Trans Middle East (Phils.) Equities, Inc. vs. Sandiganbayan

Sequestration is a provisional and conservatory writ that loses its legal basis upon the nullification of the writ and the final dismissal of the case against the sequestered party, at which point the registered owner is entitled to the immediate return of its property as a matter of due process.

First Philippine Holdings Corporation (FPHC) was the original owner of 6,299,177 shares of stock in Philippine Commercial International Bank (PCI Bank), which through mergers and acquisitions became Equitable-PCI Bank and later Banco De Oro (BDO). Under a Sale of Shares of Stock and Escrow Agreement dated 24 May 1984, FPHC sold 6,119,067 of these shares to Trans Middle East (Phils.) Equities, Inc. (TMEE). On 15 April 1986, the Presidential Commission on Good Government (PCGG) sequestered the shares registered in TMEE's name, asserting that they constituted ill-gotten wealth and that the beneficial owner was former Governor Benjamin Romualdez. The Republic, through the PCGG, thereafter filed Civil Case No. 0035 before the Sandiganbayan for reconveyance, reversion, accounting, restitution, and damages against Romualdez and others, including the sequestered shares among the properties alleged as ill-gotten.

FPHC was the original owner of 6,299,177 shares of stock in PCI Bank, which through successive mergers and acquisitions became Equitable-PCI Bank and later Banco De Oro (BDO). On 24 May 1984, under a Sale of Shares of Stock and Escrow Agreement, FPHC sold 6,119,067 of these shares to TMEE. On 15 April 1986, the PCGG issued Sequestration Order No. 86-0056 sequestering the 6,119,067 shares registered in TMEE's name. The PCGG asserted that the shares constituted ill-gotten wealth and that the beneficial owner was former Governor Benjamin Romualdez.

On 31 July 1987, the Republic, represented by the PCGG, filed a complaint for reconveyance, reversion, accounting, restitution, and damages before the Sandiganbayan, docketed as Civil Case No. 0035 and entitled Republic of the Philippines vs. Benjamin (Kokoy) Romualdez, et al. The complaint included TMEE's shares among the properties alleged as ill-gotten wealth, but TMEE was neither named as a party-defendant nor included in the list of corporations owned by the defendants. The complaint was amended several times until 22 January 1988, yet TMEE was still not impleaded. On 28 March 1988, TMEE filed a motion for intervention and to admit its complaint-in-intervention, asserting ownership over the sequestered shares and all incidents of ownership, including its right to vote as a stockholder. On 28 December 1988, FPHC filed its own complaint-in-intervention, seeking annulment of the Sale of Shares of Stock and Escrow Agreement on the ground of fraud.

Around eleven years after sequestration, the PCGG sought leave on 17 January 1997 to further amend the complaint, and under the third amended complaint TMEE was finally impleaded as a defendant. On 28 January 1997, TMEE moved to nullify the writ of sequestration. By Resolution dated 02 January 2003, the Sandiganbayan nullified the writ on the ground that it had been issued by only one PCGG commissioner, in contravention of Section 3 of the PCGG's own Rules and Regulations. However, conformably with TMEE's own manifestation, the Sandiganbayan did not order the return of the shares but directed that they, including interest earned, be deposited with the Land Bank of the Philippines in escrow for the persons eventually adjudged lawfully entitled. On partial reconsideration, the Sandiganbayan reiterated this directive through its Resolution dated 09 June 2006, and when TMEE moved for partial reconsideration arguing that custody and control should revert to it, the Sandiganbayan denied the motion on 08 October 2007 and modified its directive to require TMEE and PCGG to surrender the shares and proceeds to the Clerk of Court of the Anti-Graft Court.

Subsequently, on 25 January 2010, the Sandiganbayan promulgated a Decision dismissing the third amended complaint against TMEE, finding that the allegations in the complaint itself showed that the purchase price of the PCI Bank shares was not paid by Romualdez but came from loans obtained from private financial institutions — PCI Bank and Philippine Commercial Capital, Inc. — and that TMEE was not listed among the properties owned and controlled by Romualdez. The dismissal was affirmed with finality by the Supreme Court in G.R. Nos. 192651 and 192653. Meanwhile, FPHC's first complaint-in-intervention had been dismissed by the Sandiganbayan on 22 February 2007 based on prescription, a dismissal affirmed by the Supreme Court in First Philippine Holdings Corporation vs. Trans Middle East (Phils.) Equities, Inc. On 16 September 2011, FPHC filed a second complaint-in-intervention seeking to recover the same shares on the theory that if the Republic succeeded in recovering them as ill-gotten, they should be turned over to FPHC as the legitimate owner, otherwise the Republic would be guilty of unjust enrichment. The Sandiganbayan dismissed the second complaint-in-intervention on 26 July 2012 for raising the same cause of action as the first, which was already dismissed with finality.

