Dissenting view on Danding's 20% SMC stake

Posted at 04/13/11 11:00 PM

MANILA, Philippines - Majority of the 15-member Supreme Court may have ruled in favor of business tycoon Eduardo "Danding" Cojuangco, Jr. by affirming his 20% stake in diversifying conglomerate San Miguel Corporation against government's claim to it on the premise that coconut levy funds proceeds were used to buy the shares, but dissentors share a different view.

The Court en banc, voting 7-4-4, affirmed Tuesday a Sandiganbayan ruling in 2007 that held Cojuangco's SMC shares were acquired legitimately.

In a published dissenting opinion, Associate Justice Conchita Carpio Morales, held that the funds used to purchase the contested SMC shares, which were - as established during trial at the Sandiganbayan - sourced from loans obtained from the United Coconut Planters Bank (UCPB) and the Coconut Industry Investment Fund (CIIF) and the CIIF oil mills, were prima facie (on first appearance) public funds.

Carpio Morales contends that, consistent with the High Court's ruling in Philippine Coconut Producers Federation, Inc. (COCOFED) vs Presidential Commission on Good Government(PCGG), "[t]he coconut levy funds being clearly affected with public interest, it follows that corporations formed and organized from those funds, and all assets acquired therefrom, could also be regarded as 'clearly affected with public interest.'"

This bolsters the position that since borrowings from UCPB and CIIF - both coconut levy companies which - were used to acquire the contested SMC shares, these were public funds.

"...historical account has settled that UCPB and CIIF Oil Mills owe their existence to the coconut levy funds and the martial law issuances," the opinion read.

"Since the UCPB was acquired by the government using the coconut levy funds, and 'all assets acquired therefrom' are prima facie public in character, it follows that the coco levy funds remained public in character..." the opinion read.

The coco levy was imposed upon coconut farmers from August 1973 to August 1982.

The coconut levy funds, which comprise the Coconut Investment Fund, Coconut Consumers Stabilization Fund, Coconut Industry Development Fund and the Coconut Industry Stabilization Fund, were created "to support and advance the development of the coconut industry for the ultimate benefit of the coconut farmers."

"His use for his personal benefit of the very same funds entrusted to him, which was released to him through illegal and improper machination of loan transactions, and his contravention of the then existing corporation laws and laws restricting a bank's exposure to its director or officers indicate a clear violation of such fidudicary duty," the opinion read.

Failed to prove coco levy link

Carpio Morales debunked Cojuangco's denial that coconut levy funds were used to acquire the contested shares, stating that it, being an affirmative defense, had to be proven by Cojuangco, not government.

"The burden of proof... is on the defendant if he alleges an affirmative defense... which, if established, will be a good defense," the opinion read, citing another jurisprudence of the High Court.

Morales maintained that Cojuangco "could have simply presented in evidence documents under their custody, if any, to show that other financial resources were used to finance the stock purchase..."

"Their affirmative defense points to privately owned funds as the source of payment of the purchase price...yet Cojuangco, et al. did not present any evidence," the opinion read.

Failure to prove that SMC shares not acquired through improper or illegal means

Carpio Morales cited former President Corazon Aquino's executive issuance, Executive Order (EO) 2 dated March 12, 1986, to clearly define ill-gotten assets. EO2 describes ill-gotten assets as, among other things, "shares of stock acquired through or as a result of the improper or illegal use of or the conversion of funds or properties owned by the Government or its branches, instrumentalities, enterprises, banks or financial institutions."

"That the law includes funds from government banks and financial institutions bolsters this conclusion and readily negates respondents' vivid illustrations of bank loan transactions," the opinion read.

Carpio Morales stressed that Cojuangco's position only attempts to explain that the contested SMC shares were not directly acquired with the use of public funds, "but it does not negate the other modes of acquisition" such as as a result of the improper or illegal use or conversion of public funds.

Cojuangco a public officer

Carpio Morales also held that while Cojuangco disputed the matter of acquisition of the SMC shares, he did not specifically deny having served in the regime of former President Ferdinand Marcos. That being so, the opinion maintained that it was deemed admitted.

Cojuangco served as Governor of Tarlac, representative of the then First District of Tarlac, Ambassador-at-Large and Director of the Philippine Coconut Authority(PCA).

He was also holding key positions in private corporations as member of the United Coconut Oil Mills, Inc. Board of Directors; president and member of the Board of Directors of the UCPB, United Coconut Planters Life Assurance Corporation, and United Coconut Chemicals, Inc.; chairman and chief executive officer of SMC.

"Biggest joke to hit the century"

In the majority decision, consistent with President Corazon Aquino's first executive issuance - Executive Order (EO) No. 1 creating the PCGG - the Court held that there must be evidence presented in appropriate judicial proceedings to determine "(a) whether the assets or properties involved had come from the vast resources of government, and (b) whether the individuals owning or holding such assets or properties were close associates of President Marcos."

Carpio Morales, however, maintained that saying that Cojuangco was not a subordinate or close associate of the Marcoses is "the biggest joke to hit the century" especially with Cojuangco's own personal admission that he left the Philippines with Marcos and family on February 25, 1986 on the Marcoses' way to their exile in the United States following the first EDSA people power revolt.

"Clearly, the intimate relationship between Cojuangco and Marcos equates or exceeds that of a family member or cabinet member, since not all of Marcos's relatives or high government ministers went with him in exile on that fateful date. If this will not prove the more than close association between Cojuangco and Marcos, the Court does not know what will," the opinion read.

Violations of fiduciary duties, sequestration orders

While the majority held that evidence was lacking in establishing that Cojuangco violated his fiduciary duties as director of the UCPB when he acquired shares in SMC, Carpio Morales is of the opinion that Cojuangco's act of acquiring loans and credit advances from UCPB and the CIIF Oil Mills in purchasing the contested SMC shares was in violation of his fiduciary duty.

Fiduciary duty is defined as "a duty to act for someone else's benefit, while subordinating one's personal interests to that of the other person."

"Since at the time Cojuangco and the Cojuangco companies obtained loans from UCPB/CIIF Oil Mills to purchase SMC shares, Cojuangco was concurrently President and/or Director of the UCPB and PCA, he is considered to have had a fiduciary duty towards these entities, especially with respect to UCPB which, at that time, was a GOCC, and the PCA, the government entity tasked to oversee the entire coconut industry including the coco levy fund," the opinion read.

"...his acquisition of the SMC shares amounted to his depriving the coconut farmers of a business opportunity which rightfully belonged to them, i.e., access to the coco levy funds, and his gaining profits therefrom to the detriment of the intended beneficiaries," the decision read.
Carpio Morales also maintained that Cojuangco violated General Banking Laws for acquiring loans for himself and penal laws, in his capacity as a public officer.

Carpio Morales agreed with the majority when it held that the Sandiganbayan did not commit grave abuse of discretion in the issuance of sequestration orders on the contested SMC shares, but maintained that the anti-graft court was "bereft of jurisdiction in imposing the restrictive conditions." The opinion held that the anti-graft court does not have the power to seize in the first instance ill-gotten properties and assets.