Cuenca vs. Atas

Summary proceedings before the SEC Hearing Panel, conducted pursuant to the SEC New Rules of Procedure, satisfy the requirements of administrative due process as enumerated in Tibay vs. Court of Industrial Relations — namely the right to a hearing, the duty to consider evidence presented, the requirement of substantial evidence supporting the decision, rendition of decision on the evidence presented, independent consideration of the law and facts, and a decision stating the issues and reasons — provided the party is given ample opportunity to present his case; and factual findings of administrative agencies, when supported by substantial evidence, are binding and final on reviewing courts.

Rodolfo M. Cuenca was an incorporator, President, and Chief Executive Officer of the Construction Development Corporation of the Philippines (CDCP), now Philippine National Construction Corporation (PNCC), from its incorporation in 1966 until 1983. CDCP was granted a franchise under Presidential Decree No. 1113 to construct, operate, and maintain toll facilities of the North and South Luzon Expressway. In the course of its operations, CDCP incurred substantial credit obligations to various government financial institutions (GFIs), namely the Philippine National Bank (PNB), Development Bank of the Philippines (DBP), National Development Company (NDC), Government Service Insurance System (GSIS), Land Bank of the Philippines (LBP), and Philippine Export and Foreign Loan Guarantee Corporation (PEFLGC). On February 23, 1983, President Ferdinand E. Marcos issued Letter of Instruction No. 1295, directing the creditor GFIs to convert CDCP's outstanding obligations into shares of stock as part of the government's financial rehabilitation program for CDCP.

On February 23, 1983, President Ferdinand E. Marcos issued Letter of Instruction No. 1295 directing the creditor government financial institutions (GFIs) to convert into CDCP's shares of stock all of the direct obligations of CDCP and those of its wholly-owned subsidiaries outstanding as of December 31, 1982, as well as obligations maturing in 1983, whether direct or guaranteed by the GFIs. On April 25, 1983, a special stockholders' meeting presided by petitioner Rodolfo M. Cuenca approved the increase of CDCP's authorized capital stock from ₱1.6 billion to ₱2.7 billion in accordance with LOI 1295. Pursuant to said letter, CDCP issued common shares to DBP, NDC, GSIS, LBP, and PEFLGC, and preferred "D" shares to PNB, in consideration for the extinguishment of some of CDCP's outstanding loan obligations to said GFIs. The total subscription amounted to ₱1,405,202,000 or roughly ₱1.4 billion, and all issuances were duly recorded in CDCP's corporate books. In December 1983, the SEC approved the increase in authorized capital stock, and corresponding certificates of stock were issued in the names of the GFIs. With the implementation of LOI 1295, the GFIs became majority stockholders of CDCP to the extent of 70% of the authorized capital stock. The change in ownership was made public through various announcements, and CDCP was later renamed PNCC to reflect the Philippine Government stockholding, becoming a government-acquired asset corporation. The GFIs were given seats in the Board of Directors and participated in the management of the company.

On August 19, 1987, PNCC issued Certificate of Stock No. 43032 in the name of NDC for 14,699,000 shares of common stock, pursuant to LOI 1136 rather than LOI 1295. Sometime in 1988, pursuant to Administrative Order Nos. 14 and 64, DBP, PNB, PEFLGC, and NDC transferred their interests in PNCC to the Republic of the Philippines, which in turn conveyed them to the Asset Privatization Trust (APT) for disposition to the private sector under the government's privatization program.

On May 31, 1996, more than a decade after LOI 1295 was implemented, petitioner filed a complaint before the SEC SICD docketed as SEC Case No. 05-96-5357, seeking a declaration of whether the GFIs were registered stockholders of PNCC and the number of shares held by each, and to compel PNCC to call and hold regular stockholders' meetings and elections of directors. Petitioner averred that while PNCC issued certificates of stock to the GFIs pursuant to LOI 1295, the GFIs refused to cancel and never did cancel the loans in their books as payment for the shares, considering such cancellation a diminution of the value of their investments. Petitioner claimed that some GFIs refused to accept delivery of the stock certificates while others were unaware of the issuance, and that the GFIs continued to charge and receive payments for loan and interest charges from PNCC though these loans were supposed to have been converted into common stock in 1983. In March 1998, when PNCC scheduled a special stockholders' meeting to spin off its tollway operations, petitioner sought a TRO and preliminary injunction to enjoin the GFIs from voting their shares. The SEC SICD granted the TRO on April 14, 1998, and the preliminary injunction on September 8, 1998.

