DOJ Opinion No. 063, s. 1988

DOJ OPINION NO. 063 , s. 1988 March 30, 1988 Commissioner Ramon E. Rodrigo Presidential Commission on Good Government 6th Floor, Philcomcen Bldg. Ortigas Corner San Miguel Avenue Pasig, Metro Manila Sir : This refers to your request for opinion as to which agency, the Development Bank of the Philippines (DBP) or the Presidential Commission on Good Government (PCGG), has the better right to vote the sequestered shares of stock of certain cronies or associates of the Marcoses in companies which have outstanding loans with the DBP and pursuant to which loan the voting rights over certain shares were assigned to the DBP. It appears that on a few occasions the PCGG was at odds with the DBP in the exercise of the power to vote the sequestered shares of stock. DBP asserts its right to vote as assignee thereof as a consequence of the outstanding loan contract between DBP and aforesaid Marcos cronies, while PCGG claims its right by virtue of Presidential Memorandum dated June 26, 1986 which empowers PCGG to vote sequestered stocks of corporations. The PCGG was created by E.O. No. 1 to assist President Aquino in the recovery of ill-gotten wealth accumulated by former President Marcos, his immediate family, relatives, subordinate and close associates (1st whereas clause). It was empowered among others: (b) To sequester or place or cause to be placed under its control of possession any building or office wherein any ill-gotten wealth or properties may be found, and any records pertaining thereto, in order to prevent their destruction, concealment or disappearance which would frustrate or hamper the investigation or otherwise prevent the Commission from accomplishing its task. (c) To provisionally take over in the public interest or to prevent its disposal or dissipation, business enterprises and properties taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos, until the transactions leading to such acquisition by the latter can be disposed of by the appropriate authorities. (Section 3) Executive Order No. 2 gives additional and more specific data and directions respecting "recovery of ill-gotten properties amassed by the leaders and supporters of the previous regime." A third executive order, Executive Order No. 14 defined the jurisdiction and laid down the procedure in the filing and prosecution of all cases investigated by it. Consistent with Executive Order Nos. 1 & 2, and 14, PCGG was authorized by virtue of the aforesaid Memorandum Order dated June 26, 1986 "to vote such shares of stock as it may have sequestered in corporations . . . pending the outcome of proceedings to determine the ownership of said shares of stock." prcd The constitutionally of Executive Order Nos. 1 and 2 has been sustained by the Supreme Court in the case of Bataan Shipyard and Engineering Co. Inc. (BASECO) v. PCGG, et al. (G.R. No. 75885, May 27, 1987, 150 SCRA 181, 238). Additionally, the Court also passed upon the authority of the PCGG to vote sequestered stocks of corporations pursuant to the aforesaid Memorandum as follows: "d. Voting of Sequestered Stock; Conditions Therefor So too, it is within the parameters of these conditions and circumstances that the PCGG may properly exercise the prerogative to vote sequestered stock of corporations, granted to it by the President of the Philippines through a Memorandum dated June 26, 1986. That the Memorandum authorizes the PCGG, "pending the outcome of proceedings to determine the ownership of . . . (sequestered) shares of stock." "to vote such shares of stock as it may have sequestered in corporations at all stockholders meetings called for the election of directors, declaration of dividends amendment of the Articles of Incorporation, etc." The Memorandum should be construed in such a manner as to be consistent with, and not contradictory of the Executive Orders earlier promulgated on the same matter. There should be no exercise of the right to vote simply because the right exists, or because the stocks sequestered constitute the controlling or a substantial part of the corporate voting power. The stock is not to be voted to replace directors, or revise the articles of by-laws, or otherwise bring about substantial changes in policy, program or practice of the corporation except for demonstrably weighty and defensible grounds and always in the context or the stated purposes of sequestration or provisional takeover, i.e., to prevent the dispersion or under disposal of the corporate assets. Directors are not to be voted out simply because the power to do so exists. Substitution of directors is not to be done without reason or rhyme, should indeed be shunned if at all possible, and undertaken only when essential to prevent disappearance or wastage of corporate property, and always under such circumstances as assure that the replacements are truly possessed of competence, experience and probity. xxx xxx xxx It must however be emphasized that the conduct of the PCGG nominees in the BASECO Board in the management of the company's affairs should henceforth be guided and governed by the norms herein laid down. They should never for a moment allow themselves to forget that they are conservators, not owners of the business; they are fiduciaries, trustees, of whom the highest degree of diligence and rectitude is, in the premises, required." Thus, the issue which deserves consideration is whether the authority vested in the PCGG by the aforementioned Memorandum Order to vote the sequestered shares of stock prevails over the loan contracts wherein the voting rights were assigned to DBP. The Supreme Court, thru Justice Narvasa in the aforecited case of BASECO v. PCGG, has established that the basis of the authority given to PCGG to issue (these) provisional remedies is "the state's inherent police power, regarded as the power of promoting the public welfare by restraining and regulating the use of liberty and property . . ." Parenthetically, in Alalayan v. National Power Corporation, 24 SCRA 172, it was held that the liberty to contract associated with business activities may in the interest of the general welfare under the police power, be subjected to restrictions as long as due process is observed. And where the challenged legislation is made to apply to contracts already in existence, such would not be an impairment of the obligation of contracts because an enactment under the police power of the state being remedial in nature, the non-applicability thereof to existing conditions would be self-defeating. It was pointed out, however, that the said decision was not intended to mean that the invocation of the protection of the non-impairment clause would be unavailing in any case once the legislation complained of is shown to be an exercise of the police power. The process of balancing, adjustment or harmonization is called for whenever governmental authority may trench upon private rights. But even if reliance be placed on the non-impairment clause and using the "balancing, adjustment or harmonization" test applied by the Supreme Court as a guideline to ascertain whether presidential issuances run counter to such constitutional guarantee, there is no doubt that E.O. Nos. 1, 2 and the aforesaid Memorandum Order prevail over the loan contracts with DBP. prcd The foregoing executive orders creating and defining the jurisdiction of the PCGG were issued in consonance with the mandate of Article II, Section I (D) of Proclamation No. 3 dated March 25, 1986, declaring a national policy to implement the reforms mandated by the people "to recover ill-gotten properties amassed by the leaders and supporters of the previous regime." The vast powers of the Commission were conceived to enable it to achieve its vital task which involves' the just and expeditious recovery of such ill-gotten wealth in order that the funds, assets, and other properties may be used to hasten national economic recovery (See 3rd and 4th Whereas Clauses, E.O. No. 14) (Sec. of Justice Op. No. 13, s. 1987). The Supreme Court has emphasized the obvious and imperative need for preliminary provisional measures to prevent the concealment, disappearance, destruction, dissipation or loss of the assets and properties subject of the suits, or to restrain or foil acts that may render moot and academic, or effectively hamper delay or negate efforts to recover the same (BASECO v. PCGG, supra ). In view thereof, it is believed that the right of DBP as assignee to such shares is subordinate to the sequestration power of PCGG which includes the right to vote such shares when it deems that it will be in the public interest to prevent the dispersion or undue disposal of the corporate assets which may really belong to the Government of the Republic of the Philippines. Please be guided accordingly. Very truly yours, (SGD.) SEDFREY A. ORDOEZ Secretary of Justice