori supposable that he will realize his responsibilities and know what he should do with any legal papers served on him.
(Far Corporation v. Francisco, 146 SCRA 197 [1986] citing Villa Rey Transit, Inc. v. Far East Motor Corp. 81 SCRA 303 [1978]).
The petitioners in this case do not fall under any of the enumerated officers. The service of summons upon ALFA, through the
petitioners, therefore, is not valid. To rule otherwise, as correctly argued by the petitioners, will contravene the general principle
that a corporation can only be bound by such acts which are within the scope of the officer's or agent's authority. (see Vicente v.
Geraldez, 52 SCRA 210 [1973]).

WHEREFORE, premises considered, the petition is hereby GRANTED. The appealed decision dated March 19, 1990 and the Court of
Appeals' resolution of May 10, 1990 are SET ASIDE and the Orders dated April 25, 1989 and October 17, 1989 issued by the Regional
Trial Court of Makati, Branch 58 are REINSTATED.

SO ORDERED.

EN BANC

G.R. Nos. 107789 & 147214             April 30, 2003

REPUBLIC OF THE PHILIPPINES (PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT), petitioner,

vs.
THE HONORABLE SANDIGANBAYAN (THIRD DIVISION) and VICTOR AFRICA, respondents.
AEROCOM INVESTORS AND MANAGERS, INC., BENITO NIETO, CARLOS NIETO, MANUEL NIETO III, RAMON NIETO, ROSARIO
ARELLANO, VICTORIA LEGARDA, ANGELA LOBREGAT, MA. RITA DE LOS REYES, CARMEN TUAZON and RAFAEL VALDEZ, intervenors.

x-----------------------------x

G.R. No. 147214 April 30, 2003

VICTOR AFRICA, petitioner,
vs.
THE HONORABLE SANDIGANBAYAN and THE PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, respondents.

RESOLUTION

CARPIO MORALES, J.:

These consolidated cases, the first for Certiorari, Mandamus and Prohibition, and the second "for Review on Certiorari" although it is
actually one for Certiorari, stem from a Resolution of November 13, 1992 issued by the Sandiganbayan in Civil Case No. 0130, 1 on
motion of Victor Africa (Africa) who prayed that said court order the "calling and holding of the Eastern Telecommunications,
Philippines, Inc. (ETPI) annual stockholders meeting for 1992 under the [c]ourt's control and supervision and prescribed guidelines."

It is gathered that on August 7, 1991, the Presidential Commission on Good Government (PCGG) conducted an ETPI stockholders
meeting during which a PCGG controlled board of directors was elected. A special stockholders meeting was later convened by the
registered ETPI stockholders wherein another set of board of directors was elected, as a result of which two sets of such board and
officers were elected.

Africa, a stockholder of ETPI, alleging that the PCGG had since January 29, 1988 been "illegally 'exercising' the rights of stockholders
of ETPI,"2 especially in the election of the members of the board of directors, filed the above-said motion before the Sandiganbayan.

The PCGG did not object to Africa's motion provided that:

1. An Order be issued upholding the right of PCGG to vote all the Class "A" shares of ETPI.

2. In the alternative, in the remote event that PCGG's right to vote the sequestered shares be not upheld, an Order be
issued:

a. Disregarding the Stock and Transfer Book and Booklet of Stock Certificates of ETPI in determining who can vote
the shares in an Annual Stockholders Meeting of ETPI,
 b. Allowing PCGG to vote twenty-three and 90/100 percent (23.9%) of the total subscription in ETPI, and

c. Directing the amendment of the Articles of Incorporation and By-laws of ETPI providing for the minimum
safeguards for the conservation of assets . . . prior to the calling of a stockholders meeting. 3

By the assailed Resolution of November 13, 1992, 4 the Sandiganbayan resolved Africa's motion, the dispositive portion of which
reads:

WHEREFORE, it is ordered that an annual stockholders meeting of the Eastern Telecommunications, Philippines, Inc. (ETPI), for 1992
be held on Friday, November 27, 1992, at 2:00 o'clock in the afternoon, at the ETPI Board Room, Telecoms Plaza, 7th Floor, 316 Gil J.
Puyat Avenue, Makati, Metro Manila. The Executive Clerk of Court of this Division shall issue the call and notice of annual
stockholders meeting of ETPI addressed to all the duly registered/recorded stockholders of ETPI. The stockholders meeting shall be
conducted under the supervision and control of this Court, through Mr. Justice Sabino R. de Leon, Jr. In accordance with the Supreme
Court ruling in Cojuangco et al vs. Azcuna, et al., supra, only the registered owners, their duly authorized representatives or their
proxies may vote their corresponding shares.

The following minimum safeguards must be set in place and carefully maintained until final judicial resolution of the question of
whether or not the sequestered shares of stock (or in a proper case the underlying assets of the corporation concerned) constitute
ill-gotten wealth:

"a. An independent comptroller must be appointed by the Board of Directors upon nomination of the PCGG as conservator.
The comptroller shall not be removable (nor shall his position be abolished or his compensation changed) without the
consent of the conservator. The comptroller shall, in addition to his other functions as such, have charge of internal audit.

b. The corporate secretary must be acceptable to the conservator. If the corporate secretary ceases to be acceptable to the
conservator, a new one must be appointed by the Board of Directors upon nomination of the conservator.

c. The external auditors of the corporation must be independent and must be acceptable to the conservator. The
independent external auditors shall not be changed without the consent of the conservator.

d. The conservator must be represented in the Board of Directors and in the Executive (or equivalent) and Audit
Committees of the corporation involved and of its majority-owned subsidiaries or affiliates. The representative of the
conservator must be a full director (not merely an honorary or ex-officio director) with the right to vote and all other rights
and duties of a member of the Board of Directors under the Corporation Code. The conservator's representative shall not
be removed from the Board of Directors (or the mentioned Committees) without the consent of the conservator. The
conservator shall, however, have the right to remove and change its representative at any time, and the new representative
shall be promptly elected to the Board and its mentioned Committees.

e. All transactions involving the disbursement of corporate funds in excess of P5 million must have the prior approval of the
director representing the conservator, in order to be valid and effective.

f. The incurring of debt by the corporation, whether in the form of bonds, debentures, commercial paper or any other form,
in excess of P5 million, must have the prior approval of the director representing the conservator, in order to be valid and
effective.

g. The disposition of a substantial part of assets of the corporation (substantial meaning in excess of P5 million) shall require
the prior approval of the director representing the conservator, in order to be valid and effective.

h. The above safeguards must be written into the articles of incorporation and by-laws of the company involved. In other
words, the articles of incorporation and by-laws of the company must be amended so as to incorporate the above
safeguards.

i. Any amendment of the articles of incorporation or by-laws of the company that will modify in any way any of the above
safeguards, shall need the prior approval of the director representing the conservator."

SO ORDERED.5 (Emphasis supplied)
Assailing the foregoing resolution, the PCGG filed before this Court the herein first petition, docketed as G.R. No. 107789, anchored
upon the following grounds:

RESPONDENT SANDIGANBAYAN ACTED WITH GRAVE ABUSE OF DISCRETION IN RULING THAT THE REGISTERED STOCKHOLDERS OF
ETPI HAD THE RIGHT TO VOTE IN SPITE OF (A) THE RULING OF THIS HONORABLE COURT IN PCGG V. SEC AND AFRICA (G.R. NO.
82188) AND (B) A CLEAR SHOWING THAT ETPI'S STOCK AND TRANSFER BOOK WAS ALTERED AND CANNOT BE USED AS THE BASIS TO
DETERMINE WHO CAN VOTE IN A STOCKHOLDERS' MEETING.

II

RESPONDENT SANDIGANBAYAN GRAVELY ABUSED ITS DISCRETION AND EXCEEDED ITS JURISDICTION WHEN IT HELD THAT PCGG
CANNOT VOTE AT LEAST 23.9% OF THE OUTSTANDING CAPITAL STOCK OF ETPI.

III

WITHOUT DUE CARE AND IN RECKLESS DISREGARD OF THE INTERESTS OF THE REPUBLIC, RESPONDENT SANDIGANBAYAN GRAVELY
ABUSED ITS DISCRETION IN ORDERING THE HOLDING OF A STOCKHOLDERS' MEETING IN ETPI WITHOUT FIRST SETTING IN PLACE —
BY AMENDING THE ARTICLES AND BY-LAWS OF ETPI TO INCORPORATE — THE SAFEGUARDS PRESCRIBED BY THIS HONORABLE
COURT IN COJUANGCO V. ROXAS.

IV

THE SANDIGANBAYAN ACTED IN EXCESS OF ITS AUTHORITY AND/OR WITH GRAVE ABUSE OF DISCRETION IN APPOINTING (A) ITS
OWN DIVISION CLERK OF COURT TO PERFORM THE DUTIES OF A CORPORATE SECRETARY, AND (B) ITS OWN JUSTICE SABINO DE
LEON, JR. TO CONTROL AND SUPERVISE THE STOCKHOLDERS' MEETING.6 (Emphasis in the original)

By Resolution of November 26, 1992, this Court enjoined the Sandiganbayan from (a) implementing its Resolution of November 13,
1992, and (b) holding the stockholders' meeting of ETPI scheduled on November 27, 1992, at 2:00 p.m.

On December 7, 1992, Aerocom Investors and Managers, Inc. (AEROCOM), Benito Nieto, Carlos Nieto, Manuel Nieto III, Ramon
Nieto, Rosario Arellano, Victoria Legarda, Angela Lobregat, Ma. Rita de los Reyes, Carmen Tuazon and Rafael Valdez, all stockholders
of record of ETPI, filed a motion to intervene in G.R. No. 107789. Their motion was granted by this Court by Resolution of January 14,
1993.

After the parties submitted their respective memoranda, the PCGG, in early 1995, filed a "VERY URGENT PETITION FOR AUTHORITY
TO HOLD SPECIAL STOCKHOLDERS' MEETING FOR [THE] SOLE PURPOSE OF INCREASING [ETPI's] AUTHORIZED CAPITAL STOCK," it
claiming that the increase in authorized capital stock was necessary in light of the requirements laid down by Executive Order No.
1097 and Republic Act No. 7975.8

By Resolution of May 7, 1996,9 this Court resolved to refer the PCGG's very urgent petition to hold the special stockholders' meeting
to the Sandiganbayan for reception of evidence and resolution.

In compliance therewith, the Sandiganbayan issued a Resolution of December 13, 1996, 10 which is being assailed in the herein
second petition, granting the PCGG "authority to cause the holding of a special stockholders' meeting of ETPI for the sole purpose of
increasing ETPI's authorized capital stock and to vote therein the sequestered Class 'A' shares of stock. . . ." In said Resolution, the
Sandiganbayan 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 thus authorized the ETPI Chair and Corporate Secretary to call the special stockholders
meeting. Notices were sent to those entitled to vote for a meeting on March 17, 1997. The meeting was held as scheduled and the
increase in ETPI's authorized capital stock from P250 Million to P2.6 Billion was "unanimously approved." 11
On April 1, 1997, Africa filed before this Court a motion to cite the PCGG "and its accomplices" in contempt and "to nullify the
'stockholders meeting' called/conducted by PCGG and its accomplices," he contending that only this Court, and not the
Sandiganbayan, has the power to authorize the PCGG to call a stockholders meeting and vote the sequestered shares. Africa went
on to contend that, assuming that the Sandiganbayan had such power, its Resolution of December 13, 1996 authorizing the PCGG to
hold the stockholders meeting had not yet become final because the motions for reconsideration of said resolution were still
pending. Further, Africa alleged that he was not given notice of the meeting, and the PCGG had no right to vote the sequestered
Class "A" shares.

A motion for leave to intervene relative to Africa's "Motion to Cite the PCGG and its Accomplices in Contempt" was filed by ETPI. This
Court granted the motion for leave but ETPI never filed any pleading relative to Africa's motion to cite the PCGG in contempt.

By Resolution of February 16, 2001, the Sandiganbayan finally resolved to deny the motions for reconsideration of its Resolution of
December 13, 1996, prompting Africa to file on April 6, 2001 before this Court the herein second petition, 12 docketed as G.R. No.
147214, challenging the Sandiganbayan Resolutions of December 13, 1996 (authorizing the holding of a stockholders meeting to
increase ETPI's authorized capital stock and to vote therein the sequestered Class "A" shares of stock) and February 16, 2001
(denying reconsideration of the December 13, 1996 Resolution).

In his petition in G.R. No. 147214, Africa alleged that the Sandiganbayan committed "grave abuse of discretion" when, by the
assailed Resolutions,

a. IT DID NOT ACKNOWLEDGE THE NON-SEQUESTERED STATUS OF THE SHARES [OF "SMALL STOCKHOLDERS" OF WHICH HE
IS ONE AND AEROCOM AND POLYGON] AND/OR OWNERS THEREOF[;] [AND]

b. IT DID NOT ACCORD TO THE NON-SEQUESTERED SHARES/OWNERS THE RIGHTS APPURTENANT TO A STOCKHOLDER[.]

He thus prayed that this Court set aside the questioned Resolutions permitting the PCGG to vote the non-sequestered ETPI Class "A"
shares and nullify the votes the PCGG had cast in the stockholders meeting held on March 17, 1997.

By Resolution of February 24, 2003,13 this Court ordered the consolidation of G.R. No. 147214 with G.R. No. 107789, now the subject
of the present Resolution.

The first issue to be resolved is whether the PCGG can vote the sequestered ETPI Class "A" shares in the stockholders meeting for
the election of the board of directors. The leading case on the matter is Bataan Shipyard & Engineering Co., Inc. v. Presidential
Commission on Good Government14 where this Court defined the powers of the PCGG as follows:

a. PCGG May Not Exercise Acts of Ownership

One thing is certain, and should be stated at the outset: the PCGG cannot exercise acts of dominion over property
sequestered, frozen or provisionally taken over. As already earlier stressed with no little insistence, the act of
sequestration[,] freezing or provisional takeover of property does not import or bring about a divestment of title over said
property; [it] does not make the PCGG the owner thereof. In relation to the property sequestered, frozen or provisionally
taken over, the PCGG is a conservator, not an owner. Therefore, it can not perform acts of strict ownership; and this is
specially true in the situations contemplated by the sequestration rules where, unlike cases of receivership, for example, no
court exercises effective supervision or can upon due application and hearing, grant authority for the performance of acts
of dominion.

Equally evident is that resort to the provisional remedies in question should entail the least possible interference with
business operations or activities so that, in the event that the accusation of the business enterprise being "ill-gotten" be not
proven, it may be returned to its rightful owner as far as possible in the same condition as it was at the time of
sequestration.

b. PCGG Has Only Powers of Administration

The PCGG may thus exercise only powers of administration over the property or business sequestered or provisionally
taken over, much like a court-appointed receiver, such as to bring and defend actions in its own name; receive rents; collect
debts due; pay outstanding debts due; and generally do such other acts and things as may be necessary to fulfill its mission
as conservator and administrator. In this context, it may in addition enjoin or restrain any actual or threatened commission
of acts by any person or entity that may render moot and academic, or frustrate or otherwise make ineffectual its efforts to
carry out its task; punish for direct or indirect contempt in accordance with the Rules of Court; and seek and secure the
assistance of any office, agency or instrumentality of the government. In the case of sequestered businesses generally (i.e.,
going concerns, businesses in current operation), as in the case of sequestered objects, its essential role, as already
discussed, is that of conservator, caretaker, "watchdog" or overseer. It is not that of manager, or innovator, much less an
owner.

c. Powers over Business Enterprises Taken Over by Marcos or Entities or Persons Close to him; Limitations Thereon

Now, in the special instance of a business enterprise shown by evidence to have been "taken over by the government of the
Marcos Administration or by entities or persons close to former President Marcos," the PCGG is given power and authority,
as already adverted to, to "provisionally take (it) over in the public interest or to prevent . . . (its) disposal or dissipation;"
and since the term is obviously employed in reference to going concerns, or business enterprises in operation, something
more than mere physical custody is connoted; the PCGG may in this case exercise some measure of control in the
operation, running, or management of the business itself. But even in this special situation, the intrusion into management
should be restricted to the minimum degree necessary to accomplish the legislative will, which is "to prevent the disposal or
dissipation" of the business enterprise. There should be no hasty, indiscriminate, unreasoned replacement or substitution
of management officials or change of policies, particularly in respect of viable establishments. In fact, such a replacement or
substitution should be avoided if at all possible, and undertaken only when justified by demonstrably tenable grounds and
in line with the stated objectives of the PCGG. And it goes without saying that where replacement of management officers
may be called for, the greatest prudence, circumspection, care and attention should accompany that undertaking to the
end that truly competent, experienced and honest managers may be recruited. There should be no role to be played in this
area by rank amateurs, no matter how well meaning. The road to hell, it has been said, is paved with good intentions. The
business is not to be experimented or played around with, not run into the ground, not driven to bankruptcy, not fleeced,
not ruined. Sight should never be lost x x x of the ultimate objective of the whole exercise, which is to turn over the
business to the Republic, once judicially established to be "ill-gotten." Reason dictates that it is only under these conditions
and circumstances that the supervision, administration and control of business enterprises provisionally taken over may
legitimately be exercised.

d. Voting of Sequestered Stock; Conditions Therefor

So, too, it is within the parameters of these conditions and circumstances that the PCGG may properly exercise the
prerogative to vote sequestered stock of corporations, granted to it by the President of the Philippines through a
Memorandum dated June 26, 1986. That Memorandum authorizes the PCGG, "pending the outcome of proceedings to
determine the ownership of ** (sequestered) shares of stock," "to vote such shares of stock as it may have sequestered in
corporations at all stockholders' meetings called for the election of directors, declaration of dividends, amendment of the
Articles of Incorporation, etc." The Memorandum should be construed in such a manner as to be consistent with, and not
contradictory to the Executive Orders earlier promulgated on the same matter. There should be no exercise of the right to
vote simply because the right exists, or because the stocks sequestered constitute the controlling or a substantial part of
the corporate voting power. The stock is not to be voted to replace directors, or revise the articles or by-laws, or otherwise
bring about substantial changes in policy, program or practice of the corporation except for demonstrably weighty and
defensible grounds, and always in the context of the stated purposes of sequestration or provisional takeover, i.e., to
prevent the dispersion or undue disposal of the corporate assets. Directors are not to be voted out simply because the
power to do so exists. Substitution of directors is not to be done without reason or rhyme, should indeed be shunned if at
all possible, and undertaken only when essential to prevent disappearance or wastage of corporate property, and always
under such circumstances as to assure that replacements are truly possessed of competence, experience and probity.

