[PoliRev] - [Art.

VI, §29][coco levy as

Phil. Coco v. Republic public fund][Art. IX-D, §2(1)]
136
[G.R. No. 177857-58] [Jan. 24, 2012] [Velasco, Jr.] [JTSY]
Petitioner/s: Respondent/s:
Philippine Coconut Producers Federation, Inc. Republic of the Philippines
(COCOFED), Manuel V. Del Rosario, Domingo P.
Espina, Salvador P. Ballares, Joselito A. Moraleda, Intervenor/s:
Paz M. Yason, Vicente A. Cadiz, Cesaria de Luna Wigberto E. Tanada, Oscar F. Santos, Surigao del
Titular, and Raymundo C. de Villa Sur Federation of Agricultural Cooperatives
(SUFAC) and Moro Farmers Association of
Zamboanga del Sur (MOFAZS), represented by
Romeo C. Royandoyan
Danilo S. Ursua Republic of the Philippines
Recit Ready Summary

During martial law, the coco levy funds were used to acquire shares of stock of UCPB and a block of
shares in San Miguel Corp (SMC). After the EDSA revolution, when Cory Aquino ordered the recovery of
ill-gotten wealth of the Marcoses, this transaction was one of those assailed.

The coco levy funds were created from a tax imposed upon coconut farmers for the benefit of the coconut
industry. Under the various PDs issued, the shares of stock purchased with the coco levy funds were to
be distributed to the coconut farmers for free.

I: Are the PDs constitutional? NO

Republic v COCOFED already said that the coco levy fund partakes of the nature of taxes, being an
enforced proportional contribution, imposed by virtue of State sovereignty, and levied for support of the
government. Taxes are imposed only for a public purpose, and cannot be used for purely private
purposes or for the exclusive benefit of private persons. The coconut levy funds were sourced from forced
exactions, decreed under various PDs, with the end goal of developing the entire coconut industry. Using
special funds to purchase shares of stock, which will be distributed for free to private individuals, is a
conversion of special funds into private funds. Even if the private individuals are part of the coconut
industry, the free distribution of stocks purchased with special public funds to them cannot be justified; the
public funds are not a trust fund for their benefit. The very laws that created the coconut levy funds
classify them as special funds, to be remitted to the Treasury, but treated as a Special Account. Art. VI,
§29(3) enjoins the distribution of a special fund in accordance with the special purpose for which
it was collected; the balance, if any, after the purpose was fulfilled or is no longer forthcoming,
should be transferred to the general funds of the government. However, the challenged PDs
mandated the illegal conversion of the coconut levy funds from public funds and changed them
into private funds, in violation of the Constitution. Further, by converting the public funds into private
funds, the challenged PDs remove them from the audit jurisdiction of the COA, in violation of Art. IX (D)
(2).

Facts + Procedural History1

1. This case concerns the Coco Levy Fund. Particularly, it dealt with (1) the anomalous purchase and
use of UCPB [formerly FUB] and (2) the Acquisition of San Miguel Corp. shares of stock.

2. R.A. 6260 was enacted in 1971 to create the Coconut Investment Company (CIC) to administer the
Coconut Investment Fund (CIF). The fund would be sourced from a levy 2 on the sale of Copra3. PhP
0.55 would be levied on the sale of every 100kg of copra. Out of this fund, PhP 0.02 was placed at
1
Copied from Matt Ledesma’s old Consti digest
2
A tax
3
Dried meat or kernel of the coconut

ALS B2021 1
 the disposal of COCOFED.4
3. When martial law was declared in September 1972, several presidential decrees were issued all to
improve the coconut industry through the collection and use of the coconut levy fund:

P.D. No. 276 established the Coconut Consumers Stabilization Fund (CCSF) and declared the
proceeds of the CCSF levy as trust fund, to be utilized to subsidize the sale of coconut-based
products, thus stabilizing the price of edible oil.

