COCOFED VS REPUBLIC

G.R. NO. 177857-58

SEPT. 17, 2009, FEB. 11, 2010, JAN. 24, 2012, SEPT. 4, 2012
PONENTE: PRESBITERO J. VELASCO, JR.
TOPIC: DOCTRINE OF PRIMARY JURISDICTION
FACTS:

For consideration is the Urgent Motion to Approve the Conversion of the San
Miguel Corporation (SMC) common shares into SMC Series 1 preferred shares
dated July 24, 2009 interposed by petitioners Philippine Coconut Producers
Federation Inc., et al. (collectively, COCOFED).
CIIF (Coconut Industry Investment Fund) SMC common shares are
sequestered assets and are in custodial egis (in custody of the law) under the
Presidential Commission on Good Governances (PCGG) administration.
PCGG issued PCGG Resolution 2009-037-756 requesting the Office of the
Solicitor General (OSG) to seek approval of the Court for the proposed
conversion. On the other hand, COCOFED proposes to constitute a trust fund
to be known as the Coconut Industry Trust Fund (CITF) for the benefit of the
coconut farmers with the Republic acting through the Philippine Coconut
Authority (PCA). Such proposal reiterated the features of SMCs conversion
offer subject to certain terms and conditions.
Respondent Republic filed its comment questioning COCOFEDs personality to
seek Courts approval of the desired conversion arguing that only PCGG has
the authority to approve the proposed conversion and seek the necessary
Court approval.
Jovito Salonga and four others sought leave to intervene asserting that the
government bears the burden of showing that the conversion is
advantageous or will result in clear and material benefit. They claimed that
the Cojuangco, Jr. group will be able to oust the government nominees from
the SMC Board, buy the sequestered shares without encumbrances, and do
so with SMC funds upon the conversion of the shares.

ISSUES:
1. W/N COCOFED has authority to seek the necessary approval of the Court to
proceed with the proposed conversion
2. W/N such conversion will be advantageous to the public or will result in
a clear and material benefit
3. W/N PCGG committed a grave abuse of discretion
HELD/RATIO:
1. NO, it is the PCGG and not COCOFED that is authorized to seek approval of
the Court of the Series 1 preferred shares conversion.
The sequestered shares became subject to the management,
supervision, and control of PCGG pursuant to Executive Order No. 1,
Series of 1986, creating that commission. Therefore, only the PCGG
has authority to seek the Courts approval.

2. YES, respondent Republic has satisfactorily demonstrated that the conversion

will redound to the clear advantage and material benefit of the eventual
owner of the CIIF SMC shares in question.
At a time of worldwide economic crisis and diversification into several
huge projects by SMC, the owners of the preferred shares will be given
preference in the corporate assets of the corporation.
The conversion will ensure a higher cumulative and fixed dividend rate
of 8% per annum computed at an issue price of Php 75 per share, a
yield not available to common shareholders.
The perceived full control by Cojuangco, Jr. over SMC after the common
shares are released from sequestration is hardly relevant to the
propriety of the conversion. The only interest of the PCGG in SMC is to
protect the CIFF SMC common shares from dissipation and is not
tasked to bar Cojuangco, Jr. or any individual from securing domination
of the SMC Board.
3. NO, the decision on whether to proceed with the conversion pertains to the
executive branch represented by the PCGG.
The Court cannot question the wisdom and reasons behind the
decision of the executive branch to ask for the conversion.
The DOCTRINE OF PRIMARY JURISDICTION dictates that the courts will
defer the decisions of the administrative offices and agencies by
reason of their expertise and experience in the matters assigned to
them. This can only set aside on proof of grave abuse of discretion,
fraud, or error of law.
PCGG did not commit a grave error of discretion for it only approved
the conversion after it conducted an in-depth inquiry, thorough study,
and judicious evaluation of the pros and cons of the proposed
conversion.
Respondent Republic, thru the PCGG, is hereby directed to cause to perform such
acts and execute such documents as required to effectuate the conversion.
DISSENTING OPINION: CARPIO MORALES, J.
1. A trustee is not allowed by law to dispose of or deal with the trust assets
below the actual market value. If at the time of redemption the prevailing
market price is higher than the issue price, then the price is below the actual
market price.
2. The remedies are intended to be preservative or conservative in nature, so
that in any event, the assets may be returned to the rightful owner as far as
possible in the same condition as it was in the sequestration. In the present
case, the rightful owners business options would be tied with the terms and
conditions of the conversion.
3. The proposed conversion sells out the only recognized means by which the
PCGG may exercise future acts of strict ownership (right to vote) and
bargains away the safeguard against the dissipation of corporate assets.
What sequestration is guarding against is more on the dissipation of the
corporate assets than the decrease of the share value.