Land Bank of the Philippines v. Reyes

There is no indirect contempt by disobedience where the SC decision commanded the alleged contemnors to do nothing and the failure to fully restore shares resulted from prior valid trading to third persons without willful refusal. The SC merely affirmed the RARAD order to cancel and restore shares, while MERALCO substantially complied by returning 38,635,950 shares.

Petitioner Land Bank of the Philippines owns MERALCO shares acquired through its proprietary banking functions, separate from its mandate as administrator of the Agrarian Reform Fund. Under Executive Order No. 267, petitioner must segregate its corporate funds as a financial institution from ARF funds earmarked for payment of just compensation. Section 21 of Republic Act No. 9700 and Section 10, Rule 19 of the 2003 DARAB Rules of Procedure require just compensation, including execution therefor, to be sourced only from the ARF in petitioner's custody.

Petitioner owned 42,002,750 MERALCO shares acquired as a regular banking institution. By virtue of the September 14, 2005 Alias Writ of Execution and the October 30, 2008 Order of RARAD Miñas in DARAB Case No. V-0405-0001-00, petitioner's shares were levied and sold at public auction to pay the value of Federico Suntay's expropriated land. Josefina S. Lubrica won as highest bidder, after which MERALCO cancelled petitioner's certificates and issued new ones in Lubrica's name. Petitioner challenged the levy before the SC, which on December 14, 2011 declared the immediate and indiscriminate levy without determining whether the assets formed part of the ARF disregarded petitioner's proprietary rights, quashed the September 14, 2005 and October 30, 2008 orders and all acts pursuant thereto, and affirmed the October 25, 2005 and December 17, 2008 orders directing cancellation of Lubrica's certificates, restoration to petitioner, stoppage of trading, and recognition of petitioner's right to dividends as if no levy occurred.

After finality on September 11, 2012, the Office of the Regional Adjudicator Region IV-B issued an April 1, 2013 Order for a Writ of Execution, and its Sheriff issued an April 12, 2013 Demand to Comply to MERALCO. In partial compliance, MERALCO delivered to petitioner 38,635,950 shares, cash dividends of P1,206,955,617.77, and property dividends of 108,884,212 Rockwell Land Corporation shares, as reported by the Sheriff on January 24, 2014. MERALCO failed to deliver the remaining 3,366,800 shares, plus as of September 30, 2014 cash dividends of P161,303,388.00 on the undelivered shares and all subsequent dividends thereon, cash dividends of P8,145,009.73 on the earlier delivered 38,635,950 shares, and property dividends of 9,488,349 Rockwell Land shares on the undelivered shares.

According to respondents, the missing shares could no longer be returned because they had been traded in the Philippine Stock Exchange and settled through the Securities Clearing Corporation of the Philippines into the hands of the investing public. Respondents narrated that on November 4, 2008 Corporate Secretary Emmanuel R. Sison received the DARAB Sheriffs' Demand to Comply and two Certificates of Sale covering Stock Certificates Nos. 87265, 664638, 707447, and 707448, with no injunction or suit enjoining MERALCO. Thereafter, Sison wrote the Securities Transfer Services, Inc. on November 10, 2008 to cancel petitioner's certificates and issue new ones to Lubrica, obtained Bureau of Internal Revenue Certificate Authorizing Registration No. CAR 2008-00096023 on November 20, 2008, and on November 28, 2008 directed cancellation and transfer of the 42,002,750 shares. Only later did RARAD Casabar issue the December 15, 2008 nullification order, followed by the December 16, 2008 SCCP memorandum suspending clearing and settlement and the December 17, 2008 PSE suspension of trading, or 18 days after MERALCO had already transferred the shares.

Of the 42,002,750 shares issued to Lubrica, 40,600,000 were lodged with the Philippine Depository & Trust Corp. while 1,402,750 were not lodged. Of the lodged shares, 3,366,800 were traded and settled and no longer in lodging brokers' PDTC accounts, leaving 37,233,200 lodged shares plus the 1,402,750 unlodged shares, or 38,635,950 shares, restored to petitioner. Respondents maintained that once traded and settled, MERALCO was no longer empowered to unilaterally cancel the shares, since under the 1999 PSE Trading and Settlement Rules then in force cancellation of a matched order was allowed only for computer errors or evident trader's error reported the same day. Because no payment in full followed, petitioner filed the present contempt petition, while admitting MERALCO's 91.98% restoration.

