Philippine Supreme Court Jurisprudence > Year 2016 > April 2016 Decisions > G.R. No. 211098, April 20, 2016 - THE WELLEX GROUP, INC., Petitioner, v. SHERIFF EDGARDO A. URIETA OF THE SANDIGANBAYAN SECURITY AND SHERIFF SERVICES, THE SANDIGANBAYAN SECURITY AND SHERIFF SERVICES, AND BDO UNIBANK, INC. (FORMERLY EQUITABLE PCI BANK, INC.), Respondents.:

Before this Court is a Petition,¹ on pure questions of law, assailing the Order dated 9 January 2012 of the Regional Trial Court of Makati City, Branch 132 (trial court) in Civil Case No. 09-399,² with a prayer for the issuance of a temporary restraining order and preliminary injunction against respondents, enjoining them and persons acting under their authority from selling 450,000,000 shares of Waterfront Philippines Inc. (WPI shares) that are owned and registered in the name of petitioner The Wellex Group, Inc. (Wellex).³

In resolving the prayer of Wellex for the issuance of injunctive relief, this Court is constrained to examine the merits of the Petition and at once notes' that this case is essentially intertwined with G.R. 187951,⁴ a landmark case, wherein this Court declared, among others, that the WPI shares are included among those assets of Investment Management Agreement with Account No. 101-78056-1, under the name of Jose Velarde, (IMA Account) formerly managed by respondent BDO Unibank, Inc., previously Equitable PCI Bank, Inc. (BDO). The said account was duly forfeited in favor of the State by virtue of the Resolution dated 24 September 2008 of the Sandiganbayan in Criminal Case No. 26558, the case for plunder against former President Joseph Ejercito Estrada.

The material facts of this case, as culled from the records,⁵ are as follows:

On 4 February 2000, Wellex obtained a loan in the principal amount of P500,000,000.00 from the IMA Account with BDO. As security for the loan, Wellex mortgaged the WPI shares.

By the time the loan obligation matured on 29 January 2001, Wellex was not able to settle the same; however, BDO, as investment manager of the IMA Account did not institute any foreclosure proceeding against the WPI shares.

Thereafter, BDO, through a Letter dated 14 March 2001, informed Wellex that it shall cease to manage the IMA Account effective 2 May 2001. In the same letter, BDO informed Wellex tha't on 29 January 2000, the Bureau of Internal Revenue (BIR) issued a Notice of Constructive Distraint against the IMA Account, which effectively froze all goods, chattels or personal property owned by Jose Velarde, including the WPI shares, which BDO could consequently neither remove nor dispose of without the express authority of the BIR.

Subsequently, Wellex alleged that considering that BDO had relinquished its authority to act as the investment manager of the IMA Account, and that Wellex had supposedly settled its loan obligation in full directly with Jose Velarde, BDO, as the principal of the IMA Account, should return the WPI shares to Wellex. BDO, however, did not.

In the meantime, on 12 September 2007, the Sandiganbayan in Criminal Case No. 26558 found former President Estrada guilty of the crime of plunder. The conviction ultimately carried with it the penalty of forfeiture,⁶ wherein all ill-gotten wealth amassed by former President Estrada, including the IMA Account and the assets therein, were forfeited in favor of the State.

Former President Estrada was, thereafter, pardoned by former President Gloria Macapagal-Arroyo on 25 October 2007; nonetheless, the said forfeiture remained in force.

Consequently, the Sandiganbayan, in the same case, issued a Resolution dated 24 September 2008 directing the Sheriff of the Sandiganbayan to cause the forfeiture of, among others, the IMA Account, including the WPI shares in favor of the State.

Wellex sought to intervene in Criminal Case No. 26558 and moved for the reconsideration of the above-mentioned Resolution dated 24 September 2008. Wellex argued that the WPI shares should be excluded from the forfeiture order. However, the Sandiganbayan, in a Resolution dated 02 April 2009, denied the said reconsideration sought by Wellex.

By virtue of the foregoing resolutions, respondent Sheriff Edgardo A. Urieta (Urieta) of the Sandiganbayan issued to BDO a Notice to Deliver dated 20 April 2009. BDO delivered to Urieta, among others, the WPI shares, which shares Urieta subsequently scheduled⁷ for sale at a public auction on 15 May 2009.

As mentioned above, Wellex filed G.R. No 187951 to question the inclusion of the WPI shares among the forfeited assets; however, this Court affirmed the inclusion of the WPI shares as part of the assets covered by the forfeiture order.