In the case at bar, there was adequate justification to vote the incumbent directors out of office and elect others in their
stead because the evidence showed prima facie that the former were just tools of President Marcos and were no longer
owners of any stock in the firm, if they ever were at all. This is why, in its Resolution of October 28, 1986[,] this Court
declared that —

"Petitioner has failed to make out a case of grave abuse or excess of jurisdiction in respondents' calling and holding
of a stockholders' meeting for the election of directors as authorized by the Memorandum of the President ** (to
 the PCGG) dated June 26, 1986, particularly, where as in this case, the government can, through its designated
directors, properly exercise control and management over what appear to be properties and assets owned and
belonging to the government itself and over which the persons who appear in this case on behalf of BASECO have
failed to show any right or even any shareholding in said corporation."

It must however be emphasized that the conduct of the PCGG nominees in the BASECO Board in the management of the
company's affairs should henceforth be guided and governed by the norms herein laid down. They should never for a
moment allow themselves to forget they are conservators, not owners of the business; they are fiduciaries, trustees, of
whom the highest degree of diligence and rectitude is, in the premises, required. (Italics in the original)

The PCGG cannot thus vote sequestered shares, except when there are "demonstrably weighty and defensible grounds" or "when
essential to prevent disappearance or wastage of corporate property." 15

The principle laid down in Baseco was further enhanced in the subsequent cases of Cojuangco v. Calpo16 and Presidential
Commission on Good Government v. Cojuangco, Jr.,17 where this 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:

1. whether there is prima facie  evidence showing that the said shares are ill-gotten and thus belong to the state;
and

2. 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. 18

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. 19

This Court, in Republic v. Cocofed,20 explained:

The [public character] exceptions are based 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 be given the privilege of enjoying the rights flowing from the prima facie fact of ownership.

In Baseco, a private corporation known as the Bataan Shipyard and Engineering Co. was placed under sequestration by the
PCGG. Explained the Court:

"The facts show that the corporation known as BASECO was owned and controlled by President Marcos 'during his
administration, through nominees, by taking undue advantage of his public office and/or using his powers,
authority, or influence,' and that it was by and through the same means, that BASECO had taken over the business
and/or assets of the National Shipyard and Engineering Co., Inc., and other government-owned or controlled
entities."

Given this factual background, the Court discussed PCGG's right over BASECO in the following manner:

"Now, in the special instance of a business enterprise shown by evidence to have been 'taken over by the
government of the Marcos Administration or by entities or persons close to former President Marcos,' the PCGG is
given power and authority, as already adverted to, to provisionally take (it) over in the public interest or to prevent
** (its) disposal or dissipation;' and since the term is obviously employed in reference to going concerns, or
 business enterprises in operation, something more than mere physical custody is connoted; the PCGG may in this
case exercise some measure of control in the operation, running, or management of the business itself."

Citing an earlier Resolution, it ruled further:

"Petitioner has failed to make out a case of grave abuse of excess of jurisdiction in respondent's calling and holding
of a stockholder's meeting for the election of directors as authorized by the Memorandum of the President ** (to
the PCGG) dated June 26, 1986, particularly, where as in this case, the government can, through its designated
directors, properly exercise control and management over what appear to be properties and assets owned and
belonging to the government itself and over which the persons who appear in this case on behalf of BASECO have
failed to show any right or even any shareholding in said corporation." (Emphasis supplied)

The Court granted PCGG the right to vote the sequestered shares because they appeared to be "assets belonging to the
government itself." The Concurring Opinion of Justice Ameurfina A. Melencio-Herrera, in which she was joined by Justice
Florentino P. Feliciano, explained this principle as follows:

"I have no objection to according the right to vote sequestered stock in case of a take-over of business actually
belonging to the government or whose capitalization comes from public funds but which, somehow, landed in the
hands of private persons, as in the case of BASECO. To my mind, however, caution and prudence should
be exercised in the case of sequestered shares of an on-going private business enterprise, specially the sensitive
ones, since the true and real ownership of said shares is yet to be determined and proven more conclusively by the
Courts." (Italics supplied)

The exception was cited again by the Court in Cojuangco-Roxas in this wise:

"The rule in this 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 the 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." (italics supplied)

The "public character" test was reiterated in many subsequent cases; most recently, in Antiporda v. Sandiganbayan.
Expressly citing Cojuangco-Roxas, this Court said that in determining the issue of whether the PCGG should be allowed to
vote sequestered shares, it was crucial to find out first whether this were purchased with public funds, as follows:

"It is thus important to determine first if the sequestered corporate shares came from public funds that landed in
private hands."

This Court summed up the rule in the determination of whether the PCGG has the right to vote sequestered shares as follows:

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. Rather, the public character
exception in Baseco v. PCGG and Cojuangco Jr. v. Roxas prevail; that is, the government shall vote the shares.

The PCGG contends, however, that it is entitled to vote the sequestered shares in the election of the board of directors, it invoking
this Court's alleged finding in PCGG et al. v. Securities and Exchange Commission, et al.21 that Africa had dissipated ETPI's assets,
thus:

Under a consultancy contract, Polygon Investors and Managers, Inc. with Jose L. Africa as Chairman and Victor Africa as
President, earned from ETPI as of 1987, more than P57 million. Likewise in 1987, ETPI paid to Jose L. Africa P1,200,000.00 as
"professional fees" and Manuel Nieto, Jr. another P1,200,000.00 as "allowances". 22

The PCGG's contention is misleading, This Court made no finding in PCGG v. SEC et al. that Africa dissipated ETPI's assets. Precisely
this Court issued a Resolution of July 28, 1988 in the same case to clarify, upon motion of Africa, that the narration of facts found in
the decision therein did not constitute a finding of facts:
 The categorical statement in the decision of June 30, 1988 that the "relevant background facts of the case culled from
Petitioners' Urgent Consolidated Petition" was not without a reason or purpose. Precisely this statement was made to
impress upon the parties that the narration of facts is just that — a narration, without necessarily judging its truth or
veracity. Being based on mere allegations, properly controverted, it is not a finding of facts, but more of a presentation
of the complete picture of events which led to the sequestration of Eastern Telecommunications, Philippines, Inc. as well
as to the instant petition. This Court, it must be remembered, is not a trier of facts, and particularly so in this case where
the facts narrated are precisely the facts in litigation before the Sandiganbayan. (Emphasis supplied.)

Unfortunately, the Sandiganbayan, in its impugned Resolution of November 13, 1992, skirted the question of whether there is
evidence of dissipation of ETPI assets, holding instead that:

The issue as to whether the B[enedicto]A[frica]N[ieto] group had dissipated funds of ETPI during its administration of ETPI is
a matter which is not in issue herein. Dissipation by the PCGG Board of Directors is also charged by the BAN group. An
investigation of the anomalies charged by one against the other may be taken up in another case. 23

And it further held that the PCGG could not vote the sequestered shares as "only the owners of the shares of stock of subject
corporation, their duly authorized representatives or their proxies, may vote the said shares," 24 relying on this Court's ruling
in Cojuangco, Jr. v. Roxas25 that:

The rule in this 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. This 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, this issue must be remanded to the Sandiganbayan for resolution.

II

On the PCGG's submission that the Stock and Transfer Book should not be used as the basis for determining the voting rights of the
shareholders because some entries therein were altered "by substitution": This Court sees no grave abuse of discretion on the part
of the Sandiganbayan in ruling that:

The charge that there were "alterations by substitution" in the Stock and Transfer Book is not a matter which should
preclude the Stock and Transfer Book from being the basis or guide to determine who the true owners of the shares of
stock in ETPI are. If there be any substitution or alterations, the anomaly, if at all, may be explained by the corporate
secretary who made the entries therein. At any rate, the accuracy of the Stock and Transfer Book may be checked by
comparing the entries therein with the issued stock certificates. The fact is that any transfer of stock or issuance thereof
would necessitate an alteration of the record by substitution. Any anomaly in any entry which may deprive a person or
entity of its right to vote may generate a controversy personal to the corporation and the stockholder and should not affect
the issue as to whether it is the PCGG or the shareholder who has the right to vote. In other words, should there be a
stockholder who feels aggrieved by any alteration by substitution in the Stock and Transfer Book, said stockholder may
object thereto at the proper time and before the stockholders meeting. 26

Whether the ETPI Stock and Transfer Book was falsified and whether such falsification deprives the true owners of the shares of
their right to vote are thus issues best settled in a different proceeding instituted by the real parties-in-interest.

III

On the PCGG's submission that the Sandiganbayan gravely abused its discretion when it held that it cannot vote at least 23.9% of the
outstanding capital stock of ETPI, which percentage is broken down as follows:
 Shares ceded to the government by virtue of the - 12.8%
Benedicto compromise
Shares represented by some stock certificates - 3.1%
found in Malacañang (at least)
Shares held and admitted by Manuel Nieto to 8.0%
belong to then President Marcos -

The PCGG alleges that the 12.8% indicated above represents 51% of the combined shareholdings of Roberto S. Benedicto and his
controlled corporations amounting to 12.8% of the total equity of ETPI which was ceded to the Republic; the 3.1% represents the
shares covered by the ETPI stock certificates endorsed in blank found in Malacañang, now in its (PCGG's) possession, which it
submits it may, under Section 34 of the Negotiable Instruments Law, 27 take title thereto and vote the same in the stockholders
meeting; and the 8% represents the shares of Manuel H. Nieto, Jr. which, so it avers, he, in an Affidavit of May 28, 1986, admitted
actually belong to former President Marcos:

5. That in relation to and simultaneously with the board meeting of PHILCOMSAT, on March 21, 1986, I declared my
concurrence in the disclosures made on the participation of Mr. Ferdinand E. Marcos and associates in the companies
covered by the sequestration order dated March 14, 1986 i.e., 39,926.2% (sic) of the total subscribed capital stock of
Philippine Overseas Telecommunications Corporation and 40% of the individual shareholdings of Jose L. Africa, Manuel H.
Nieto, Jr., & Roberto S. Benedicto in Eastern Telecommunications Philippines, Inc. 28

On the question of whether the PCGG can vote all the above shares, the Sandiganbayan, finding in the affirmative, held in its
Resolution of November 13, 1992:

Considering the Compromise Agreement entered into by the PCGG and Roberto S. Benedicto in Civil Case No. 009 wherein
Roberto S. Benedicto assigned and transferred to the Government 12.8% of the shares of stock of ETPI, which Compromise
Agreement was made the basis of a judgment of this Court, it is only proper that the PCGG may vote these shares in the
stockholders meeting after said judgment shall have become final and executory. Besides, before the PCGG can vote these
shares, the transfer to the State of the shares of stock must be entered in the Stock and Transfer Book, the entries therein
being the only basis for which the stockholder may vote the said shares.

The same ruling is made in respect to the shares of stock represented by stock certificates found in Malacañang (3.1%) and
the shares of stock allegedly admitted by Manuel H. Nieto to belong to former President Ferdinand E. Marcos
(8.0%).29 (Emphasis supplied)

The Sandiganbayan clearly made no ruling proscribing the PCGG from voting the shares representing 12.8% of ETPI's outstanding
capital stock, the only requirement it imposed being that the transfer of the shares be registered in the Stock and Transfer Book and
that, in the case of the Benedicto shares, the Compromise Agreement be final and executory.

In requiring that the transfer of the Benedicto shares be first recorded in ETPI's Stock and Transfer Book before the PCGG may vote
them, the Sandiganbayan committed no grave abuse of discretion. For Section 63 of the Corporation Code provides:

Sec. 63. Certificate of stock and transfer of shares. — The capital stock of stock corporations shall be divided into shares for
which the certificates signed by the president or vice president, countersigned by the secretary or assistant secretary, and
sealed with the seal of the corporation shall be issued in accordance with the by-laws. Shares of stock so issued are
personal property and may be transferred by the delivery of the certificate or certificates endorsed by the owner or his
attorney-in-fact or other person legally authorized to make the transfer. No transfer, however, shall be valid, except as
between the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the
number of shares transferred.

xxx           xxx           xxx.

Explaining why registration is a prerequisite for the voting of shares, this Court, in Batangas Laguna Tayabas Bus Company, Inc., v.
Bitanga,30 discoursed:

Indeed, until registration is accomplished, the transfer, though valid between the parties, cannot be effective as against the
corporation. Thus, the unrecorded transferee x x x cannot vote nor be voted for. The purpose of registration, therefore, is
 two-fold: to enable the transferee to exercise all the rights of a stockholder, including the right to vote and to be voted for,
and to inform the corporation of any change in share ownership so that it can ascertain the persons entitled to the rights
and subject to the liabilities of a stockholder. Until challenged in a proper proceeding, a stockholder of record has a right to
participate in any meeting; his vote can be properly counted to determine whether a stockholders' resolution was
approved, despite the claim of the alleged transferee. On the other hand, a person who has purchased stock, and who
desires to be recognized as a stockholder for the purpose of voting, must secure such a standing by having the transfer
recorded on the corporate books. Until the transfer is registered, the transferee is not a stockholder but an outsider.

Whether the PCGG needs to await the finality of the judgment 31 based on the Republic-Benedicto compromise agreement is now
moot since it is not disputed that it had long become final and executory. Accordingly, the PCGG may vote in its name the shares
ceded to the Republic by Benedicto pursuant to the said agreement once they are registered in its name.

With respect to the PCGG's submission that under Section 34 of the Negotiable Instruments Law, it may take title to the shares
represented by the blank stock certificates found in Malacañang and vote the same, the same is untenable. The PCGG assumes that
stock certificates are negotiable. They are not.

x x x [A]lthough a stock certificate is sometimes regarded as quasi-negotiable, in the sense that it may be transferred by
delivery, it is well settled that the instrument is non-negotiable, because the holder thereof takes it without prejudice to
such rights or defenses as the registered owner or creditor may have under the law, except insofar as such rights or
defenses are subject to the limitations imposed by the principles governing estoppel. 32

That the PCGG found the stock certificates endorsed in blank does not necessarily make it the owner of the shares represented
therein. Their true ownership has to be ascertained in a proper proceeding. Similarly, the ownership of the Nieto shares has yet to
be adjudicated. That they allegedly belong to former President Marcos does not make the PCGG, its owner. The PCGG must, in an
appropriate proceeding, first establish that they truly belong to the former President and that they were ill-gotten. Pending final
judgment over the ownership of these shares, the PCGG may not register and vote the Nieto and the Malacañang shares in its name.
If the Sandiganbayan finds, however, that there is evidence of dissipation of these shares, the PCGG may vote the same
as conservator thereof.

IV

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.33 This 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.

It is through the right to vote that the stockholder participates in the management of the corporation. The right to vote,
unlike the rights to receive dividends and liquidating distributions, is not a passive thing because management or
administration is, under the Corporation Code, vested in the board of directors, with certain reserved powers residing in the
stockholders directly. The board of directors and executive committee (or management committee) and the corporate
officers selected by the board may make it very difficult if not impossible for the PCGG to carry out its duties as conservator
if the Board or officers do not cooperate, are hostile or antagonistic to the conservator's objectives.

Thus, it is necessary to achieve a balancing of or a reconciliation between the stockholders' right to vote and the
conservator's statutory duty to recover and in the process thereof, to conserve assets, thought to be ill-gotten wealth, until
final judicial determination of the character of such assets or until a final compromise agreement between the parties is
reached.

There are, in the main, two (2) types of situations that need to be addressed. The first situation arises where the
sequestered shares of stock constitute a distinct minority of the voting shares of the corporation involved, such that the
registered owners of such sequestered shares would in any case be able to vote in only a minority of the Board of
Directors of the corporation. The second situation arises where the sequestered shares of stock constitute a majority of the
voting shares of the corporation concerned, such that the registered owners of such shares of stock would in any case be
entitled to elect a majority of the Board of Directors of the corporation involved.
Turning to the first situation, the Court considers and so holds that in order to enable the PCGG to perform its functions as
conservator of the sequestered shares of stock pending final determination by the courts as to whether or not the same
constitute ill-gotten wealth or a final compromise agreement between the parties, the PCGG must be represented in the
Board of Directors of the corporation and to its majority-owned subsidiaries or affiliates and in the Executive Committee (or
its equivalent) and the Audit Committee thereof, in at least an ex officio (i.e., non-voting) capacity. The PCGG representative
must have a right of full access to and inspection of (including the right to obtain copies of) the books, records and all other
papers of the corporation relating to its business, as well as a right to receive copies of reports to the Board of Directors, its
Executive (or equivalent) and Audit Committees. By such representation and rights of full access, the PCGG must be able so
to observe and monitor the carrying out of the business of the corporation as to discover in a timely manner any move or
effort on the part of the registered owners of the sequestered stock alone or in concert with other shareholders, to conceal,
waste and dissipate the assets of the corporation, or the sequestered shares themselves, and seasonably to bring such
move or effort to the attention of the Sandiganbayan for appropriate action.