On 06 May 2014, the Republic filed a motion for production and inspection before the Sandiganbayan, praying that BDO be directed to produce and allow inspection and reproduction of all documents and records pertaining to TMEE's shares in BDO, including certificates of stock, dividends, transfers, and related transactions. FPHC joined the motion. The Republic claimed that sometime in 2012, TMEE's shares in BDO were publicly traded on the Philippine Stock Exchange despite being in custodia legis, and that as of 31 December 2012, TMEE had disappeared from the Top 100 list of BDO shareholders, indicating that the shares had been sold or transferred to third parties. The Sandiganbayan denied the motion on 11 September 2014, noting that the third amended complaint against TMEE had been dismissed and the writ of sequestration rendered null and void ab initio, so there was no more ill-gotten wealth case or even a prima facie case against TMEE. Motions for reconsideration by the Republic and FPHC were denied on 25 November 2015 and 12 January 2015, respectively.

• Grave Abuse of Discretion in Retaining Custodia Legis (TMEE): TMEE argued that since the writ of sequestration had been nullified and the third amended complaint against it dismissed with finality, the Sandiganbayan committed grave abuse of discretion in directing the turnover of the shares and all dividends and interest to the Clerk of Court rather than returning them to TMEE as the registered owner.
• Distinct Cause of Action (FPHC): FPHC maintained that its second complaint-in-intervention raised a different cause of action from the first — based on the PCGG's legal obligation to return and reconvey the sequestered shares to the rightful owners if the State recovered them — and was therefore not barred by the prior dismissal on prescription.
• Entitlement to Discovery (Republic and FPHC): The Republic and FPHC argued that the Sandiganbayan committed grave abuse of discretion in denying the motion for production and inspection of documents and records pertaining to TMEE's shares in BDO, given that TMEE's shares appeared to have been sold or transferred to third parties while ostensibly held in custodia legis.

• No Basis for Custodia Legis (TMEE, as respondent in the other petitions): TMEE contended that there was no standing basis to hold its shares in custodia legis and that it was entitled to the immediate return of its previously sequestered property.
• Procedural Bar (Sandiganbayan, as respondent in G.R. No. 180350): The Sandiganbayan maintained that the shares should be held in escrow or custody pending determination of who should be adjudged lawfully entitled thereto.
• Same Cause of Action Barred (Republic/PCGG and Sandiganbayan, as respondents in G.R. No. 205186): Respondents countered that FPHC's second complaint-in-intervention was a blatant attempt to circumvent the bar by prescription, as it necessarily required rehashing the same fraud-based cause of action already dismissed with finality.
• Documents Not in Party's Possession (BDO and TMEE, as non-parties): Respondents argued that the documents sought to be produced were not in the possession, custody, or control of any party to the pending action, since BDO was never impleaded and TMEE was no longer a party-defendant.

• Custodia Legis: Whether the Sandiganbayan committed grave abuse of discretion amounting to lack or excess of jurisdiction when it directed the turnover of the shares of stock, as well as all dividends and interest earned thereon, to the Sandiganbayan's Clerk of Court.
• Second Complaint-in-Intervention: Whether the Sandiganbayan committed grave abuse of discretion amounting to lack or excess of jurisdiction when it dismissed FPHC's second complaint-in-intervention.
• Production and Inspection: Whether the Sandiganbayan committed grave abuse of discretion amounting to lack of jurisdiction when it denied the motion for production and inspection of documents and records pertaining to the shares of stock owned by TMEE.

• Custodia Legis: Yes. The Sandiganbayan committed grave abuse of discretion in retaining the shares in custodia legis, because the nullification of the writ of sequestration and the final dismissal of the case against TMEE left no legal or factual basis for continued detention of its property.
• Second Complaint-in-Intervention: No. The Sandiganbayan correctly dismissed FPHC's second complaint-in-intervention, as the cause of action was already barred by prescription and the dismissal of the first complaint-in-intervention with finality barred refiling of the same action.
• Production and Inspection: No. The Sandiganbayan did not commit grave abuse of discretion in denying the motion for production and inspection, because the documents sought were not in the possession, custody, or control of any party to the pending action, BDO having never been impleaded and TMEE no longer being a party-defendant.