During the proceedings before the Hearing Panel, petitioner was barred from presenting additional evidence at the June 13, 2000 preliminary conference for failure to file a reply to PNCC's amended answer and to file an amended preliminary conference brief with witness affidavits. Petitioner's rebuttal evidence was terminated through the July 3, 2000 Omnibus Order, which also denied his second amended complaint and submitted the case for decision. The Hearing Panel rendered its decision on July 10, 2000, dismissing the complaint for lack of merit. The Hearing Panel found that the evidence presented by PNCC and the GFIs constituted substantial proof of the implementation of LOI 1295: certificates of stock were issued and recorded in stock ledger cards, corroborated by PNCC's stock transfer agent Caval Securities Registry, Inc.; the GFIs had been nominating representatives to PNCC's Board of Directors prior to the filing of the case; the April 14, 2000 Deed of Confirmation and June 7, 2000 Supplement executed by the GFIs erased all doubts on the conversion; and the Notes to the Financial Statements prepared by independent auditors from Carlos J. Valdes & Co. showed the reduction of PNCC's loan obligations by approximately ₱1.4 billion as of December 31, 1983. The Hearing Panel also found that the shares were issued for valuable consideration pursuant to Section 62 of the Corporation Code and could not be considered "watered stocks," and that the lack of a subscription agreement was not fatal because LOI 1295 mandated the conversion and the stockholders approved the increase in capital stock pursuant to it.

• Denial of Due Process: Petitioner argued that the SEC SICD Hearing Panel railroaded the trial in favor of PNCC, prematurely terminating his rebuttal evidence through the July 3, 2000 Omnibus Order, barring him from presenting additional witnesses through the June 27, 2000 Preliminary Conference Order, and denying him the opportunity to file a second amended complaint — all in violation of his right to due process.
• Fraud and Conspiracy: Petitioner alleged that badges of fraud abounded in the July 10, 2000 Decision, pointing to the speed (only seven days) with which the "grammar-perfect" decision was rendered, and numerous instances where the decision text was identical or very similar to portions of PNCC's pleadings in another case, suggesting that PNCC prepared the decision rather than the Hearing Panel.
• Government Pressure: Petitioner asserted that the proceedings were fast-tracked due to the government's action to privatize some of the assets of the GFIs, including the subject shares of stock, implying that the government exerted pressure on the Hearing Panel and the SEC en banc for a favorable judgment.
• Contradictory Findings of Fact: Petitioner contended that the Hearing Panel's findings of fact were inexplicably the opposite of the findings previously made by Hearing Officer Gallegos and the SEC en banc, even though both sets of findings were based on the very same evidence.
• Forum Shopping: Petitioner argued that the CA erred in finding him guilty of forum shopping, maintaining that no identity exists between Civil Case No. 95-1356 before the RTC and the instant SEC case, as the former was for enforcement of LOI 1295 while the latter was for determination of stockholder status.
• Consideration of Unoffered Evidence: Petitioner maintained that the Hearing Panel committed grave abuse of discretion in considering evidence not formally offered and admitted.
• Findings Unsupported by Evidence: Petitioner argued that the Hearing Panel made findings of fact not supported by the evidence on record and disregarded "overwhelming" evidence.

• Constitution of Hearing Panel: PNCC argued that the instant case would be better heard and resolved by a hearing panel of three rather than by a sole hearing officer, considering the interests the Philippine Government holds in PNCC through the GFIs.
• Dilatory Tactics: PNCC opposed petitioner's motion to admit a second amended complaint as being dilatory, and moved to terminate petitioner's rebuttal evidence and submit the case for decision on the merits.
• Implementation of LOI 1295: PNCC and the GFIs presented evidence — including stock ledger cards, the schedule of subscription from PNCC's stock transfer agent, the Deed of Confirmation and its Supplement, and financial statements from independent auditors — to establish that LOI 1295 was duly implemented and that the shares were issued for valuable consideration.

• Due Process in Summary Proceedings: Whether petitioner was denied due process when the SEC SICD Hearing Panel terminated his rebuttal evidence, barred him from presenting additional witnesses, refused to admit his second amended complaint, and rendered its decision seven days after submission.
• Fraud and Conspiracy: Whether the proceedings before the Hearing Panel were tainted by fraud and conspiracy between the Hearing Panel and PNCC, as shown by alleged badges of fraud.
• Finality of Administrative Findings: Whether the CA erred in upholding the factual findings of the SEC SICD Hearing Panel as conclusive and binding.
• Implementation of LOI 1295: Whether LOI 1295 was indeed implemented such that the GFIs validly became majority stockholders of PNCC.
• Forum Shopping: Whether petitioner was guilty of forum shopping for filing substantially the same claims before both the SEC and the RTC.
• SEC Jurisdiction: Whether the SEC has jurisdiction to compel PNCC to hold annual stockholders' meetings and election of directors.