• Disobedience to SC Decision: Petitioner argued that respondents failed to fully comply with the SC Decision in Land Bank of the Philippines vs. Suntay by not delivering the remaining 3,366,800 MERALCO shares out of 42,002,750 shares illegally transferred to Lubrica.
• Unpaid Dividends: Petitioner argued that respondents had not yet paid cash dividends of P161,303,388.00 on the undelivered shares plus subsequent dividends, cash dividends of P8,145,009.73 on the delivered 38,635,950 shares as of September 30, 2014, and property dividends of 9,488,349 Rockwell Land shares on the undelivered shares, despite the SC declaration that petitioner remained entitled to all dividends as if no levy occurred.

• Impossibility and Substantial Compliance: Respondents countered that the 3,366,800 shares had already been traded in the PSE and settled through the SCCP into the hands of the investing public and were no longer owned by Lubrica, so MERALCO complied to the extent permitted by facts and law by returning 38,635,950 shares or 91.98% of the shares.
• Good-Faith Compliance with DARAB Writ: Respondents argued that there was no injunction or suit impleading MERALCO to enjoin compliance, so then Corporate Secretary Sison properly instructed STSI to cancel and transfer the shares after the November 4, 2008 Demand to Comply and the November 20, 2008 BIR CAR, 18 days before SCCP and PSE suspended clearing and trading on December 16 and 17, 2008.
• Lack of Authority to Cancel Traded Shares: Respondents argued that MERALCO was not empowered to unilaterally cancel matched orders for shares already passed to several persons, since under the 1999 PSE Trading and Settlement Rules cancellation required computer error or evident mistake reported the same day.

• Indirect Contempt: Whether respondents are guilty of indirect contempt for allegedly failing to fully comply with the SC Decision dated December 14, 2011 in G.R. No. 188376.

• Indirect Contempt: No. Respondents are not guilty of indirect contempt, as the SC Decision commanded them to do nothing and petitioner failed to prove willful disobedience, with substantial compliance shown and the balance rendered unrecoverable by prior valid trading.

• Indirect Contempt: The SC applied Section 3(b), Rule 71 of the Rules of Court, which punishes disobedience of or resistance to a lawful writ, process, order, or judgment, construed under Bank of the Philippine Islands vs. Calanza to require clear and contumacious refusal and exercised on the preservative, not vindictive, principle. While the necessary consequence of Land Bank of the Philippines vs. Suntay was return of the shares, nowhere in its dispositive portion did the SC order MERALCO to cancel Lubrica's certificates; RARAD Casabar issued that directive and the SC merely affirmed and reiterated it, so respondents could not be guilty of disobeying an SC command, following Barrete vs. Amila. Petitioner's admission that 38,635,950 of 42,002,750 shares were restored belied disobedience, and the 3,366,800 shares were not withheld by stubborn refusal but had been lodged with PDTC, validly traded through the PSE, and settled by SCCP before suspension with title passing to third persons, unlike the 37,233,200 lodged shares remaining with brokers and the 1,402,750 unlodged shares, making unilateral cancellation no longer feasible and final and conclusive under Section 46 of the Securities Regulation Code absent notice of adverse claim. Applying Lorenzo Shipping Corp. vs. Distribution Management Association of the Philippines, contempt requires a willful act for an illegitimate purpose with good faith considered, and petitioner showed no circumstance of willful refusal to turn over the remainder.

• Indirect contempt by disobedience — Disobedience or resistance to a lawful writ, process, order, or judgment under Section 3(b), Rule 71 of the Rules of Court constitutes indirect contempt; the SC applied it to hold that where its dispositive portion directed no act to MERALCO, no disobedience could be imputed despite affirmance of a RARAD order directing cancellation and restoration.
• Direct vs. indirect contempt — Direct contempt is committed in the presence of or so near a court as to obstruct proceedings under Section 1, Rule 71, while indirect contempt covers the enumerated acts in Section 3, Rule 71 including misbehavior of court officers, disobedience, abuse of process, and improper conduct impeding justice; the SC classified the charge for non-compliance with a decision as indirect contempt.
• Preservative principle in contempt — The power to punish for contempt is inherent to preserve order and enforce judgments but must be exercised on the preservative, not vindictive, principle and only for clear and contumacious refusal, being drastic and extraordinary; the SC declined to punish where substantial compliance and absence of willfulness were shown.
• Willfulness and good faith in contempt — Contempt requires willful disregard or disobedience for an illegitimate or improper purpose, with intent as gravamen and good faith considered; the SC found no willful refusal where shares had already passed to third-party buyers before suspension of trading.
• Finality of clearing-agency registration — Under Section 46 of the Securities Regulation Code, registration of a transfer into the name of or by a registered clearing agency or its nominee is final and conclusive unless the clearing agency had notice of an adverse claim before registration; the SC applied it to explain why MERALCO could not easily cancel the 3,366,800 PSE-traded and SCCP-settled shares.