• Custodia Legis: Sequestration is a provisional and conservatory writ, akin to preliminary attachment or receivership, designed to preserve properties pending judicial determination of whether they are ill-gotten. The PCGG's power to sequester under Section 3(c) of Executive Order No. 1 is expressly provisional in character. In this case, the writ of sequestration was nullified ab initio by the Sandiganbayan on 02 January 2003 for having been issued by only one PCGG commissioner, and the third amended complaint against TMEE was subsequently dismissed on 25 January 2010 — a dismissal affirmed with finality by the Supreme Court. The Sandiganbayan's own Resolution dated 11 September 2014 acknowledged that with the dismissal, the writ was deemed automatically lifted and there was no more ill-gotten wealth case, not even a prima facie case, against TMEE. Despite these pronouncements, the Sandiganbayan erroneously maintained custody over the shares. Because there was no clear determination from appropriate judicial proceedings that the shares constituted ill-gotten wealth, continued retention deprived TMEE of its property without due process of law. The constitutional right against deprivation of property without due process, as upheld in Cojuangco, Jr. vs. Roxas, requires that the PCGG's hand be stayed until a clear determination is made through appropriate judicial proceedings that the shares are truly ill-gotten. By the dismissal of the case, there was ipso facto no more writ of sequestration to speak of.

• Second Complaint-in-Intervention: FPHC's first complaint-in-intervention, seeking annulment of the Sale of Shares of Stock and Escrow Agreement on the ground of fraud, was dismissed based on prescription and the dismissal was affirmed with finality by the Supreme Court in First Philippine Holdings Corporation vs. Trans Middle East (Phils.) Equities, Inc. The Court there held that the contract was voidable under Article 1390 of the Civil Code because consent was allegedly vitiated by fraud, and the action for annulment was subject to the four-year prescriptive period under Article 1391, which FPHC had exceeded. FPHC's second complaint-in-intervention purported to raise a different cause of action — the PCGG's legal obligation to return and reconvey the sequestered shares to the rightful owner — but logically, establishing rightful ownership would require rehashing the same fraud-based cause of action already barred by prescription. Under Section 13, Rule 15 of the Rules of Court, when a cause of action is dismissed based on the statute of limitations, the same action can no longer be refiled. The second complaint-in-intervention was therefore a blatant attempt to circumvent the bar by prescription.

• Production and Inspection: Under Section 1, Rule 27 of the Rules of Court, a motion for production or inspection of documents requires, among other requisites, that the documents sought are in the possession, custody, or control of the other party. As enumerated in Security Bank vs. Court of Appeals, the procedural requisites include that the documents constitute or contain evidence material to any matter involved in the action and are in the possession, custody, or control of the other party. Here, the documents and records sought to be produced were in the possession of BDO, which was never impleaded as a party in Civil Case No. 0035, and TMEE was no longer a party-defendant. Neither BDO nor TMEE could be directed to produce documents as they were not parties to the pending action. Moreover, there was no standing basis to hold TMEE's shares in custodia legis, as the case against TMEE had been dismissed. The Sandiganbayan duly exercised its discretion in denying the motion.

• Nature of Sequestration — Sequestration is a provisional and conservatory writ, akin to preliminary attachment or receivership, whose purpose is to preserve properties in custodia legis pending judicial determination of whether they are ill-gotten. It is not permanent in character. The PCGG's power to sequester under Section 3(c) of Executive Order No. 1 is expressly provisional. The Court applied this doctrine to hold that once the writ is nullified and the case dismissed with finality, the legal basis for sequestration ceases and the property must be returned to the registered owner.

• Ipso Facto Lifting of Sequestration Upon Dismissal — By the dismissal of the case against the sequestered party, there is ipso facto no more writ of sequestration to speak of. The Court relied on this principle, previously articulated in Palm Avenue Holding Co., Inc. vs. Sandiganbayan, to hold that the Sandiganbayan could no longer detain TMEE's shares after the third amended complaint was dismissed with finality.

• Due Process in Sequestration — The constitutional right against deprivation of property without due process of law prevails over the PCGG's power to sequester and takeover shares of stock. A clear determination from appropriate judicial proceedings that the shares are truly ill-gotten must first be made before any takeover or exercise of acts of strict ownership by the PCGG is justified. The Court applied this doctrine from Cojuangco, Jr. vs. Roxas to conclude that TMEE could not be deprived of its property absent such a determination.

• Bar by Prescription on Refiling — When a cause of action is dismissed based on the statute of limitations, the same action can no longer be refiled. The Court applied Section 13, Rule 15 of the Rules of Court to hold that FPHC's second complaint-in-intervention, which necessarily required rehashing the same fraud-based claim already dismissed with finality, was properly dismissed.

