POTC and PHILCOMSAT vs. Sandiganbayan

A writ of sequestration is automatically lifted when the sequestered corporations are not impleaded as defendants in the corresponding judicial action within six months of the ratification of the 1987 Constitution, because a suit against individual stockholders is not a suit against the corporation; and sequestration, being a merely provisional conservatory measure, becomes functus officio once the sequestered property has been finally adjudged and disposed of by the proper authorities.

POTC is a private corporation and a main stockholder of PHILCOMSAT, a government-owned and controlled corporation established in 1966 and granted a legislative telecommunications franchise under Republic Act No. 5514, as amended by Republic Act No. 7949, to establish and operate international satellite communication in the Philippines. Following the EDSA People Power Revolution in February 1986, President Corazon C. Aquino, exercising revolutionary government powers, issued Executive Order Nos. 1 and 2, creating the PCGG to recover properties allegedly amassed by former President Ferdinand E. Marcos, his immediate family, relatives, and cronies through undue advantage of public office, and to sequester and take over such properties. The present litigation is one of the many cases spawned by those revolutionary orders.

Pursuant to Executive Order Nos. 1 and 2, PCGG Commissioner Ramon A. Diaz issued a letter on March 14, 1986 directing the Officer-In-Charge to sequester and immediately take over POTC and PHILCOMSAT, among others, and to freeze all withdrawals, transfers, and remittances under any type of deposit, trust, or placement accounts. POTC is a private corporation and a main stockholder of PHILCOMSAT, a government-owned and controlled corporation established in 1966 under a legislative franchise granted by Republic Act No. 5514, as amended by Republic Act No. 7949, to establish and operate international satellite communication in the Philippines.

On July 22, 1987, the Office of the Solicitor General, on behalf of the Republic, filed a Complaint for Reconveyance, Reversion, Accounting and Restitution, and Damages before the Sandiganbayan, docketed as Civil Case No. 0009, against Jose L. Africa, Manuel H. Nieto, Jr., Ferdinand E. Marcos, Imelda R. Marcos, Ferdinand R. Marcos, Jr., Roberto S. Benedicto, Juan Ponce Enrile, and Potenciano Ilusorio. The Complaint alleged that through manipulations and dubious arrangements with officers of the National Development Corporation, the defendants purchased NDC's shareholdings in PHILCOMSAT under highly unconscionable terms disadvantageous to the Republic; illegally manipulated the purchase of major shareholdings of Cable and Wireless Limited in Eastern Telecommunications Philippines, Inc.; acted as dummies, nominees, or agents of the Marcoses in several corporations; and received improper payments such as bribes, kickbacks, or commissions from an overprice in the purchase of equipment for DOMSAT. The property supposedly acquired illegally was set out in a list appended to the Complaint as Annex A, which enumerated shares of stock in various corporations allegedly channeling ill-gotten wealth. POTC and PHILCOMSAT were merely listed among the corporations in Annex A; they were not impleaded as defendants in the Complaint.

Pursuant to its sequestration powers, the PCGG appointed a comptroller to control the disbursement of funds of POTC and PHILCOMSAT. On October 24, 2000, the PCGG issued a Memorandum to the Bangko Sentral ng Pilipinas informing it that in all cash withdrawals, transfers of funds, money market placements, and disbursements of POTC and PHILCOMSAT, the approval of the PCGG-appointed comptroller was required. The Memorandum was to be disseminated to all commercial banks and non-bank financial institutions performing quasi-banking functions.

Several related proceedings arose from Civil Case No. 0009. On March 1, 1991, POTC and PHILCOMSAT filed separate complaints for Injunction before the Sandiganbayan to nullify and lift the sequestration order for failure to file the necessary judicial action within the constitutional period; the Sandiganbayan granted the injunction on December 4, 1991, but the Supreme Court reversed on January 23, 1995 in Republic vs. Sandiganbayan, G.R. No. 96073, ruling that Civil Case No. 0009 was filed within the required six-month period. Separately, POTC filed a complaint for Mandamus, docketed as Civil Case No. 0148, to compel the PCGG to return POTC's Stock and Transfer Book and Stock Certificate Booklets; the Sandiganbayan granted the Mandamus on May 13, 1993, and the Decision became final and executory.

