J.G.
SUMMIT HOLDINGS, INC.,
Petitioner,
-versus-
G.R.
No. 124293
January
31, 2005
COURT
OF APPEALS; COMMITTEE ON PRIVATIZATION, its
Chairman and Members; ASSET PRIVATIZATION TRUST;
and PHILYARDS HOLDINGS, INC.,
Respondents.
R
E S O L U T I O N
PUNO,
J.:
For
Resolution before this Court are two motions filed by the petitioner,
J.G. Summit Holdings, Inc. for reconsideration of our Resolution dated
September 24, 2003 and to elevate this case to the Court En Banc.
The petitioner questions the Resolution which reversed our Decision of
November 20, 2000, which in turn reversed and set aside a Decision of
the Court of Appeals promulgated on July 18, 1995.
I.
Facts
The
undisputed facts of the case, as set forth in our Resolution of
September 24, 2003, are as follows:
On
January 27, 1997, the National Investment and Development Corporation
(NIDC), a government corporation, entered into a Joint Venture
Agreement (JVA) with Kawasaki Heavy Industries, Ltd. of Kobe, Japan
(KAWASAKI) for the construction, operation and management of the Subic
National Shipyard, Inc. (SNS) which subsequently became the Philippine
Shipyard and Engineering Corporation (PHILSECO). Under the JVA,
the NIDC and KAWASAKI will contribute P330 million for the
capitalization of PHILSECO in the proportion of 60%-40%
respectively. One of its salient features is the grant to the
parties of the right of first refusal should either of them decide to
sell, assign or transfer its interest in the joint venture, viz:
1.4
Neither party shall sell, transfer or assign all or any part of its
interest in SNS [PHILSECO] to any third party without giving the other
under the same terms the right of first refusal. This provision shall
not apply if the transferee is a corporation owned or controlled by the
GOVERNMENT or by a KAWASAKI affiliate.
On
November 25, 1986, NIDC transferred all its rights, title and interest
in PHILSECO to the Philippine National Bank (PNB). Such interests were
subsequently transferred to the National Government pursuant to
Administrative Order No. 14. On December 8, 1986, President Corazon C.
Aquino issued Proclamation No. 50 establishing the Committee on
Privatization (COP) and the Asset Privatization Trust (APT) to take
title to, and possession of, conserve, manage and dispose of
non-performing assets of the National Government. Thereafter, on
February 27, 1987, a trust agreement was entered into between the
National Government and the APT wherein the latter was named the
trustee of the National Government's share in PHILSECO. In 1989, as a
result of a quasi-reorganization of PHILSECO to settle its huge
obligations to PNB, the National Government's shareholdings in PHILSECO
increased to 97.41% thereby reducing KAWASAKI's shareholdings to 2.59%.
In the
interest of the national economy and the government, the COP and the
APT deemed it best to sell the National Government's share in PHILSECO
to private entities. After a series of negotiations between the APT and
KAWASAKI, they agreed that the latter's right of first refusal under
the JVA be "exchanged" for the right to top by five percent (5%) the
highest bid for the said shares. They further agreed that KAWASAKI
would be entitled to name a company in which it was a stockholder,
which could exercise the right to top. On September 7, 1990, KAWASAKI
informed APT that Philyards Holdings, Inc. (PHI)[1] would exercise its
right to top.
At the
pre-bidding conference held on September 18, 1993, interested bidders
were given copies of the JVA between NIDC and KAWASAKI, and of the
Asset Specific Bidding Rules (ASBR) drafted for the National
Government's 87.6% equity share in PHILSECO. The provisions of the ASBR
were explained to the interested bidders who were notified that the
bidding would be held on December 2, 1993. A portion of the ASBR reads:
1.0
The subject of this Asset Privatization Trust (APT) sale through public
bidding is the National Government's equity in PHILSECO consisting of
896,869,942 shares of stock (representing 87.67% of PHILSECO's
outstanding capital stock), which will be sold as a whole block in
accordance with the rules herein enumerated.
xxx
xxx
xxx
2.0
The highest bid, as well as the buyer, shall be subject to the final
approval of both the APT Board of Trustees and the Committee on
Privatization (COP).
2.1
APT reserves the right in its sole discretion, to reject any or all
bids.
3.0
This public bidding shall be on an Indicative Price Bidding basis. The
Indicative price set for the National Government's 87.67% equity in
PHILSECO is PESOS: ONE BILLION THREE HUNDRED MILLION
(P1,300,000,000.00).
xxx
xxx
xxx
6.0
The highest qualified bid will be submitted to the APT Board of
Trustees at its regular meeting following the bidding, for the purpose
of determining whether or not it should be endorsed by the APT Board of
Trustees to the COP, and the latter approves the same. The APT shall
advise Kawasaki Heavy Industries, Inc. and/or its nominee, [PHILYARDS]
Holdings, Inc., that the highest bid is acceptable to the National
Government. Kawasaki Heavy Industries, Inc. and/or [PHILYARDS]
Holdings, Inc. shall then have a period of thirty (30) calendar days
from the date of receipt of such advice from APT within which to
exercise their "Option to Top the Highest Bid" by offering a bid
equivalent to the highest bid plus five (5%) percent thereof.
6.1
Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings,
Inc. exercise their "Option to Top the Highest Bid," they shall so
notify the APT about such exercise of their option and deposit with APT
the amount equivalent to ten percent (10%) of the highest bid plus five
percent (5%) thereof within the thirty (30)-day period mentioned in
paragraph 6.0 above. APT will then serve notice upon Kawasaki Heavy
Industries, Inc. and/or [PHILYARDS] Holdings, Inc. declaring them as
the preferred bidder and they shall have a period of ninety (90) days
from the receipt of the APT's notice within which to pay the balance of
their bid price.