P.D. No. 582 created the Coconut Industry Development Fund (CIDF) to finance the operation of a
hybrid coconut seed farm.

P.D. No. 755 (July 29, 19755)

Sec. 1: It is hereby declared that the policy of the State is to provide readily available credit
facilities to the coconut farmers at preferential rates; that this policy can be expeditiously and
efficiently realized by the implementation of the “Agreement for the Acquisition of a Commercial
Bank for the benefit of Coconut Farmers” executed by the PCA; and that the PCA is hereby
authorized to distribute, for free, the shares of stock of the bank it acquired to the coconut
farmers.

Sec. 2: Towards achieving the policy thus declared, P.D. No. 755, under its Section 2, authorized
PCA to utilize the CCSF and the CIDF collections to acquire a commercial bank and deposit the
CCSF levy collections in said bank, interest free, the deposit withdrawable only when the bank
has attained a certain level of sufficiency in its equity capital. The same section also decreed that all
levies PCA is authorized to collect shall not be considered as special and/or fiduciary funds or form
part of the general funds of the government within the contemplation of P.D. No. 711.

P.D. No. 961 as later amended by PD 1468 - Section 5 in Article 3 of the said decree shall not be
construed as special and/or fiduciary funds, or as part of the general funds of the national
government, the intention being that said Fund and the disbursements thereof as herein
authorized for the benefit of the coconut farmers shall be owned by them in their private
capacities.

4. Letter of Instructions No. (LOI) 926, Series of 1979 made reference to the creation, out of other coco
levy funds, of the Coconut Industry Investment Fund (CIIF) and entrusted its portion to First
United Bank (FUB) later renamed UCPB for investment on behalf of coconut farmers.

Basically, the LOI authorizes the UCPB to invest through CIIF the funds in private corporations.

5. Through the years, part of the coconut levy funds went directly or indirectly to various projects and/or
was converted into different assets or investments. Of particular relevance to this case was their use
to acquire FUB (First United Bank) through the CIIF companies, of a large block of SMC 6 shares.

6. It would appear that FUB was the bank of choice as intended acquisition of commercial bank stated
earlier (footnote 4) which the Pedro Cojuanco group has control of.The plan was for thePCA 7 to buy
all of Pedro Cojuangco’s share in FUB8.However, from the original plan of simple direct sale from
Perdo to PCA did not ensue as it was made to appear that Cojuanco, Jr. had the exclusive option to
4
The national association of coconut producers declared by the Philippine Coconut Administration (PHILCOA, now
PCA) as having the largest membership.
5
This date is important because as things later unfold, you will notice that the PCA-Cojuanco Jr. agreement to buy
shares was executed first before this P.D. was announced. Therefore, it will look like the FUB/UCPB was the
premeditated bank of choice that they want to acquire.
6
San Miguel corporation
7
Philippine Coconut administration
8
First united bank

ALS B2021 2
 acquire Pedro’s FUB controlling interests.9

There were 2 deeds involved:

 Agreement – Cojuangco accorded Cojuangco Jr. the option to buy 72.2%

of FUBs outstanding capital stock (option shares) at Php 200 per share.

 Contract – An agreement for the acquisition of a commercial bank for the

benefit of the coconut farmers.

This contract had PCA purchase from Cojuangco Jr. the shares
of stock subject to the previous agreement (Option to buy) also at Php 200 per share.

It was also stipulated in the contract that Cojuangco Jr. shall receive equity in
FUB amounting to 7.22% of the 72.2% shares.

Under paragraph 8 of this agreement, PCA agreed to distribute the FUB shares to such
“coconut farmers holding registered COCOFUND receipts” on equitable basis. 10

Shortly after the execution of this agreement, Marcos issued PD No 755 directing PCA to
acquire a commercial bank to provide coconut farmers with readily available credit facilities at
preferential rate, and PCA to distribute for free, the bank shares to coconut farmers.