In the second situation above referred to, the Court considers and so holds that the following minimum safeguards must be
set in place and carefully maintained until final judicial resolution of the question of whether or not the sequestered shares
of stock (or, in a proper case, the underlying assets of the corporation concerned) constitute ill-gotten wealth or until a final
compromise agreement between the parties is reached:

a. An independent comptroller must be appointed by the Board of Directors upon nomination of the PCGG as
conservator. The comptroller shall not be removable (nor shall his position be abolished or his compensation
changed) without the consent of the conservator. The comptroller shall, in addition to his other functions as such,
have charge of internal audit.

b. The corporate secretary must be acceptable to the conservator. If the corporate secretary ceases to be
acceptable to the conservator, a new one must be appointed by the Board of Directors upon nomination of the
conservator.

c. The external auditors of the corporation must be independent and must be acceptable to the conservator. The
independent external auditors shall not be changed without the consent of the conservator.

d. The conservator must be represented in the Board of Directors and in the Executive (or equivalent) and Audit
Committees of the corporation involved and of its majority-owned subsidiaries or affiliates. The representative of
the conservator must be a full director (not merely an honorary or ex officio director) with the right to vote and all
other rights and duties of a member of the Board of Directors under the Corporation Code. The conservator's
representative shall not be removed from the Board of Directors (or the mentioned Committees) without the
consent of the conservator. The conservator shall, however, have the right to remove and change its
representative at any time, and the new representative shall be promptly elected to the Board and its mentioned
Committees.

e. All transactions involving the disbursement of corporate funds in excess of P5 million must have the prior
approval of the director representing the conservator, in order to be valid and effective.

f. The incurring of debt by the corporation, whether in the form of bonds, debentures, commercial paper or any
other form, in excess of P5 million, must have the prior approval of the director representing the conservator, in
order to be valid and effective.

g. The disposition of a substantial part of assets of the corporation (substantial meaning in excess of P5 million)
shall require the prior approval of the director representing the conservator, in order to be valid and effective.

h. The above safeguards must be written into the articles of incorporation and by-laws of the company involved. In
other words, the articles of incorporation and by-laws of the company must be amended so as to incorporate the
above safeguards.

i. Any amendment of the articles of incorporation or by-laws of the company that will modify in any way any of the
above safeguards, shall need the prior approval of the director representing the conservator.
 The amount of P5,000,000.00 referred to in paragraphs (e), (f) and (g) above is intended merely to be indicative.
The precise amount may differ depending upon the size of the corporation involved and the reasonable operating
requirements of its business.

Whether a particular case falls within the first or the second type of situation described above, the following safeguards are
indispensably necessary:

1. The sequestered shares and any stock dividends pertaining to such shares, may not be sold, transferred,
alienated, mortgaged, or otherwise disposed of and no such sale, transfer or other disposition shall be registered in
the books of the corporation, pending final judicial resolution of the question of ill-gotten wealth or a final
compromise agreement between the parties; and

2. Dividend and liquidating distributions shall not be delivered to the registered stockholders of the sequestered
shares, including stock dividends pertaining to such shares, but shall instead be deposited in an escrow, interest-
bearing, account in a first class bank or banks, acceptable to the Sandiganbayan, to be held by such banks for the
benefit of whoever is held by final judicial decision or final compromise agreement, to be entitled to the shares
involved. (Emphasis in the original)

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 this 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:

Sec. 16. Amendment of Articles of Incorporation. — Unless otherwise prescribed by this Code or by special law, and for
legitimate purposes, any provision or matter stated in the articles of incorporation may be amended by a majority vote of
the board of directors or trustees and the vote or written assent of the stockholders representing at least two-thirds (2/3)
of the outstanding capital stock, without prejudice to the appraisal right of dissenting stockholders in accordance with the
provisions of this Code, or the vote or written assent of at least two thirds (2/3) of the members if it be a non-stock
corporation.

xxx           xxx           xxx. (Emphasis supplied)

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 this 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. This Court said as much in Cojuangco:

The Court is aware that the implementation of some of the above safeguards may require agreement between the
registered stockholders and the PCGG as well as action on the part of the Securities and Exchange Commission. The Court,
therefore, directs petitioners and the PCGG to effect the implementation of this decision under the supervision and control
of the Sandiganbayan so that the right to vote the sequestered shares and the installation and operation of the safeguards
above-specified may be exercised and effected in a substantially contemporaneous manner and with all deliberate dispatch.

As for the PCGG's contention that the Sandiganbayan gravely abused its discretion in ordering the Division Clerk of Court to call the
stockholders meeting and in appointing then Sandiganbayan Associate Justice Sabino de Leon, Jr. to control and supervise the same,
it is impressed with merit.
The Clerk of Court, who is already saddled with judicial responsibilities, need not be burdened with the additional duties of a
corporate secretary. Moreover, the Clerk of Court may not have the requisite knowledge and expertise to discharge the functions of
a corporate secretary. It is not thus surprising to find the PCGG complaining that:

x x x ETPI's By-laws provide:

"Sec. 4. Notice of Meeting. — Except as otherwise provided by law, written or printed notice of all annual and
special meetings of stockholders, stating the place and time of the meeting and the general nature of the business
to be considered, shall be transmitted by personal delivery, registered air-mail, telegraph, or cable to each
stockholder of record entitled to vote thereat at his address last known to the Secretary of the Company, at least
ten (10) days before the date of the meeting, if an annual meeting, or at least five (5) days before the date of the
meeting, if a special meeting."

Here, respondent Victor Africa filed a Motion dated March 30, 1992 asking the Sandiganbayan to "issue the call and Notice
of Annual Stockholder's Meeting in ETPI" because under ETPI's By-laws such meeting should be held in the month of May. x
x x . In the Resolution dated November 13, 1992, the Sandiganbayan granted the Motion and authorized its Division Clerk of
Court to issue such "Notice of Annual Stockholder's Meeting." However, for inexplicable reasons, the Division Clerk of Court
issued a "Notice of Special Stockholder's Meeting". x x x . which requires only a prior 5-day notice, instead of a "notice of
(Delayed) Annual Stockholder's Meeting" which requires a prior 10-day notice.

Instead of sending the Notices to each stockholder at his recorded address, the Division Clerk of Court whimsically sent all
the Notices meant for the Class B stockholders to Atty. Eduardo de los Angeles (who returned the Notices because he was
not authorized to receive such Notices). According to him . . ., he does not know some of the Class B stockholders for whom
notices were sent to him. As a result, at this late stage, no proper notice has been sent to Class B stockholders. Yet, the
Sandiganbayan has scheduled and is dead set to supervise a stockholder's meeting on November 27, 1992. This clearly
violates the substantial rights of the Class B stockholders who own 40% of ETPI. Under the Articles of Incorporation . . . and
By-laws . . . of ETPI, Class B stockholders are entitled to vote two members of the Board of Directors. Unless properly
notified, most of the Class B stockholders who reside in the United Kingdom (and whose shares are not sequestered) will
not be able to exercise their right to vote. 34 (Emphasis in the original)

The appointment of a sitting member of the Sandiganbayan is particularly unsound for, as the PCGG points out:

x x x What then is the reason for him to attend and supervise the meeting? To observe so that he can later testify in the
court where he himself sits — in the court which will eventually decide any controversy which may arise from the meeting?
35

Obviously, under such situation, the justice so appointed would be compelled to inhibit himself from any judicial controversy arising
from the stockholders meeting.36 Worse, if he were to preside at the meeting and rule upon the objections that may be raised by
some stockholders, the Sandiganbayan would be faced with the "anomaly" 37 of eventually reviewing the decisions rendered by a
member of its court during the stockholders meeting.

This Court appreciates the quandary that the Sandiganbayan faced when it ordered its Division Clerk of Court to call the meeting:
ETPI has two sets of officers and, presumably, two corporate secretaries. And given the stakes involved, the stockholders meeting
would be contentious, to say the least, hence, the need for an impartial referee to supervise and control the meeting.

Happily, the case of Board of Directors and Election Committee of SMB Workers Savings and Loan Asso., Inc. v. Tan, etc., et
al.38 provides a solution to the Sandiganbayan's dilemma. There, this Court upheld the creation of a committee empowered to call,
conduct and supervise the election of the board of directors:

As regards the creation of a committee of three vested with the authority to call, conduct and supervise the election, and
the appointment thereto of Candido C. Viernes as chairman and representative of the court and one representative each
from the parties, the Court in the exercise of its equity jurisdiction may appoint such committee, it having been shown that
the Election Committee that conducted the election annulled by the respondent court if allowed to act as such may
jeopardize the rights of the respondents.
 In a proper proceeding a court of equity may direct the holding of a stockholders' meeting under the control of a
special master, and the action taken at such a meeting will not be set aside because of a wrongful use of the
court's interlocutory decree, where not brought to the attention of the court prior to the meeting. (18 C.J.S. 1270.)

A court of equity may, on showing of good reason, appoint a master to conduct and supervise an election of
directors when it appears that a fair election cannot otherwise be had. Such a court cannot make directions
contrary to statute and public policy with respect to the conduct of such election. (19 C.J.S. 41)

This Court also approved a similar action by the Securities and Exchange Commission in Sales v. Securities and Exchange
Commission.39

Such a committee composed of impartial persons knowledgeable in corporate proceedings would provide the needed expertise and
objectivity in the calling and the holding of the meeting without compromising the Sandiganbayan or its officers. The appointment of
the committee members and the delineation of the scope of the duties of the committee may be made pursuant to an agreement by
the parties or in accordance with the provisions of Rule 9 (Management Committee) of the Interim Rules of Procedure for Intra-
Corporate Controversies insofar as they are applicable.

VI

And now, Africa's motion to cite the PCGG and its "accomplices" in contempt for calling and holding a stockholders meeting to
increase ETPI's authorized capital stock without this Court's authority and despite the pendency of motions for reconsideration of
the Sandiganbayan Resolution of December 13, 1996 granting the PCGG authority to cause the holding of such meeting. In the same
motion, Africa asks this Court to nullify the March 17, 1997 stockholders meeting which increased ETPI's authorized capital stock on
the grounds that he, an ETPI stockholder, was not notified of the meeting, and the PCGG voted the sequestered ETPI shares despite
the absence of evidence of dissipation of assets. Intervenor AEROCOM has shared Africa's assertions.

As earlier stated, this Court, by Resolution of May 7, 1996, referred the PCGG's "VERY URGENT MOTION FOR RECONSIDERATION TO
HOLD SPECIAL STOCKHOLDERS MEETING . . ." to the Sandiganbayan for reception of evidence and resolution. The dispositive portion
of said Resolution reads:

Taking account of all the foregoing, the Court Resolved to REFER the "VERY URGENT PETITION FOR AUTHORITY TO HOLD
SPECIAL STOCKHOLDERS' MEETING FOR SOLE PURPOSE OF INCREASING EASTERN'S AUTHORIZED CAPITAL STOCK" to the
Sandiganbayan for reception of evidence and resolution — WITH ALL DELIBERATE DISPATCH but no longer than sixty (60)
days from notice hereof — of the factual issues raised by the parties as herein set out, and such others, factual or
otherwise as are relevant, in order to decide the basic question in this proceeding of the necessity and propriety of the
holding of the special stockholders' meeting of EASTERN for the "sole purpose of increasing ** (its) authorized capital stock"
and the exercise by the PCGG of the right to vote at said meeting. 40 (Emphasis supplied)

Clearly, when the PCGG's "VERY URGENT PETITION TO HOLD SPECIAL STOCKHOLDERS MEETING . . . " was referred to the
Sandiganbayan, this Court gave the latter full authority to decide the issue of whether a stockholders meeting should be held.
Implicit in this authority was the power to grant (or deny) the petition. There is thus no need for the parties to seek this Court's
imprimatur to hold the same.

Africa's motion must thus be denied.

Even assuming arguendo that the holding of the meeting was contemptuous because the December 13, 1996 Sandiganbayan
Resolution had not yet attained finality, it was the Sandiganbayan, and not this Court, which was contemned. Consequently, it is the
Sandiganbayan, and not this Court, which has jurisdiction over the motion to declare the PCGG and "its accomplices" in contempt.

In whatever context it may arise, contempt of court involves the doing of an act, or the failure to do an act, in such a
manner as to create an affront to the court and the sovereign dignity with which it is clothed. As a matter of practical
judicial administration, jurisdiction has been felt properly to rest in only one tribunal at a time with respect to a given
controversy. Partly because of administrative considerations, and partly to visit the full personal effect of the punishment
on a contemnor, the rule has been that no other court than the one contemned will punish a given contempt.

The rationale that is usually advanced for the general rule that the power to punish for contempt rests with the court
contemned is that contempt proceedings are sui generic and are triable only by the court against whose authority the
 contempts are charged; the power to punish for contempt exists for the purpose of enabling a court to compel due
decorum and respect in its presence and due obedience to its judgments, orders and processes; and in order that a court
may compel obedience to its orders, it must have the right to inquire whether there has been any disobedience thereof, for
to submit the question of disobedience to another tribunal would operate to deprive the proceeding of half its efficiency.
41

The above rule is not of course absolute as it admits exception "when the entire case has already been appealed [in which case]
jurisdiction to punish for contempt rests with the appellate court where the appeal completely transfers to proceedings thereto or
where there is a tendency to affect the status quo or otherwise interfere with the jurisdiction of the appellate court." 42 This
exception does not, however, apply to Africa's motion since at the time he filed it on April 1, 1997 before this Court, his petition in
G.R. No. L-147214 assailing the December 17, 1996 Resolution of the Sandiganbayan had not yet been filed.

The motion to nullify the March 17, 1997 stockholders meeting must likewise be denied for lack of jurisdiction. Such motion is but
an incident to Sandiganbayan Civil Case No. 0130.43 As such, jurisdiction over it pertains exclusively and originally to the
Sandiganbayan.

Under Section 2 of the President's Executive Order No. 14 issued on May 7, 1986, all cases of the Commission regarding
"the Funds, Moneys, Assets, and Properties Illegally Acquired or Misappropriated by Former President Ferdinand Marcos,
Mrs. Imelda Romualdez Marcos, their Close Relatives, Subordinates, Business Associates, Dummies, Agents, or Nominees"
whether civil or criminal are lodged within the "exclusive and original jurisdiction of the Sandiganbayan" and all incidents
arising from, incidental to, or related to, such cases necessarily fall likewise under the Sandiganbayan's exclusive and
original jurisdiction, subject to review on certiorari exclusively by the Supreme Court. 44

This is another reason for the denial of the motion to cite the PCGG and its "accomplices" in contempt.

VII

FINALLY, the question on the validity of the PCCG's voting the Class "A" shares to increase the authorized capital stock of ETPI.

In his petition in G.R. No. 147214, Africa faults the Sandiganbayan for failing to acknowledge, in its Resolution of February 16, 2001,
the Decisions of this Court declaring that his shares in ETPI 45 and those of AEROCOM46 and POLYGON (Polygon Investors & Managers,
Inc.)47 were not sequestered. Hence, so he contends, they, and not the PCGG, should have been allowed to vote their respective
shares during the meeting.

Two matters require clarification at this point. First, that this Court rendered decisions holding that the shares of Africa, AEROCOM
and POLYGON are not or are no longer sequestered is of little consequence since the decisions were promulgated after the
Sandiganbayan issued its resolution granting the PCGG authority to call and hold the stockholders meeting to increase the
authorized capital stock. At that time, the shares were presumed to have been regularly sequestered. The more fundamental
question that confronts this Court is: Was the PCGG entitled to vote the sequestered shares in the stockholders meeting of March
17, 1997?

Second, the PCGG correctly argues that Africa has no cause of action to claim on behalf of AEROCOM and POLYGON that these two
companies are entitled to vote their respective shares in the stockholders meeting to increase ETPI's authorized capital stock. The
claim is personal to AEROCOM and POLYGON. Nevertheless, this does not preclude Africa from invoking his own right as a "small
stockholder" of ETPI to vote in the stockholders meeting for the purpose of increasing ETPI's authorized capital stock. The PCGG
maintains, however, that it is entitled to vote said shares because this Court, by its claim, recognized in PCGG v. SEC, supra, that
ETPI's assets were being dissipated by the BAN (Benedicto, Africa, Nieto) Group, thus:

Under the Management of Cable and Wireless ETPI grew and prospered. But when its dividends, which were paid in dollars
to the BAN Group, began to run into millions, said group also started to intervene in the corporation's operations and
management. Requests for employment of family relatives and high salaries for them were made. The BAN Group likewise
placed the majority of their individual stockholdings in three separate companies, namely: Aerocom Investors, Universal
Molasses, and Polygon, so that in 1986, the ownership of the Class "A" stocks of the corporation was as follows:

Roberto S. Benedicto - 3.3 percent

Universal Molasses Corp. - 16.6 percent
 Manuel Nieto, Jr. - 2.2 percent
Nieto's relatives - 3.3 percent
Aerocom Investors and Managers Inc. - 17.5 percent
Jose Africa - 2.2 percent
Africa's relatives - .3 percent
Polygon Investors and Managers Inc. - 17.5 percent

By the end of 1987, the initial capital of P1M of the BAN Group, its corporations and relatives had grown to the
astronomical sum of P784,185,198.00. Cash dividends paid to them as of 1986 had amounted to P225,845,000.00 even as
another P180,000,000.00 is due them for 1987, for a grand total of P405,845,000.00. In 1984, cash dividends to
the BAN Group, et al. in the amount of $1M were remitted to the United States.

Under a consultancy contract, Polygon Investors and Managers with Jose L. Africa as Chairman and his son, Victor Africa as
President, earned from ETPI as of 1987 more than P57M. Likewise in 1987, ETPI paid to Jose L. Africa P1,200,000.00 as
"professional fees" and Manuel H. Nieto, Jr., another P1,200,000.00 as "allowances". 48

As stated early on, however, the foregoing narration does not constitute a finding of fact.