6.2
Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings,
Inc. fail to exercise their "Option to Top the Highest Bid" within the
thirty (30)-day period, APT will declare the highest bidder as the
winning bidder.
xxx
xxx
xxx
12.0
The bidder shall be solely responsible for examining with appropriate
care these rules, the official bid forms, including any addenda or
amendments thereto issued during the bidding period. The bidder shall
likewise be responsible for informing itself with respect to any and
all conditions concerning the PHILSECO Shares which may, in any manner,
affect the bidder's proposal. Failure on the part of the bidder to so
examine and inform itself shall be its sole risk and no relief for
error or omission will be given by APT or COP.
At the
public bidding on the said date, petitioner J.G. Summit Holdings,
Inc.[2] submitted a bid of Two Billion and Thirty Million Pesos
(P2,030,000,000.00) with an acknowledgment of KAWASAKI/[PHILYARDS']
right to top, viz:
4.
I/We understand that the Committee on Privatization (COP)
has up to thirty (30) days to act on APT's recommendation based on the
result of this bidding. Should the COP approve the highest bid, APT
shall advise Kawasaki Heavy Industries, Inc. and/or its nominee,
[PHILYARDS] Holdings, Inc. that the highest bid is acceptable to the
National Government. Kawasaki Heavy Industries, Inc. and/or [PHILYARDS]
Holdings, Inc. shall then have a period of thirty (30) calendar days
from the date of receipt of such advice from APT within which to
exercise their "Option to Top the Highest Bid" by offering a bid
equivalent to the highest bid plus five (5%) percent thereof.
As
petitioner was declared the highest bidder, the COP approved the sale
on December 3, 1993 "subject to the right of Kawasaki Heavy Industries,
Inc./[PHILYARDS] Holdings, Inc. to top JGSMI's bid by 5% as specified
in the bidding rules."
On
December 29, 1993, petitioner informed APT that it was protesting the
offer of PHI to top its bid on the grounds that: (a) the KAWASAKI/PHI
consortium composed of KAWASAKI, [PHILYARDS], Mitsui, Keppel, SM Group,
ICTSI and Insular Life violated the ASBR because the last four (4)
companies were the losing bidders thereby circumventing the law and
prejudicing the weak winning bidder; (b) only KAWASAKI could exercise
the right to top; (c) giving the same option to top to PHI constituted
unwarranted benefit to a third party; (d) no right of first refusal can
be exercised in a public bidding or auction sale; and (e) the JG Summit
consortium was not estopped from questioning the proceedings.
On
February 2, 1994, petitioner was notified that PHI had fully paid the
balance of the purchase price of the subject bidding. On February 7,
1994, the APT notified petitioner that PHI had exercised its option to
top the highest bid and that the COP had approved the same on January
6, 1994. On February 24, 1994, the APT and PHI executed a Stock
Purchase Agreement. Consequently, petitioner filed with this Court a
Petition for Mandamus under G.R. No. 114057. On May 11, 1994, said
petition was referred to the Court of Appeals. On July 18, 1995, the
Court of Appeals denied the same for lack of merit. It ruled that
the petition for mandamus was not the proper remedy to question the
constitutionality or legality of the right of first refusal and the
right to top that was exercised by KAWASAKI/PHI, and that the matter
must be brought "by the proper party in the proper forum at the proper
time and threshed out in a full blown trial." The Court of Appeals
further ruled that the right of first refusal and the right to top are
prima facie legal and that the petitioner, "by participating in the
public bidding, with full knowledge of the right to top granted to
KAWASAKI/[PHILYARDS] is…estopped from questioning the validity of the
award given to [PHILYARDS] after the latter exercised the right to top
and had paid in full the purchase price of the subject shares, pursuant
to the ASBR." Petitioner filed a Motion for Reconsideration of said
Decision which was denied on March 15, 1996. Petitioner thus filed a
Petition for Certiorari with this Court alleging grave abuse of
discretion on the part of the appellate court.
On
November 20, 2000, this Court rendered x x x [a] Decision ruling among
others that the Court of Appeals erred when it dismissed the petition
on the sole ground of the impropriety of the special civil action of
mandamus because the petition was also one of certiorari. It
further ruled that a shipyard like PHILSECO is a public utility whose
capitalization must be sixty percent (60%) Filipino-owned.
Consequently, the right to top granted to KAWASAKI under the Asset
Specific Bidding Rules (ASBR) drafted for the sale of the 87.67% equity
of the National Government in PHILSECO is illegal — not only because it
violates the rules on competitive bidding — but more so, because it
allows foreign corporations to own more than 40% equity in the
shipyard. It also held that "although the petitioner had the
opportunity to examine the ASBR before it participated in the bidding,
it cannot be estopped from questioning the unconstitutional, illegal
and inequitable provisions thereof." Thus, this Court voided the
transfer of the national government's 87.67% share in PHILSECO to
Philyard[s] Holdings, Inc., and upheld the right of JG Summit, as the
highest bidder, to take title to the said shares, viz:
WHEREFORE, the
instant petition for review on certiorari is GRANTED. The assailed
Decision and Resolution of the Court of Appeals are REVERSED and SET
ASIDE. Petitioner is ordered to pay to APT its bid price of Two Billion
Thirty Million Pesos (P2,030,000,000.00), less its bid deposit plus
interests upon the finality of this Decision. In turn, APT is ordered
to:
(a)
accept the said amount of P2,030,000,000.00 less bid deposit and
interests from petitioner;
(b)
execute a Stock Purchase Agreement with petitioner;
(c)
cause the issuance in favor of petitioner of the certificates of stocks
representing 87.6% of PHILSECO's total capitalization;
(d)
return to private respondent PHGI the amount of Two Billion One Hundred
Thirty-One Million Five Hundred Thousand Pesos (P2,131,500,000.00); and
(e)
cause the cancellation of the stock certificates issued to PHI.
