Title
Pacific Basin Securities Co., Inc. vs. Oriental Petroleum
Case
G.R. No. 143972
Decision Date
Aug 31, 2007
Pacific Basin purchased OPMC shares via stock exchange; transfer refused by EBC citing unauthorized sale. Courts ruled sale valid, upheld stock exchange as public bidding, awarded temperate damages, denied bad faith claims.
transfer of shares
legal battle
temperate damages
A

Case Summary (G.R. No. 78345)

Factual Background

On May 31, 1991, Pacific Basin, through FRMSC, purchased 308,300,000 Class “A” shares of OPMC. It fully paid the shares in the amount of P17,727,000.00, or P.05750 per share. The shares were listed and traded in the Makati Stock Exchange.

Despite PCGG’s involvement, the shares were not originally owned by government entities as such. The shares that Pacific Basin acquired turned out to be owned by Piedras Petroleum, described as a sequestered company controlled by the nominees of the Presidential Commission on Good Government (PCGG). PCGG thereafter issued a letter dated June 10, 1991 to EBC, OPMC’s stock and transfer agent, confirming Piedras Petroleum’s sale of the shares in favor of Pacific Basin through FRMSC, and requesting that EBC record the acquisition and issue the corresponding share certificates in Pacific Basin’s name.

EBC refused to effect the transfer and issuance of certificates. It cited two grounds: first, that the endorser on the stock certificate, Mr. Clemente Madarang, was not an authorized signatory of Piedras Petroleum; and second, that there was no board resolution from Piedras Petroleum authorizing the sale of the OPMC shares. FRMSC complied with these requirements and renewed its demand for transfer and issuance. EBC again refused.

Mandamus and SEC Administrative Proceedings

With the repeated refusal, on April 23, 1992 Pacific Basin filed a Petition for Mandamus with prayer for injunctive relief before the SEC, docketed as SEC Case No. 04225. Pacific Basin alleged it had purchased and fully paid for the shares; that EBC and OPMC refused to record the acquisition and issue certificates, which constituted grave neglect of a ministerial duty under Section 63 of the Corporation Code; and that EBC’s and OPMC’s refusal violated Section 1, Article 1 of OPMC’s amended by-laws, which mandated issuance of stock certificates to each holder of fully paid stock.

OPMC and EBC responded that the government’s claim of title over the OPMC shares was based on a cession by Roberto S. Benedicto, associated with the Marcos circle, in exchange for immunity from prosecution. They invoked item no. 6 of the annex to the Compromise Agreement executed between the government through PCGG and Benedicto, which allegedly included all OPMC shares owned by Piedras Petroleum. They argued that in G.R. Nos. 108368, 108548–49, and 108550, the Court had issued a Temporary Restraining Order enjoining enforcement of the Compromise Agreement. On that premise, they maintained that PCGG’s claimed basis for title over the shares had been suspended. They further argued that if government title existed and was effective, the sale by Piedras Petroleum to Pacific Basin was void because there was no showing of compliance with the disposition requirements under Proclamation No. 50, including public bidding. They asserted that failure to conduct public bidding was a blatant violation of the law.

In a decision dated December 28, 1995, the SEC Hearing Officer ruled for Pacific Basin. The Hearing Officer took judicial notice of Court En Banc resolutions in G.R. No. 108368 dated January 10, 1993 and January 18, 1994 dismissing the petition and denying PCGG’s motion for reconsideration. The Hearing Officer thus treated the issue of the Temporary Restraining Order as moot. The Hearing Officer also held that because the shares were fully paid by Pacific Basin, it was the obligation and ministerial duty of OPMC and EBC to transfer the shares in the corporate books and issue certificates under Section 63 of the Corporation Code and OPMC’s amended by-laws. The Hearing Officer further found corporate officers of OPMC acted in bad faith when they refused.

The Hearing Officer ordered OPMC and EBC, jointly and severally, to pay Pacific Basin P20,000,000.00 as actual damages, P300,000.00 as exemplary damages, P300,000.00 as attorney’s fees, and P50,000.00 for costs and expenses of suit. The Hearing Officer denied OPMC and EBC’s motion for reconsideration.

OPMC and EBC then appealed to the SEC en banc. On July 13, 1999, the SEC en banc modified the Hearing Officer’s decision by deleting the awards of actual and exemplary damages.