The PCGG further submits that the Sandiganbayan found prima facie evidence for the issuance of the writ of sequestration covering
the Class "A" shares of ETPI. Such reliance on the Sandiganbayan's ruling is misplaced because the issue is not whether there
is prima facie evidence to warrant sequestration of the shares, but whether there is prima facie evidence showing that the shares
are ill-gotten and whether there is evidence of dissipation of assets to warrant the voting by the PCGG of sequestered shares. As to
the latter issue, the Sandiganbayan held in the affirmative in this wise:

x x x [T]he propriety and legality of allowing the PCGG to cause the holding of a stockholders' meeting of the ETPI for the
purpose of electing a new Board of Directors or effecting changes in the policy, program and practices of said corporation
(except for the specified purpose of amending the right of first refusal clause in ETPI's Articles of Incorporation and By Laws)
and impliedly to vote the sequestered shares of stocks has been upheld by the Supreme Court in the case of "PCGG vs. SEC,
PCGG vs. Sandiganbayan, et al.", G.R. No. 82188, promulgated June 30, 1988 x x x. 49 (Emphasis supplied)

The Sandiganbayan proceeded to quote the following pronouncement of this Court in PCGG v. SEC:

But while We find the Sandiganbayan to have acted properly in enjoining the PCGG from holding the stockholders meeting
for the specified purpose of amending the "right of first refusal" clause in ETPI's Articles of Incorporation and By-Laws,
We find the general injunction imposed by it on the PCGG to desist and refrain from calling a stockholders meeting for the
purpose of electing a new Board of Directors of effecting substantial changes in the policy, program or practice of the
corporation to be too broad as to taint said order with grave abuse of discretion. Said order completely ties the hands of the
PCGG, rendering it virtually helpless in the exercise of its power of conserving and preserving the assets of the corporation.
Indeed, of what use is the PCGG if it cannot even do this? x x x.50 (italics and underscoring supplied)

The Sandiganbayan, however, misread this Court's ruling in the said SEC case. One of the issues raised therein was whether the
Sandiganbayan committed grave abuse of discretion in enjoining the PCGG from calling and holding stockholders meetings and
voting the sequestered ETPI shares for the purpose of deleting the "right of first refusal" clause in ETPI's articles of incorporation. In
its therein assailed Order, the Sandiganbayan temporarily restrained the PCGG "from calling and/or holding stockholders meetings
and voting the sequestered shares thereat for the purpose of amending the articles or by-laws of ETPI, or otherwise effecting
substantial changes in policy, programs or practices of said corporation."

Clearly, the temporary restraining order was too broad. The Sandiganbayan should have limited itself to restraining the calling and
holding of the stockholders meeting and voting the shares for the sole purpose of amending the "right of first refusal" clause. It was
thus necessary for this Court to make the underscored ruling above. No declaration therein was made that in all instances the PCGG
may vote the sequestered shares to effect substantial changes in ETPI policy, programs or practices. In lifting the injunction on that
aspect, this Court merely recognized "that situations may arise wherein only through an act of strict ownership can the PCGG be able
to prevent the dissipation of the assets of the sequestered corporation or business." 51
Moreover, if, as the Sandiganbayan assumed, this Court had come to a conclusion in the SEC case that the BAN Group was guilty of
dissipation and that, consequently, the PCGG was entitled to vote the sequestered shares, this Court would not have bothered, in its
Resolution of May 7, 1996, to direct said court to decide whether the PCGG has the right to vote in the stockholders meeting for the
purpose of increasing ETPI's authorized capital stock. 52

This Court notes that, like in Africa's motion to hold a stockholders meeting (to elect a board of directors), the Sandiganbayan, in the
PCGG's petition to hold a stockholders meeting (to amend the articles of incorporation to increase the authorized capital stock),
again failed to apply the two-tiered test. On such determination hinges the validity of the votes cast by the PCGG in the stockholders
meeting of March 17, 1997. This lapse by the Sandiganbayan leaves this Court with no other choice but to remand these questions
to it for proper determination.

IN SUM, this Court rules that:

(1) 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.

(2) The ETPI Stock and Transfer Book should be the basis for determining which persons have the right to vote in the stockholders
meeting for the election of the ETPI Board of Directors.

(3) The PCGG is entitled to vote the shares ceded to it by Roberto S. Benedicto and his controlled corporations under the
Compromise Agreement, provided that the shares are first registered in the name of the PCGG. The PCGG may not register the
transfer of the Malacañang and the Nieto shares in the ETPI Stock and Transfer Book; however, it may vote the same as conservator
provided that the PCGG satisfies the two-tiered test devised by the Court in Cojuangco v. Calpo, supra.

(4) The safeguards laid down in the case of Cojuangco v. Roxas shall be incorporated in the ETPI Articles of Incorporation
substantially contemporaneous to, but not before, the election of the ETPI Board of Directors.

(5) Members of the Sandiganbayan shall not participate in the stockholders meeting for the election of the ETPI Board of Directors.
Neither shall a Clerk of Court be appointed to call such meeting and issue notices thereof. The Sandiganbayan shall appoint, or the
parties may agree to constitute, a committee of competent and impartial persons to call, send notices and preside at the meeting for
the election of the ETPI Board of Directors; and

(6) This Court has no jurisdiction over the motion to cite the PCGG and "its accomplices" in contempt and to nullify the stockholders
meeting of March 17, 1997.

WHEREFORE, this Court Resolved to REFER the petitions at bar to the Sandiganbayan for reception of evidence to determine
whether there is a  prima facie  evidence showing that the sequestered shares in question are ill-gotten and there is an imminent
danger of dissipation to entitle the PCGG to vote them in a stockholders meeting to elect the ETPI Board of Directors and to amend
the ETPI Articles of Incorporation for the sole purpose of increasing the authorized capital stock of ETPI.

The Sandiganbayan shall render a decision thereon within sixty (60) days from receipt of this Resolution and in conformity herewith.

The motion to cite the PCGG and its "accomplices" and to nullify the ETPI Stockholders Meeting of March 17, 1997 filed by Victor
Africa is DENIED for lack of jurisdiction.

SO ORDERED.

PROXIES

FIRST DIVISION

G.R. No. 187702               October 22, 2014

SECURITIES AND EXCHANGE COMMISSION, Petitioner,
vs.
THE HONORABLE COURT OF APPEALS, OMICO CORPORATION, EMILIO S. TENG AND TOMMY KIN HING TIA, Respondents.

x-----------------------x

G.R. No. 189014

ASTRA SECURITIES CORPORATION, Petitioner,

vs.
OMICO CORPORATION, EMILIO S. TENG AND TOMMY KIN HING TIA, Respondents.

DECISION

SERENO, CJ:

G.R. No. 187702 is a Petition for Certiorari under Rule 65 of the Rules of Court seeking to nullify the Court of Appeals (CA)
Decision1 dated 18 March 2009 in CA-G.R. SP No. 106006. G.R. No. 189014 is a Petition for Review on Certiorari under Rule 45 of the
Rules of Court assailing the same Decision, as well as the CA Resolution 2 dated 9 July 2009. On 12 October 2009, the Court resolved
to consolidate the two cases.3

The CA Decision ruled that because controversies involving the validation of proxies are considered election contests under the
Interim Rules of Procedure Governing Intra-Corporate Controversies, they are properly cognizable by the regular courts, not by the
Securities and Exchange Commission. The CA Resolution denied the motion for reconsideration filed by Astra Securities Corporation.

FACTS

Omico Corporation (Omico) is a company whose shares of stock arelisted and traded in the Philippine Stock Exchange, Inc. 4 Astra
Securities Corporation (Astra) is one of the stockholders of Omico owning about 18% of the latter’s outstanding capital stock. 5

Omico scheduled its annual stockholders’ meeting on 3 November 2008. 6 It set the deadline for submission of proxies on 23 October
2008 and the validation of proxies on 25 October 2008. Astra objected to the validation of the proxies issued in favor of Tommy Kin
Hing Tia (Tia), representing about 38% of the outstanding capital stock of Omico. 7 Astra also objected to the inclusion of the proxies
issued in favor of Tia and/or Martin Buncio, representing about 2% of the outstanding capital stock of Omico. 8

Astra maintained that the proxy issuers, who were brokers, did not obtain the required express written authorization of their clients
when they issued the proxies in favor of Tia. In so doing, the issuers were allegedly in violation of SRC Rule 20(11)(b)(xviii) 9 of the
Amended Securities Regulation Code (SRC or Republic Act No. 8799) Rules. 10 Furthermore, the proxies issued in favor of Tia
exceeded 19, thereby giving rise to the presumption of solicitation thereof under SRC Rule 20(2)(B)(ii)(b) 11 of the Amended SRC
Rules. Tia did not comply with the rules on proxy solicitation, in violation of Section 20.1 12 of the SRC.

Despite the objections of Astra, Omico’s Board of Inspectors declared that the proxies issued in favor of Tia were valid. 13

On 27 October 2008, Astra filed a Complaint14 before the Securities and Exchange Commission (SEC) praying for the invalidation of
the proxies issued in favor of Tia. Astra also prayed for the issuance of a cease and desist order (CDO) enjoining the holding of
Omico’s annual stockholders’ meeting until the SEC had resolved the issues pertaining to the validation of proxies.

On 30 October 2008, SEC issuedthe CDO enjoining Omico from accepting and including the questioned proxies in determining a
quorum and in electing the members of the board of directors during the annual stockholders’ meeting on 3 November 2008. 15

Attempts to serve the CDO on 3 November 2008 failed, and the stockholders’ meeting proceeded as scheduled with 52.3% of the
outstanding capital stock of Omico present in person or by proxy. 16 The nominees for the board of directors were elected upon
motion.17
Astra instituted before the SEC a Complaint18 for indirect contempt against Omico for disobedience of the CDO. On the other hand,
Omico filed before the CA a Petition for Certiorari and Prohibition 19 imputing grave abuse of discretion on the part of the SEC for
issuing the CDO.

RULING OF THE CA

In the assailed Decision dated 18March 2009, the CA declared the CDO null and void. 20

The CA held that the controversy was an intra-corporate dispute. 21 The SRC expressly transferred the jurisdiction over actions
involving intracorporate controversies from the SEC to the regional trial courts. 22 Furthermore, Section 2, Rule 623 of the Interim
Rules of Procedure Governing Intra-Corporate Disputes, 24 provides that any controversy or dispute involving the validation of proxies
is an election contest, the jurisdiction over which has also been transferred by the SRC to the regular courts. 25

Thus, according to the CA, the SEC committed grave abuse of discretion in taking cognizance of Astra’s complaint. 26 The CDO was a
patent nullity, for an order issued without jurisdiction is no order at all.

Aggrieved by the CA Decision, the SEC filed before us the instant Petition for Certiorari docketed as G.R. No. 187702. 27 Meanwhile,
Astra filed a Motion for Reconsideration before the CA, 28 which subsequently denied the motion in the assailed Resolution dated 9
July 2009. On 14 September 2009, Astra filed the instant Petition for Review on Certiorari docketed as G.R. No. 189014. 29 The Court
consolidated the two petitions on 12 October 2009. 30

ISSUE

Whether the SEC has jurisdiction over controversies arising from the validation of proxies for the election of the directors of a
corporation.

OUR RULING

About a month after the CA issued the assailed Decision, this Court promulgated GSIS v. CA, 31 which squarely answered the above
issue in the negative.

In that case, we observed that Section 632 (g) of Presidential Decree No. (P.D.) 902-A dated 11 March 1976 conferred on SEC the
power "[t]o pass upon the validity of the issuance and use of proxies and voting trust agreements for absent stockholders
ormembers." Section 6, however, opens thus: "In order to effectively exercise such jurisdiction x x x." This opening clearly refers to
the preceding Section 5.33 The Court pointed out therein that the power to pass upon the validity of proxies was merely incidental or
ancillary to the powers conferred on the SEC under Section 5 of the same decree. With the passage of the SRC, the powers granted
to SEC under Section 5 were withdrawn, together withthe incidental and ancillary powers enumerated in Section 6.

While the regular courts now had the power to hear and decide cases involving controversies in the election of directors, it was not
clear whether the SRC also transferred to these courtsthe incidental and ancillary powers of the SEC as enumerated in Section 6 of
P.D. 902-A. Thus, in GSIS v. CA, it was necessary for the Court to determine whether the action to invalidate the proxies was
intimately tied to an election controversy. Hence, the Court pronounced:

Under Section 5(c) of PresidentialDecree No. 902-A, in relation to the SRC, the jurisdiction of the regular trial courts with respect to
election related controversies is specifically confined to "controversies in the election or appointment of directors, trustees, officers
or managers of corporations, partnerships, or associations." Evidently, the jurisdiction of the regular courts over so-called election
contests or controversies under Section 5 (c) does not extend toevery potential subject that may be voted on by shareholders, but
only to the election of directors or trustees, in which stockholders are authorized to participate under Section 24 of the Corporation
Code.

This qualification allows for a useful distinction that gives due effect to the statutory right of the SEC to regulate proxy solicitation,
and the statutory jurisdiction of regularcourts over election contests or controversies. The power of the SEC toinvestigate violations
of its rules on proxy solicitation is unquestioned whenproxies are obtained to vote on matters unrelated to the cases enumerated
under Section 5 of Presidential Decree No. 902-A. However, when proxies are solicited in relation to the election of corporate
directors, the resulting controversy, even if it ostensibly raised the violation of the SEC rules on proxy solicitation, should be properly
seen as an election controversy within the original and exclusive jurisdiction of the trial courts by virtue of Section 5.2 of the SRC in
relation to Section 5 (c) of Presidential Decree No. 902-A.
The conferment of original and exclusive jurisdiction on the regular courts over such controversies in the election of corporate
directors must be seen as intended to confine to one body the adjudication of all related claims and controversy arising from the
election of such directors. For that reason, the aforequoted Section 2, Rule 6 of the Interim Rules broadly defines the term "election
contest" as encompassing all plausible incidents arising from the election ofcorporate directors, including: (1) any controversy or
dispute involving title or claim to any elective office in a stock or nonstock corporation, (2) the validation of proxies, (3) the manner
and validity of elections and (4) the qualifications of candidates, including the proclamation of winners. If all matters anteceding the
holding of such election which affectits manner and conduct, such as the proxy solicitation process, are deemed within the original
and exclusive jurisdiction of the SEC, then the prospect of overlapping and competing jurisdictions between that body and the
regular courts becomes frighteningly real. From the languageof Section 5 (c) of Presidential Decree No. 902-A, it is indubitable that
controversies as to the qualification of voting shares, or the validity of votes cast in favor of a candidate for election to the board of
directors are properly cognizable and adjudicable by the regular courts exercising original and exclusive jurisdiction over election
cases.34 x x x.

The ruling harmonizes the seeming conflict between the Amended SRC Rules promulgated by the SEC and the Interim Rules of
Procedure Governing Intra-Corporate Disputes promulgated by the Court.

SRC Rule 20(11)(b)(xxi) of the Amended SRC Rules provides:

SRC RULE 20.

Disclosures to Stockholders Prior to Meeting

(formerly, SRC Rule 20 – The Proxy Rule)

xxxx

11. Other Procedural Requirements

xxxx

b. Proxy

xxxx

xxi. In the validation of proxies, a special committee of inspectors shall be designated or appointed by the Board of Directors which
shall be empoweredto pass on the validity of proxies. Any dispute that may arise pertaining thereto, shall be resolved by the
Securities and Exchange Commission upon formal complaint filed by the aggrieved party, or by the SEC officer supervising the proxy
validation process. (Emphasis supplied)

On the other hand, these are the provisions of Section 1, Rule 1; and Section 2, Rule 6 of the Interim Rules of Procedure Governing
IntraCorporate Disputes:

RULE 1
General Provisions

SECTION 1. (a) Cases Covered– These Rules shall govern the procedure to be observed in civil cases involving the following:

a) Devices or schemes employed by, or any act of, the board of directors, business associates, officers or partners,
amounting to fraud or misrepresentation which may be detrimental to the interest of the public and/or of the stockholders,
partners, or members of any corporation, partnership, or association;

b) Controversies arising out of intra-corporate, partnership, or association relations, between and among stockholders,
members, or associates; and between, any or all of them and the corporation, partnership, or association of which they are
stockholders, members, or associates, respectively;
 c) Controversies in the election or appointment of directors, trustees, officers, or managers of corporations, partnerships, or
associations;

d) Derivative suits; and

e) Inspection of corporate books.

xxxx

RULE 6
Election Contests

xxxx

SECTION 2. Definition. – An election contest refers to any controversy or dispute involvingtitle or claim to any elective office in a
stock or nonstock corporation, the validation of proxies, the manner and validity of elections, and the qualifications of candidates,
including the proclamation of winners, to the office of director, trustee or other officer directly elected by the stockholders in a close
corporation or by members of a non-stock corporation where the articles of incorporation or by-laws so provide. (Emphases
supplied)

The Court explained that the powerof the SEC to regulate proxies remains in place in instances when stockholders vote on matters
other than the election of directors.35 The test is whether the controversy relates to such election. All matters affecting the manner
and conduct of the election of directors are properly cognizable by the regular courts. Otherwise, these matters may be brought
before the SEC for resolution based on the regulatory powers it exercises over corporations, partnerships and associations.

Astra endeavors to remove the instant case from the ambit of GSIS v. CAby arguing that 1) the validation of proxies in this case
relates to the determination of the existence of a quorum; and 2) no actual voting for the members of the board of directors was
conducted, as the directors were merely elected by motion.

Indeed, the validation of proxies in this case relates to the determination of the existence of a quorum.1âwphi1 Nonetheless, it is a
quorum for the election of the directors, and, assuch, which requires the presence – in person or by proxy – of the owners of the
majority of the outstanding capital stock of Omico. 36 Also, the fact that there was no actual voting did not make the election any less
so, especially since Astra had never denied that an election of directors took place.

We find no merit either in the proposal of Astra regarding the "two (2) viable, non-exclusive and successive legal remedies to
question the validity of proxies."37 It suggests that the power to pass upon the validity of proxies to determine the existence of a
quorum prior to the conduct of the stockholders’ meeting should lie with the SEC; but, after the stockholders’ meeting, questions
regarding the use of invalid proxies in the election of directors should be cognizable by the regular courts, since there was already an
election to speak of.

First, this interpretation is akin to the argument struck down by the Court in GSIS v. CA. If the Court adopts the suggestion, "we
would be perpetually confronted with the spectacle of election controversies being heard and adjudicated by both the SEC and the
regular courts, made possible through a mere allegation that the anteceding x x x process was errant, but the competing cases
[were] filed with one objective in mind - to affect the outcome of the election of the board of directors." 38

Second, the validation of proxies serves a number of purposes, including determining the existence of a quorum and ascertaining the
authenticity of proxies to be used for the election of directors at the stockholders' meeting. Section 2, Rule 6, of the Interim Rules of
Procedure Governing Intra-Corporate Disputes provides that an election contest covers any controversy or dispute involving the
validation of proxies, in general. Thus, it can only refer to all the beneficial purposes that validation of proxies can bring about when
made in connection with a forthcoming election of directors. Thus, there is no point in making distinctions between who has
jurisdiction before and who has jurisdiction after the election of directors, as all controversies related thereto - whether before,
during or after - shall be passed upon by regular courts as provided by law. The Court closes with an observation.