• Due Process in Summary Proceedings: No. The summary proceedings before the SEC Hearing Panel complied with the cardinal requirements of administrative due process enumerated in Tibay vs. Court of Industrial Relations, petitioner having been accorded ample opportunity to ventilate his position.
• Fraud and Conspiracy: No. Petitioner failed to prove fraud by preponderance of evidence; fraud is never presumed but must be established by clear and convincing evidence, and the similarities between the decision and PNCC's pleadings were expressly allowed by the SEC New Rules of Procedure.
• Finality of Administrative Findings: No error. Factual findings of administrative bodies, if based on substantial evidence, are controlling on the reviewing authority, and it is not the function of the Court to weigh the evidence anew.
• Implementation of LOI 1295: Yes. LOI 1295 was indeed implemented, as shown by certificates of stock issued, financial statements reflecting debt reduction, stock transfer agent records, and the GFIs' Deed of Confirmation and Supplement.
• Forum Shopping: Yes. Petitioner was guilty of forum shopping, both the SEC case and Civil Case No. 95-1356 involving substantially the same parties, the same factual antecedent of debt-to-equity conversion under LOI 1295, and the same cause of action.
• SEC Jurisdiction: Yes. The SEC retains jurisdiction over government-acquired asset corporations like PNCC and may compel PNCC to hold a stockholders' meeting for the election of its board of directors.

• Due Process in Summary Proceedings: The Court applied the seven cardinal requirements of administrative due process enumerated in Tibay vs. Court of Industrial Relations: (1) the right to a hearing and to present evidence; (2) the tribunal must consider the evidence presented; (3) the decision must have something to support it; (4) the evidence must be substantial; (5) the decision must be rendered on the evidence presented; (6) the tribunal must act on its own independent consideration; and (7) the decision must state the issues and reasons. The SEC New Rules of Procedure prescribe summary proceedings, and the Hearing Panel adhered to Rule V, Sec. 4 (hearings to commence within 15 days and completed within 20 days) and Rule VI, Sec. 1 (decision within 20 days from submission). Petitioner was given the opportunity to present his case but failed to file a reply to PNCC's amended answer, failed to file an amended preliminary conference brief with witness affidavits, and attempted to introduce evidence during rebuttal that should have been presented during his evidence-in-chief. Having been given ample opportunity but choosing not to fully avail of it, petitioner cannot claim denial of due process. His acquiescence to the constitution of the Hearing Panel by participating without filing a motion for reconsideration constituted waiver.

• Fraud and Conspiracy: The Court applied the rule that fraud is never presumed but must be established by clear and convincing evidence, and that he who alleges fraud bears the burden of proof (actori incumbit onus probandi). Petitioner pointed to the seven-day rendering period and textual similarities between the decision and PNCC's pleadings as badges of fraud. However, the SEC New Rules of Procedure, specifically Rule V, Sec. 5, expressly allows the Hearing Officer to adopt in whole or in part a draft decision, position paper, or any pleading filed by the parties, and Rule VI, Sec. 1 requires the decision to be rendered within 20 days from submission. The seven-day rendering period was thus compliance with, not violation of, the rules. The allegation of government pressure from the privatization program was utterly specious, petitioner having presented not even an iota of proof to substantiate it.

• Finality of Administrative Findings: The Court applied the doctrine that findings of fact of administrative bodies, if based on substantial evidence, are controlling on the reviewing authority. It is not the function of the appellate court to substitute its own judgment for that of the administrative agency on the sufficiency of evidence and credibility of witnesses. The Hearing Panel had the optimum opportunity to review the evidence and observe the demeanor of witnesses. Petitioner's claim that the findings contradicted those made during the preliminary injunction stage was untenable, as the evidence presented during injunction hearings was merely preliminary — a sampling to justify the writ — and could not preempt the resolution on the merits after due trial and presentation of all evidence.