SO
ORDERED.
In
separate Motions for Reconsideration, respondents submit[ted] three
basic issues for x x x resolution: (1) Whether PHILSECO is a public
utility; (2) Whether under the 1977 JVA, KAWASAKI can exercise its
right of first refusal only up to 40% of the total capitalization of
PHILSECO; and (3) Whether the right to top granted to KAWASAKI violates
the principles of competitive bidding.[3] (citations omitted)
In a
Resolution dated September 24, 2003, this Court ruled in favor of the
respondents. On the first issue, we held that Philippine Shipyard
and Engineering Corporation (PHILSECO) is not a public utility, as by
nature, a shipyard is not a public utility[4] and that no law declares
a shipyard to be a public utility.[5] On the second issue, we found
nothing in the 1977 Joint Venture Agreement (JVA) which prevents
Kawasaki Heavy Industries, Ltd. of Kobe, Japan (KAWASAKI) from
acquiring more than 40% of PHILSECO’s total capitalization.[6] On
the final issue, we held that the right to top granted to KAWASAKI in
exchange for its right of first refusal did not violate the principles
of competitive bidding.[7]
On
October 20, 2003, the petitioner filed a Motion for Reconsideration[8]
and a Motion to Elevate This Case to the Court En Banc.[9] Public
respondents Committee on Privatization (COP) and Asset Privatization
Trust (APT), and private respondent Philyards Holdings, Inc.
(PHILYARDS) filed their Comments on J.G. Summit Holdings, Inc.’s (JG
Summit’s) Motion for Reconsideration and Motion to Elevate This Case to
the Court En Banc on January 29, 2004 and February 3, 2004,
respectively.
II.
Issues
Based
on the foregoing, the relevant issues to resolve to end this litigation
are the following:
1. Whether
there are sufficient bases to elevate the case at bar to the Court en
banc.
2.
Whether the motion for reconsideration raises any new matter or cogent
reason to warrant a reconsideration of this Court’s Resolution of
September 24, 2003.
Motion
to Elevate this Case to the
Court
En Banc
The
petitioner prays for the elevation of the case to the Court en banc on
the following grounds:
1. The main
issue of the propriety of the bidding process involved in the present
case has been confused with the policy issue of the supposed fate of
the shipping industry which has never been an issue that is
determinative of this case.[10]
2.
The present case may be considered under the Supreme Court Resolution
dated February 23, 1984 which included among en banc cases those
involving a novel question of law and those where a doctrine or
principle laid down by the Court en banc or in division may be modified
or reversed.[11]
3.
There was clear executive interference in the judicial functions of the
Court when the Honorable Jose Isidro Camacho, Secretary of Finance,
forwarded to Chief Justice Davide, a memorandum dated November 5, 2001,
attaching a copy of the Foreign Chambers Report dated October 17, 2001,
which matter was placed in the agenda of the Court and noted by it in a
formal resolution dated November 28, 2001.[12]
Opposing
J.G. Summit’s motion to elevate the case en banc, PHILYARDS points out
the petitioner’s inconsistency in previously opposing PHILYARDS’ Motion
to Refer the Case to the Court En Banc. PHILYARDS contends that
J.G. Summit should now be estopped from asking that the case be
referred to the Court en banc. PHILYARDS further contends that
the Supreme Court en banc is not an appellate court to which decisions
or resolutions of its divisions may be appealed citing Supreme Court
Circular No. 2-89 dated February 7, 1989.[13] PHILYARDS also alleges
that there is no novel question of law involved in the present case as
the assailed Resolution was based on well-settled jurisprudence.
Likewise, PHILYARDS stresses that the Resolution was merely an outcome
of the motions for reconsideration filed by it and the COP and APT and
is “consistent with the inherent power of courts to ‘amend and control
its process and orders so as to make them conformable to law and
justice.’ (Rule 135, sec. 5)”[14] Private respondent belittles the
petitioner’s allegations regarding the change in ponente and the
alleged executive interference as shown by former Secretary of Finance
Jose Isidro Camacho’s memorandum dated November 5, 2001 arguing that
these do not justify a referral of the present case to the Court en
banc.