As in the instant cases, GSIS v. CA is a consolidation of two cases, one of which was filed by a private party and the other by the SEC
itself. In both cases, the parties were aggrieved by the CA ruling, so they filed the cases seeking a pronouncement from the Court
that it recognizes the jurisdiction of the SEC over the controversy.
Calling to mind established jurisprudential principles, the Court therein ruled that quasi-judicial agencies do not have the right to
seek the review of an appellate court decision reversing any of their rulings. 39 This is because they are not real parties-in-interest.
Thus, the Court expunged the petition filed by the SEC for the latter's lack of capacity to file the suit. So it must be in the instant
cases.

WHEREFORE, the petition in G.R. No. 187702 is EXPUNGED for lack of capacity of petitioner to file the suit.1âwphi1

The petition in G.R. No. 189014 is DENIED. The Court of Appeals Decision dated 18 March 2009 and Resolution dated 9 July 2009 in
CA-G.R. SP No. 106006 are AFFIRMED.

SO ORDERED.

VOTING TRUST AGREEMENT

EN BANC

A.C. No. 2797             October 4, 2002

ROSAURA P. CORDON, complainant,
vs.
JESUS BALICANTA, respondent.

RESOLUTION

PER CURIAM:

On August 21, 1985, herein complainant Rosaura Cordon filed with this Court a complaint for disbarment, docketed as
Administrative Case No. 2797, against Atty. Jesus Balicanta. After respondent’s comment to the complaint and complainant’s reply
thereto, this Court, on March 29, 1995 referred the matter to the Integrated Bar of the Philippines (IBP, for brevity) for investigation,
report and recommendation within 90 days from notice. Commissioner George Briones of the IBP Commission on Bar Discipline was
initially tasked to investigate the case. Commissioner Briones was later on replaced by Commissioner Renato Cunanan. Complainant
filed a supplemental complaint which was duly admitted and, as agreed upon, the parties filed their respective position papers.

Based on her complaint, supplemental complaint, reply and position paper, the complainant alleged the following facts:

When her husband Felixberto C. Jaldon died, herein complainant Rosaura Cordon and her daughter Rosemarie inherited the
properties left by the said decedent. All in all, complainant and her daughter inherited 21 parcels of land located in Zamboanga City.
The lawyer who helped her settle the estate of her late husband was respondent Jesus Balicanta.

Sometime in the early part of 1981, respondent enticed complainant and her daughter to organize a corporation that would develop
the said real properties into a high-scale commercial complex with a beautiful penthouse for complainant. Relying on these
apparently sincere proposals, complainant and her daughter assigned 19 parcels of land to Rosaura Enterprises, Incorporated, a
newly-formed and duly registered corporation in which they assumed majority ownership. The subject parcels of land were then
registered in the name of the corporation.

Thereafter, respondent single-handedly ran the affairs of the corporation in his capacity as Chairman of the Board, President,
General Manager and Treasurer. The respondent also made complainant sign a document which turned out to be a voting trust
agreement. Respondent likewise succeeded in making complainant sign a special power of attorney to sell and mortgage some of
the parcels of land she inherited from her deceased husband. She later discovered that respondent transferred the titles of the
properties to a certain Tion Suy Ong who became the new registered owner thereof. Respondent never accounted for the proceeds
of said transfers.

In 1981, respondent, using a spurious board resolution, contracted a loan from the Land Bank of the Philippines (LBP, for brevity) in
the amount of Two Million Two Hundred Twenty Pesos (P2,220,000) using as collateral 9 of the real properties that the complainant
and her daughter contributed to the corporation. The respondent ostensibly intended to use the money to construct the Baliwasan
Commercial Center (BCC, for brevity). Complainant later on found out that the structure was made of poor materials such as sawali,
coco lumber and bamboo which could not have cost the corporation anything close to the amount of the loan secured.

For four years from the time the debt was contracted, respondent failed to pay even a single installment. As a result, the LBP, in a
letter dated May 22, 1985, informed respondent that the past due amortizations and interest had already accumulated to Seven
Hundred Twenty-nine Thousand Five Hundred Three Pesos and Twenty-five Centavos (P729,503.25). The LBP made a demand on
respondent for payment for the tenth time. Meanwhile, when the BCC commenced its operations, respondent started to earn
revenues from the rentals of BCC’s tenants. On October 28, 1987, the LBP foreclosed on the 9 mortgaged properties due to non-
payment of the loan.

Respondent did not exert any effort to redeem the foreclosed properties. Worse, he sold the corporation’s right to redeem the
mortgaged properties to a certain Hadji Mahmud Jammang through a fake board resolution dated January 14, 1989 which clothed
himself with the authority to do so. Complainant and her daughter, the majority stockholders, were never informed of the alleged
meeting held on that date. Again, respondent never accounted for the proceeds of the sale of the right to redeem. Respondent also
sold to Jammang a parcel of land belonging to complainant and her daughter which was contiguous to the foreclosed properties and
evidenced by Transfer Certificate of Title No. 62807. He never accounted for the proceeds of the sale.

Sometime in 1983, complainant’s daughter, Rosemarie, discovered that their ancestral home had been demolished and that her
mother, herein complainant, was being detained in a small nipa shack in a place called Culianan. Through the help of Atty. Linda Lim,
Rosemarie was able to locate her mother. Rosemarie later learned that respondent took complainant away from her house on the
pretext that said ancestral home was going to be remodeled and painted. But respondent demolished the ancestral home and sold
the lot to Tion Suy Ong, using another spurious board resolution designated as Board Resolution No. 1, series of 1992. The resolution
contained the minutes of an alleged organizational meeting of the directors of the corporation and was signed by Alexander Wee,
Angel Fernando, Erwin Fernando and Gabriel Solivar. Complainant and her daughter did not know how these persons became
stockholders and directors of the corporation. Respondent again did not account for the proceeds of the sale.

Complainant and her daughter made several demands on respondent for the delivery of the real properties they allegedly assigned
to the corporation, for an accounting of the proceeds of the LBP loan and as well as the properties sold, and for the rentals earned
by BCC. But the demands remained unheeded. Hence, complainant and her daughter, in a letter dated June 4, 1985, terminated the
services of respondent as their lawyer and repeated their demands for accounting and turn-over of the corporate funds, and the
return of the 19 titles that respondent transferred to the corporation. They also threatened him with legal action in a letter dated
August 3, 1985.

Soon after, complainant found out from the Securities and Exchange Commission (SEC, for brevity) that Rosaura Enterprises, Inc.,
due to respondent’s refusal and neglect, failed to submit the corporation’s annual financial statements for 1981, 1982 and 1983; SEC
General Information Sheets for 1982, 1983 and 1984; Minutes of Annual Meetings for 1982, 1983 and 1984; and Minutes of Annual
Meetings of Directors for 1982, 1983 and 1984.

Complainant also discovered that respondent collected rental payments from the tenants of BCC and issued handwritten receipts
which he signed, not as an officer of the corporation but as the attorney-at-law of complainant. Respondent also used the tennis
court of BCC to dry his palay and did not keep the buildings in a satisfactory state, so much so that the divisions were losing plywood
and other materials to thieves.

Complainant likewise accused respondent of circulating rumors among her friends and relatives that she had become insane to
prevent them from believing whatever complainant said. According to complainant, respondent proposed that she legally separate
from her present husband so that the latter would not inherit from her and that respondent be adopted as her son.

For his defense, respondent, in his comment and position paper, denied employing deceit and machination in convincing
complainant and her daughter to assign their real properties to the corporation; that they freely and voluntary executed the deeds
of assignment and the voting trust agreement that they signed; that he did not single-handedly manage the corporation as
evidenced by certifications of the officers and directors of the corporation; that he did not use spurious board resolutions
authorizing him to contract a loan or sell the properties assigned by the complainant and her daughter; that complainant and her
daughter should be the ones who should render an accounting of the records and revenues inasmuch as, since 1984 up to the
present, the part-time corporate book-keeper, with the connivance of the complainant and her daughter, had custody of the
corporate records; that complainant and her daughter sabotaged the operation of BCC when they illegally took control of it in 1986;
that he never pocketed any of the proceeds of the properties contributed by the complainant and her daughter; that the demolition
of the ancestral home followed legal procedures; that complainant was never detained in Culianan but she freely and voluntarily
lived with the family of P03 Joel Constantino as evidenced by complainant’s own letter denying she was kidnapped; and that the
instant disbarment case should be dismissed for being premature, considering the pendency of cases before the SEC and the
Regional Trial Court of Zamboanga involving him and complainant.

Based on the pleadings and position papers submitted by the parties, Commissioner Renato Cunanan, in his report 1 dated July 1,
1999, recommended respondent’s disbarment based on the following findings:

"A. The complainant, Rosaura Jaldon-Cordon and her daughter, Rosemarie were stockholders of a corporation, together
with respondent, named Rosaura Enterprises, Inc.

"Per the Articles of Incorporation marked as Annex ‘A’ of Complainant’s Position Paper, complainant’s subscription consists
of 55% of the outstanding capital stock while her daughter’s consists of 18%, giving them a total of 73%. Respondent’s
holdings consist of 24% while three other incorporators, Rosauro L. Alvarez, Vicente T. Mañalac and Darhan S. Graciano
each held 1% of the capital stock of the corporation.

"B. On April 5, 1981, complainant and her daughter Rosemarie Jaldon executed two Deeds of Transfer and Assignment
conveying and transferring to the corporation 19 parcels of land in exchange for shares of stock in the corporation.

"x x x           x x x           x x x

"C. Both Deeds of Assignment particularly page 3 thereof indicate that respondent accepted said assignment of properties
and titles in behalf of the corporation as Treasurer. The deeds were signed on April 5, 1981.

"x x x           x x x           x x x

"Together, therefore, complainant and her daughter owned 1,711 shares of the 1,750 shares comprising the authorized
capital stock of the corporation of 97% thereof.

"No increase in capitalization was applied for by the corporation.

"F. Respondent claims in his Comment, his Answer and his Position Paper that on April 4, 1981 he was elected as Chairman
and Director and on April 5, 1981 he was elected President of the corporation. Respondent’s own Annexes marked as ‘G’
and ‘G-1’ of his Comment show that on April 4, 1981 he was not only elected as Chairman and Director as he claims but as
‘Director, Board Chairman and President.’ The purported minutes was only signed by respondent and an acting Secretary by
the name of Vicente Mañalac.

"Said Annex does not show who was elected Treasurer.

"Respondent’s Annex ‘H’ and ‘H-1’ shows that in the alleged organizational meeting of the directors on April 5, 1981 a
certain Farnacio Bucoy was elected Treasurer. Bucoy’s name does not appear as an incorporator nor a stockholder
anywhere in the documents submitted.

"The purported minutes of the organizational meeting of the directors was signed only by respondent Balicanta and a
Secretary named Verisimo Martin.

"G. Since respondent was elected as Director, Chairman and President on April 4, 1981 as respondent’s own Annexes ‘G’ to
‘G-1’ would show, then complainant’s claim that respondent was likewise acting as Treasurer of two corporations bear
truth and credence as respondent signed and accepted the titles to 19 parcels of land ceded by the complainant and her
daughter, as Treasurer on April 5, 1981 after he was already purportedly elected as Chairman, President and Director.

"H. Respondent misleads the Commission into believing that all the directors signed the minutes marked as Exhibit ‘H’ to ‘H-
1’ by stating that the same was ‘duly signed by all the Board of Directors’ when the document itself shows that only he and
one Verisimo Martin signed the same.

"He also claims that ‘all the stockholders signed’ the minutes of organizational meeting marked as Annexes ‘G’ and ‘G-1’ of
his Comment yet the same shows that only the acting Chairman and acting Secretary signed.
"I. Respondent claims that the Board or its representative was authorized by the stockholders comprising 2/3 of the
outstanding capital stock, as required by law, to mortgage the parcels of land belonging to the corporation, which were all
assigned to the corporation by complainant and her daughter, by virtue of Annex ‘I’ and ‘I-1’: attached to his Comment.

"The subject attachment however reveals that only the following persons signed their conformity to the said resolution:
respondent Balicanta who owned 109 shares, Vicente Mañalac (1 share), Daihan Graciano (1 share).

"Complainants who collectively held a total of 1,711 shares out of the 1,750 outstanding capital stock of the corporation
were not represented in the purported stockholders’ meeting authorizing the mortgage of the subject properties.

"The 2/3 vote required by law was therefore not complied with yet respondent proceeded to mortgage the subject 9
parcels of land by the corporation.

"J. Respondent further relies on Annex ‘J’ of his Comment, purportedly the minutes of a special meeting of the Board of
Directors authorizing him to obtain a loan and mortgage the properties of the corporation dated August 29, 1981. This
claim is baseless. The required ratification of 2/3 by the stockholders of records was not met. Again, respondent attempts to
mislead the Commission and Court.

"K. Further, the constitution of the Board is dubious. The alleged minutes of the organizational meeting of the stockholders
electing the members of the Board, have not been duly signed by the stockholders as shown in respondent’s annex ‘G’
which was purportedly the organizational meeting of the stockholders.

"L. Also, Annex ‘J’ of respondent’s Comment which purportedly authorized him to obtain a loan and to mortgage the 9
parcels of land was only signed by himself and a secretary.

"M. In said Annex 'J' of respondent’s Comment he stated that complainant Rosaura Cordon was on leave by virtue of a
voting trust agreement allegedly executed by complainant ‘in his favor covering all her shares of stock.’ The claim is
baseless. The voting trust referred to by respondent (annex ‘D’ of his Comment), even if it were assumed to be valid,
covered only 266 shares of complainants yet she owned a total of 1,039 shares after she and her daughter ceded in favor of
the corporation 19 parcels of land.

"Being a former lawyer to complainant, respondent should have ensured that her interest was safeguarded. Yet,
complainant was apparently and deliberately left our (sic) on the pretext that, she had executed a voting trust agreement in
favor of respondent.

"It is suspicious that complainant was made to sign a voting trust agreement on 21 August 1981 and immediately
thereafter, the resolutions authorizing respondent to obtain a loan and to mortgage the 9 parcels of land were passed and
approved.

"N. It is also highly irregular for respondent who is a lawyer, to allow a situation to happen where, with the exclusion of
complainant as director the result was that there remained only 4 members of the Board,.

"O. Respondent’s own pleadings submitted to the Commission contradict each other.

"1. For instance, while in his Comment respondent DENIES that he employed deceit and machination in convincing
the complainant and her daughter to sign the articles of incorporation of Rosaura Enterprises and in ceding to the
corporation 19 parcels of land in Zamboanga City, because ‘they freely, intelligently and voluntarily signed’ the
same, yet, in his Position Paper, respondent took another stance.

"In paragraphs 1.1 and 1.2 of his Position Paper which was submitted 12 years later, respondent claimed that ‘it
was actually the idea of Atty. Rosaura L. Alvarez’ that a corporation be put up to incorporate the estate of the late
Felixberto D. Jaldon.

"2. Likewise, respondent claimed that complainant and her daughter were not directors, hence they were not
notified of meetings, in paragraph 2-6 (c) of his Comment he blamed the other stockholders and directors for the
corporation’s inability to comply with the Land Bank’s demands saying that they ‘have consistently failed since
1982 to convene (1.) for the annual stockholders’ meetings and (i.i) for the monthly board meeting’.

"His own pleadings claim that he had been the Chairman/President since 1981 to the present. If (sic) so, it was his
duty to convene the stockholders and the directors for meetings.

"Respondent appeared able to convene the stockholders and directors when he needed to make a loan of p2.2
million; when he sold the corporation’s right of redemption over the foreclosed properties of the corporation to
Jammang, when he sold one parcel of land covered by TCT 62,807 to Jammang in addition to the 9 parcels of land
which were foreclosed, and when he sold the complainant’s ancestral home covered by TCT No. 72,004.

"It is thus strange why respondent claims that the corporation could not do anything to save the corporation’s
properties from being foreclosed because the stockholders and directors did not convene.

"This assertion of respondent is clearly evident of dishonest, deceitful and immoral conduct especially because, in
all his acts constituting conveyances of corporate property, respondent used minutes of stockholders’ and
directors’ meetings signed only by him and a secretary or signed by him and persons who were not incorporators
much less stockholders.

"It is worthy of note that in respondent’s Exhibits 15, 16, 17 and 18 of his position paper, there were 7 new
stockholders and complainant appeared to have only 266 shares to her name while her daughter Rosemarie had
no shares at all. Respondent did not present any proof of conveyance of shares by complainant and her daughter.

"It is further worth noting that complainant’s voting trust (annex ‘D’ of respondent’s Comment) where she
allegedly entrusted 266 shares to respondent on August 21, 1981 had only a validity of 5 years. Thus, she should
have had her entire holdings of 1,283 shares back in her name in August 1986.

"Respondent’s purported minutes of stockholders’ meeting (Exhs. ‘15’ and ‘17’) do not reflect this.

"There was no explanation whatsoever from respondent on how complainant and her daughter lost their 97%
control holding in the corporation.

