A.M. No. 855-MJ - Arrojado vs. Quijano

Case Summary (A.M. No. 855-MJ)

Key Dates

Important dates appearing in the record include: July 28, 2004 (POTC and PHILCOMSAT stockholders’ meetings); August 9, 2004 (Nieto-PCGG PHILCOMSAT meeting at Manila Golf Club); August 31, 2004 (PHC annual stockholders’ meeting and contested elections); June 28, 1996 (compromise agreement involving Ilusorio); June 8, 1998 (judicial approval of compromise agreement by Sandiganbayan); June 15, 2005 (Supreme Court decision affirming the compromise agreement in G.R. Nos. 141796 and 141804); November 17–22, 2005 (correspondence concerning PHILCOMSAT’s inspection request); February 2, 2006 (PHILCOMSAT’s complaint for inspection filed in RTC Makati, Civil Case No. 06-095); June 21, 2007 (RTC Branch 149 order dismissing complaint for lack of jurisdiction); October 21, 2011 and February 10, 2012 (Court of Appeals decision and resolution); July 3, 2013 (consolidated Supreme Court decisions resolving related controversies); March 18, 2015 (Supreme Court decision under review here, received March 26, 2015).

Applicable Law and Procedural Framework

Constitutional basis: 1987 Constitution (decision date post‑1990). Statutory and procedural authorities invoked: Sections 74 and 75 of the Corporation Code (stockholder’s right to inspection); Republic Act No. 8799 (The Securities Regulation Code), particularly Section 5.2 transferring certain intra‑corporate jurisdiction from the SEC to the Regional Trial Courts (RTCs); Presidential Decree No. 902‑A, Section 5 (historical grant of SEC jurisdiction before RA 8799); Executive Order No. 14 (PCGG’s mandate to file PCGG cases with the Sandiganbayan); Supreme Court administrative measures implementing RA 8799 and intra‑corporate rules (A.M. No. 00‑11‑03‑SC designating RTC branches and A.M. No. 01‑2‑04‑SC adopting Interim Rules for Intra‑Corporate Controversies). Precedents on Sandiganbayan jurisdiction and sequestered properties cited include Del Moral, Olaguer, San Miguel v. Kahn, and Holiday Inn (Phils.), Inc. v. Sandiganbayan.

Issues Presented

Two issues were squarely presented to the Supreme Court: (1) whether the Sandiganbayan or the RTC has jurisdiction over a stockholder’s suit to enforce a right of inspection under Section 74 of the Corporation Code where the stockholder is a sequestered corporation represented by PCGG nominees; and (2) whether the complaint should be dismissed for failure to state a cause of action on the ground that PHILCOMSAT never authorized Victor Africa (or any other person) to file the complaint.

RTC vs. Sandiganbayan Jurisdiction — Legal and Factual Distinction

The Court held that jurisdiction depends on the nature of the controversy: whether it is an intra‑corporate dispute or an action principally about recovery of ill‑gotten wealth (a PCGG case). PD 902‑A originally vested SEC jurisdiction over intra‑corporate controversies (Section 5) but RA 8799 transferred that jurisdiction to RTCs (Section 5.2). The Supreme Court’s administrative resolutions designated specific RTC branches to hear such cases and adopted interim rules for election contests and intra‑corporate disputes (A.M. No. 00‑11‑03‑SC and A.M. No. 01‑2‑04‑SC). Where the controversy is intra‑corporate (e.g., disputes over board composition, proxies, elections and stockholder rights), jurisdiction lies with the RTC pursuant to RA 8799 and the Court’s designations and rules.

Precedent Distinguishing Intra‑Corporate Disputes from PCGG/Sandiganbayan Cases

The Court relied on precedents (San Miguel v. Kahn; Holiday Inn) emphasizing that disputes confined to corporate governance, elections and contractual or intra‑corporate rights vest in ordinary courts even if the corporation has sequestered shares or PCGG nominees constitute board members. The Sandiganbayan’s exclusive jurisdiction pertains to cases where the principal cause of action is the recovery of ill‑gotten wealth or where incidents arise from such recovery actions; it does not automatically take intra‑corporate controversies simply because PCGG nominees sit on a board.

