Republic vs. COCOFED

The right to vote sequestered shares acquired with public funds or funds affected with public interest belongs to the government, not the registered private owners, pending final judicial determination of ownership. The "two-tiered test" for voting sequestered shares applies only when the shares are alleged to have been acquired with ill-gotten wealth; when the shares are prima facie acquired with public funds, the "public character" exception applies.

Immediately after the 1986 EDSA Revolution, the Presidential Commission on Good Government (PCGG) was created to recover ill-gotten wealth. The PCGG sequestered shares of stock in the United Coconut Planters Bank (UCPB) registered in the names of COCOFED, the Coconut Industry Investment Fund (CIIF) companies, and Eduardo Cojuangco Jr. The funds used to purchase these shares came from the Coconut Consumer Stabilization Fund (CCSF), commonly known as the coconut levy funds, which were collected pursuant to presidential decrees exercising the State's police and taxing powers.

• Sequestration of UCPB Shares: The PCGG sequestered UCPB shares registered in the names of COCOFED, CIIF companies, and Eduardo Cojuangco Jr. These shares were purchased using the Coconut Consumer Stabilization Fund (CCSF), a fact admitted by private respondents during oral arguments.
• Sandiganbayan's 1990 Order: The anti-graft court lifted the sequestration because the entities were not impleaded as party-defendants within six months. The Supreme Court reversed this in 1995, ruling that impleading the firms was unnecessary since the judgment could be directed against the shares themselves.
• Demand to Vote: In February 2001, COCOFED demanded a stockholders' meeting. The UCPB Board scheduled it for March 6, 2001. COCOFED filed an Omnibus Motion to enjoin the PCGG from voting the shares.
• Assailed Order: The Sandiganbayan granted the motion, applying the "two-tiered test" (requiring prima facie evidence of ill-gotten wealth and imminent danger of dissipation). Finding that the PCGG failed to satisfy this test, the Sandiganbayan allowed the registered owners to vote the shares upon posting a nominal bond.

• Public Character of Funds: The Sandiganbayan gravely abused its discretion by applying the "two-tiered test" instead of recognizing that the UCPB shares were purchased with coconut levy funds, which are public in character and thus fall under the "public character" exception established in Baseco and Cojuangco Jr. v. Roxas.
• Continuing Effectivity of 1993 Resolution: The Supreme Court's February 16, 1993 Resolution allowing the PCGG to vote the shares remains effective and controlling.
• Due Process Violation: The Sandiganbayan violated due process by taking cognizance of the Omnibus Motion despite lack of sufficient notice and by issuing the injunction without actual pressing necessity or urgency.

• Functus Officio of 1993 Resolution: The February 16, 1993 Supreme Court Resolution was merely a temporary restraining order that became functus officio when the Court decided G.R. No. 96073 on the merits in 1995, especially since it was not among the TROs "confirmed and maintained" in the dispositive portion of that decision.
• Applicability of Two-Tiered Test: The Sandiganbayan correctly applied the "two-tiered test" from Cojuangco v. Calpo and PCGG v. Cojuangco Jr. to determine who may vote the sequestered shares.
• Private Nature of Funds: The coconut levy funds are private in nature, citing Section 5, Article III of Presidential Decree Nos. 961 and 1468, which state that the funds shall be owned by the coconut farmers in their private capacities and are not special or fiduciary funds of the government.
• No Grave Abuse: The Sandiganbayan merely followed existing jurisprudence and did not act with patent or gross arbitrariness.

• Voting Rights: Who may vote the sequestered UCPB shares while the main case for their reversion to the State is pending in the Sandiganbayan?
• Applicable Test: Whether the "two-tiered test" or the "public character" test applies to determine the right to vote sequestered shares purchased with coconut levy funds.
• Grave Abuse of Discretion: Whether the Sandiganbayan committed grave abuse of discretion in issuing the February 28, 2001 Order allowing private respondents to vote the sequestered shares.

• Voting Rights: The government, through the PCGG, is entitled to vote the sequestered UCPB shares pending final resolution of the main cases. Because the shares were purchased with coconut levy funds, which are prima facie public in character, the government is the prima facie beneficial and true owner entitled to the rights flowing from ownership, including the right to vote.
• Applicable Test: The "public character" test, not the "two-tiered test," applies. The two-tiered test applies only when sequestered shares are alleged to have been acquired with ill-gotten wealth. When shares are prima facie acquired with public funds, the government is granted the authority to vote them as an exception to the general rule that registered owners vote the shares.
• Grave Abuse of Discretion: The Sandiganbayan committed grave abuse of discretion by contravening the rulings in Baseco and Cojuangco-Roxas and unlawfully depriving the government of its right to vote shares purchased with prima facie public funds. Grave abuse of discretion arises when a lower court violates or contravenes existing jurisprudence.