"3. As a further contradiction in respondent’s pleadings, we note that in paragraph 2.7.C of his Comment he said
that ‘only recently, this year, 1985, the complainant and her aforenamed daughter examined said voluminous
supporting receipts/documents which had previously been examined by the Land Bank for loan releases, during
which occasion respondent suggested to them that the corporation will have to hire a full-time book-keeper to put
in order said voluminous supporting receipts/documents, to which they adversely reacted due to lack of corporate
money to pay for said book-keeper.’ But in respondent’s Position Paper par. 6.3 he stated that:

‘Anyway, it is not the respondent but rather the complainant who should render a detailed accounting to the
corporation of the corporate records as well as corporate revenues/income precisely because since 1994 to the
present:

‘(a). The corporate part-time book-keeper Edilberto Benedicto, with the indispensable connivance and instigation
of the complainant and her daughter, among others, has custody of the corporate records, xxx’

"4. In other contradictory stance, respondent claims in par. 7.3 of his position paper that ‘complainant and her
daughter sabotaged the BCC operations of the corporation by illegally taking over actual control and supervision
thereof sometime in 1986, xxx’

"Yet respondent’s own exhibits in his position paper particularly Exhibit 15 and 16 where the subject of the
foreclosed properties of the corporation comprising the Baliwasan Commercial Center (BCC) was taken up,
complainant and her daughter were not even present nor were they the subject of the discussion, belying
respondent’s claim that the complainant and her daughter illegally took actual control of BCC.
"5. On the matter of the receipts issued by respondent evidencing payment to him of rentals by lessees of the
corporation, attached to the complaint as Annexes ‘H’ to ‘H-17’, respondent claims that the receipts are temporary
in nature and that subsequently regular corporate receipts were issued. On their face however the receipts clearly
appear to be official receipts, printed and numbered duly signed by the respondent bearing his printed name.

"It is difficult to believe that a lawyer of respondent’ stature would issue official receipts to lessees if he only meant
to issue temporary ones.

"6. With regard to respondent’s claim that the complainant consented to the sale of her ancestral home, covered
by TCT No. T-72,004 to one Tion Suy Ong for which he attached as Exhibit 22 to his Position Paper the minutes of
an annual meeting of the stockholders, it behooves this Commission why complainant’s signature had to be
accompanied by her thumb mark. Furthermore, complainant’s signature appears unstable and shaky. This Office is
thus persuaded to believe complainant’s allegation in paragraph 3b of her position paper that since September
1992 up to March 1993 she was being detained by one PO# (sic) Joel Constantino and his wife under instructions
from respondent Balicanta.

"This conclusion is supported by a letter from respondent dated March 1993, Annex ‘H’ of complainant’s position
paper, where respondent ordered Police Officer Constantino ‘to allow Atty. Linda Lim and Rosemarie Jaldon to talk
to Tita Rosing.’

"The complainant’s thumb mark together with her visibly unstable shaky signature lends credence to her claim
that she was detained in the far flung barrio of Culianan under instructions of respondent while her ancestral
home was demolished and the lot sold to one Tion Suy Ong.

"It appears that respondent felt compelled to over-ensure complainant’s consent by getting her to affix her thumb
mark in addition to her signature.

"7. Respondent likewise denies that he also acted as Corporate Secretary in addition to being the Chairman,
President and Treasurer of the corporation. Yet, respondent submitted to this commission documents which are
supported to be in the possession of the Corporate Secretary such as the stock and transfer book and minutes of
meetings.

"The foregoing findings of this Commission are virtual smoking guns that prove on no uncertain terms that
respondent, who was the legal counsel of complainant in the latter part of the settlement of the estate of her
deceased husband, committed unlawful, immoral and deceitful conduct proscribed by Rule 1.01 of the code of
professional responsibility.

"Likewise, respondent clearly committed a violation of Canon 15 of the same code which provides that ‘A lawyer
should observe candor fairness and loyalty in all his dealings and transactions with his client.’

"Respondent’s acts gravely diminish the public’s respect for the integrity of the profession of law for which this
Commission recommends that he be meted the penalty of disbarment.

"The pendency of the cases at the SEC and the Regional Trial Court of Zamboanga filed by complainant against
respondent does not preclude a determination of respondent’s culpability as a lawyer.

"This Commission cannot further delay the resolution of this complaint filed in 1985 by complainant, and old
widow who deserves to find hope and recover her confidence in the judicial system.

"The findings of this office, predominantly based on documents adduced by both parties lead to only one rather
unpalatable conclusion. That respondent Atty. Jesus F. Balicanta, in his professional relations with herein
complainant did in fact employ unlawful, dishonest, and immoral conduct proscribed in no uncertain terms by Rule
1.01 of the Code of Professional Responsibility. In addition, respondent’s actions clearly violated Canon 15 to 16 of
the same Code.
 "It is therefore our unpleasant duty to recommend that respondent, having committed acts in violation of the
Canons of Professional Responsibility, thereby causing a great disservice to the profession, be meted the ultimate
sanction of disbarment."2

On September 30, 1999, while Commissioner Cunanan’s recommendation for respondent’s disbarment was pending review before
Executive Vice-President and Northern Luzon Governor Teofilo Pilando, respondent filed a motion requesting "for a full-blown
investigation and for invalidation of the entire proceedings and/or remedial action under Section 11, Rule 139-B, Revised Rules of
Court," alleging that he had evidence that Commissioner Cunanan’s report was drafted by the lawyers of complainant, Attys.
Antonio Cope and Rita Linda Jimeno. He presented two unsigned anonymous letters allegedly coming from a disgruntled employee
of Attys. Cope and Jimeno. He claimed to have received these letters in his mailbox. 3

Respondent’s motion alleging that Attys. Antonio Cope and Rita Linda Jimeno drafted Commissioner Cunanan’s report was
accompanied by a complaint praying for the disbarment of said lawyers including Commissioner Cunanan. The complaint was
docketed as CBD Case No. 99-658. After Attys. Cope and Jimeno and Commissioner Cunanan filed their answers, a hearing was
conducted by the Investigating Committee of the IBP Board of Governors.

On May 26, 2001, the IBP Board of Governors issued a resolution 4 dismissing for lack of merit the complaint for disbarment against
Attys. Cope and Jimeno and Commissioner Cunanan. And in Adm. Case No. 2797, the Board adopted and approved the report and
recommendation of Commissioner Cunanan, and meted against herein respondent Balicanta the penalty of suspension from the
practice of law for 5 years "for commission of acts of misconduct and disloyalty by taking undue and unfair advantage of his legal
knowledge as a lawyer to gain material benefit for himself at the expense of complainant Rosaura P. Jaldon-Cordon and caused
serious damage to the complainant." 5

To support its decision, the Board uncovered respondent’s fraudulent acts in the very same documents he presented to exonerate
himself. It also took note of respondent’s contradictory and irreconcilable statements in the pleadings and position papers he
submitted. However, it regarded the penalty of disbarment as too severe for respondent’s misdeeds, considering that the same
were his first offense.6

Pursuant to Section 12 (b), Rule 139-B of the Rules of Court, 7 the said resolution in Administrative Case No. 2797 imposing the
penalty of suspension for 5 years on respondent was automatically elevated to this Court for final action. On the other hand, the
dismissal of the complaint for disbarment against Attys. Cope and Jimeno and Commissioner Cunanan, docketed as CBD Case No. 99-
658, became final in the absence of any petition for review.

This Court confirms the duly supported findings of the IBP Board that respondent committed condemnable acts of deceit against his
client. The fraudulent acts he carried out against his client followed a well thought of plan to misappropriate the corporate
properties and funds entrusted to him. At the very outset, he embarked on his devious scheme by making himself the President,
Chairman of the Board, Director and Treasurer of the corporation, although he knew he was prohibited from assuming the position
of President and Treasurer at the same time.8 As Treasurer, he accepted in behalf of the corporation the 19 titles that complainant
and her daughter co-owned. The other treasurer appointed, Farnacio Bucoy, did not appear to be a stockholder or director in the
corporate records. The minutes of the meetings supposedly electing him and Bucoy as officers of the corporation actually bore the
signatures of respondent and the secretary only, contrary to his claim that they were signed by the directors and stockholders.

He likewise misled the IBP investigating commission in claiming that the mortgage of 9 of the properties of the corporation
previously belonging to complainant and her daughter was ratified by the stockholders owning two-thirds or 67% of the outstanding
capital stock when in fact only three stockholders owning 111 out of 1,750 outstanding shares or 6.3% assented thereto. The alleged
authorization granting him the power to contract the LBP loan for Two Million Two Hundred Twenty Pesos (P2,220,000) was also not
approved by the required minimum of two-thirds of the outstanding capital stock despite respondent’s claim to the contrary. In all
these transactions, complainant and her daughter who both owned 1,711 out of the 1,750 outstanding shares of the corporation or
97.7% never had any participation. Neither were they informed thereof.

Clearly, there was no quorum for a valid meeting for the discussion and approval of these transactions.

Respondent cannot take refuge in the contested voting trust agreement supposedly executed by complainant and her daughter for
the reason that it authorized respondent to represent complainant for only 266 shares.

Aside from the dishonest transactions he entered into under the cloak of sham resolutions, he failed to explain several discrepancies
in his version of the facts. We hereby reiterate some of these statements noted by Commissioner Cunanan in his findings.
First, respondent blamed the directors and the stockholders who failed to convene for the required annual meetings since 1982.
However, respondent appeared able to convene the stockholders and directors when he contracted the LBP debt, when he sold to
Jammang the corporation’s right of redemption over the foreclosed properties of the corporation, when he sold one parcel of land
covered by TCT No. 62807 to Jammang, when he mortgaged the 9 parcels of land to LBP which later foreclosed on said mortgage,
and when he sold the complainant’s ancestral home covered by TCT No. 72004.

Second, the factual findings of the investigating commission, affirmed by the IBP Board, disclosed that complainant and her daughter
own 1,711 out of 1,750 shares of the outstanding capital stock of the corporation, based on the Articles of Incorporation and deeds
of transfer of the properties. But respondent’s evidence showed that complainant had only 266 shares of stock in the corporation
while her daughter had none, notwithstanding the fact that there was nothing to indicate that complainant and her daughter ever
conveyed their shares to others.

Respondent likewise did not explain why he did not return the certificates representing the 266 shares after the lapse of 5 years
from the time the voting trust certificate was executed in 1981. 9

The records show that up to now, the complainant and her daughter own 97% of the outstanding shares but respondent never
bothered to explain why they were never asked to participate in or why they were never informed of important corporate decisions.

Third, respondent, in his comment, alleged that due to the objection of complainant and her daughter to his proposal to hire an
accountant, the corporation had no formal accounting of its revenues and income. However, respondent’s position paper
maintained that there was no accounting because the part-time bookkeeper of the corporation connived with complainant and her
daughter in keeping the corporate records.

Fourth, respondent’s claim that complainant and her daughter took control of the operations of the corporation in 1986 is belied by
the fact that complainant and her daughter were not even present in the alleged meeting of the board (which took place after 1986)
to discuss the foreclosure of the mortgaged properties. The truth is that he never informed them of such meeting and he never gave
control of the corporation to them.

Fifth, Commissioner Cunanan found that:

"5. on the matter of the receipts issued by respondent evidencing payment to him of rentals by lessees of the corporation, attached
to the complaint as Annexes ‘H’ to ‘H-17’, respondent claims that the receipts are temporary in nature and that subsequently regular
corporate receipts were issued. On their face however the receipts clearly appear to be official receipts, printed and numbered duly
signed by the respondent bearing his printed name.

"It is difficult to believe that a lawyer of respondent’s stature would issue official receipts to lessees if he only meant to issue
temporary ones."10

Sixth, respondent denies that he acted as Corporate Secretary aside from being the Chairman, President and Treasurer of the
corporation. Yet respondent submitted to the investigating commission documents which were supposed to be in the official
possession of the Corporate Secretary alone such as the stock and transfer book and minutes of meetings.

Seventh, he alleged in his comment that he was the one who proposed the establishment of the corporation that would invest the
properties of the complainant but, in his position paper, he said that it was a certain Atty. Rosauro Alvarez who made the proposal to
put up the corporation.

After a thorough review of the records, we find that respondent committed grave and serious misconduct that casts dishonor on the
legal profession. His misdemeanors reveal a deceitful scheme to use the corporation as a means to convert for his own personal
benefit properties left to him in trust by complainant and her daughter.

Not even his deviousness could cover up the wrongdoings he committed. The documents he thought could exculpate him were the
very same documents that revealed his immoral and shameless ways. These documents were extremely revealing in that they
unmasked a man who knew the law and abused it for his personal gain without any qualms of conscience. They painted an intricate
web of lies, deceit and opportunism beneath a carefully crafted smokescreen of corporate maneuvers.

The Code of Professional Responsibility mandates upon each lawyer, as his duty to society, the obligation to obey the laws of the
land and promote respect for law and legal processes. Specifically, he is forbidden to engage in unlawful, dishonest, immoral or
deceitful conduct.11 If the practice of law is to remain an honorable profession and attain its basic ideal, those enrolled in its ranks
should not only master its tenets and principles but should also, in their lives, accord continuing fidelity to them. 12 Thus, the
requirement of good moral character is of much greater import, as far as the general public is concerned, than the possession of
legal learning.13 Lawyers are expected to abide by the tenets of morality, not only upon admission to the Bar but also throughout
their legal career, in order to maintain one’s good standing in that exclusive and honored fraternity. 14 Good moral character is more
than just the absence of bad character. Such character expresses itself in the will to do the unpleasant thing if it is right and the
resolve not to do the pleasant thing if it is wrong. 15 This must be so because "vast interests are committed to his care; he is the
recipient of unbounded trust and confidence; he deals with his client’s property, reputation, his life, his all." 16

Indeed, the words of former Presiding Justice of the Court of Appeals Pompeyo Diaz cannot find a more relevant application than in
this case:

"There are men in any society who are so self-serving that they try to make law serve their selfish ends. In this group of men, the
most dangerous is the man of the law who has no conscience. He has, in the arsenal of his knowledge, the very tools by which he can
poison and disrupt society and bring it to an ignoble end." 17

Good moral standing is manifested in the duty of the lawyer "to hold in trust all moneys and properties of his client that may come
into his possession."18 He is bound "to account for all money or property collected or received for or from the client." 19 The relation
between an attorney and his client is highly fiduciary in nature. Thus, lawyers are bound to promptly account for money or property
received by them on behalf of their clients and failure to do so constitutes professional misconduct. 20

This Court holds that respondent cannot invoke the separate personality of the corporation to absolve him from exercising these
duties over the properties turned over to him by complainant. He blatantly used the corporate veil to defeat his fiduciary obligation
to his client, the complainant. Toleration of such fraudulent conduct was never the reason for the creation of said corporate fiction.

The massive fraud perpetrated by respondent on the complainant leaves us no choice but to set aside the veil of corporate entity.
For purposes of this action therefore, the properties registered in the name of the corporation should still be considered as
properties of complainant and her daughter. The respondent merely held them in trust for complainant (now an ailing 83-year-old)
and her daughter. The properties conveyed fraudulently and/or without the requisite authority should be deemed as never to have
been transferred, sold or mortgaged at all. Respondent shall be liable, in his personal capacity, to third parties who may have
contracted with him in good faith.

Based on the aforementioned findings, this Court believes that the gravity of respondent’s offenses cannot be adequately matched
by mere suspension as recommended by the IBP. Instead, his wrongdoings deserve the severe penalty of disbarment, without
prejudice to his criminal and civil liabilities for his dishonest acts.

WHEREFORE, respondent Attorney Jesus T. Balicanta is hereby DISBARRED. The Clerk of Court is directed to strike out his name from
the Roll of Attorneys.

SO ORDERED.

SECOND DIVISION

G.R. No. L-34192 June 30, 1988

NATIONAL INVESTMENT AND DEVELOPMENT CORPORATION, EUSEBIO VILLATUYA MARIO Y. CONSING and ROBERTO S.
BENEDICTO, petitioners,
vs.
HON. BENJAMIN AQUINO, in his official capacity as Presiding Judge of Branch VIII of the Court of First Instance of Rizal, BATJAK
INC., GRACIANO A. GARCIA and MARCELINO CALINAWAN JR., respondents.

G.R. No. L-34213 June 30, 1988

PHILIPPINE NATIONAL BANK, petitioner,

vs.
HON. BENJAMIN H. AQUINO, in his capacity as Presiding Judge of the Court of First Instance of Rizal, Branch VIII and BATJAK
INCORPORATED, respondents.
Cruz, Palafox, Alfonso and Associates for petitioner NIDC in G.R. No. 34192.

The Chief Legal Counsel for petitioner PNB in G.R. No. 34213.

Reyes and Sundiam Law Office for respondent Batjak, Inc.

Duran, Chuanico Oebanda, Benemerito & Associates for private respondents in G.R. Nos. 34192 & 34213.

Tolentino, Garcia, Cruz & Reyes for movant in G.R. No. L-34192.

PADILLA, J.:

These two (2) separate petitions for certiorari and prohibition, with preliminary injunction, seek to annul and set aside the orders of
respondent judge, dated 16 August 1971 and 30 September 1971, in Civil Case No. 14452 of the Court of First Instance of Rizal,
entitled Batjak Inc. vs. NIDC et al." The order of 16 August 1971 1 granted the alternative petition of private respondent Batjak, Inc.
Batjak for short) for the appointment of receiver and denied petitioners' motion to dismiss the complaint of said private respondent.
The order dated 30 September 1971 2 denied petitioners' motion for reconsideration of the order dated 16 August 1971.

The herein petitions likewise seek to prohibit the respondent judge from hearing and/or conducting any further proceedings in Civil
Case No. 14452 of said court.

Batjak, (Basic Agricultural Traders Jointly Administered Kasamahan) is a Filipino-American corporation organized under the laws of
the Philippines, primarily engaged in the manufacture of coconut oil and copra cake for export. In 1965, Batjak's financial condition
deteriorated to the point of bankruptcy. As of that year, Batjak's indebtedness to some private banks and to the Philippine National
Bank (PNB) amounted to P11,915,000.00, shown as follows:

Republic Bank P 2,324,000.00

Philippine Commercial and

Industrial Bank 1,346,000.00

Manila Banking Corporation 2,000,000.00

Manufacturers Bank 440,000.00

Hongkong and Shanghai

Banking Corporation 250,000.00

Foreign Export Advances

(against immediate shipment) 555,000.00

PNB export advance line

(against immediate shipment) 5,000,000.00

TOTAL 11,915,000.00

As security for the payment of its obligations and advances against shipments, Batjak mortgaged its three (3) coco-processing oil
mills in Sasa, Davao City, Jimenez, Misamis Occidental and Tanauan, Leyte to Manila Banking Corporation (Manila Bank), Republic
Bank (RB), and Philippine Commercial and Industrial Bank (PCIB), respectively. In need for additional operating capital to place the
three (3) coco-processing mills at their optimum capacity and maximum efficiency and to settle, pay or otherwise liquidate pending
financial obligations with the different private banks, Batjak applied to PNB for additional financial assistance. On 5 October 1965, a
Financial Agreement was submitted by PNB to Batjak for acceptance. The Financial Agreement reads:

PHILIPPINE NATIONAL BANK

Manila, Philippines

International Department

October
5, 1965

BATJAK, INCORPORATED

3rd Floor, G. Puyat Bldg.

