Case Summary (G.R. No. 177857-58)
Factual Background and Initial Transactions
In 1983, the Coconut Industry Investment Fund Holding Companies (CIIF) acquired 33,133,266 shares of San Miguel Corporation (SMC). On March 26, 1986, these shares were sold to Andres Soriano III of the SMC Group for ₱3.3 billion, payable in installments. The first installment payment of ₱500 million was made on April 1, 1986. Shortly thereafter, on April 7, 1986, PCGG sequestered these shares amidst allegations of ill-gotten wealth involving former President Marcos and his associates. The sequestration led to payment suspension for the remaining shares and a legal dispute ensued between SMC and UCPB.
Dispute Resolution through the 1990 Compromise Agreement
In March 1990, SMC and UCPB (representing CIIF) entered into a Compromise Agreement resolving disputes over the sale of the SMC shares. Key provisions included recognizing the validity of the first installment covering five million SMC shares (which had increased to 25.45 million shares due to dividends and stock splits) as belonging to SMC and to be held as treasury shares for eventual disposal pursuant to SMC’s expansion plans. Conversely, the sale involving the second to fourth installments was rescinded in favor of CIIF Holding Companies retaining those shares and their dividends. PCGG consented to this arrangement subject to Sandiganbayan approval. However, Sandiganbayan did not expressly approve the Compromise Agreement but allowed its implementation under specific conditions and noted the continued sequestered status of the shares pending ownership resolution.
Implementation and Legal Actions in Sandiganbayan
In July 1991, SMC and UCPB filed a Joint Manifestation to Sandiganbayan declaring the implementation of the Compromise Agreement, reflecting the distribution of 175,274,960 SMC shares as follows: 25.45 million shares to SMC as treasury shares, 144.3 million shares to CIIF Holding Companies, and 5.5 million shares to PCGG as “arbitration fees” to support the Comprehensive Agrarian Reform Program (CARP). Sandiganbayan ordered SMC to surrender the 25.45 million treasury shares to PCGG, but SMC resisted compliance, filing motions and manifesting ownership based on the Compromise Agreement.
Sandiganbayan and Supreme Court Resolutions on Ownership
The Sandiganbayan proceeded to subdivide related cases concerning the coconut levy funds and involved entities in 1994 and thereafter rendered Partial Summary Judgments declaring the CIIF companies and their SMC shares as public assets owned by the government in trust for coconut farmers. On May 7, 2004, the Sandiganbayan ruled that the CIIF block of shares, including those in the 14 CIIF Holding Companies, belong to the Republic of the Philippines as public assets. The Supreme Court affirmed these rulings with modifications in its January 24, 2012 Decision, specifying that these shares shall be used exclusively for the benefit of coconut farmers and the coconut industry.
Conversion of CIIF Shares to SMC Series 1 Preferred Shares
In 2009, COCOFED filed a motion for the conversion of 753,848,312 SMC common shares registered in the names of the CIIF Holding Companies into SMC Series 1 Preferred Shares. The Supreme Court approved with qualifications the conversion, emphasizing that the preferred shares would remain under custodial management (custodia legis) subject to final ownership determination and would be subject to sequestration and PCGG management pending resolution.
The Republic’s Manifestation and Motion Relating to Treasury Shares
In 2012, the Republic filed an Omnibus Motion to clarify that the 25.45 million SMC treasury shares, originally part of the 33,133,266 SMC shares as of 1983 and subject to the Compromise Agreement, should also be included among the government-owned assets to be reconveyed. The petition asserts that excluding these treasury shares would result in the government losing substantial assets that ought to benefit coconut farmers. It also requested that SMC be directed to comply with earlier Sandiganbayan orders mandating the transfer of these shares and payment of dividends to the PCGG. The Republic further prayed for actual damages in the form of legal interest due to failure of compliance.
San Miguel Corporation’s Position and Court’s Ruling on Jurisdiction
SMC claimed that the 25.45 million treasury shares were owned by it by virtue of the Compromise Agreement, and argued that the Court lacked jurisdiction over it because it was not a party to the case. The Supreme Court ruled that the failure to implead SMC in the case deprived the Court of jurisdiction to order SMC to deliver the treasury shares, in accordance with the constitutional guarantee of due process requiring opportunity to be heard. The Court noted the established rule that judgments and execution may only bind parties properly before the court. SMC’s repeated attempts to intervene to assert its ownership were denied, but nevertheless, it had not been furnished full opportunity to present evidence on its claims in a proper proceeding.
Analysis of Due Process and Validity of the Compromise Agreement
The Court underscored the due process principle that no person or juridical entity can be deprived of property without a fair and proper judicial proceeding. The Compromise Agreement, which underlies SMC’s claim to the treasury shares, was contingent upon approval by the Sandiganbayan, which was never expressly granted. Meanwhile, the PCGG implicitly consented to the Compromise Agreement by participating in related transactions and board representation of SMC shares, but this did not constitute formal approval. Consequently, the Compromise Agreement cannot be considered an effective source of ownership rights without the required judicial approval, and SMC must conclusively prove entitlement over the treasury shares in a proper judicial proceeding.