7. While the 64.98% portion of the option shares (72.2% - 7.22% 11) pertained to the farmers, the
corresponding stock certificates supposedly representing the farmers equity were in the name of and
delivered to PCA. There were, however, shares forming part of the farmer’s portion which
ended up in the hands of non-farmers. The remaining FUB capital stocks were not covered by
any of the agreements.

8. The actual distribution of the bank shares was admittedly an enormous operational problem which
resulted in the failure of the intended beneficiaries to receive their shares of stocks in the
bank, as shown by the rules and regulations12, issued by the PCA, without adequate guidelines
being provided to it by PD 755.

Section 9 of the IRR provided the rule on undistributed shares:

SECTION 9. Fractional and Undistributed Shares - Fractional shares and shares which remain undistributed as
a consequence of the failure of the coconut farmers to register their COCOFUND receipts or the destruction of
the COCOFUND receipts or the registration of COCOFUND receipts in the name of an unqualified individual,
after the final distribution is made on the basis of the consolidated IBM registration Report as of March 31, 1976
shall be distributed to all the coconut farmers who have qualified and received equity in the Bank and shall be
appointed among them, as far as practicable, in proportion to their equity in relation to the number of
undistributed equity and such further rules and regulations as may hereafter be promulgated.

When 51,200,806 remained undistributed, the PCA deemed it proper to give a “bonanza” to coconut
farmers who already got their bank shares, by giving them an additional share for each share
owned by them and by converting their fractional shares into full shares. The rest of the shares
were transferred to COCOFED for distribution to those determined to be bona fide coconut farmers

9
It was shown the Jr. has the option to buy the 72.2% shares from Sr. so this meant that, PCA had to buy the shares
from Jr. The price was still 200 per share (Jr. selling the shares to PCA) but Jr. asked for ADDITIONAL
CONSIDERATION because he had the exclusive and personal option. So he asked for a 10% EQUITY equal to 7.22%
(7.22% of the shares were given as additional payment to Jr, thus PCA only has 64.98% share after the purchase)
10

11
Additional consideration/cost
12
PCA Administrative Order 1 and PCA Resolution No. 078-74

ALS B2021 3
 who have not received shares of stock of the Bank. 13

9. When the 1986 EDSA event happened, one of the priorities of then President Cory Aquino was to
recover the ill-gotten wealth reportedly amassed by Marcos, his family, close relatives, their
nominees and associates.
10. The PCGG issued numerous sequestration orders against the shares of stock in UCPB owned by
(1) more than a million coconut farmers and (2) the CIIF companies.

11. Through the help of the PCGG, represented by the Republic, the case went to Sandiganbayan.
The Sandiganbayan ruled that PD 755 is unconstitutional and that the sequestered UCPB shares
belong now to the Republic.
Procedural History

Points of Contention

Issue/s Ruling
1. Does the Sandiganbayan have jurisdiction over the subject matter of the 1. Yes
subdivided amended complaints?
2. Were petitioners (COCOFED et. al.) deprived of their right to be heard or right to 2. No
speedy trial?
3. Are §§1-2 of PD 755, Art. III §5 of PD 961, and Art. III, §5 of PD 1468 3. Yes
unconstitutional?
4. Are the CIIF companies and the CIIF block of SMC shares public funds/assets? 4. Yes