• Requisites for Production and Inspection of Documents — A motion for production or inspection of documents under Rule 27 of the Rules of Court requires, among other things, that the documents are in the possession, custody, or control of the other party to the action. The Court applied the six requisites enumerated in Security Bank vs. Court of Appeals to hold that the motion was properly denied because BDO was never impleaded and TMEE was no longer a party-defendant.

• "By the dismissal of the case, there is ipso facto no more writ of sequestration to speak of." — This opening statement frames the central ratio decidendi: the provisional character of sequestration ends when the underlying case is dismissed, leaving no basis for continued state custody of the property.

• "With the final dismissal of Civil Case No. 0035 against TMEE, the Sandiganbayan can no longer hold TMEE's property. Since TMEE ceased to be a party in the said civil case, the shares of stock registered under the name of TMEE cannot be retained in custodia legis." — This passage articulates the operative legal consequence of the final dismissal: the registered owner is entitled to the return of its property as a matter of due process.

• "[S]equestration is an extraordinary and harsh remedy. As such, it should be confined to its lawful parameters and exercised with due regard to the requirements of fairness, due process, and justice." — Quoted from Palm Avenue Holding Co., Inc. vs. Sandiganbayan, this formulation is the canonical statement of the limits on the PCGG's sequestration power and is frequently cited in subsequent jurisprudence on ill-gotten wealth recovery.

• Palm Avenue Holding Co., Inc. vs. Sandiganbayan, 740 Phil. 527 (2014) — Controlling precedent on the ipso facto lifting of sequestration upon dismissal and the characterization of sequestration as an extraordinary and harsh remedy. Followed and applied directly to hold that TMEE's shares could no longer be held in custodia legis.
• Cojuangco, Jr. vs. Roxas, 273 Phil. 168 (1991) — Controlling precedent on the primacy of the constitutional right to due process over the PCGG's power to sequester and takeover shares. Followed to hold that TMEE could not be deprived of its property without a clear judicial determination that the shares were ill-gotten.
• First Philippine Holdings Corporation vs. Trans Middle East (Phils.) Equities, Inc., 622 Phil. 623 (2009) — Controlling precedent on the prescription of FPHC's fraud-based claim for annulment of the Sale of Shares of Stock and Escrow Agreement. Followed to hold that FPHC's second complaint-in-intervention was barred by the prior dismissal with finality.
• Philippine Overseas Telecommunications Corp. vs. Sandiganbayan, 780 Phil. 563 (2016) — Cited for the definition of sequestration and its characterization as a conservatory writ akin to preliminary attachment or receivership. Followed.
• Security Bank vs. Court of Appeals, 380 Phil. 299 (2000) — Cited for the six procedural requisites for a motion for production and inspection of documents under Rule 27. Applied to hold that the motion was properly denied because the documents were not in the possession, custody, or control of any party to the action.
• Eagleridge Development Corp. vs. Cameron Granville 3 Asset Management, Inc., 708 Phil. 693 (2013) — Cited for the principle that the scope of discovery is to be liberally construed. Referenced in the discussion of the policy underlying the modes of discovery.
• Producers Bank of the Philippines vs. Court of Appeals, 349 Phil. 310 (1998) — Cited for the proposition that the use of discovery operates with desirable flexibility under the discretionary control of the trial court. Referenced in the discussion of discovery.

• Section 3(c), Executive Order No. 1 (Creating the Presidential Commission on Good Government) — Provides the PCGG's power to provisionally take over in the public interest or to prevent disposal or dissipation of business enterprises and properties taken over by the Marcos Administration or by persons close to former President Marcos. The Court relied on the word "provisionally" to emphasize that sequestration is not permanent in character.
• Article 1390, Civil Code — Defines voidable or annullable contracts, including those where consent is vitiated by fraud. Applied to characterize the Sale of Shares of Stock and Escrow Agreement as voidable, not void ab initio, because FPHC alleged vitiated consent through fraud.
• Article 1391, Civil Code — Provides that an action for annulment shall be brought within four years, in case of fraud from the time of discovery. Applied to hold that FPHC's claim was time-barred, as it raised the action beyond the four-year prescriptive period.
• Section 1, Rule 27, Rules of Court — Governs motions for production or inspection of documents, requiring that the documents be not privileged, constitute or contain evidence material to the action, and be in the possession, custody, or control of the other party. Applied to deny the motion because BDO was never impleaded and TMEE was no longer a party-defendant.
• Section 13, Rule 15, Rules of Court — Provides that an order granting a motion to dismiss on the ground that the cause of action is barred by the statute of limitations shall bar the refiling of the same action or claim. Applied to hold that FPHC's second complaint-in-intervention could not be refiled.

Leonen, SAJ., Hernando (Acting Chairperson), Rosario, and Marquez, JJ., concurred.