• Implementation of LOI 1295: Even apart from the prior ruling in Children's Garden of the Philippines vs. APT that LOI 1295 implementation was a fait accompli, the Court independently concluded that LOI 1295 was implemented based on: (1) the undisputed issuance of certificates of stock to the GFIs; (2) the records and accounts of PNCC reflecting the debt-to-equity conversion as attested to by independent auditors Carlos J. Valdes & Co. in comparative financial statements for 1982 and 1983; (3) corroboration by PNCC's stock transfer agent, Caval Securities Registry, Inc.; and (4) the Deed of Confirmation and its Supplement executed by the GFIs. The shares were issued for valuable consideration — existing loan credit obligations — pursuant to Section 62 of the Corporation Code, which allows issuance of shares in consideration for previously incurred indebtedness, and thus could not be considered "watered stocks." The lack of a subscription agreement was not fatal, as LOI 1295 mandated the conversion and the stockholders approved the capital stock increase pursuant to it.

• Forum Shopping: The Court found that both the SEC case and Civil Case No. 95-1356 were derived from the same factual issues involving substantially the same parties, stemming from the same factual antecedent of debt-to-equity conversion under LOI 1295. Although the actions appeared different — one for determination of stockholder status and the other for enforcement of LOI 1295 — there was a splitting of a cause of action, as both anchored on the claim that LOI 1295 was not fully implemented. Petitioner's withdrawal of the RTC complaint on June 19, 2000, when the SEC case was at its last stages, was revealing. Petitioner also fatally failed to state in his verification and certification the status of the instant SEC case as required by Rule 7, Sec. 5, 1997 Rules of Civil Procedure.

• SEC Jurisdiction: Relying on Philippine National Construction Corporation vs. Pabion, the Court held that PNCC is an acquired asset corporation and not a government-owned and/or controlled corporation (GOCC). PNCC did not lose its status as a private corporation upon acquisition by the government through the GFIs of the majority of its shares. While the SEC has no jurisdiction over GOCCs with original charters or created by special law, it retains jurisdiction over government-acquired asset corporations. Accordingly, the SEC may compel PNCC to hold a stockholders' meeting for the purpose of electing members of its board of directors.

• Administrative Due Process (Tibay Requirements) — In administrative and quasi-judicial proceedings, the cardinal primary requirements of due process are: (1) the right to a hearing, including the right to present one's case and submit evidence; (2) the tribunal must consider the evidence presented; (3) the decision must have something to support it; (4) the evidence must be substantial; (5) the decision must be rendered on the evidence presented or contained in the record and disclosed to the parties; (6) the tribunal must act on its own independent consideration of the law and facts, not simply accept the views of a subordinate; and (7) the decision must be rendered in such a manner that the parties can know the various issues involved and the reasons for the decision. The Court applied these requirements to the SEC SICD proceedings and found that all were satisfied, petitioner having been given ample opportunity to present his case but having failed to fully avail of it.

• Finality of Administrative Findings — Findings of fact of administrative bodies, if based on substantial evidence, are controlling on the reviewing authority. It is not the function of the appellate court to substitute its own judgment for that of the administrative agency on the sufficiency of evidence and credibility of witnesses. Administrative decisions on matters within their jurisdiction are entitled to respect and can only be set aside on proof of grave abuse of discretion, fraud, or error of law. The Court relied on this doctrine to affirm the SEC SICD Hearing Panel's factual findings.

• Fraud Never Presumed — Fraud is never presumed but must be established by clear and convincing evidence. He who alleges fraud bears the burden of proof (actori incumbit onus probandi), and a mere allegation is not evidence. The Court applied this principle to reject petitioner's claims of conspiracy and railroading, petitioner having failed to present substantial evidence of malice, bad faith, or corrupt purpose on the part of the Hearing Panel.

• Forum Shopping — Forum shopping exists where a party files multiple actions involving the same parties, the same factual antecedents, and the same cause of action, constituting a splitting of a cause of action. The Court found petitioner guilty of forum shopping for filing both the SEC case and Civil Case No. 95-1356, both derived from the same factual issues of debt-to-equity conversion under LOI 1295, and for failing to comply with the certification against forum shopping required by Rule 7, Sec. 5 of the 1997 Rules of Civil Procedure.

• Acquired Asset Corporations vs. GOCCs — A government-acquired asset corporation, unlike a government-owned and/or controlled corporation (GOCC) created by special law or original charter, does not lose its status as a private corporation upon acquisition by the government of the majority of its shares. The SEC retains jurisdiction over such corporations and may compel them to hold stockholders' meetings. The Court applied this distinction, drawn from Philippine National Construction Corporation vs. Pabion, to uphold SEC jurisdiction over PNCC.