Rationale

1. The Sandiganbayan has jurisdiction over the subject matter of the complaints

 Subject matter jurisdiction is conferred by law, and the question on whether a given suit
comes within the statutory conferment is determined by the allegations of the complaint
 The material allegations of the complaints show that the suits partake of the nature of ill-
gotten wealth suits
 PD 1606, as amended, vests the Sandiganbayan with, among others, jurisdiction over civil
and criminal suits instituted pursuant to EO 1, 2, 14, and 14-A (EOs issued by Cory Aquino
on the recovery of ill-gotten wealth of the Marcoses and their cronies)
 The Republic’s allegations reveal that the subject matter thereof comprises the recovery by
the government of ill-gotten wealth acquired by Marcos and his cronies through improper
utilization of coconut levy funds, aided by PD 755 and other similar decrees. Marcos himself
issued these decrees in a brazen bid to legalize what amounts to private taking of public
funds
 It might be noted that COCOFED et al are precluded from assailing the jurisdiction of the
Sandiganbayan; they were not originally impleaded as defendants but rather asked and
were allowed by the Sandiganbayan to intervene
 Petitioners aver that the coconut farmers cannot be considered “subordinates, close and/or
business associates, dummies, agents, and nominees” of Marcos; however, a nominee is
defined as someone who acts on behalf of another in a limited way. It might be noted that
the alleged beneficiaries of the UCPB shares were required, upon delivery of their stock
certificates, to execute an irrevocable proxy in favor of the Bank’s manager; this shows that
the coconut farmers were mere nominal stockholders

2. Petitioners were not deprived of the right to be heard or right to speedy trial

 Petitioners’ contention that the Sandiganbayan deprived them of their right to be heard by

13

ALS B2021 4
 denying their requests to adduce evidence is untenable, as their demands to adduce
evidence were premature
 For the orderly administration of justice, the Rules of Court provide that the plaintiff will
adduce evidence first, and after the formal offer of evidence, the defendant can adduce
evidence. Deviation from this order is purely discretionary upon the trial court. Thus, the right
of COCOFED to present evidence in the main case had not yet ripened
 It must be noted that the Republic had the right to file a petition for partial summary
judgment, which may be allowed where there are no genuine issues
 In fact, petitioners filed their own motion for summary judgment, which reflects their
admission that there were no more factual issues left for determination
 On the discussion on the right to a speedy trial, the records do not show that petitioners
moved for dismissal of the case based on vexatious, capricious, and oppressive delays that
attended the proceedings

3. §§1-2 of PD 755, Art. III § 5 of PD 961, and Art. III §5 of PD 1468 are unconstitutional

 The Court may pass on the constitutionality of the three PDs, as the present controversy
cannot be resolved without inquiring into such
 This case is for the recovery of shares grounded on the invalidity of certain enactments,
which in turn is based on the shares being public in character, being purchased by public
funds
 The issue of constitutionality goes into the very core of the Republic’s cause of action
 Petitioners invoke the SC’s rulings in COCOFED v PCGG and Republic v Sandiganbayan to
claim that the SC has already upheld the validity of said laws on the coco levy; however, the
former case turns on the legality of transfer of shares of stock bought with coconut levy
funds to coconut farmers, which is different from the instant case on whether PD 755
violated Art. VI §29(3) of the Consti as well as whether it is undue delegation of legislative
power, which are different issues; meanwhile, in the latter case, the SC declined to pass on
the constitutionality of the coconut levy laws
 The coconut levy funds are in the nature of taxes and can only be used for public
purposes. Consequently, they cannot be used to purchase shares of stock to be
given for free to private individuals
 Republic v COCOFED already said that the coco levy fund partakes of the nature of taxes,
being an enforced proportional contribution, imposed by virtue of State sovereignty, and
levied for support of the government
 Taxes are imposed only for a public purpose, and cannot be used for purely private
purposes or for the exclusive benefit of private persons
 The coconut levy funds were sourced from forced exactions, decreed under various PDs,
with the end goal of developing the entire coconut industry
 Using special funds to purchase shares of stock, which will be distributed for free to private
individuals, is a conversion of special funds into private funds
 Even if the private individuals are part of the coconut industry, the free distribution of stocks
purchased with special public funds to them cannot be justified; the public funds are not a
trust fund for their benefit
 The fact that the coconut levy funds were collected from persons or entities in the coconut
industry does not and cannot entitle them to be beneficial owners of the public funds
 The very laws that created the coconut levy funds classify them as special funds, to be
remitted to the Treasury, but treated as a Special Account
 Art. VI, §29(3) enjoins the distribution of a special fund in accordance with the special
purpose for which it was collected; the balance, if any, after the purpose was fulfilled
or is no longer forthcoming, should be transferred to the general funds of the
government
 However, the various PDs state that the various coconut levy funds shall not be construed
by any law as a special and/or trust fund
 The public purpose for which the CCSF was created was to subsidize the sale of coconut-