Equitable Considerations: Unjust Enrichment and Estoppel
The Court noted the principle against unjust enrichment, observing that the government has retained the ₱500 million initial payment while simultaneously claiming ownership of the treasury shares acquired through the Compromise Agreement. The Republic was, therefore, barred by estoppel and the principle against unjust enrichment from reclaiming the shares without returning the payment. While generally the State is immune from estoppel, this immunity is not absolute and does not extend to situations where the government’s actions have caused injustice or unfairness, such as in bona fide proprietary transactions like the Compromise Agreement.
Clarification on the Scope of Shares Subject to Government Ownership
The Supreme Court clarified that the 753,848,312 SMC Series 1 Preferred Shares subject of the 2009 Court resolution correspond to shares registered in the names of the CIIF companies, excluding the 25.45 million treasury shares and the 5.5 million arbitration fee shares registered separately in the names of SMC and PCGG, respectively. The treasury shares, while derived from the original 33,133,266 CIIF block of shares, remain distinct and have not been declared government-owned pending proper adjudication. The 2009 and 2012 resolutions should not be read to equate the CIIF shares as fully inclusive of the treasury shares.
Dissenting Opinions and Criticism of Majority Ruling
Chief Justice Sereno dissented on grounds that the 2012 modification erroneously substituted 753 million preferred shares for the 33 million CIIF common shares originally declared government property. She argued that the Compromise Agreement was never fully approved by Sandiganbayan, therefore the treasury shares purportedly sold to SMC remained government property to be reconveyed in totality. She highlighted that the PCGG's consent alone was insufficient without judicial sanction, and that SMC’s claim should be thoroughly adjudicated rather than accepted without challenge.
Justice Leonen dissented emphatically, urging the Court to uphold the Republic’s motion to include the 25.45 million treasury shares within the government’s asset pool for the benefit of impoverished coconut farmers. He traced the history of the coconut levy funds as public moneys misappropriated during Martial Law, lamenting that the majority’s refusal to include the treasury shares and recognition of SMC’s claim perpetuates injustice and enriches private interests at the expense of the farmers. He criticized the majority
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Case Syllabus (G.R. No. 177857-58)
Background and Parties Involved
- The case concerns a prolonged dispute involving the ownership and disposition of shares of stock in San Miguel Corporation (SMC) originally acquired via the Coconut Industry Investment Fund Holding Companies (CIIF), managed through the United Coconut Planters Bank (UCPB).
- Petitioners include Philippine Coconut Producers Federation, Inc. (COCOFED) and various individuals; the respondent is the Republic of the Philippines.
- Intervenors include various agricultural cooperatives and farmer associations represented by Romeo C. Royandoyan.
- The conflict centers on the rightful ownership, reconveyance, and proper management of shares of SMC purchased with coconut levy funds, alleged to be public funds, seized following the Marcos regime.
- The Presidential Commission on Good Government (PCGG) was authorized to sequester ill-gotten wealth assets, including shares implicated in this dispute.
Historical Antecedents and Transactions
- In 1983, the CIIF Holding Companies acquired 33,133,266 common shares of SMC using funds collected via coconut levies imposed during the Marcos regime for the benefit of coconut farmers.
- On March 26, 1986, these shares were sold to Andres Soriano III of the SMC Group for P3.313 billion, payable in four installments; initial installment of P500 million was paid on April 1, 1986.
- Just days later, on April 7, 1986, PCGG sequestered the shares, halting further payment.
- The UCPB Group attempted to rescind the sale, filing a complaint dismissed for lack of jurisdiction.
- After years of dispute, in March 1990, SMC and UCPB groups entered a Compromise Agreement wherein:
- The first installment covering 5 million SMC shares (later increased by stock dividends to approximately 26.45 million shares) was recognized as valid and assigned to SMC.
- These shares were to revert to SMC treasury for distribution according to a SMC Stock Dispersal Plan.
- The sales of the remaining three installments were rescinded and declared null and void.
- An “arbitration fee” in the form of 5.5 million SMC shares was assigned to PCGG for the Comprehensive Agrarian Reform Program.
- The parties implemented the Compromise Agreement with the PCGG’s tacit approval but without explicit approval from the Sandiganbayan.
Judicial Proceedings and Rulings
- The Sandiganbayan handled various cases concerning the sequestration of shares linked to the coconut levy fund and ill-gotten wealth claims.
- The Sandiganbayan ordered on October 25, 1991, and March 18, 1992, that SMC deliver 25.45 million treasury shares and dividends to PCGG, but SMC failed to comply.
- Various motions were filed challenging the implementation of the Compromise Agreement.
- The Sandiganbayan’s July 11, 2003, and May 7, 2004 Partial Summary Judgments declared the CIIF companies, the 14 holding companies, and the CIIF block of SMC shares as owned by the Republic in trust for coconut farmers.
- This Court affirmed the public nature of the funds and assets involved and declared that the shares purchased through coconut levy funds must be treated as government-owned assets for the benefit of coconut farmers and the development of the coconut industry.
- The 33,133,266 CIIF shares grew through dividends and stock splits to 753,848,312 shares registered as Series 1 Preferred Shares as of September 17, 2009, by Court approval.
- The Court clarified in the Resolution dated September 4, 2012, that these preferred shares are the shares to be reconveyed to the Republic and did not include the 25.45 million SMC treasury shares, nor the “arbitration fee” shares held by PCGG.
The Main Contention: Ownership and Jurisdiction
- The Republic filed a Manifestation and Omnibus Motion dated October 12, 2012, requesting the Court to clarify and include the 25.45 million SMC treasury shares in the government’s ownership as part of t