On June 28, 1996, defendant Potenciano Ilusorio entered into a Compromise Agreement with the Republic. Out of 5,400 shares (40%) of POTC stock in the names of Mid-Pasig Land Development Corporation (MLDC) and Independent Realty Corporation (IRC), the government recovered 4,727 shares or 34.9%, while Ilusorio retained 673 shares or 5%. The Sandiganbayan approved the Compromise Agreement on June 8, 1998. MLDC and IRC filed Motions to Vacate, which the Sandiganbayan denied on December 20, 1999, directing the POTC Corporate Secretary to issue the corresponding Stock Certificate to the government. Pursuant to that Order, 4,727 shares of POTC stock were transferred in the name of the Republic. PCGG, MLDC, and IRC filed separate petitions before the Supreme Court to nullify the approval of the Compromise Agreement; on June 15, 2005, the Court declared the Compromise Agreement valid in Republic of the Phils. vs. Sandiganbayan, G.R. Nos. 141796 and 141804, and the Decision became final and executory.

By virtue of that final Decision, POTC and PHILCOMSAT filed an Omnibus Motion on February 28, 2005 seeking to nullify and/or discharge the continued sequestration and to declare null and void the PCGG Memorandum to the BSP dated October 24, 2000. The Sandiganbayan denied the Omnibus Motion on October 20, 2005, ruling that sequestration should last until the transactions leading to the acquisition could be disposed of by the appropriate authorities, and citing its earlier finding of prima facie evidence of ill-gotten wealth. The Motion for Reconsideration was likewise denied on August 2, 2006. POTC and PHILCOMSAT then filed the present Petition for Certiorari under Rule 65.

• Final Adjudication Renders Sequestration Unnecessary: Petitioners maintained that the Sandiganbayan committed grave abuse of discretion in affirming the continued sequestration, disregarding the final and executory Decision in Republic of the Phils. vs. Sandiganbayan, which already ruled on the ownership of the subject shares. The government having been adjudged the undisputed owner of 34.9% of the shares of stock of the sequestered corporations, there was no longer any need for continued sequestration.
• Sequestration Is Merely Provisional: Petitioners argued that while the PCGG has the power to sequester, such power is merely provisional. Citing Bataan Shipyard and Engineering Co., Inc. (BASECO) vs. PCGG, petitioners contended that because the writ of sequestration is a conservatory measure, provisional and temporary in character, the final adjudication by the Court — which disposed of the sequestered shares — rendered the writ unnecessary.
• Statutory Basis for Provisional Nature: Petitioners cited Executive Order No. 1, Section 3, which grants the PCGG the power to take over sequestered properties provisionally, such that after the sequestered properties have been finally disposed of by the proper authorities, the writ shall be lifted.

• Sequestration Must Continue Until Final Disposition: The Sandiganbayan posited that sequestration should not be lifted, citing Executive Order No. 1, which declares that sequestration of property the acquisition of which is suspect shall last until the transactions leading to such acquisition can be disposed of by the appropriate authorities.
• Prima Facie Evidence of Ill-Gotten Wealth: The Sandiganbayan relied on its Resolution dated April 1, 2003, which found prima facie evidence that the defendants had ill-gotten wealth consisting of funds and properties, and that POTC and PHILCOMSAT, among others, were used in acquiring and concealing their ill-gotten wealth.

• Impleader of Corporations: Whether the failure to implead POTC and PHILCOMSAT as defendants in Civil Case No. 0009 constitutes a fatal jurisdictional error that results in the automatic lifting of the sequestration order.
• Necessity of Continued Sequestration: Whether the continued sequestration of POTC and PHILCOMSAT is still necessary given that ownership of 34.9% of the sequestered shares has already been finally adjudged in favor of the government through the Compromise Agreement upheld in Republic of the Phils. vs. Sandiganbayan.

• Impleader of Corporations: Yes. The failure to implead POTC and PHILCOMSAT as defendants in Civil Case No. 0009 is a fatal jurisdictional error. A suit against individual stockholders is not a suit against the corporation; merely annexing a list of corporations to the complaint violates the corporations' distinct legal personality and right to due process. The sequestration was automatically lifted six months after the ratification of the 1987 Constitution on February 2, 1987.
• Necessity of Continued Sequestration: No. Sequestration is a merely provisional conservatory measure that becomes functus officio once the sequestered property has been finally adjudged and disposed of. The 34.9% ownership of the sequestered property having been finally adjudged to the government, the ultimate purpose of sequestration was already accomplished, and the evil sought to be prevented was no longer present.

