[G.R. Nos. 147062-64. December 14, 2001.

REPUBLIC OF THE PHILIPPINES, represented by the PRESIDENTIAL

COMMISSION ON GOOD GOVERNMENT (PCGG), Petitioner, v. COCOFED Et. Al.
and BALLARES Et. Al., 1 EDUARDO M. COJUANGCO JR. and the
SANDIGANBAYAN (First Division) respondents.

DECISION

PANGANIBAN, J.:

The right to vote sequestered shares of stock registered in the names of private
individuals or entities 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 it 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.chanroblesvirtuallawlibrary

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
Sandiganbayan 3 in Civil Case Nos. 0033-A, 0033-B and 0033-F. The pertinent portions
of the assailed Order read as follows: chanrob1es virtual 1aw library

“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 (E.O.) Nos. 1, 5 2 6 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 E.O. Nos. 1 and 2. chanrob1es virtua1 1aw 1ibrary

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 Motion 11 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 G.R. 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:
1aw library
chanrob1es virtual

“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 G.R. 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 acquired 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. chanrob1es virtua1 1aw 1ibrary

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: chanrob1es virtual 1aw library

“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 Resolution 21 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 28, 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: chanrob1es virtual 1aw library

“Did the Sandiganbayan commit grave abuse of discretion when it issued the disputed
Order allowing respondents to vote UCPB shares of stock registered in the name of
respondents?”

This Court’s Ruling

The Petition is impressed with merit.

Main Issue: chanrob1es virtual 1aw library

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 — 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. Calpo 27 and PCGG v. Cojuangco
Jr., 28 as follows: chanrob1es virtual 1aw library

(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. PCGG 29 (hereinafter
“Baseco”) and Cojuangco Jr. v. Roxas 30 (“Cojuangco-Roxas”) has provided two clear
“public character” exceptions under which the government is granted the authority to
vote the shares: chanrob1es virtual 1aw library

(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: chanrob1es virtual 1aw library

“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: chanrob1es virtual 1aw library

“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: chanrob1es virtual 1aw library

“ ‘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 (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: chanrob1es virtual 1aw library

“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 (Emphasis supplied)

The exception was cited again by the Court in Cojuangco-Roxas 35 in this wise: chanrob1es virtual 1aw library

“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 (Emphasis supplied)

The “public character” test was reiterated in many subsequent cases; most recently, in
Antiporda v. Sandiganbayan. 37 Expressly citing Cojuangco-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: chanrob1es virtual 1aw library

“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:
library
chanrob1es virtual 1aw

“Justice Panganiban: chanrob1es virtual 1aw library

“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: chanrob1es virtual 1aw library

“Yes, Your Honor.

x          x           x

“Justice Panganiban: chanrob1es virtual 1aw library

“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 Consumers
Stabilization Fund?

“Atty. Herbosa: chanrob1es virtual 1aw library

“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. Sandiganbayan
42 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: chanrob1es virtual 1aw library

“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

“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 (Emphasis 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 G.R. No. 96073 on January 23, 1995. chanrobles.com : virtual law library

This argument is aptly answered by petitioner in its Memorandum, which we quote: chanrob1es virtual 1aw library

“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 bases
remain.” 45 (Emphasis supplied)

Granting arguendo that the Resolution is interlocutory, the truth remains: the coconut
levy funds are still “clearly affected with public interest.” That was the truth in 1989 as
quoted by this Court in its February 16, 1993 Resolution, and so it is today. Said the
Court in 1989: chanrob1es virtual 1aw library

“The utilization and proper management of the coconut levy funds, raised as they were
by the State’s police and taxing powers, are certainly the concern of the Government. It
cannot be denied that it was the welfare of the entire nation that provided the prime
moving factor for the imposition of the levy. 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. The coconut
levy funds are clearly affected with public interest. Until it is demonstrated satisfactorily
that they have legitimately become private funds, they must prima facie and by reason
of the circumstances in which they were raised and accumulated be accounted subject
to the measures prescribed in E.O. Nos. 1, 2, and 14 to prevent their concealment,
dissipation, etc., which measures include the sequestration and other orders of the
PCGG complained of.” 46 (Emphasis 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 (G.R. 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. chanrob1es virtua1 1aw 1ibrary

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:chanrob1es virtual 1aw library

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: chanrob1es virtual 1aw library

(a) They were generated by virtue of statutory enactments imposed on the coconut
farmers requiring the payment of prescribed amounts. Thus, P.D. No. 276, which
created the Coconut Consumers Stabilization Fund (CCSF), mandated the following: chanrob1es virtual 1aw library

“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 R.A. 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 P.D. No. 961 51
and P.D. No. 1468 52 — in this wise: chanrob1es virtual 1aw library

“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
P.D. No. 276: chanrob1es virtual 1aw library

“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 not
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: chanrob1es virtual 1aw library

“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 P.D. 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 by products
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. COA 57 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 . . . with
deposed Ferdinand Marcos and his cronies as the suspected authors and chief
beneficiaries of the resulting coconut industry monopoly.” 60 The Court continued: “. . .
. 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. . . .” 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: chanrob1es virtual 1aw library

“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 v. 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 v. 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]. (Emphasis
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: chanrob1es virtual 1aw library

“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: chanrob1es virtual 1aw library

“. . . 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. . . . 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, they 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 . . . 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. chanrob1es virtua1 1aw 1ibrary

“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:chanrob1es virtual 1aw library

“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 . . . .” 72

Because these funds have been subjected to COA audit, there can be no other
conclusion than that they 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, . . . 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: chanrob1es virtual 1aw library

‘(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
(Emphasis 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 P.D. No. 276 treats them as special funds
for a specific public purpose. Furthermore, P.D. No. 711 transferred to the general
funds of the State all existing special and fiduciary funds including the CCSF. On the
other hand, P.D. 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. chanrob1es virtua1 1aw 1ibrary

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: chanrob1es virtual 1aw library

“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 bylaws. 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: chanrob1es virtual 1aw library

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 . . . 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.chanrob1es virtua1 1aw 1ibrary

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.
chanrob1es virtua1 1aw 1ibrary

SO ORDERED.