Escolta, Manila

Attn.: Mr. CIRIACO B. MENDOZA

Vice-President & General Manager

Gentlemen:

We are pleased to advise that our Board of Directors approved for you the following:

1) That NIDC shall invest P6,722,500.00 in the form of preferred shares of stocks at 9% cumulative, participating
and convertible within 5 years at par into common stocks to liquidate your accounts with the Republic Bank,
Manufacturers Bank & Trust Company and the PCIB which, however, shall be applied to the latter three (3) banks
accounts with the Loans & Discounts Dept. NIDC shall match your P 10 million subscription by an additional
investment of P3,277,500 within a period of one to two years at NIDC's option;

2) That NIDC will guaranty for five (5) years your account with the Manila Banking Corporation;

3) That the above banks (Republic Bank, PCIB, MBTC and Manila Banking Corp.) shall release in favor of PNB the
first and any mortgage they hold on your properties;

4) That you shall exercise (execute) a first mortgage on all your properties located at Sasa, Davao City; Jimenez,
Misamis Occidental; and Tanauan, Leyte and assign leasehold rights on the property on which your plant at Sasa,
Davao City is erected in favor of PNB;

5) That a voting trust agreement for five (5) years over 60% of the oustanding paid up and subscribed shares shall
be executed by your stockholders in favor of NIDC;

6) That this accomodation shall be secured by the joint and several signatures of officers and directors;

7) That the number of the Board of Directors shall be increased to seven (7), three (3) from your firm and the other
four (4) from the PNB-NIDC;

8) That a comptroller, at your expense, shall be appointed by PNB-NIDC to supervise the financial management of
your firm;

9) That the past due accounts of P 5 million with the International Department of the PNB shall be transferred to
the Loans & Discount Department and to be treated as a Demand Loan;
 10) That any excess of NIDC investment as required in Condition 1 after payment of the obligations to three (3)
Banks (RB, MBTC, & PCIB) shall be applied to reduce the above Demand Loan of P 5 million;

11) That we shall grant you an export advance of P3 million to be used for copra purchases, subject to the
following conditions:

a) That the line shall expire on September 30, 1966 but revocable at the Bank(s) option;

b) That drawings against the line shall be allowed only when an irrevocable export L/C for
coconut products has been established or assigned in your favor and you shall assign to us all
proceeds of negotiations to be received from your letters of credit;

c) That drawings against the line be limited to 60% of the peso value of the export letters of
credit computed at P3.50 per $1.00 but total drawings shall not in any event exceed
P3,000,000.00;

d) That release or releases against the line shall be covered by promissory note or notes for 90
days but not beyond the expiry dates of the coveting L/C and proceeds of said L/C shall first be
applied to the correspondent drawings on the line;

e) That drawings against the line shall be charged interest at the rate of 9% per annum and
subject to 1/2% penalty charge on all drawings not paid or extended on maturity date; and

f) That within 90 days from date of release against the line, you shall negotiate with us on
equivalent amount in export bills, otherwise, the line shag be temporarily suspended until the
outstanding export advance is fully liquidated.

We are writing the National Investment & Development Corporation, the Republic Bank, the Philippine
Commercial & Industrial Bank and the Manufacturers Bank & Trust Company and the Manila Banking Corporation
regarding the above.

In connection with the above, kindly submit to us two (2) copies of your board resolution certified to under oath by
your corporate secretary accepting the conditions enumerated above authorizing the above transactions and the
officer or officers to sign on behalf of the corporation.

Thank you.

Very truly yours,

(SGD.) JOSE B. SAMSON 3

The terms and conditions of the Financial Agreement were duly accepted by Batjak. Under said Agreement, NIDC would, as it
actually did, invest P6,722,500.00 in Batjak in the form of preferred shares of stock convertible within five (5) years at par into
common stock, to liquidate Batjak's obligations to Republic Bank (RB), Manufacturers Bank and Trust Company (MBTC) and
Philippine Commercial & Industrial Bank (PCIB), and the balance of the investment was to be applied to Batjak's past due account of
P 5 million with the PNB.

Upon receiving payment, RB, PCIB, and MBTC released in favor of PNB the first and any mortgages they held on the properties of
Batjak.

As agreed, PNB also granted Batjak an export-advance line of P 3 million, later increased to P 5million, and a standby letter of credit
facility in the amount of P5,850,000.00. As of 29 September 1966, the financial accomodation that had been extended by PNB to
Batjak amounted to a total of P 14,207,859.51.

As likewise agreed, Batjak executed a first mortgage in favor of PNB on all its properties located at Jimenez, Misamis Occidental and
Tanauan, Leyte. Batjak's plant in Sasa, Davao City was mortgaged to the Manila Bank which, in 1967, instituted foreclosure
proceedings against the same but which were aborted by the payment by Batjak of the sum of P2,400,000.00 to Manila Bank, and
which amount was advanced to Batjak by NIDC, a wholly-owned subsidiary of PNB. To secure the advance, Batjak mortgaged the oil
mill in Sasa, Davao City to NIDC. 4

Next, a Voting Trust Agreement was executed on 26 October 1965 in favor of NIDC by the stockholders representing 60% of the
outstanding paid-up and subscribed shares of Batjak. This agreement was for a period of five (5) years and, upon its expiration, was
to be subject to negotiation between the parties. The voting Trust Agreement reads:

VOTING TRUST AGREEMENT

KNOW ALL MEN BY THESE PRESENTS:

This AGREEMENT made and executed by the undersigned stockholders of BATJAK, INC., a corporation duly
organized and existing under the laws of the Philippines, whose names are hereinbelow subscribed hereinafter
caged the SUBSCRIBERS, and the NATIONAL INVESTMENT AND DEVELOPMENT CORPORATION, hereinafter
referred to as the trustee.

WITNESSETH:

WHEREAS, the SUBSCRIBERS are owners respectively of the capital stock of the BATJAK, INC. (hereinafter called the
CORPORATION) in the amounts represented by the number of shares set fort opposite their respective names
hereunder;

AND WHEREAS, with a view or establishing a safe and competent management to operate the corporation for the
best interest of all the stockholders thereof, and as mutually agreed between the SUBSCRIBERS and the TRUSTEE,
this Voting Trust Agreement has been executed under the following terms and conditions.

NOW THEREFORE, the undersigned stockholders, in consideration of the premises and of the mutual covenants
and agreements herein contained and to carry out the foregoing purposes in order to vest in the TRUSTEE the
voting rights of the shares of stock held by the undersigned in the CORPORATION as hereinafter stated it is
mutually agreed as follows:

1. PERIOD OF DESIGNATION — For a period of five (5) years from and after date hereof, without power of
revocation on the part of the SUBSCRIBERS, the TRUSTEE designated in the manner herein provided is hereby
made, constituted and appointed as a VOTING TRUSTEE to act for and in the name of the SUBSCRIBERS, it being
understood, however, that this Voting Trust Agreement shall, upon its expiration be subject to a re-negotiation
between the parties, as may be warranted by the balance and attending circumstance of the loan investment of
the TRUSTEE or otherwise in the CORPORATION.

2. ASSIGNMENT OF STOCK CERTIFICATES UPON ISSUANCE — The undersigned stockholders hereby transfer and
assign their common shares to the capital stock of the CORPORATION to the extent shown hereunder:

JAMES A. KEISTER 21,500 shares

JOHNNY LIEUSON 20,300 shares

CBM FINANCE & INVESTMENT

CORP. (C.B. Mendoza, Pres.) 5,000 shares

ALEJANDRO G. BELTRAN 4,000 shares

ESPERANZA A. ZAMORA 3,000 shares

CIRIACO B. MENDOZA 2,000 shares

FIDELA DE GUZMAN 2,000 shares

LLOYD D. COMBS 2,000 shares

RENATO B. BEJAR 200 shares

TOTAL 60,000 shares

to the TRUSTEE by virtue of the provisions hereof and do hereby authorize the Secretary of the CORPORATION to
issue the corresponding certificate directly in the name of the TRUSTEE and on which certificates it shall appear
that they have been issued pursuant to this Voting Trust Agreement and the said TRUSTEE shall hold in escrow all
such certificates during the term of the Agreement. In turn, the TRUSTEE shall deliver to the undersigned
stockholders the corresponding Voting Trust certificates provided for in Sec. 36 of Act No. 1459.

3. VOTING POWER OF TRUSTEE — The TRUSTEE and its successors in trust, if anym shall have the power and it
shall be its duty to vote the shares of the undersigned subject hereof and covered by this Agreement at all annual,
adjourned and special meetings of the CORPORATION on all questions, motions, resolutions and matters including
the election of directors and such matters on which the stockholders, by virtue of the by-laws of the
CORPORATION and of the existing legislations are entitled to vote, which may be voted upon at any and all said
meetings and shall also have the power to execute and acknowledge any agreements or documents that may be
necessary in its opinion to express the consent or assent of all or any of the stockholders of the CORPORATION
with respect to any matter or thing to which any consent or assent of the stockholders may be necessary, proper
or convenient.

4. FILING of AGREEMENT — An executed copy of this Agreement shall be filed with the CORPORATION at its office
in the City of Manila wherever it may be transfered therefrom and shall constitute irrevocable authority and
absolute direction of the officers of the CORPORATION whose duty is to sign and deliver stock certificates to make
delivery only to said voting trustee of the shares and certificates of stock subject to the provisions of this
Agreement as aforesaid. Such copy of this Agreement shall at all times be open to inspection by any stockholder,
as provided by law.

5. DIVIDEND — the full and absolute beneficial interest in the shares subject of this Agreement shall remain with
the stockholders executing the same and any all dividends which may be declared by the CORPORATION shall
belong and be paid to them exclusively in accordance with their stockholdings after deducting therefrom or
applying the same to whatever liabilities the stockholders may have in favor of the TRUSTEE by virtue of any
Agreement or Contract that may have been or will be executed by and between the TRUSTEE and the
CORPORATION or between the former and the undersigned stockholders.

6 COMPENSATION; IMMUNITY — The TRUSTEE or its successor in trust shall not receive any compensation for its
serviceexcept perhaps that which the CORPORATION may grant to the TRUSTEE's authorized representative, if any.
Expenses costs, champs, and other liabilities incurred in the carrying out of the but herein established or by reason
thereof, shall be paid for with the funds of the CORPORATION. The TRUSTEE or any of its duly authorized
representative shall incur no liability by reason of any error of law or of any matter or thing done or omitted under
this Agreement, except for his own individual malfeasance.

7. REPRESENTATION — The TRUSTEE, being a corporation and a juridical person shall accomplish the foregoing
objectives and perform its functions under this Agreement as well as enjoy and exercise the powers, privileges,
rights and interests herein established through its duly authorized and accredited re resentatives . p with full
authority under the specific appointment or designation or Proxy.

8. IRREVOCABILITY — This Agreement shall during its 5-year term or any extension thereof be binding upon and
inure to the benefit of the undersigned stockholders and their respective legal representatives, pledges,
transferees, and/or assigns and shall be irrevocable during the said terms and/or its extension pursuant to the
provisions of paragraph 1 hereof. It is hereby understood and the undersigned stockholders have bound as they
hereby bind themselves to make a condition of every pledge, transfer of assignment of their interests in the
CORPORATION that the interests and participation so pledged, transferred or assigned is evidenced by annotations
 in the certificates of stocks or in the books of the corporation, shall be subject to this Agreement and the same
shall be binding upon the pledgees, transferees and assigns while the trust herein created still subsists.

9. TERMINATION — Upon termination of this Agreement as heretofore provided, the certificates delivered to the
TRUSTEE by virtue hereof shall be returned and delivered to the undersigned stockholders as the absolute owners
thereof, upon surrender of their respective voting trust certificates, and the duties of the TRUSTEE shall cease and
terminate.

10. ACCEPTANCE OF TRUST — The TRUSTEE hereby accepts the trust created by this Agreement under the
signature of its duly authorized representative affixed hereinbelow and agrees to perform the same in accordance
with the term/s hereof.

IN WITNTESS HEREOF, the undersigned stockholders and the TRUSTEE by its representatives, have hereunto
affixed their signatures this 26 day of October, 1965 in the City of Manila, Philippines.

(SGD) JAMES A. KEISER (SGD) JOHNNY LIEUSON

Stockholder Stockholder

CBM FINANCE & INVESTMENT CORPORATION

By: (SGD) C.B. MENDOZA

President

ESPERANZA A. ZAMORA (SGD) ALEJANDRO G. BELTRAN

By: (SGD) MARIANO ZAMORA Stockholder

ESPERANZA A. ZAMORA

(SGD) FIDELA DE GUZMAN (SGD) CIRIACO B. MENDOZA

Stockholder Stockholder

(SGD) RENATO B. BEJAR (SGD) LLOYD D. COMBS

Stockholder Stockholder

NATIONAL INVESTMENT AND

DEVELOPMENT CORPORATION

By:

(SGD) IGNACIO DEBUQUE JR.

Vice-President 5

In July 1967, forced by the insolvency of Batjak, PNB instituted extrajudicial foreclosure proceedings against the oil mills of Batjak
located in Tanauan, Leyte and Jimenez, Misamis Occidental. The properties were sold to PNB as the highest bidder. One year
thereafter, or in September 1968, final Certificates of Sale were issued by the provincial sheriffs of Leyte 6 and Misamis
Occidental 7 for the two (2) oil mills in Tanauan and Jimenez in favor of PNB, after Batjak failed to exercise its right to redeem the
foreclosed properties within the allowable one year period of redemption. Subsequently, PNB transferred the ownership of the two
(2) oil mills to NIDC which, as aforestated, was a wholly-owned PNB subsidiary.
As regards the oil mill located at Sasa, Davao City, the same was similarly foreclosed extrajudicial by NIDC. It was sold to NIDC as the
highest bidder. After Batjak failed to redeem the property, NIDC consolidated its ownership of the oil mill. 8

Three (3) years thereafter, or on 31 August 1970, Batjak represented by majority stockholders, through Atty. Amado Duran, legal
counsel of private respondent Batjak, wrote a letter to NIDC inquiring if the latter was still interested in negotiating the renewal of
the Voting Trust Agreement. 9 On 22 September 1970, legal counsel of Batjak wrote another letter to NIDC informing the latter that
Batjak would now safely assume that NIDC was no longer interested in the renewal of said Voting Trust Agreement and, in view
thereof, requested for the turn-over and transfer of all Batjak assets, properties, management and operations. 10

On 23 September 1970, legal counsel of Batjak sent stin another letter to NIDC, this time asking for a complete accounting of the
assets, properties, management and operation of Batjak, preparatory to their turn-over and transfer to the stockholders of Batjak. 11

NIDC replied, confirming the fact that it had no intention whatsoever to comply with the demands of Batjak. 12

On 24 February 1971, Batjak filed before the Court of First Instance of Rizal a special civil action for mandamus with preliminary
injunction against herein petitioners docketed as Civil Case No. 14452. 13

On 14 April 1971, in said Civil Case No. 14452, Batjak filed an urgent ex parte motion for the issuance of a writ of preliminary
prohibitory and mandatory injunction. 14 On the same day, respondent judge issued a restraining order "prohibiting defendants
(herein petitioners) from removing any record, books, commercial papers or cash, and leasing, renting out, disposing of or otherwise
transferring any or all of the properties, machineries, raw materials and finished products and/or by-products thereof now in the
factory sites of the three (3) modem coco milling plants situated in Jimenez, Misamis Occidental, Sasa, Davao City, and Tanauan,
Leyte." 15

The order of 14 April 1971 was subsequently amended by respondent judge upon an ex parte  motion of private respondent Batjak
so as to include the premises of NIDC in Makati and those of PNB in Manila, as among the premises which private respondent Batjak
was authorized to enter in order to conduct an inventory.

On 24 April 1971, NIDC and PNB filed an opposition to the ex parte  application for the issuance of a writ of preliminary prohibitory
and mandatory injunction and a motion to set aside restraining order.

Before the court could act on the said motion, private respondent Batjak filed on 3 May 1971 a petition for receivership as
alternative to writ of preliminary prohibitory and mandatory injunction. 16 This was opposed by PNB and NIDC . 17

On 8 May 1971., NIDC and PNB filed a motion to dismiss Batjak's complaints. 18

On 16 August 1971, respondent judge issued the now assailed order denying petitioners' motion to dismiss and appointing a set of
three (3) receivers. 19 NIDC moved for reconsideration of the aforesaid order. 20 On 30 September 1971, respondent judge denied the
motion for reconsideration. 21

Hence, these two (2) petitions, which have been consolidated, as they involve a resolution of the same issues. In their manifestation
with motion for early decision, dated 25 August 1986, private respondent, Batjak contends that the NIDC has already been abolished
or scrapped by its parent company, the PNB.

After a careful study and examination of the records of the case, the Court finds and holds for the petitioners.

1. On the denial of petitioners' motion to dismiss.

As a general rule, an order denying a motion to quash or to dismiss is interlocutory and cannot be the subject of a petition for
certiorari. The remedy of the aggrieved party in a denied motion to dismiss is to file an answer and interpose, as defense or
defenses, the objection or objections raised by him in said motion to dismiss, then proceed to trial and, in case of adverse decision,
to elevate the entire case by appeal in due course. However, under certain situations, recourse to the extraordinary legal remedies
of certiorari, prohibition and mandamus to question the denial of a motion to dismiss or quash is considered proper, in the interest
of more enlightened and substantial justice. As the court said in Pineda and Ampil Manufacturing Co. vs. Bartolome, 95 Phil. 930,938
 For analogous reasons it may be said that the petition for certiorari interposed by the accused against the order of
the court a quo denying the motion to quash may be entertained, not only because it was rendered in a criminal
case, but because it was rendered, as claimed, with grave abuse of discretion, as found by the Court of Appeals. ..

and reiterated in Mead v. Argel  22 citing Yap v. Lutero  (105 Phil. 1307):

However, were we to require adherence to this pretense, the case at bar would have to be dismissed and
petitioner required to go through the inconvenience, not to say the mental agony and torture, of submitting
himself to trial on the merits in Case No. 166443, apart from the expenses incidental thereto, despite the fact that
his trial and conviction therein would violate one of this [sic] constitutional rights, and that, an appeal to this Court,
we would, therefore, have to set aside the judgment of conviction of the lower court. This would, obviously, be
most unfair and unjust. Under the circumstances obtaining the present case, the flaw in the procedure followed by
petitioner herein may be overlooked, in the interest of a more enlightened and substantial justice.