• "Procedural due process, in gist, is the necessity for notice and an opportunity to be heard before judgment is rendered. Its essence is encapsulated in the immortal cry of Themistocles to Alcibiades: 'Strike––but hear me first.'" — This passage defines the essence of procedural due process and frames the Court's analysis of whether petitioner was accorded due process in the summary SEC proceedings.

• "Fraud is never presumed, but must be established by clear and convincing evidence." — This is the canonical formulation of the burden of proving fraud, applied to reject petitioner's allegations of conspiracy between the Hearing Panel and PNCC.

• "The rule is that the findings of fact of administrative bodies, if based on substantial evidence, are controlling on the reviewing authority." — This passage states the doctrine governing judicial review of administrative findings, which the Court applied to affirm the SEC SICD Hearing Panel's factual determinations.

• "Due process is not violated where a person is given the opportunity to be heard but chooses not to give his side." — This principle, quoted by the CA and affirmed by the Court, encapsulates the rationale for rejecting petitioner's due process claim: he was afforded the opportunity but failed to avail of it at the proper stage of proceedings.

• Tibay vs. Court of Industrial Relations, 69 Phil. 635 (1940) — Controlling precedent establishing the seven cardinal requirements of administrative due process. The Court applied these requirements to evaluate whether the SEC SICD Hearing Panel proceedings satisfied due process.

• Children's Garden of the Philippines vs. APT, G.R. No. 101057, February 7, 1992 — Prior Supreme Court resolution ruling that the implementation of LOI 1295 was already a fait accompli, constituting clear recognition of the factual conversion of GFIs' loan credits to PNCC shares. The Hearing Panel and the Court both relied on this case.

• Philippine National Construction Corporation vs. Pabion, G.R. No. 131715, December 8, 1999 — Controlling precedent holding that PNCC is an acquired asset corporation, not a GOCC, and did not lose its private corporation status upon government acquisition of majority shares. The Court applied this to uphold SEC jurisdiction over PNCC.

• Bernardo vs. Court of Appeals, G.R. No. 124261, May 27, 2004 — Followed for the doctrine that findings of fact of administrative bodies, if based on substantial evidence, are controlling on the reviewing authority, and that it is not the function of the appellate court to substitute its judgment for that of the administrative agency.

• Ynot vs. Intermediate Appellate Court, G.R. No. L-74457, March 20, 1987 — Cited for the principle that the essence of due process is the opportunity to be heard.

• SEC New Rules of Procedure, Rule I, Sec. 4 — Provides that proceedings before the Commission shall be summary in nature, not necessarily adhering to the technical rules of evidence obtaining in regular courts. Applied to uphold the expeditious conduct of the Hearing Panel proceedings.

• SEC New Rules of Procedure, Rule V, Sec. 4 — Provides that hearings shall be commenced not later than 15 days from termination of the preliminary conference and completed within 20 days from the first hearing date. Applied to show that the Hearing Panel's scheduling was within its authority.

• SEC New Rules of Procedure, Rule V, Sec. 5 — Provides that parties shall submit position papers and draft decisions, and the Hearing Officer may adopt in whole or in part either party's draft decision or resolution. Applied to reject petitioner's claim that textual similarities between the decision and PNCC's pleadings constituted fraud.

• SEC New Rules of Procedure, Rule VI, Sec. 1 — Provides that the Hearing Officer shall render a decision within 20 days from submission of the case for resolution. Applied to show that the seven-day rendering period was compliance with, not violation of, the rules.

• Section 62, Corporation Code — Expressly allows the issuance of shares of stock in consideration for previously incurred indebtedness. Applied to uphold the validity of the shares issued to the GFIs as issued for valuable consideration and not "watered stocks."

• Rule 7, Sec. 5, 1997 Rules of Civil Procedure — Requires the plaintiff to certify under oath the status of any other pending action or claim involving the same issues. Applied to find petitioner guilty of forum shopping for failing to disclose the status of the SEC case in his certification in Civil Case No. 95-1356.

• Letter of Instruction No. 1295 — Issued February 23, 1983, directing creditor GFIs to convert CDCP's outstanding obligations into shares of stock as part of the government's financial rehabilitation program. The central statutory instrument whose implementation was the subject of the dispute.

• Letter of Instruction No. 1136 — Basis for the issuance of 14,699,000 shares of common stock of PNCC to NDC in 1987, distinct from LOI 1295. Applied to dismiss the complaint against NDC for failure to state a cause of action.

Carpio-Morales, Tinga, Nachura, Reyes, JJ., concurred.