Subsequently, Wellex filed Civil Case No. 09-399 with the trial court for the recovery of the possession of the WPI shares. In essence, Wellex claims that it is the owner of the WPI Shares, that it fully paid its loan obligation and that it is entitled to the return thereof. Wellex prayed that the trial court issue a temporary restraining order and a writ of preliminary injunction against the Sandiganbayan to enjoin them from selling the WPI shares at a public auction. Wellex alleged that it instituted the case as a third (3rd) party claimant because the Sandiganbayan failed to observe the requirements under Section 16, Rule 39 of the Rules of Court,⁸ and that Wellex was left with no recourse but to file an action with a competent court to recover ownership of the WPI shares by virtue of the extinguishment of the obligation through payment.

With the filing of the foregoing case, Urieta and the Sandiganbayan Security and Sheriff Services agreed to maintain status quo and to defer the public auction of the WPI shares until the resolution of the case.

Thereafter, Urieta and the Sandiganbayan Security and Sheriff Services, as well as BDO, filed their respective motions to dismiss in Civil Case No. 09-399, which motions were granted by the trial court in its Order dated 9 January 2012. The aforestated order of the trial court directed the dismissal of Civil Case No. 09-399 on the grounds of lack of jurisdiction based on the principle of hierarchy of courts, and failure to state a cause of action.

Wellex moved for the reconsideration of the above-mentioned order dated 9 January 2012, which was, however, denied by the trial court in its Resolution dated 15 January 2014.

Hence, Wellex comes to this Court via the instant Petition, on pure questions of law.

Wellex contends that the trial court erred in its ruling dismissing Civil Case No. 09-399 because it can take cognizance of the same by determining the existence of legal and formal requirements for executing on a security, particularly on the WPI shares. Thus, Wellex seeks that this Court set aside the dismissal order and direct the resumption of proceedings.

We clarify.

Before delving into the merits of the Petition, this Court recognizes the crucial need to emphasize that as per the Decision in G.R. 187951, this Court had already declared with absolute finality that the WPl shares were and should rightfully be included among the forfeited assets in favor of the State. Therefore, this matter is beyond cavil. This Court aptly and succinctly ruled "[i]t is beyond doubt that IMA Trust Account No. 101-78056-1 and its assets were traceable to the account adjudged as ill-gotten. As such, the trust account and its assets were indeed within the scope of the forfeiture Order issued by the Sandiganbayan in the plunder case"⁹ against former President Estrada.

However, this Court is cognizant of the fact that the issues in this case are, while novel, unambiguous: whether the Sandiganbayan may proceed to sell outright, at public auction, the forfeited WPI shares; and whether the trial court may take cognizance of Civil Case No. 09-399.

To resolve these issues, there is a need to first establish the nature of the WPI shares.

In its final and executory Decision in G.R. No. 187951, this Court had already ruled that:

There is no dispute that the subject shares of stock were mortgaged by petitioner Wellex as security for its loan. These shares being the subject of a contract that was accessory to the Wellex loan and being an asset of the forfeited IMA Trust Account, the said shares necessarily follow the fate of the trust account and are forfeited as well. However, the forfeiture . of the said trust account, tofiether with all its assets and receivables, does not affect the validity of the loan transaction between BDO the creditor and Wellex the debtor. The loan continues to be valid despite the forfeiture by the government of the IMA Trust Account and is considered as an asset.

Consequently, the forfeiture had the effect of subrogating the state to the rights of the trust account as creditor.¹⁰ (Underscoring supplied)

Thus, this Court reiterates that the WPI shares assume the character of a security for a valid and existing loan obligation, which is included in the. IMA Account. Stated in simpler terms, one (1) of the assets in the IMA Account is a receivable secured by a chattel mortgage, more particularly the valid and existing loan obligation between BDO and petitioner, secured by the WPI shares.

Consequently, considering that the loan obligation of petitioner is valid and existing, it necessarily follows that BDO, the creditor, or its successor-in-interest, cannot be allowed to unilaterally sell the chattel securing the loan and apply the proceeds thereof as payment, full or partial, to the said loan. This would constitute a clear case of pactum commissorium, which is expressly prohibited by Article 2088¹¹ of the Civil Code.¹²

In line with our holding in The Wellex Group, Inc. v. Sandigfinbayan,¹³ that "the forfeiture had the effect x x x as creditor," the state has stepped into the shoes of the BDO. As this Court has consistently ruled, "[sjubrogation is the substitution of one person by another with reference to a lawful claim or right, so that he who is substituted succeeds to the rights of the other in relation to a debt or claim, including its remedies or securities, x x x It contemplates full substitution such that it places the party subrogated in the shoes of the creditor, and he may use all means that the creditor could employ to enforce payment."¹⁴ Given that the subrogee merely steps into the shoes of the creditor, he acquires no right greater than those of the latter.