Thus, where there is patent grave abuse of discretion, in denying the motion to dismiss, as in the present case, this Court may
entertain the petition for certiorari interposed by the party against whom the said order is issued.

In their motion to dismiss Batjaks complaint, in Civil Case No. 14452, NIDC and PNB raised common grounds for its allowance, to wit:

1. This Honorable Court (the trial court) has no jurisdiction over the subject of the action or suit;

2. The venue is improperly laid; and

3. Plaintiff has no legal capacity to sue.

In addition, PNB contended that the complaint states no cause of action (Rule 16, Sec. 1, Par. a, c, d & g, Rules of Court).

Anent the first ground, it is a well-settled rule that the jurisdiction of a Court of First Instance to issue a writ of preliminary or
permanent injunction is confined within the boundaries of the province where the land in controversy is situated. 23 The petition for
mandamus of Batjak prayed that NIDC and PNB be ordered to surrender, relinquish and turnover to Batjak the assets, management
and operation of Batjak particularly the three (3) oil mills located in Sasa, Davao City, Jimenez, Misamis Occidental and Tanauan,
Leyte.

Clearly, what Batjak asked of respondent court was the exercise of power or authority outside its jurisdiction.

On the matter of proper venue, Batjak's complaint should have been filed in the provinces where said oil mills are located. Under
Rule 4, Sec. 2, paragraph A of the Rules of Court, "actions affecting title to, or for recovery of possession, or for partition or
condemnation of, or foreclosure of mortgage on, real property, shall be commenced and tried in the province where the property or
any part thereof lies."

In support of the third ground of their motion to dismiss, PNB and NIDC contend that Batjak's complaint for mandamus is based on
its claim or right to recovery of possession of the three (3) oil mills, on the ground of an alleged breach of fiduciary relationship.
Noteworthy is the fact that, in the Voting Trust Agreement, the parties thereto were NIDC and certain stockholders of Batjak. Batjak
itself was not a signatory thereto. Under Sec. 2, Rule 3 of the Rules of Court, every action must be prosecuted and defended in the
name of the real party in interest. Applying the rule in the present case, the action should have been filed by the stockholders of
Batjak, who executed the Voting Trust Agreement with NIDC, and not by Batjak itself which is not a party to said agreement, and
therefore, not the real party in interest in the suit to enforce the same.

In addition, PNB claims that Batjak has no cause of action and prays that the petition for mandamus be dismissed. A careful reading
of the Voting Trust Agreement shows that PNB was really not a party thereto. Hence, mandamus will not lie against PNB.

Moreover, the action instituted by Batjak before the respondent court was a special civil action for mandamus with prayer for
preliminary mandatory injunction. Generally, mandamus is not a writ of right and its allowance or refusal is a matter of discretion to
be exercised on equitable principles and in accordance with well-settled rules of law, and that it should never be used to effectuate
an injustice, but only to prevent a failure of justice. 24 The writ does not issue as a matter of course. It will issue only where there is a
clear legal right sought to be enforced. It will not issue to enforce a doubtful right. A clear legal right within the meaning of Sec. 3,
Rule 65 of the Rules of Court means a right clearly founded in or granted by law, a right which is enforceable as a matter of law.

Applying the above-cited principles of law in the present case, the Court finds no clear right in Batjak to be entitled to the writ
prayed for. It should be noted that the petition for mandamus filed by it prayed that NIDC and PNB be ordered to surrender,
relinquish and turn-over to Batjak the assets, management, and operation of Batjak particularly the three (3) oil mills and to make
the order permanent, after trial, and ordering NIDC and PNB to submit a complete accounting of the assets, management and
operation of Batjak from 1965. In effect, what Batjak seeks to recover is title to, or possession of, real property (the three (3) oil mills
which really made up the assets of Batjak) but which the records show already belong to NIDC. It is not disputed that the mortgages
on the three (3) oil mills were foreclosed by PNB and NIDC and acquired by them as the highest bidder in the appropriate foreclosure
sales. Ownership thereto was subsequently consolidated by PNB and NIDC, after Batjak failed to exercise its right of redemption. The
three (3) oil mills are now titled in the name of NIDC. From the foregoing, it is evident that Batjak had no clear right to be entitled to
the writ prayed for. In Lamb vs. Philippines (22 Phil. 456) citing the case of Gonzales V. Salazar vs. The Board of Pharmacy, 20 Phil.
367, the Court said that the writ of mandamus will not issue to give to the applicant anything to which he is not entitled by law.

2. On the appointment of receiver.

A receiver of real or personal property, which is the subject of the action, may be appointed by the court when it appears from the
pleadings that the party applying for the appointment of receiver has an interest in said property. 25 The right, interest, or claim in
property, to entitle one to a receiver over it, must be present and existing.

As borne out by the records of the case, PNB acquired ownership of two (2) of the three (3) oil mills by virtue of mortgage
foreclosure sales. NIDC acquired ownership of the third oil mill also under a mortgage foreclosure sale. Certificates of title were
issued to PNB and NIDC after the lapse of the one (1) year redemption period. Subsequently, PNB transferred the ownership of the
two (2) oil mills to NIDC. There can be no doubt, therefore, that NIDC not only has possession of, but also title to the three (3) oil
mills formerly owned by Batjak. The interest of Batjak over the three (3) oil mills ceased upon the issuance of the certificates of title
to PNB and NIDC confirming their ownership over the said properties. More so, where Batjak does not impugn the validity of the
foreclosure proceedings. Neither Batjak nor its stockholders have instituted any legal proceedings to annul the mortgage foreclosure
aforementioned.

Batjak premises its right to the possession of the three (3) off mills on the Voting Trust Agreement, claiming that under said
agreement, NIDC was constituted as trustee of the assets, management and operations of Batjak, that due to the expiration of the
Voting Trust Agreement, on 26 October 1970, NIDC should tum over the assets of the three (3) oil mills to Batjak. The relevant
provisions of the Voting Trust Agreement, particularly paragraph 4 & No. 1 thereof, are hereby reproduced:

NOW THEREFORE, the undersigned stockholders, in consideration of the premises and of the mutual covenants
and agreements herein contained and to carry out the foregoing purposes in order to vest in the TRUSTEE the
voting right.8 of the shares of stock held by the undersigned in the CORPORATION as hereinafter stated it is
mutually agreed as follows:

1. PERIOD OF DESIGNATION — For a period of five (5) years from and after date hereof, without power of
revocation on the part of the SUBSCRIBERS, the TRUSTEE designated in the manner herein provided is hereby
made, constituted and appointed as a VOTING TRUSTEE to act for and in the name of the SUBSCRIBERS, it being
understood, however, that this Voting Trust Agreement shall, upon its expiration be subject to a re-negotiation
between the parties, as may be warranted by the balance and attending circumstance of the loan investment of
the TRUSTEE or otherwise in the CORPORATION.

and No. 3 thereof reads:

3. VOTING POWER OF TRUSTEE — The TRUSTEE and its successors in trust, if any, shall have the power and it shall
be its duty to vote the shares of the undersigned subject hereof and covered by this Agreement at all annual,
adjourned and special meetings of the CORPORATION on all questions, motions, resolutions and matters including
the election of directors and all such matters on which the stockholders, by virtue of the by-laws of the
CORPORATION and of the existing legislations are entitled to vote, which may be voted upon at any and all said
meetings and shall also have the power to execute and acknowledge any agreements or documents that may be
necessary in its opinion to express the consent or assent of all or any of the stockholders of the CORPORATION
 with respect to any matter or thing to which any consent or assent of the stockholders may be necessary, proper
or convenient.

From the foregoing provisions, it is clear that what was assigned to NIDC was the power to vote the shares of stock of the
stockholders of Batjak, representing 60% of Batjak's outstanding shares, and who are the signatories to the agreement. The power
entrusted to NIDC also included the authority to execute any agreement or document that may be necessary to express the consent
or assent to any matter, by the stockholders. Nowhere in the said provisions or in any other part of the Voting Trust Agreement is
mention made of any transfer or assignment to NIDC of Batjak's assets, operations, and management. NIDC was constituted as
trustee only of the voting rights of 60% of the paid-up and outstanding shares of stock in Batjak. This is confirmed by paragraph No.
9 of the Voting Trust Agreement, thus:

9. TERMINATION — Upon termination of this Agreement as heretofore provided, the certificates delivered to the
TRUSTEE by virtue hereof shall be returned and delivered to the undersigned stockholders as the absolute owners
thereof, upon surrender of their respective voting trust certificates, and the duties of the TRUSTEE shall cease and
terminate.-

Under the aforecited provision, what was to be returned by NIDC as trustee to Batjak's stockholders, upon the termination of the
agreement, are the certificates of shares of stock belonging to Batjak's stockholders, not the properties or assets of Batjak itself
which were never delivered, in the first place to NIDC, under the terms of said Voting Trust Agreement.

In any event, a voting trust transfers only voting or other rights pertaining to the shares subject of the agreement or control over the
stock. The law on the matter is Section 59, Paragraph 1 of the Corporation Code (BP 68) which provides:

Sec. 59. Voting Trusts  — One or more stockholders of a stock corporation may create a voting trust for the
purpose of confering upon a trustee or trusties the right to vote and other rights pertaining to the shares for a
period not exceeding five (5) years at any one time: ... 26

The acquisition by PNB-NIDC of the properties in question was not made or effected under the capacity of a trustee but as a
foreclosing creditor for the purpose of recovering on a just and valid obligation of Batjak.

Moreover, the prevention of imminent danger to property is the guiding principle that governs courts in the matter of appointing
receivers. Under Sec. 1 (b), Rule 59 of the Rules of Court, it is necessary in granting the relief of receivership that the property or
fired be in danger of loss, removal or material injury.

In the case at bar, Batjak in its petition for receivership, or in its amended petition therefor, failed to present any evidence, to
establish the requisite condition that the property is in danger of being lost, removed or materially injured unless a receiver is
appointed to guard and preserve it.

WHEREFORE, the petitions are GRANTED. The orders of the respondent judge, dated 16 August 1971 and 30 September 1971, are
hereby ANNULLED and SET ASIDE. The respondent judge and/or his successors are ordered to desist from hearing and/or conducting
any further proceedings in Civil Case No. 14452, except to dismiss the same. With costs against private respondents.

SO ORDERED.

EN BANC

G.R. No. L-7991            January 29, 1914

LEON J. LAMBERT, plaintiff-appellant,
vs.
T. J. FOX, defendant-appellee.

O'Brien and DeWitt and C. W. Ney, for appellant.

J. C. Hixon, for appellee.

MORELAND, J.:
This is an action brought to recover a penalty prescribed on a contract as punishment for the breach thereof.

Early in 1911 the firm known as John R. Edgar & Co., engaged in the retail book and stationery business, found itself in such
condition financially that its creditors, including the plaintiff and the defendant, together with many others, agreed to take over the
business, incorporate it and accept stock therein in payment of their respective credits. This was done, the plaintiff and the
defendant becoming the two largest stockholders in the new corporation called John R. Edgar & Co., Incorporated. A few days after
the incorporation was completed plaintiff and defendant entered into the following agreement:

Whereas the undersigned are, respectively, owners of large amounts of stock in John R. Edgar and Co, Inc; and,

Whereas it is recognized that the success of said corporation depends, now and for at least one year next following, in the
larger stockholders retaining their respective interests in the business of said corporation:

Therefore, the undersigned mutually and reciprocally agree not to sell, transfer, or otherwise dispose of any part of their
present holdings of stock in said John R. Edgar & Co. Inc., till after one year from the date hereof.

Either party violating this agreement shall pay to the other the sum of one thousand (P1,000) pesos as liquidated damages,
unless previous consent in writing to such sale, transfer, or other disposition be obtained.

Notwithstanding this contract the defendant Fox on October 19, 1911, sold his stock in the said corporation to E. C. McCullough of
the firm of E. C. McCullough & Co. of Manila, a strong competitor of the said John R. Edgar & Co., Inc.

This sale was made by the defendant against the protest of the plaintiff and with the warning that he would be held liable under the
contract hereinabove set forth and in accordance with its terms. In fact, the defendant Foz offered to sell his shares of stock to the
plaintiff for the same sum that McCullough was paying them less P1,000, the penalty specified in the contract.

The learned trial court decided the case in favor of the defendant upon the ground that the intention of the parties as it appeared
from the contract in question was to the effect that the agreement should be good and continue only until the corporation reached
a sound financial basis, and that that event having occurred some time before the expiration of the year mentioned in the contract,
the purpose for which the contract was made and had been fulfilled and the defendant accordingly discharged of his obligation
thereunder. The complaint was dismissed upon the merits.

It is argued here that the court erred in its construction of the contract. We are of the opinion that the contention is sound. The
intention of parties to a contract must be determined, in the first instance, from the words of the contract itself. It is to be presumed
that persons mean what they say when they speak plain English. Interpretation and construction should by the instruments last
resorted to by a court in determining what the parties agreed to. Where the language used by the parties is plain, then construction
and interpretation are unnecessary and, if used, result in making a contract for the parties. (Lizarraga Hermanos vs. Yap Tico, 24 Phil.
Rep., 504.)

In the case cited the court said with reference to the construction and interpretation of statutes: "As for us, we do not construe or
interpret this law. It does not need it. We apply it. By applying the law, we conserve both provisions for the benefit of litigants. The
first and fundamental duty of courts, in our judgment, is to apply  the law. Construction and interpretation come only after it has
been demonstrated that application is impossible or inadequate without them. They are the very last functions which a court should
exercise. The majority of the law need no interpretation or construction. They require only application, and if there were more
application and less construction, there would be more stability in the law, and more people would know what the law is."

What we said in that case is equally applicable to contracts between persons. In the case at bar the parties expressly stipulated that
the contract should last one year. No reason is shown for saying that it shall last only nine months. Whatever the object was in
specifying the year, it was their agreement that the contract should last a year and it was their judgment and conviction that their
purposes would not be subversed in any less time. What reason can give for refusing to follow the plain words of the men who made
the contract? We see none.

The appellee urges that the plaintiff cannot recover for the reason that he did not prove damages, and cites numerous American
authorities to the effect that because stipulations for liquidated damages are generally in excess of actual damages and so work a
hardship upon the party in default, courts are strongly inclined to treat all such agreements as imposing a penalty and to allow a
recovery for actual damages only. He also cites authorities holding that a penalty, as such, will not be enforced and that the party
suing, in spite of the penalty assigned, will be put to his proof to demonstrate the damages actually suffered by reason of defendants
wrongful act or omission.

In this jurisdiction penalties provided in contracts of this character are enforced . It is the rule that parties who are competent to
contract may make such agreements within the limitations of the law and public policy as they desire, and that the courts will
enforce them according to their terms. (Civil Code, articles 1152, 1153, 1154, and 1155; Fornow vs. Hoffmeister, 6 Phil. Rep., 33;
Palacios vs. Municipality of Cavite, 12 Phil. Rep., 140; Gsell vs. Koch, 16 Phil. Rep., 1.) The only case recognized by the Civil Code in
which the court is authorized to intervene for the purpose of reducing a penalty stipulated in the contract is when the principal
obligation has been partly or irregularly fulfilled and the court can see that the person demanding the penalty has received the
benefit of such or irregular performance. In such case the court is authorized to reduce the penalty to the extent of the benefits
received by the party enforcing the penalty.

In this jurisdiction, there is no difference between a penalty and liquidated damages, so far as legal results are concerned. Whatever
differences exists between them as a matter of language, they are treated the same legally. In either case the party to whom
payment is to be made is entitled to recover the sum stipulated without the necessity of proving damages. Indeed one of the
primary purposes in fixing a penalty or in liquidating damages, is to avoid such necessity.

It is also urged by the appelle in this case that the stipulation in the contract suspending the power to sell the stock referred to
therein is an illegal stipulation, is in restraint of trade and, therefore, offends public policy. We do not so regard it. The suspension of
the power to sell has a beneficial purpose, results in the protection of the corporation as well as of the individual parties to the
contract, and is reasonable as to the length of time of the suspension. We do not here undertake to discuss the limitations to the
power to suspend the right of alienation of stock, limiting ourselves to the statement that the suspension in this particular case is
legal and valid.

The judgment is reversed, the case remanded with instructions to enter a judgment in favor of the plaintiff and against the
defendant for P1,000, with interest; without costs in this instance.

Arellano, C.J., Trent and Araullo, JJ.,  concur.

Separate Opinions

CARSON, J., dissenting:

I concur.

I think it proper to observe, however that the doctrine touching the construction and interpretation of penalties prescribed in
ordinary civil contracts as set forth in the opinion is carried to is extreme limits and that its statement in this form is not necessary to
sustain the decision upon the facts in this case.

Without entering upon an extended discussion of the authorities, it is sufficient for my purposes to cite the opinion of the supreme
court of Spain, dated June 13, 1906, construing the provisions of article 6 of Book 4, Title 1 of the Civil Code which treats of
"contracts with a penal clause." In that case the court held:

The rules and prescriptions governing penal matters are fundamentally applicable to the penal sanctions of civil character.

This as well as other cases which might be cited from American as well as Spanish authorities indicate that special rules of
interpretations are and should be made use of by the courts in construing penal clauses in civil contracts, and that case may well
arise wherein the broad doctrine laid down in the opinion of the court may not be applicable.