In
insisting that its Motion to Elevate This Case to the Court En Banc
should be granted, J.G. Summit further argued that: its Opposition to
the Office of the Solicitor General’s Motion to Refer is different from
its own Motion to Elevate; different grounds are invoked by the two
motions; there was unwarranted “executive interference”; and the change
in ponente is merely noted in asserting that this case should be
decided by the Court en banc.[15]
We
find no merit in petitioner’s contention that the propriety of the
bidding process involved in the present case has been confused with the
policy issue of the fate of the shipping industry which, petitioner
maintains, has never been an issue that is determinative of this
case. The Court’s Resolution of September 24, 2003 reveals
a clear and definitive ruling on the propriety of the bidding
process. In discussing whether the right to top granted to
KAWASAKI in exchange for its right of first refusal violates the
principles of competitive bidding, we made an exhaustive discourse on
the rules and principles of public bidding and whether they were
complied with in the case at bar.[16] This Court categorically ruled on
the petitioner’s argument that PHILSECO, as a shipyard, is a public
utility which should maintain a 60%-40% Filipino-foreign equity ratio,
as it was a pivotal issue. In doing so, we recognized the impact
of our ruling on the shipbuilding industry which was beyond
avoidance.[17]
We
reject petitioner’s argument that the present case may be considered
under the Supreme Court Resolution dated February 23, 1984 which
included among en banc cases those involving a novel question of law
and those where a doctrine or principle laid down by the court en banc
or in division may be modified or reversed. The case was
resolved based on basic principles of the right of first refusal in
commercial law and estoppel in civil law. Contractual obligations
arising from rights of first refusal are not new in this jurisdiction
and have been recognized in numerous cases.[18] Estoppel is too known a
civil law concept to require an elongated discussion. Fundamental
principles on public bidding were likewise used to resolve the issues
raised by the petitioner. To be sure, petitioner leans on the
right to top in a public bidding in arguing that the case at bar
involves a novel issue. We are not swayed. The right to top
was merely a condition or a reservation made in the bidding rules which
was fully disclosed to all bidding parties. In Bureau Veritas,
represented by Theodor H. Hunermann v. Office of the President, et al.,
[19]we dealt with this conditionality, viz:
x x x It must be
stressed, as held in the case of A.C. Esguerra & Sons v. Aytona, et
al., (L-18751, 28 April 1962, 4 SCRA 1245), that in an "invitation to
bid, there is a condition imposed upon the bidders to the effect that
the bidding shall be subject to the right of the government to reject
any and all bids subject to its discretion. In the case at bar, the
government has made its choice and unless an unfairness or injustice is
shown, the losing bidders have no cause to complain nor right to
dispute that choice. This is a well-settled doctrine in this
jurisdiction and elsewhere."
The discretion to
accept or reject a bid and award contracts is vested in the Government
agencies entrusted with that function. The discretion given to the
authorities on this matter is of such wide latitude that the Courts
will not interfere therewith, unless it is apparent that it is used as
a shield to a fraudulent award (Jalandoni v. NARRA, 108 Phil. 486
[1960]). x x x The exercise of this discretion is a policy decision
that necessitates prior inquiry, investigation, comparison, evaluation,
and deliberation. This task can best be discharged by the Government
agencies concerned, not by the Courts. The role of the Courts is to
ascertain whether a branch or instrumentality of the Government has
transgressed its constitutional boundaries. But the Courts will not
interfere with executive or legislative discretion exercised within
those boundaries. Otherwise, it strays into the realm of policy
decision-making.
It is
only upon a clear showing of grave abuse of discretion that the Courts
will set aside the award of a contract made by a government entity.
Grave abuse of discretion implies a capricious, arbitrary and whimsical
exercise of power (Filinvest Credit Corp. v. Intermediate Appellate
Court, No. 65935, 30 September 1988, 166 SCRA 155). The abuse of
discretion must be so patent and gross as to amount to an evasion of
positive duty or to a virtual refusal to perform a duty enjoined by
law, as to act at all in contemplation of law, where the power is
exercised in an arbitrary and despotic manner by reason of passion or
hostility (Litton Mills, Inc. v. Galleon Trader, Inc., et al[.],
L-40867, 26 July 1988, 163 SCRA 489).
The
facts in this case do not indicate any such grave abuse of discretion
on the part of public respondents when they awarded the CISS contract
to Respondent SGS. In the "Invitation to Prequalify and Bid" (Annex
"C," supra), the CISS Committee made an express reservation of the
right of the Government to "reject any or all bids or any part thereof
or waive any defects contained thereon and accept an offer most
advantageous to the Government." It is a well-settled rule that where
such reservation is made in an Invitation to Bid, the highest or lowest
bidder, as the case may be, is not entitled to an award as a matter of
right (C & C Commercial Corp. v. Menor, L-28360, 27 January 1983,
120 SCRA 112). Even the lowest Bid or any Bid may be rejected or, in
the exercise of sound discretion, the award may be made to another than
the lowest bidder (A.C. Esguerra & Sons v. Aytona, supra, citing 43
Am. Jur., 788). (Emphases supplied)
Like
the condition in the Bureau Veritas case, the right to top was a
condition imposed by the government in the bidding rules which was made
known to all parties. It was a condition imposed on all bidders
equally, based on the APT’s exercise of its discretion in deciding on
how best to privatize the government’s shares in PHILSECO. It was
not a whimsical or arbitrary condition plucked from the ether and
inserted in the bidding rules but a condition which the APT approved as
the best way the government could comply with its contractual
obligations to KAWASAKI under the JVA and its mandate of getting the
most advantageous deal for the government. The right to top
had its history in the mutual right of first refusal in the JVA and was
reached by agreement of the government and KAWASAKI.
Further,
there is no “executive interference” in the functions of this Court by
the mere filing of a memorandum by Secretary of Finance Jose Isidro
Camacho. The memorandum was merely “noted” to acknowledge its
filing. It had no further legal significance. Notably too,
the assailed Resolution dated September 24, 2003 was decided
unanimously by the Special First Division in favor of the respondents.
Again,
we emphasize that a decision or resolution of a Division is that of the
Supreme Court[20] and the Court en banc is not an appellate court to
which decisions or resolutions of a Division may be appealed.[21]
For
all the foregoing reasons, we find no basis to elevate this case to the
Court en banc.
