Republic v. Sandiganbayan
REITERATIONFacts
The Antecedents: The Republic of the Philippines, through the Presidential Commission on Good Government (PCGG), assailed Resolutions of the Sandiganbayan upholding the sale by Universal Molasses Corporation (UNIMOLCO) of its shares in Eastern Telecommunications Philippines, Inc. (ETPI) to Smart Communications. ETPI was a sequestered corporation. In a compromise agreement, Roberto S. Benedicto ceded 204,000 ETPI shares to the government, while the remaining 196,000 shares were released and adjudicated to Benedicto and UNIMOLCO. On April 24, 1996, UNIMOLCO, through its President and Chairman Melquiades Gutierrez, offered to sell its 196,000 ETPI shares. The Republic, via PCGG, had previously obtained a Resolution dated May 7, 1996, authorizing the transfer of 204,000 ETPI shares to the Republic from UNIMOLCO's holdings. On June 21, 1996, PCGG issued Resolution No. 96-142 enjoining all ETPI stockholders from selling shares without PCGG's conformity. Subsequently, on July 24, 1996, UNIMOLCO executed a Deed of Absolute Sale for its 196,000 ETPI shares to Smart Communications, which was not a prior stockholder. Procedural History: The Republic filed a motion to cite parties in contempt and to rescind/annul the sale, alleging defiance of the May 7, 1996 Resolution and violation of its right of first refusal. The Sandiganbayan denied the motion in a Resolution dated December 6, 1996, and denied the motion for reconsideration on March 17, 1997. The Petition: The Republic filed a petition for review, arguing that the Sandiganbayan erred in not recognizing its exercise of the right of first refusal and in approving the sale to Smart.
Issue(s)
Whether the Republic's exercise of its right of first refusal was seasonably made. Whether the Republic's proposed mode of payment (set-off) was valid under the Articles of Incorporation. Whether the corporate veil of UNIMOLCO should be pierced.
Ruling
The petition is denied. The Resolutions of the Sandiganbayan dated December 6, 1996, and March 17, 1997, are affirmed.
Ratio Decidendi
On the issue of the Republic's exercise of its right of first refusal: The Court held that the Republic's right of first refusal was not seasonably exercised. The notice of UNIMOLCO's offer to sell was received by ETPI's President and Chairman on April 24, 1996. According to Article 10 of the Articles of Incorporation, the corporation has thirty (30) days (First Period) to exercise its right, followed by a thirty-day period (Second Period) for other stockholders. The Court found that ETPI's inaction meant it did not exercise its right within the First Period, which expired on May 24, 1996. The Second Period thus ran from May 24, 1996, to June 23, 1996. Although the Republic claimed to have received notice only on August 30, 1996, the Court found that PCGG had actual knowledge of the offer earlier, as evidenced by its issuance of Resolution No. 96-142 on June 21, 1996, enjoining the sale. This actual knowledge satisfied the notice requirement, and the Republic's subsequent actions did not constitute a valid exercise of the right within the prescribed periods. Furthermore, the Court noted that PCGG had no authority to enjoin the sale of the 196,000 shares, as these had already been adjudicated to Benedicto and UNIMOLCO by final judgment. On the issue of the validity of the proposed mode of payment: Even assuming the right of first refusal was timely exercised, the Court found that the Republic failed to comply with the Articles of Incorporation's requirement for payment in "cash or certified checks or checks drawn on a Philippine bank or banks." The Republic's proposal to use a set-off against alleged debts of Roberto Benedicto to the government was deemed invalid. The Court explained that for compensation (set-off) to be proper under Article 1279 of the Civil Code, both parties must be principally bound as debtor and creditor to each other, and the debts must be due, liquidated, and demandable. In this case, the Republic sought to offset the purchase price of UNIMOLCO's shares with Benedicto's alleged obligations. However, UNIMOLCO and Benedicto are separate and distinct legal entities. The Court found no evidence that UNIMOLCO was liable for Benedicto's personal obligations, nor was there a showing that UNIMOLCO's corporate veil should be pierced. The claims against Benedicto were also characterized as mere claims, not liquidated debts enforceable in court, thus precluding compensation. On the issue of piercing the corporate veil: The Court rejected the Republic's argument to pierce the corporate veil of UNIMOLCO. It held that mere majority ownership of stocks by Benedicto in UNIMOLCO does not automatically warrant piercing the corporate fiction. The Republic failed to present clear and convincing evidence that UNIMOLCO's corporate entity was used by Benedicto to commit fraud or wrongdoing, or that it was merely a sham or alter ego. The Court emphasized that piercing the corporate veil is an exception to the rule and requires substantial proof of such misuse, which was absent in this case. Therefore, UNIMOLCO and Benedicto were correctly treated as separate entities for the purpose of determining the validity of the set-off.
Main Doctrine
The Sandiganbayan correctly upheld the sale of ETPI shares by UNIMOLCO to Smart Communications, finding that the Republic's exercise of its right of first refusal was not seasonably made and that its proposed mode of payment (set-off) was invalid under the Articles of Incorporation.