• Impleader of Corporations: Section 26, Article XVIII of the 1987 Constitution mandates that if no judicial action is filed within six months after the ratification of the Constitution, the writ of sequestration shall automatically be lifted. Although the Court had previously held that Civil Case No. 0009 was filed within the six-month period, the facts on record showed that POTC and PHILCOMSAT were not impleaded as defendants in that case. The Complaint was filed only against private individuals — Jose L. Africa, Manuel H. Nieto, Jr., Ferdinand E. Marcos, Imelda R. Marcos, Ferdinand R. Marcos, Jr., Roberto S. Benedicto, Juan Ponce Enrile, and Potenciano Ilusorio. POTC and PHILCOMSAT were merely annexed to the list of corporations in Annex A. This situation squarely matched PCGG vs. Sandiganbayan (PCGG), where the Court ruled that failure to implead a corporation violated the fundamental principle that a corporation's legal personality is distinct and separate from its stockholders, and that mere annexation to a list of corporations does not suffice. Filing a complaint against a stockholder is not ipso facto a complaint against the corporation. The failure to properly implead POTC and PHILCOMSAT violated their right to due process, as it would in effect disregard their distinct and separate personality without a hearing. Accordingly, as POTC and PHILCOMSAT were not impleaded, there was no longer any existing sequestration; the sequestration order was automatically lifted six months after the ratification of the 1987 Constitution. The Court's ruling in Palm Avenue Holding Co., Inc. vs. Sandiganbayan, involving nearly identical factual antecedents, reinforced this conclusion.

• Necessity of Continued Sequestration: Sequestration is the means to place properties under PCGG's possession or control for the purpose of preventing destruction, concealment, or dissipation, and conserving and preserving the same until it can be determined through appropriate judicial proceedings whether the property was in truth ill-gotten. Executive Order No. 1, Section 3(c) expressly provides for the provisional nature of sequestration, stating that the PCGG may "provisionally take over" business enterprises and properties "until the transactions leading to such acquisition by the latter can be disposed of by the appropriate authorities." In BASECO vs. PCGG, the Court pronounced that sequestration is akin to the provisional remedies of preliminary attachment and receivership — it is a conservatory writ whose purpose is to preserve properties in custodia legis pending final determination. It is by no means permanent in character; upon final disposition of the sequestered properties, the sequestration is rendered functus officio. In the case at bar, the 34.9% ownership of the sequestered property had been finally adjudged to the government in Republic of the Phils. vs. Sandiganbayan, and the shares had reverted to the government, which now owned 4,727 shares or 34.9% of the sequestered corporations. As the sequestered property had already been disposed of, the ultimate purpose of sequestration had been attained; the evil sought to be prevented — dissipation or concealment — was no longer present, because property already returned to the government could no longer be dissipated or concealed. It was merely ministerial upon the Sandiganbayan to lift the sequestration. The DOJ itself acknowledged this in a Memorandum dated November 4, 2010, directing the immediate transfer of the shares to the Department of Finance for disposition and the corollary lifting of the sequestration orders covering the 4,727 shares.

• Provisional Nature of Sequestration — Sequestration is a conservatory writ, provisional and temporary in character, akin to preliminary attachment or receivership. Its purpose is to preserve properties in custodia legis, preventing destruction, concealment, or dissipation pending final determination of whether the property was in truth ill-gotten. It is by no means permanent; upon final disposition of the sequestered properties, the sequestration is rendered functus officio. The Court applied this doctrine by holding that because the 34.9% ownership of the sequestered shares had been finally adjudged to the government through the Compromise Agreement, the ultimate purpose of sequestration was accomplished and the writ became functus officio.

• Separate Corporate Personality in Sequestration Cases — A corporation has a legal personality distinct and separate from its stockholders. A suit against individual stockholders is not ipso facto a suit against the corporation. Failure to implead a corporation as a defendant and merely annexing a list of such corporations to the complaint violates the corporation's right to due process, as it would disregard the corporation's distinct and separate personality without a hearing. The Court applied this doctrine by holding that because POTC and PHILCOMSAT were never impleaded as defendants in Civil Case No. 0009 — only their individual stockholders were sued — the sequestration order against them was automatically lifted pursuant to Section 26, Article XVIII of the Constitution.

• Automatic Lifting of Sequestration Under Section 26, Article XVIII — Section 26, Article XVIII of the 1987 Constitution provides that for sequestration orders issued before the ratification of the Constitution, the corresponding judicial action or proceeding must be filed within six months from ratification. The sequestration or freeze order is deemed automatically lifted if no judicial action or proceeding is commenced as provided. The Court applied this provision by ruling that because POTC and PHILCOMSAT were not impleaded in Civil Case No. 0009 — the judicial action filed by the Republic — the sequestration order against them was automatically lifted six months after the ratification of the 1987 Constitution on February 2, 1987.