Motion
for Reconsideration
Three
principal arguments were raised in the petitioner’s Motion for
Reconsideration. First, that a fair resolution of the case should
be based on contract law, not on policy considerations; the contracts
do not authorize the right to top to be derived from the right of first
refusal.[22] Second, that neither the right of first refusal nor the
right to top can be legally exercised by the consortium which is not
the proper party granted such right under either the JVA or the Asset
Specific Bidding Rules (ASBR).[23] Third, that the maintenance of the
60%-40% relationship between the National Investment and Development
Corporation (NIDC) and KAWASAKI arises from contract and from the
Constitution because PHILSECO is a landholding corporation and need not
be a public utility to be bound by the 60%-40% constitutional
limitation.[24]
On the
other hand, private respondent PHILYARDS asserts that J.G. Summit has
not been able to show compelling reasons to warrant a reconsideration
of the Decision of the Court.[25] PHILYARDS denies that the Decision is
based mainly on policy considerations and points out that it is
premised on principles governing obligations and contracts and
corporate law such as the rule requiring respect for contractual
stipulations, upholding rights of first refusal, and recognizing the
assignable nature of contracts rights.[26] Also, the ruling that
shipyards are not public utilities relies on established case law and
fundamental rules of statutory construction. PHILYARDS stresses that
KAWASAKI’s right of first refusal or even the right to top is not
limited to the 40% equity of the latter.[27] On the landholding issue
raised by J.G. Summit, PHILYARDS emphasizes that this is a non-issue
and even involves a question of fact. Even assuming that this
Court can take cognizance of such question of fact even without the
benefit of a trial, PHILYARDS opines that landholding by PHILSECO at
the time of the bidding is irrelevant because what is essential is that
ultimately a qualified entity would eventually hold PHILSECO’s real
estate properties.[28] Further, given the assignable nature of the
right of first refusal, any applicable nationality restrictions,
including landholding limitations, would not affect the right of first
refusal itself, but only the manner of its exercise.[29] Also,
PHILYARDS argues that if this Court takes cognizance of J.G. Summit’s
allegations of fact regarding PHILSECO’s landholding, it must also
recognize PHILYARDS’ assertions that PHILSECO’s landholdings were sold
to another corporation.[30] As regards the right of first refusal,
private respondent explains that KAWASAKI’s reduced shareholdings (from
40% to 2.59%) did not translate to a deprivation or loss of its
contractually granted right of first refusal.[31] Also, the bidding was
valid because PHILYARDS exercised the right to top and it was of no
moment that losing bidders later joined PHILYARDS in raising the
purchase price.[32]
In
cadence with the private respondent PHILYARDS, public respondents COP
and APT contend:
1. The
conversion of the right of first refusal into a right to top by 5% does
not violate any provision in the JVA between NIDC and KAWASAKI.
2.
PHILSECO is not a public utility and therefore not governed by the
constitutional restriction on foreign ownership.
3.
The petitioner is legally estopped from assailing the validity of the
proceedings of the public bidding as it voluntarily submitted itself to
the terms of the ASBR which included the provision on the right to top.
4.
The right to top was exercised by PHILYARDS as the nominee of KAWASAKI
and the fact that PHILYARDS formed a consortium to raise the required
amount to exercise the right to top the highest bid by 5% does not
violate the JVA or the ASBR.
5.
The 60%-40% Filipino-foreign constitutional requirement for the
acquisition of lands does not apply to PHILSECO because as admitted by
petitioner itself, PHILSECO no longer owns real property.
6.
Petitioner’s motion to elevate the case to the Court en banc is
baseless and would only delay the termination of this case.[33]
In a
Consolidated Comment dated March 8, 2004, J.G. Summit countered the
arguments of the public and private respondents in this wise:
1.
The award by the APT of 87.67% shares of PHILSECO to PHILYARDS with
losing bidders through the exercise of a right to top, which is
contrary to law and the constitution is null and void for being
violative of substantive due process and the abuse of right provision
in the Civil Code.
a.
The bidders[’] right to top was actually exercised by losing bidders.
b.
The right to top or the right of first refusal cannot co-exist with a
genuine competitive bidding.
c.
The benefits derived from the right to top were unwarranted.
2.
The landholding issue has been a legitimate issue since the start of
this case but is shamelessly ignored by the respondents.
a.
The landholding issue is not a non-issue.
b.
The landholding issue does not pose questions of fact.
c.
That PHILSECO owned land at the time that the right of first refusal
was agreed upon and at the time of the bidding are most relevant.
d.
Whether a shipyard is a public utility is not the core issue in this
case.
3.
Fraud and bad faith attend the alleged conversion of an inexistent
right of first refusal to the right to top.
a.
The history behind the birth of the right to top shows fraud and bad
faith.
b.
The right of first refusal was, indeed, “effectively useless.”
4.
Petitioner is not legally estopped to challenge the right to top in
this case.
a.
Estoppel is unavailing as it would stamp validity to an act that is
prohibited by law or against public policy.
b.
Deception was patent; the right to top was an attractive nuisance.
c.
The 10% bid deposit was placed in escrow.
J.G.