Application to the Present Case — Why the RTC Has Jurisdiction

The PHILCOMSAT complaint asserted a stockholder’s statutory right of inspection under Sections 74 and 75 of the Corporation Code. The dispute involved whether PHILCOMSAT, through its representative Victor Africa, could inspect PHC’s books and whether PHILCOMSAT had authorized the filing of the complaint. These issues were intra‑corporate (relating to recognition of directors, validity of proxies, and corporate inspections) and therefore properly cognizable by an RTC designated under the Securities Regulation Code framework. The RTC dismissal for lack of jurisdiction in favor of the Sandiganbayan was therefore erroneous; the Court of Appeals correctly reversed and remanded, and the Supreme Court affirmed that conclusion.

Authorization and Sufficiency of the Complaint — Board Resolution Evidence

On the second issue, the Court applied the standard that a complaint should not be dismissed for failure to state a cause of action when it is evident from the complaint and attachments that the plaintiff is entitled to relief. PHILCOMSAT attached to its complaint a Board Secretary’s Certificate stating that the PHILCOMSAT board had authorized its President to exercise the right of inspection in PHC and to initiate litigation in case of refusal. That showing was sufficient at the pleading stage to allege authority to sue; petitioners’ contrary contention—that the September 22, 2005 board meeting adopting the resolution was void for lack of quorum—raised an intra‑corporate factual contest about board legitimacy that is for trial rather than a grounds for dismissal on the pleadings.

Controlling Shareholding and the Legitimacy Dispute

The legitimacy of the Africa‑Bildner board actions and proxies (and thus Africa’s authority) depended on which faction held majority control of POTC and PHILCOMSAT. The Supreme Court noted that this question had been definitively resolved in related consolidated cases (including G.R. Nos. 141796 and 141804) which upheld the

Case Syllabus (A.M. No. 855-MJ)

Procedural Posture

Petition for review under Rule 45 assails: (a) Decision dated October 21, 2011, and (b) Resolution dated February 10, 2012 of the Court of Appeals (CA) in CA-G.R. SP No. 99789.
CA had reversed the RTC of Makati City, Branch 149 Order dated June 21, 2007 in Civil Case No. 06-095 and remanded the case for further proceedings.
Petitioners filed a motion for reconsideration in the CA which was denied; they then brought the case to the Supreme Court.
The Supreme Court rendered its Decision on March 18, 2015 (received by the Office on March 26, 2015) denying the petition for lack of merit and affirming the CA Decision and Resolution.

Parties

Petitioners: Roberto L. Abad, Manuel D. Andal, Benito V. Araneta, Philip G. Brodett, Enrique L. Locsin, and Roberto V. San Jose (identified as certain incumbent PHC directors/officers and PCGG nominees at various times).
Respondent: Philippine Communications Satellite Corporation (PHILCOMSAT), represented by Victor Africa (also identified as President and CEO of PHILCOMSAT and a stockholder).
Other corporate entities and actors involved in the broader dispute: Philcomsat Holdings Corporation (PHC), Philippine Overseas Telecommunications Corporation (POTC), PCGG (Philippine Commission on Good Government), the Ilusorio, Nieto, Poblador, Africa, Benedicto, Ponce Enrile and Elizalde families, and various individual directors (e.g., Manuel H. Nieto, Jr.; Julio Jalandoni; Oliverio Laperal; Concepcion Poblador; Erlinda I. Bildner).