ALS B2021 5
 based products; to put it a bit differently, it was created for the protection of the entire
coconut industry and not for the coconut farmers, albeit that the protection of the industry
would redound to the benefit of the farmers
 Thus, the provisions of the PDs stating that the coconut levy fund would not be treated as a
special fund violates the public purpose for which the fund was created
 In sum, the challenged PDs mandated the illegal conversion of the coconut levy funds
from public funds and changed them into private funds, in violation of the
Constitution
 As such, the distribution by the PCA of UCPB shares purchased by means of the coconut
levy fund, which is a special fund of the government, is void
 Further, §1 of PD 755, PCA Admin Order 1, and Resolution 074-75, are invalid delegations
of legislative power
 The PD authorizes the distribution, for free, of shares of stock to coconut farmers, without
defining coconut farmers, or how many shares a coconut farmer is entitled to, which are
important variables which cannot be left to the discretion of the implementing agency
 Moreover, the PD did not identify or delineate any clear condition as to how giving away
UCPB shares, or their conversion into private ownership, will redound to the advancement of
the declared national policy (to accelerate the growth and development of the coconut
industry)
 As such, PD 755, insofar as it grants PCA a virtual carte blanche authority to distribute
UCPB shares to coconut farmers, without any conditions or restrictions, is an undue
delegation of legislative power
 The PCA issuances are also infirm, as they authorize distribution of fractional and
undistributed shares, without a clear mandate or instruction on the same in any enabling
law; they also failed to take note of the national policy or public purpose for which the
coconut levy funds; this is clearly an undue delegation of legislative powers
 Furthermore, Art. III §5 of PD 961 and Art. III §5 of PD 1468 violate Art. IX (D)(2) of the
Consti
 Both provisions provide that the coconut levy funds and disbursements of such shall not be
construed as special or general funds
 The Constitution vests the COA with the responsibility of State audit, and under Art. IX (D),
no law can be made exempting any public funds from the jurisdiction of the COA
 However, the provisions of the PDs, in declaring the funds as private funds, removes them
from public funds and renders them impervious to COA audit jurisdiction
 The conversion of the shares purchased using public funds into private ownership removes
them from COA’s audit jurisdiction, as the COA has no jurisdiction over disbursement of
private property
 Accordingly, said provisions must be struck down as unconstitutional

4. The CIIF companies and the CIIF block of San Miguel shares are public funds/assets

 The 6 CIIF oil mills were acquired by UCPB using coconut levy funds
 The 14 CIIF holding companies are wholly owned subsidiaries of the CIIF oil mills
 These companies were acquired and organized solely for the purpose of holding SMC
shares
 Since the CIIF companies and the CIIF block of SMC shares were acquired using coconut
levy funds, which are public in character, it goes without saying that they are government
assets
 Further, the operative fact doctrine will not apply, as it would result in inequity
- The said farmers and alleged claimants do not have any legal right to own the UCPB
shares distributed to them
- To grant all UCPB shares to petitioners would be iniquitous to the remaining 4.6 million
farmers who have not receive any shares but made payments to the coco levy funds
- The Sandiganbayan found that, due to operational and administrative problems, the
intended beneficiaries of UCPB shares were not able to receive them

ALS B2021 6
 - A number of the farmers who sold copra did not get receipts; it was the trader who
received the receipts and was able to get the shares

Disposition

Petitions denied

ALS B2021 7