Summit’s insistence that the right to top cannot be sourced from the
right of first refusal is not new and we have already ruled on the
issue in our Resolution of September 24, 2003. We upheld the
mutual right of first refusal in the JVA.[34] We also ruled that
nothing in the JVA prevents KAWASAKI from acquiring more than 40% of
PHILSECO’s total capitalization.[35] Likewise, nothing in the JVA
or ASBR bars the conversion of the right of first refusal to the right
to top. In sum, nothing new and of significance in the
petitioner’s pleading warrants a reconsideration of our ruling.
Likewise,
we already disposed of the argument that neither the right of first
refusal nor the right to top can legally be exercised by the consortium
which is not the proper party granted such right under either the JVA
or the ASBR. Thus, we held:
The fact that the
losing bidder, Keppel Consortium (composed of Keppel, SM Group, Insular
Life Assurance, Mitsui and ICTSI), has joined PHILYARDS in the latter's
effort to raise P2.131 billion necessary in exercising the right to top
is not contrary to law, public policy or public morals. There is
nothing in the ASBR that bars the losing bidders from joining either
the winning bidder (should the right to top is not exercised) or
KAWASAKI/PHI (should it exercise its right to top as it did), to raise
the purchase price. The petitioner did not allege, nor was it shown by
competent evidence, that the participation of the losing bidders in the
public bidding was done with fraudulent intent. Absent any proof of
fraud, the formation by [PHILYARDS] of a consortium is legitimate in a
free enterprise system. The appellate court is thus correct in holding
the petitioner estopped from questioning the validity of the transfer
of the National Government's shares in PHILSECO to respondent.[36]
Further,
we see no inherent illegality on PHILYARDS’ act in seeking funding from
parties who were losing bidders. This is a purely commercial
decision over which the State should not interfere absent any legal
infirmity. It is emphasized that the case at bar involves the
disposition of shares in a corporation which the government sought to
privatize. As such, the persons with whom PHILYARDS desired to
enter into business with in order to raise funds to purchase the shares
are basically its business. This is in contrast to a case
involving a contract for the operation of or construction of a
government infrastructure where the identity of the buyer/bidder or
financier constitutes an important consideration. In such cases,
the government would have to take utmost precaution to protect public
interest by ensuring that the parties with which it is contracting have
the ability to satisfactorily construct or operate the infrastructure.
On the
landholding issue, J.G. Summit submits that since PHILSECO is a
landholding company, KAWASAKI could exercise its right of first refusal
only up to 40% of the shares of PHILSECO due to the constitutional
prohibition on landholding by corporations with more than 40%
foreign-owned equity. It further argues that since KAWASAKI
already held at least 40% equity in PHILSECO, the right of first
refusal was inutile and as such, could not subsequently be converted
into the right to top. [37] Petitioner also asserts that, at present,
PHILSECO continues to violate the constitutional provision on
landholdings as its shares are more than 40% foreign-owned.[38]
PHILYARDS admits that it may have previously held land but had already
divested such landholdings.[39] It contends, however, that even if
PHILSECO owned land, this would not affect the right of first refusal
but only the exercise thereof. If the land is retained, the right
of first refusal, being a property right, could be assigned to a
qualified party. In the alternative, the land could be divested before
the exercise of the right of first refusal. In the case at bar,
respondents assert that since the right of first refusal was validly
converted into a right to top, which was exercised not by KAWASAKI, but
by PHILYARDS which is a Filipino corporation (i.e., 60% of its shares
are owned by Filipinos), then there is no violation of the
Constitution.[40] At first, it would seem that questions of fact beyond
cognizance by this Court were involved in the issue. However, the
records show that PHILYARDS admits it had owned land up until the time
of the bidding.[41] Hence, the only issue is whether KAWASAKI had a
valid right of first refusal over PHILSECO shares under the JVA
considering that PHILSECO owned land until the time of the bidding and
KAWASAKI already held 40% of PHILSECO’s equity.
We
uphold the validity of the mutual rights of first refusal under the JVA
between KAWASAKI and NIDC. First of all, the right of first
refusal is a property right of PHILSECO shareholders, KAWASAKI and
NIDC, under the terms of their JVA. This right allows them to
purchase the shares of their co-shareholder before they are offered to
a third party. The agreement of co-shareholders to mutually grant
this right to each other, by itself, does not constitute a violation of
the provisions of the Constitution limiting land ownership to Filipinos
and Filipino corporations. As PHILYARDS correctly puts it, if
PHILSECO still owns land, the right of first refusal can be validly
assigned to a qualified Filipino entity in order to maintain the
60%-40% ratio. This transfer, by itself, does not amount to a
violation of the Anti-Dummy Laws, absent proof of any fraudulent
intent. The transfer could be made either to a nominee or such
other party which the holder of the right of first refusal feels it can
comfortably do business with. Alternatively, PHILSECO may divest
of its landholdings, in which case KAWASAKI, in exercising its right of
first refusal, can exceed 40% of PHILSECO’s equity. In fact, it
can even be said that if the foreign shareholdings of a landholding
corporation exceeds 40%, it is not the foreign stockholders’ ownership
of the shares which is adversely affected but the capacity of the
corporation to own land – that is, the corporation becomes disqualified
to own land. This finds support under the basic corporate law
principle that the corporation and its stockholders are separate
juridical entities. In this vein, the right of first refusal over
shares pertains to the shareholders whereas the capacity to own land
pertains to the corporation. Hence, the fact that PHILSECO owns
land cannot deprive stockholders of their right of first refusal.
No law disqualifies a person from purchasing shares in a landholding
corporation even if the latter will exceed the allowed foreign equity,
what the law disqualifies is the corporation from owning land.