Considering that the WPI shares serves as security to an acknowledged valid and existing loan obligation, the subrogee, in this case the State, is obliged to avail of the very same remedies available to the original creditor to collect the loan obligation, which is to first demand from the original debtor to pay the same, and if not paid despite demand, institute either foreclosure proceedings, or the appropriate action for collection before the proper forum. In either case, the debtor will be afforded the opportunity to pay the obligation, or to assert any claim or defense, which the debtor may have against the original creditor. This is the essence of constitutional right to due process. In this case, the action of public respondent in offering for sale, at public auction, the WPI shares would unavoidably trample upon a constitutionally enshrined right.

This Court is well aware that the Sandiganbayan had earlier asserted in Criminal Case No. 26558 that as regards the BDO loan, Wellex is considered a delinquent debtor. However, the pronouncement cannot be an excuse to omit the steps needed to be taken regarding the mortgaged WPI shares. It is a fact that Wellex was not impleaded as a party to the said case, ergo, the effect of the pronouncement cannot be extended to it. It is axiomatic that no man shall be affected by any proceeding to which he is a stranger, and strangers to a case are not bound by any judgment rendered by the court.¹⁵ Thus, only those who have had their day in court are considered the real parties in interest in an action, and it is they who are bound by the judgment therein and by writs of execution issued pursuant thereto.¹⁶

Even more important, this Court notes that the subject matter of controversy brought forth by Wellex is purely civil in nature. This involves the third (3^rd) party claim of Wellex against the WPI shares vis-a-vis the loan obligation per se, which should be properly lodged before and heard by the regular trial courts. To the mind of this Court, it is clear that the same does not pertain to the jurisdiction of the Sandiganbayan. Jurisdiction, which is the authority to hear and the right to act in a case, is conferred by the Constitution and by law. Although the Sandiganbayan, a constitutionally-mandated court, is a regular court, it has, nevertheless, only a special or limited jurisdiction.¹⁷

While this Court has time and again affirmed¹⁸ that the Sandiganbayan has jurisdiction over the civil aspect of criminal cases, as conferred to it by law, the case before the trial court does not involve the civil aspect of Criminal Case No. 26558. The same has nothing to do with the ownership of the IMA Account and/or any of its financial assets, which, as stated above, has been adjudged forfeited in favor of the State. In contrast, the said case is an ordinary civil case entailing the propriety of the actions of a creditor in proceeding against the security for its loan, which necessitates the application of the provisions of the Civil Code, therefore falling under the exclusive jurisdiction of the Regional Trial Courts.¹⁹

Given that the cause of action of Wellex in Civil Case No. 09-399 partakes of a valid third (3rd) party claim sanctioned by the Rules of Court, affording Wellex the opportunity to assert its claim or defense against its creditor, presently the State, the latter should likewise avail of this avenue to affirm its own claims, as creditor, against the loan and/or mortgage securing the said loan, paving the way to the realization of any of the fruits of plunder. Thus, this Court deems it proper to remand this case to the trial court for further proceedings, where all the civil issues may properly be ventilated.

At this point, this Court commends the trial court for acting cautiously and exercising prudence in applying the principle of hierarchy of courts when it issued its Order dated 9 January 2012 and Resolution dated 15 January 2014. As a consequence of the rulings rendered in this case, that is, that the State, acting through the Sandiganbayan, may not sell the WPI shares outright without first complying with the requirements set by law, the prayer of petitioner for injunctive relief against the Sandiganbayan is now rendered moot and academic. And as previously stated, given the fact that the State has validly substituted BDO as the creditor of Wellex, the cause of action of Wellex against BDO is, likewise, rendered moot and academic.chanrobleslaw

WHEREFORE, premises considered, JUDGMENT is hereby rendered GRANTING the instant Petition and SETTING ASIDE the Order dated 9 January 2012 and Resolution dated 15 January 2014 of the Regional Trial Court of Makati City, Branch 132 in Civil Case No. 09-399. This case is hereby remanded to the trial court for further proceedings.

SO ORDERED.cralawlawlibrary

Velasco, Jr., (Chairperson), Reyes, and Jardeleza, JJ., concur.
Leonen,^* J., see dissenting opinion.

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DISSENTING OPINION

LEONEN, J.:

I dissent. Third-party claims involving properties forfeited consequent to a conviction for plunder must be filed before the Sandiganbayan, regardless of the civil nature of such claims.