• "Failure to implead POTC and PHILCOMSAT is a violation of the fundamental principle that a corporation has a legal personality distinct and separate from its stockholders; that, the filing of a complaint against a stockholder is not ipso facto a complaint against the corporation." — This passage articulates the ratio decidendi on the first ground: that the sequestration was invalid because the corporations were never properly impleaded, reinforcing the doctrine of separate corporate personality in the context of PCGG sequestration proceedings.

• "[A]s the sequestration is rendered functus officio, it is merely ministerial upon the Sandiganbayan to lift the same." — This passage states the ratio decidendi on the second ground: that once the sequestered property has been finally adjudged and disposed of, the sequestration writ ceases to have any legal purpose and must be lifted as a ministerial duty.

• "The sequestration order over POTC and PHILCOMSAT was automatically lifted six (6) months after the ratification of the 1987 Constitution on 2 February 1987 for failure to implead POTC and PHILCOMSAT in Civil Case No. 0009 before the Sandiganbayan or before any court for that matter." — This passage states the Court's operative conclusion tying the constitutional six-month deadline to the failure to implead the corporations, establishing the precise date from which the sequestration is deemed lifted.

• PCGG vs. Sandiganbayan (PCGG), 353 Phil. 80 (1998) — Controlling precedent followed. The Court held that failure to implead a corporation whose shares were sequestered violated the principle of separate corporate personality, as a suit against stockholders is not a suit against the corporation. The present case was found to be on all fours with this ruling.

• Bataan Shipyard & Engineering Co., Inc. (BASECO) vs. PCGG, 234 Phil. 180 (1987) — Controlling precedent followed. The Court pronounced that sequestration is provisional in character, lasting only until the transactions leading to the acquisition can be disposed of by the appropriate authorities, and that it is akin to the provisional remedies of attachment and receivership.

• Republic of the Phils. vs. Sandiganbayan, G.R. Nos. 141796 and 141804, June 15, 2005, 499 Phil. 138 — Controlling precedent relied upon. The Court upheld the validity of the Compromise Agreement between the Republic and Ilusorio, adjudging the government as owner of 34.9% of POTC shares. This final and executory Decision was the basis for holding that the sequestration had become functus officio.

• Republic vs. Sandiganbayan (First Division), G.R. No. 96073, 240 SCRA 376, January 23, 1995 — Prior ruling distinguished. The Court had previously held that Civil Case No. 0009 was filed within the six-month constitutional period. The present Decision clarified that this prior holding was not disturbed, but that notwithstanding such filing, POTC and PHILCOMSAT were not impleaded in the case.

• Palm Avenue Holding Co., Inc. vs. Sandiganbayan, G.R. No. 173082, August 6, 2014, 732 SCRA 156 — Controlling precedent followed. The Court ruled that failure to implead corporations as defendants and merely annexing a list of such corporations to the complaint violated their right to due process, and that the sequestration order was deemed automatically lifted. The Court found the factual antecedents in Palm glaringly similar to those of POTC and PHILCOMSAT.

• Republic vs. Sandiganbayan, Sipalay Trading Corp. and Allied Banking Corp. — Precedent cited for the proposition that a corporation's legal personality is distinct from its stockholders, and that failure to implead corporations as defendants violates their right to due process.

• Section 26, Article XVIII, 1987 Constitution — Provides that for sequestration or freeze orders issued before the ratification of the Constitution, the corresponding judicial action or proceeding must be filed within six months from ratification, and that the order is deemed automatically lifted if no judicial action is commenced. Applied to hold that because POTC and PHILCOMSAT were not impleaded in Civil Case No. 0009, the sequestration was automatically lifted six months after the ratification of the Constitution on February 2, 1987.

• Executive Order No. 1, Section 2(a) (1986) — Defines the PCGG's mandate to recover properties amassed by former President Marcos, his immediate family, relatives, and cronies by taking undue advantage of their public office. Cited as the statutory basis for the PCGG's creation and sequestration powers.

• Executive Order No. 1, Section 3(c) (1986) — Grants the PCGG the power to "provisionally take over" business enterprises and properties "until the transactions leading to such acquisition by the latter can be disposed of by the appropriate authorities." Applied to establish the provisional nature of sequestration and to hold that the writ becomes functus officio upon final disposition of the sequestered property.

Antonio T. Carpio (designated as additional member in lieu of Associate Justice Diosdado M. Peralta per raffle dated February 1, 2016), Presbitero J. Velasco, Jr. (Division Chairperson), Arturo D. Brion (designated as additional member in lieu of Associate Justice Francis H. Jardeleza per raffle dated February 10, 2016), and Bienvenido L. Reyes. No separate concurring opinions were written.