This is the clear import of the following provisions in the
Constitution:
Section
2. All lands of the public domain, waters,
minerals, coal, petroleum, and other mineral oils, all forces of
potential energy, fisheries, forests or timber, wildlife, flora and
fauna, and other natural resources are owned by the State. With the
exception of agricultural lands, all other natural resources shall not
be alienated. The exploration, development, and utilization of natural
resources shall be under the full control and supervision of the State.
The State may directly undertake such activities, or it may enter into
co-production, joint venture, or production-sharing agreements with
Filipino citizens, or corporations or associations at least sixty per
centum of whose capital is owned by such citizens. Such agreements may
be for a period not exceeding twenty-five years, renewable for not more
than twenty-five years, and under such terms and conditions as may be
provided by law. In cases of water rights for irrigation, water supply,
fisheries, or industrial uses other than the development of water
power, beneficial use may be the measure and limit of the grant.
xxx
Section
7. Save in cases of hereditary succession, no
private lands shall be transferred or conveyed except to individuals,
corporations, or associations qualified to acquire or hold lands of the
public domain.[42] (Emphases supplied)
The
petitioner further argues that “an option to buy land is void in itself
(Philippine Banking Corporation v. Lui She, 21 SCRA 52 [1967]).
The right of first refusal granted to KAWASAKI, a Japanese corporation,
is similarly void. Hence, the right to top, sourced from the
right of first refusal, is also void.”[43] Contrary to the contention
of petitioner, the case of Lui She did not that say “an option to buy
land is void in itself,” for we ruled as follows:
x x x To be sure,
a lease to an alien for a reasonable period is valid. So is an option
giving an alien the right to buy real property on condition that he is
granted Philippine citizenship. As this Court said in Krivenko vs.
Register of Deeds:
[A]liens are not
completely excluded by the Constitution from the use of lands for
residential purposes. Since their residence in the Philippines is
temporary, they may be granted temporary rights such as a lease
contract which is not forbidden by the Constitution. Should they desire
to remain here forever and share our fortunes and misfortunes, Filipino
citizenship is not impossible to acquire.
But if an alien
is given not only a lease of, but also an option to buy, a piece of
land, by virtue of which the Filipino owner cannot sell or otherwise
dispose of his property, this to last for 50 years, then it becomes
clear that the arrangement is a virtual transfer of ownership whereby
the owner divests himself in stages not only of the right to enjoy the
land (jus possidendi, jus utendi, jus fruendi and jus abutendi) but
also of the right to dispose of it (jus disponendi) — rights the sum
total of which make up ownership. It is just as if today the possession
is transferred, tomorrow, the use, the next day, the disposition, and
so on, until ultimately all the rights of which ownership is made up
are consolidated in an alien. And yet this is just exactly what the
parties in this case did within this pace of one year, with the result
that Justina Santos'[s] ownership of her property was reduced to a
hollow concept. If this can be done, then the Constitutional ban
against alien landholding in the Philippines, as announced in Krivenko
vs. Register of Deeds, is indeed in grave peril.[44] (Emphases
supplied; Citations omitted)
In Lui
She, the option to buy was invalidated because it amounted to a virtual
transfer of ownership as the owner could not sell or dispose of his
properties. The contract in Lui She prohibited the owner of the
land from selling, donating, mortgaging, or encumbering the property
during the 50-year period of the option to buy. This is not so in
the case at bar where the mutual right of first refusal in favor of
NIDC and KAWASAKI does not amount to a virtual transfer of land to a
non-Filipino. In fact, the case at bar involves a right of first
refusal over shares of stock while the Lui She case involves an option
to buy the land itself. As discussed earlier, there is a
distinction between the shareholder’s ownership of shares and the
corporation’s ownership of land arising from the separate juridical
personalities of the corporation and its shareholders.
We
note that in its Motion for Reconsideration, J.G. Summit alleges that
PHILSECO continues to violate the Constitution as its foreign equity is
above 40% and yet owns long-term leasehold rights which are real
rights.[45] It cites Article 415 of the Civil Code which includes in
the definition of immovable property, “contracts for public works, and
servitudes and other real rights over immovable property.”[46] Any
existing landholding, however, is denied by PHILYARDS citing its recent
financial statements.[47] First, these are questions of fact, the
veracity of which would require introduction of evidence. The
Court needs to validate these factual allegations based on competent
and reliable evidence. As such, the Court cannot resolve the questions
they pose. Second, J.G. Summit misreads the provisions of the
Constitution cited in its own pleadings, to wit:
29.2
Petitioner has consistently pointed out in the past that private
respondent is not a 60%-40% corporation, and this violates the
Constitution x x x The violation continues to this day because under
the law, it continues to own real property…
xxx
xxx
xxx
32.
To review the constitutional provisions involved, Section 14, Article
XIV of the 1973 Constitution (the JVA was signed in 1977), provided:
“Save
in cases of hereditary succession, no private lands shall be
transferred or conveyed except to individuals, corporations, or
associations qualified to acquire or hold lands of the public domain.”
32.1
This provision is the same as Section 7, Article XII of the 1987
Constitution.
32.2
Under the Public Land Act, corporations qualified to acquire or hold
lands of the public domain are corporations at least 60% of which is
owned by Filipino citizens (Sec. 22, Commonwealth Act 141, as amended).
(Emphases supplied)
As
correctly observed by the public respondents, the prohibition in the
Constitution applies only to ownership of land.[48] It does not extend
to immovable or real property as defined under Article 415 of the Civil
Code. Otherwise, we would have a strange situation where the
ownership of immovable property such as trees, plants and growing fruit
attached to the land[49] would be limited to Filipinos and Filipino
corporations only.