Before this court is a Petition for Review on Certiorari¹ assailing the Order² dated January 9, 2012 of Branch 139 and the Resolution³ dated January 15, 2014 of Branch 132, both of the Regional Trial Court of Makati City. On the ground of lack of cause of action, the trial court dismissed petitioner the Wellex Group, Inc.'s Complaint for recovery of possession of 450,000,000 shares of stock in Waterfront Philippines, Inc. (Waterfront shares).⁴ The shares of stock were forfeited in favor of the state as a consequence of Former President Joseph Estrada's (Former President Estrada) conviction for plunder.⁵

Equitable-PCI Bank and a certain Jose Velarde (Velarde) entered into an Investment Management Agreement.⁶ The bank agreed to manage Velarde's assets, investing them and taking possession of the profits and losses on Velarde's behalf.⁷ The agreement likewise allowed the bank to grant loans using the funds under investment management, subject to applicable regulations.⁸

On February 4, 2000, Investment Management Agreement (IMA) Account No. 101-78056-1 was opened under Velarde's name.⁹ Apart from the IMA account, Velarde maintained a savings account in Equitable-PCI Bank with account number 0160-62501-5.¹⁰

On the same day that Velarde opened his IMA account, the Wellex Group, Inc. loaned P500,000,000.00 from Equitable-PCI Bank, payable in six (6) months.¹¹ As security for the loan, the Wellex Group, Inc. mortgaged 450,000,000 of its Waterfront shares.¹²

On August 2, 2000, a loan extension was granted to the Wellex Group, Inc. and its President, William Gatchalian, mortgaged 300,000,000 of his own Waterfront shares as additional security for the loan.¹³

In the meantime, on April 4, 2001, Former President Estrada was charged with plunder before the Sandiganbayan.¹⁴ The Information was amended on April 18, 2001¹⁵ to add, among others, "Jose Velarde" as one of Former President Estrada's alleged aliases.¹⁶ According to the Amended Information, Former President Estrada allegedly compelled the Government Service Insurance System and the Social Security System to purchase shares of stock from Belle Corporation, resulting in his earning a total of P189,700,000.00 in commissions.¹⁷ This amount was allegedly deposited in his "Jose Velarde" accounts in Equitable PCI-Bank.¹⁸

The accusatory portion of the Amended Information reads:

AMENDED INFORMATION

The undersigned Ombudsman Prosecutor and OIC-Director, EPIB Office of the Ombudsman, hereby accuses former PRESIDENT OF THE PHILIPPINES, Joseph Ejercito Estrada a.k.a. 'ASIONG SALONGA' AND a.k.a 'JOSE VELARDE', together with Jose 'Jinggoy' Estrada, Charlie 'Atong' Ang, Edward Serapio, Yolanda T. Ricaforte, Alma Alfaro, JOHN DOE a.k.a. Eleuterio Tan OR Eleuterio Ramos Tan or Mr. Uy, Jane Doe a.k.a Delia Rajas, and John DOES & Jane Does, of the crime of Plunder, defined and penalized under R.A. No. 7080, as amended by Sec. 12 of R.A. No. 7659, committed as follows:
chanRoblesvirtualLawlibrary

That during the period from June, 1998 to January, 2001, in the Philippines, and within the jurisdiction of this Honorable Court, accused Joseph Ejercito Estrada, THEN A PUBLIC OFFICER, BEING THEN THE PRESIDENT OF THE REPUBLIC OF THE PHILIPPINES, by himself AND/OR in CONNIVANCE/CONSPIRACY with his co-accused, WHO ARE MEMBERS OF HIS FAMILY, RELATIVES BY AFFINITY OR CONSANGUINITY, mTSmRSSlASSOCIA.TES. SUBORDINATES AND/OR OTHER PERSONS, BY TAKING UNDUE ADVANTAGE OF HIS OFFICIAL POSITION, AUTHORITY, RELATIONSHIP, CONNECTION, OR INFLUENCE, did then and there wilfully, unlawfully and criminally amass, accumulate and acquire BY HIMSELF, DIRECTLY OR INDIRECTLY, ill-gotten wealth in the aggregate amount OR TOTAL VALUE of FOUR BILLION NINETY SEVEN MILLION EIGHT HUNDRED FOUR THOUSAND ONE HUNDRED SEVENTY THREE PESOS AND SEVENTEEN CENTAVOS [P4,097,804,173.17], more or less, THEREBY UNJUSTLY ENRICHING HIMSELF OR THEMSELVES AT THE EXPENSE AND TO THE DAMAGE OF THE FILIPINO PEOPLE AND THE REPUBLIC OF THE PHILIPPINES, through ANY OR A combination OR A series of overt OR criminal acts, OR SIMILAR SCHEMES OR MEANS, described as follows:
. . . .