• "The power to punish for contempt is inherent in all courts and is essential to the preservation of order in judicial proceedings and to the enforcement of judgments, orders, and mandates of the court, and consequently, to the due administration of justice. However, such power should be exercised on the preservative, not on the vindictive, principle. Only occasionally should the court invoke its inherent power in order to retain that respect, without which the administration of justice will falter or fail. Only in cases of clear and contumacious refusal to obey should the power be exercised. Such power, being drastic and extraordinary in its nature, should not be resorted to unless necessary in the interest of justice." — States the strict standard for contempt, justifying dismissal absent clear refusal.
• "As the decision did not command the respondents to do anything, they could not be held guilty of disobedience of, or resistance to a lawful writ, process, order, judgment or command of a court." — States the decisive ground that affirmance of the RARAD cancellation order was not an SC command to MERALCO.
• "Contempt of court has been defined as a willful disregard or disobedience of a public authority." — Defines the intent element, supporting the finding of no willful refusal where shares had passed to third persons.
• "Hence, unlike the 37,233,200 lodged shares which remained in the brokers' account, as well as the 1,402,750 shares not lodged with the PDTC, MERALCO could not have easily cancelled the certificates of stock pertaining to the 3,366,800 traded shares which could have already been passed on to several persons." — Explains the factual impossibility negating contempt for the unreturned balance.

• Land Bank of the Philippines vs. Suntay, 678 Phil. 879 (2011) — Source decision whose dispositive portion petitioner sought to enforce; construed as imposing no direct command on MERALCO.
• Bank of the Philippine Islands vs. Calanza, 647 Phil. 507, 514 (2010) — Controlling statement that contempt power is preservative, drastic, and reserved for clear and contumacious refusal; followed to dismiss the charge.
• Barrete vs. Amila, 300 Phil. 217, 221-222 (1994) — Authority that disobedience requires a command directed to the alleged contemnor; followed to hold respondents could not disobey what was not ordered of them.
• Lorenzo Shipping Corp. vs. Distribution Management Association of the Philippines, 672 Phil. 1, 16 (2011) — Authority that contempt requires willfulness for improper purpose with good faith considered; followed to find no willful refusal.
• Rizal Commercial Banking Corporation vs. Serra, G.R. No. 216124, July 19, 2017; 831 SCRA 422, 434 — Cited for broad definition of contempt as disregard or disobedience of judicial orders.
• Lee vs. Regional Trial Court of Quezon City, Br. 85, 496 Phil. 421, 433 (2005) — Cited for definition of contempt as conduct tending to bring judicial authority into disrepute or impede justice.
• Tokio Marine Malayan Insurance Company Inc. vs. Valdez, 566 Phil. 443, 455 (2008) — Cited for definition of contempt as defiance interfering with or prejudicing litigants.

• Section 3, Rule 71, Rules of Court — Enumerates indirect contempt acts including disobedience or resistance to lawful writ, order, or judgment; applied as basis for testing whether non-return of shares constituted disobedience.
• Section 1, Rule 71, Rules of Court — Defines direct contempt committed in presence of or near a court; applied to distinguish the charge as indirect contempt.
• Section 46, Securities Regulation Code — Makes registration of transfer into or by a registered clearing agency final and conclusive absent prior notice of adverse claim; applied to explain inability to cancel PSE-traded and SCCP-settled shares now owned by the public.
• Section 21, Republic Act No. 9700 — Provides all just compensation payments, including execution of judgments therefor, shall only be sourced from the ARF, chargeable to debt service or unprogrammed items if budget insufficient; applied in the prior decision to void levy on petitioner's proprietary MERALCO shares.
• Section 10, Rule 19, 2003 DARAB Rules of Procedure — Reiterates satisfaction of just compensation judgments by writ of execution should be from the ARF in petitioner's custody; applied to support petitioner's liability only as ARF administrator.