III.
WHEREFORE,
in view of the foregoing, the petitioner’s Motion for Reconsideration
is DENIED WITH FINALITY and the decision appealed from is
AFFIRMED. The Motion to Elevate This Case to the Court En Banc is
likewise DENIED for lack of merit.
SO
ORDERED.
Davide,
Jr., C.J., (Chairman),
Ynares-Santiago, Corona, and Tinga, JJ.,
concur.
[1]
Also referred to in this Resolution as “PHILYARDS.”
[2]
Also referred to as J G Summit.
[3]
Resolution promulgated on September 24, 2003, pp. 2 – 10.
[4]
Id. at 10 – 13.
[5]
Id. at 14 – 22.
[6]
Id. at 22 – 25.
[7]
Id. at 26 – 32.
[8]
Rollo, p. 1854.
[9]
Rollo, p. 1876.
[10]
J.G. Summit’s Motion to Elevate this Case to the Court En Banc dated
October 17, 2003, p. 3; Rollo, p. 1878.
[11]
Id.
[12]
Id.
[13]
2. A decision or resolution of a Division of
the Court, when concurred in by a majority of its Members who actually
took part in the deliberations on the issues in a case and voted
thereon, and in no case without the concurrence of at least three of
such Members, is a decision or resolution of the Supreme Court (Section
4[3], Article VIII, 1987 Constitution).
3.
The Court en banc is not an Appellate Court to which decisions or
resolutions of a Division may be appealed.
xxx
xxx
xxx
5.
A resolution of the Division denying a party’s motion for referral to
the Court en banc of any Division case, shall be final and not
appealable to the Court en banc.
6.
When a decision or resolution is referred by a Division to the Court en
banc, the latter may, in the absence of sufficiently important reasons,
decline to take cognizance of the same, in which case, the decision or
resolution shall be returned to the referring Division.
7.
No motion for reconsideration of the action of the Court en banc
declining to take cognizance of a referral by a Division, shall be
entertained.
[14]
PHILYARDS’ Comment dated February 3, 2004, pp. 26-27; Rollo, pp.
1996-1997.
[15]
J.G. Summit’s Consolidated Comment dated March 8, 2004.
[16]
Resolution dated September 24, 2003, pp. 26-32.
[17]
Id., pp. 10-22.
[18]
See Bastida and Ysmael & Co., Inc. v. Dy Buncio & Co., Inc., 93
Phil. 195 (1953); Garcia v. Burgos, 291 SCRA 546 (1998); Sadhwani v.
CA, 281 SCRA 75 (1997); Parañaque Kings Enterprises,
Incorporated v. CA, 268 SCRA 727 (1997); Polytechnic University of the
Philippines v. CA, 368 SCRA 691 (2001); and Guzman, Bocaling & Co.
v. Bonnevie, 206 SCRA 668 (1992).
[19]
G.R. No. 101678, February 3, 1992, 205 SCRA 705.
[20]
Sec. 4(3), Art. VIII, Constitution.
[21]
Supreme Court Circular No. 2-89, February 7, 1989.
[22]
J.G. Summit’s Motion for Reconsideration dated October 17, 2003, pp.
8-9; Rollo, pp. 1861-1862.
[23]
Id. at 10-13; Rollo, pp. 1863-1866.
[24]
Id. at 13-19; Rollo, pp. 1866-1872.
[25]
PHILYARDS’ Comment dated February 3, 2004, p. 1; Rollo, p. 1971.
[26]
Id. at 2; Rollo, p. 1972.
[27]
Id. at 5; Rollo, p. 1975.
[28]
Id. at 9; Rollo, p. 1979.
[29]
Id. at 12; Rollo, p. 1982.
[30]
Id.
[31]
Id. at 14; Rollo, p. 1984.
[32]
Id. at 19; Rollo, p. 1989.
[33]
COP and APT’s Comment dated January 14, 2004, pp. 14-15; Rollo, pp.
1927-1928.
[34]
Resolution dated September 24, 2003, pp. 23-24.
[35]
Id. at 22.
[36]
Resolution dated September 24, 2003, pp. 31-32.
[37]
J.G. Summit’s Consolidated Reply dated March 11, 2004, p. 14; Rollo, p.
2109.
[38]
Id.
[39]
PHILYARDS’ Manifestation and Comment dated June 26, 2002, p. 10; Rollo,
p. 1334.
[40]
PHILYARDS’ Comment dated February 3, 2004, pp. 8-16; Rollo, pp.
1978-1986.
[41]
PHILYARDS’ Manifestation and Comment dated June 26, 2002, p. 10; Rollo,
p. 1334.
[42]
Constitution, Article XII, National Economy and Patrimony.
[43]
J.G. Summit’s Consolidated Comment dated March 8, 2004, p. 17; Rollo,
p. 2112.
[44]
Philippine Banking Corporation v. Lui She, No. L-17587, September 12,
1967, 21 SCRA 52.
[45]
J.G. Summit’s Motion for Reconsideration dated October 17, 2003, p. 14;
Rollo, p. 1867.
[46]
Id. at 15; Rollo, p. 1868.
[47]
PHILYARDS’ Manifestation and Comment dated June 26, 2002, p. 10; Rollo,
p. 1334.
[48]
COP and APT’s Comment dated January 14, 2004, p. 36; Rollo, p. 1949.
[49]
Art. 415(2), Civil Code.
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