Core Facts and Corporate Relationships

PHILCOMSAT was sequestered by the PCGG after the 1986 EDSA Revolution, and owns 81% of the outstanding capital stock of Philcomsat Holdings Corporation (PHC).
The majority shareholders of PHILCOMSAT are also the seven families who historically owned and controlled POTC (Ilusorio, Nieto, Poblador, Africa, Benedicto, Ponce Enrile and Elizalde).
During the Arroyo administration, Enrique L. Locsin and Manuel D. Andal, along with Julio Jalandoni, were appointed PCGG nominee-directors in the boards of POTC and PHILCOMSAT; these PCGG nominees aligned with the Nieto family (Nieto-PCGG group) opposed to the Africa-Ilusorio (Africa-Bildner) group.
Benito Araneta was a PCGG nominee during the Estrada administration.
July 28, 2004: Stockholders’ meetings of POTC and PHILCOMSAT were held where Victor Africa was elected among the Africa-Bildner group as Director; he was designated POTC proxy to the PHILCOMSAT stockholders’ meeting.
The Nieto-PCGG group conducted a separate PHILCOMSAT stockholders’ meeting on August 9, 2004 at the Manila Golf Club; Nieto, Jr. and Locsin were elected Chairman and President of PHILCOMSAT at an organizational meeting and issued a proxy in favor of Nieto, Jr. and/or Locsin to represent PHILCOMSAT at the PHC stockholders’ meeting on August 31, 2004.
August 31, 2004: Annual stockholders’ meeting of PHC conducted by the Nieto-PCGG group where various directors were purportedly elected (including Locsin as Director and Acting Chairman; Manuel H. Nieto, Jr. as Director, President and CEO; Philip G. Brodett as Director and Vice-President; Manuel D. Andal as Director, Treasurer and CFO; Roberto V. San Jose as Director and Corporate Secretary; and others).
The two factions held separate elections, spawned multiple suits and countersuits aiming to establish legitimacy of their respective elections and control.

Prior Litigation and Compromise Agreement Background

Pending litigation included Civil Case No. 04-1049 (RTC Makati Branch 138) where Africa sought invalidation of the proxy issued to Nieto, Jr. and/or Locsin and nullification of the August 31, 2004 PHC elections.
There was a prior controversy involving a compromise agreement dated June 28, 1996 entered into by Atty. Potenciano Ilusorio with the Republic and the PCGG concerning Ilusorio family shareholdings in POTC, including shares placed in the names of IRC and Mid-Pasig.
By Decision dated June 15, 2005 (G.R. Nos. 141796 and 141804), the Supreme Court affirmed the validity of that compromise agreement; implementation of the compromise resulted in the Ilusorio, Africa, Poblador, Benedicto and Ponce Enrile families gaining majority control (51.37%) and the Nieto family and PCGG becoming the minority.

Inspection Demand, Refusal, and Filing of Complaint

November 17, 2005: Victor Africa, as PHILCOMSAT President, CEO and stockholder, wrote PHC requesting exercise of PHILCOMSAT’s right of inspection over PHC’s books and records for the 3rd quarter of 2005, especially financial documents.
November 22, 2005: Nieto, Jr. responded advising referral to PHC Board or Executive Committee because of pending cases; requested written reasons and purposes for the inspection.
Africa reiterated the inspection request asserting the PHILCOMSAT board was elected on September 22, 2005 in consonance with this Court’s final decision.
On the date of inspection, PHILCOMSAT delegates (Atty. Samuel Divina and Enrico Songco) were present but Brodett disallowed the inspection. PHILCOMSAT’s counsel queried whether Brodett acted with PHC Board authority; no reply was received.
February 2, 2006: PHILCOMSAT filed in the RTC a Complaint for Inspection of Books against incumbent PHC directors/officers to enforce its rights under Sections 74 and 75 of the Corporation Code. Original defendants included Jalandoni, Lokin, Laperal, Nieto, Jr., Somera, and petitioners Andal, Locsin, Brodett, San Jose and Araneta.
The RTC, by Order dated June 21, 2007, dismissed the complaint for lack of jurisdiction, holding that Sandiganbayan had jurisdiction because plaintiff was a sequestered corporation of the Republic through the PCGG and because the right of inspection was being challenged as a defense implicating sequestration-related matters.

CA Proceedings and Ruling

PHILCOMSAT appealed to the Court of Appeals via a petition for review under Rule 43, arguing the RTC (not the Sandiganbayan) had jurisdiction over a stockholder’s right to inspect corporate books and records.
Petitioners countered that the main controversy involved which group legitimately represented and comprised PHILCOMSAT’s board, and that issues related to sequestered corporations fell within Sandiganbayan jurisdiction; they also raised litis pendentia pointing to multiple pending cases conce