Court of Appeals Decisions on Damages and Duty to Register

Pacific Basin and OPMC-EBC each pursued appeals to the Court of Appeals. In CA-G.R. SP No. 54442, OPMC and EBC argued that the SEC erred in treating a sale of publicly listed shares through the stock market as tantamount to public bidding, and that OPMC and EBC were not ministerially bound to record the shares and issue certificates. On January 26, 2000, the Court of Appeals affirmed the SEC en banc’s July 13, 1999 decision in toto, holding that public bidding denotes a letting open to all with fair and reasonable notice and equal competition; that the sale through the stock exchange offered transparent and fair competition; and that stock valuation is specialized and properly left to experts.

In a separate CA proceeding, CA-G.R. SP No. 54456, the Court of Appeals affirmed on August 18, 2000 the SEC en banc’s deletion of actual and exemplary damages. The CA held that the testimony of Pacific Basin’s Vice-President, Ms. Vicky Chan, was insufficient to establish actual damages. It also ruled that exemplary damages were not proper because OPMC officers did not act in bad faith or in wanton, fraudulent, reckless, oppressive, or malevolent manner. The CA added that the officers took extra precautions to verify the validity of the transfer, given the controversial matters underlying it.

Supreme Court Petitions and the Core Issues

Pacific Basin filed in the Supreme Court G.R. No. 143972 to assail the CA decision in CA-G.R. SP No. 54442 and G.R. No. 144631 to challenge the CA decision in CA-G.R. SP No. 54456. In G.R. No. 143972, Pacific Basin asserted that the CA committed grave error in sustaining the SEC en banc’s deletion of actual and exemplary damages, insisting that it presented clear and convincing evidence through unrebutted expert testimony that it was deprived of actual profits of about P20,000,000.00 and that exemplary damages were warranted by OPMC-EBC’s alleged bad faith and malicious refusal. In G.R. No. 144631, Pacific Basin similarly argued that the CA imposed a higher than required quantum of proof, and that Ms. Chan’s testimony, allegedly unrebutted and supported by her expertise, sufficiently proved actual damages, and that OPMC-EBC acted in bad faith to warrant exemplary damages.

OPMC and EBC also filed G.R. No. 144056, challenging the CA decision by contending that government-owned property, even shares of stock publicly listed in a stock exchange, may be disposed of only through public bidding, and that sale through ordinary stock exchange trading did not satisfy the public bidding requirement. They additionally maintained that once good faith was established, there was no basis for attorney’s fees in favor of Pacific Basin.

Legal Basis and Reasoning on Public Bidding and Government Ownership

The Supreme Court rejected OPMC and EBC’s public bidding theory. It held that prior to the May 31, 1991 sale to Pacific Basin, Piedras Petroleum was the owner of the subject OPMC shares. Piedras Petroleum was sequestered and controlled by PCGG nominees, but that placement under sequestration did not ipso facto make it a government-owned corporation.

The Court relied on its elucidation in Bataan Shipyard & Engineering Company, Inc. v. Presidential Commission on Good Government on the nature of PCGG sequestration. It treated sequestration, freezing, and provisional takeover as akin to provisional remedies such as preliminary attachment or receivership. Under that framework, PCGG exercised only administration powers—conserving and preserving property and defending actions—but did not automatically become the owner of the sequestered property for the government. A final judicial determination was still necessary to establish that the property was in fact ill-gotten and acquired with government funds. Thus, OPMC could not conclusively claim that the subject shares had become government property solely due to the sequestration order over Piedras Petroleum.

The Court also found untenable the reliance on Proclamation No. 50. It characterized Proclamation No. 50 as aimed at privatization and the disposition of certain government corporations and/or assets. It discussed that the term “assets” under Article I, Sec. 2, Par. 1 of Proclamation No. 50 referred to receivables and other obligations due to government institutions, real and personal property owned or held by government institutions, shares of stock and investments held by government institutions, and the institutions themselves. The Court held that the subject OPMC shares did not fall within the definition as government-owned assets at the time of the transaction because they remained privately owned while they were initially owned by Piedras Petroleum, a sequestered corporation. Even assuming the shares were government assets, the Court held there was no law mandating that listed shares owned by government be sold only through public bidding.

The Court added that because OPMC was a listed corporation in the Philippine Stock Exchange (PSE), it was bound by the Revised Listing Rules of the PSE, whose objective was to provide a fair, orderly, efficient, and transparent market. It invoked Nicolas v. Court of Appeals, holding that stock market trading is technical and specialized and should be left to the stock market. It further reasoned that even if public bidding were required, sale through the stock exchange already constituted substantial compliance. The Court agreed with the CA that stock market trading offered transparent and fair competition and that share pricing depended on specialized valuation factors best handled by market expertise.

Ministerial Duty to Record Transfer and Issue Certificates

The Court ruled that Pacific Basin’s right to registration and issuance of certificates was anc

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