• Two-Tiered Test for Voting Sequestered Shares — The PCGG may vote sequestered shares registered in the names of private persons and acquired with allegedly ill-gotten wealth if it can show: (1) prima facie evidence that the shares are ill-gotten and belong to the State; and (2) imminent danger of dissipation necessitating continued sequestration and voting by the PCGG.
• Public Character Exception — The two-tiered test does not apply when sequestered shares are acquired with funds that are prima facie public in character or affected with public interest. In such cases, the government is granted the authority to vote the shares because it is the prima facie beneficial owner. This exception applies where: (1) government shares are taken over by private persons or entities who registered them in their own names; or (2) the capitalization or shares acquired with public funds landed in private hands.
• Prima Facie Public Nature of Coconut Levy Funds — Coconut levy funds are prima facie public funds because: (1) they are raised with the use of the police and taxing powers of the State; (2) they are levied for the benefit of the coconut industry and its farmers; (3) respondents judicially admitted the funds are government funds; (4) they are subject to Commission on Audit review; (5) the Bureau of Internal Revenue has pronounced them as taxes; and (6) the laws governing them recognize their public character.

• "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. 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."

• Baseco v. PCGG — Established the "public character" exception, allowing the PCGG to vote sequestered shares and elect directors where the business belongs to the government or its capitalization comes from public funds but landed in private hands.
• Cojuangco Jr. v. Roxas — Reiterated the Baseco exception that the PCGG may vote shares in a corporation if it is a takeover of a business belonging to the government or capitalized with public funds that landed in private hands.
• Cojuangco v. Calpo and PCGG v. Cojuangco Jr. — Established the "two-tiered test" for voting sequestered shares alleged to be ill-gotten. Distinguished in this case because the UCPB shares were acquired with public funds, not merely alleged ill-gotten wealth.
• Cocofed v. PCGG — Declared that the UCPB was acquired with the use of the Coconut Consumers Stabilization Fund and that coconut levy funds are "clearly affected with public interest."
• Antiporda v. Sandiganbayan — Reiterated the Cojuangco-Roxas ruling that it is crucial to first determine if sequestered shares came from public funds that landed in private hands when resolving the issue of PCGG's voting rights.
• Gaston v. Republic Planters Bank — Declared sugar levy funds (similar to coconut levies) as public funds because they are levied by the State for a special purpose, making them special funds subject to public trust.

• Section 26, Article XVIII, 1987 Constitution — Provides that a sequestration or freeze order shall be automatically lifted if no judicial action or proceeding is commenced within six months. Applied as the basis for the original Sandiganbayan resolution lifting the sequestration, which was later reversed.
• Section 29(1) & (3), Article VI, 1987 Constitution — Mandates that no money shall be paid out of the National Treasury except in pursuance of an appropriation, and that special funds shall be paid out for the purpose specified, with any balance transferring to the general fund. Cited to support the characterization of coconut levy funds as public/special funds.
• Section 2(1), Article IX-D, 1987 Constitution — Grants the Commission on Audit the power to examine and audit all accounts pertaining to revenue and expenditures of government funds. Cited to show that COA's audit of coconut levy funds indicates their public character.
• Presidential Decree No. 276 — Created the Coconut Consumer Stabilization Fund (CCSF) and imposed the levy. Cited to prove the funds were raised through the State's taxing and police powers and enforced with penal sanctions.
• Presidential Decree No. 755 — Authorized the acquisition of a commercial bank (UCPB) for the benefit of coconut farmers using the CCSF.
• Presidential Decree Nos. 961 and 1468 — Amendatory laws to PD 276. Private respondents cited Section 5, Article III of these decrees (stating the funds are owned by farmers in their private capacities) to argue the funds are private, but the Court held these funds are prima facie public based on their nature and imposition.

Davide, Jr., Bellosillo, Melo, Puno, Vitug, Kapunan, Mendoza, Quisumbing, Pardo, Buena, Ynares-Santiago, De Leon, Jr., and Sandoval-Gutierrez.

• Vitug, J. (Separate Opinion) — Concurred with the majority that coconut levy funds are prima facie public funds and that the PCGG should vote the shares, except as to the 10% of the 72% disputed shares in the name of respondent Cojuangco. Argued that Cojuangco established a prima facie right over this 10% equity retention independently, and it would be unjust to deprive him of voting these specific shares pending final determination.

• Melo, J. — Dissented, arguing that the Sandiganbayan did not commit grave abuse of discretion. The 1993 Supreme Court Resolution relied upon by the PCGG was a temporary restraining order that became functus officio upon the 1995 final decision and was not among the TROs "confirmed and maintained" therein. The Sandiganbayan correctly applied the "two-tiered test" to verify if the sequestered corporation was capitalized with public funds. Further, the characterization of coconut levy funds as public funds was premature, as the validity of the acquisition is the lis mota of the pending Sandiganbayan case, and PD 961 and 1468 explicitly declare the funds as private. Allowing the PCGG to vote the shares for 14 years constituted deprivation, not preservation, of property.