(c) by directing, ordering and compelling, FOR HIS PERSONAL GAIN AND BENEFIT, the Government Service Insurance System (GSIS) TO PURCHASE 351,878,000 SHARES OF STOCK. MORE OR LESS, and the Social Security System (SSS), 329,855.000 SHARES OF STOCK MORE OR LESS, OF THE BELLE CORPORATION . . .; AND BY COLLECTING OR RECEIVING, DIRECTLY OR INDIRECTLY. BY HIMSELF AND/OR IN CONNIVANCE WITH JOHN DOES AND JANE DOES. COMMISSIONS OR PERCENTAGES BY REASON OF SAID PURCHASES OF SHARES OF STOCK IN THE AMOUNT OF ONE HUNDRED EIGHTY NINE MILLION SEVEN HUNDRED THOUSAND PESOS [P89,700,000.00], MORE OR LESS, FROM THE BELLE CORPORATION WHICH BECAME PART OF THE DEPOSIT IN THE EOUITABLE-PCI BANK UNDER THE ACCOUNT NAME "JOSE VELARDE";
. . . .

CONTRARY TO LAW.¹⁹ (Underscoring in the original, emphasis supplied)

During trial, the prosecution proved Former President Estrada's ownership of the Velarde accounts in Equitable-PCI Bank.²⁰ As for Former President Estrada, he admitted to signing bank documents as Jose Velarde to fund the Wellex Group, Inc.'s P500,000,000.00 loan.²¹ Specifically, he admitted to signing as Jose Velarde copies of the Investment Management Agreement as well as a debit-credit instruction to allow the transfer of P500,000,000.00 from the savings account to the IMA account.²²

While the plunder case was still pending resolution, Equitable-PCI Bank merged with Banco de Oro in 2007, with the surviving bank being Banco de Oro.²³

Through the Decision dated September 12, 2007, the Sandiganbayan convicted Former President Estrada of plunder.²⁴ The Sandiganbayan ordered the P189,000,000.00 deposited in the Velarde accounts, inclusive of interests and income earned, forfeited in favor of government.²⁵ The dispositive portion of the September 12, 2007 Decision partly provides:

Moreover, in accordance with Section 2 of Republic Act No. 7080, as amended by Republic Act No. 7659, the Court hereby declares the forfeiture in favor of the Government of the following:
....

(2) The amount of One Hundred Eighty Nine Million Pesos (P189,000,000.00), inclusive of interests and income earned, deposited in the Jose Velarde account.²⁶(Citation omitted)

However, Former President Estrada was pardoned by Former President Gloria Macapagal Arroyo on October 25, 2007.²⁷ The pardon expressly stipulated that:

The forfeitures imposed by the Sandiganbayan remain in force and in full, including all writs and processes issued by the Sandiganbayan in pursuance hereof, except for the bank account(s) he owned before his tenure as President.²⁸ (Citation omitted)

Former President Estrada accepted the pardon on October 26, 2007.²⁹

With this development, the Sandiganbayan ordered the issuance of a writ of execution to implement parts of the September 12, 2007 Decision not covered by the pardon. The Writ of Execution was issued against Former President Estrada on November 5, 2007.³⁰

Former President Estrada moved to quash the Writ of Execution, arguing that the Writ expanded the scope of the properties ordered forfeited.³¹ The Office of the Special Prosecutor opposed the Motion to Quash and asserted that the Writ of Execution did not vary the terms of the September 12, 2007 Decision.³²

In the Resolution dated January 28 2008, the Sandiganbayan partially granted the Motion to Quash. It qualified the scope of the Writ of Execution to include only those that form part of Former President Estrada's ill-gotten wealth.³³ Thus, the Sandiganbayan issued an Amended Writ of Execution³⁴ on February 19, 2008, particularly alluding to the Waterfront shares as properties forfeited in favor of government.³⁵ The Amended Writ of Execution partly provides:

NOW THEREFORE, you are hereby commanded to cause the forfeiture in favor of the government of the abovementioned amounts and property listed in the said dispositive portion of the decision, including payment in full of your lawful fees for the service of the writ.

In the event that the amounts or property listed for forfeiture in the dispositive portion be insufficient or could no longer be found, you are authorized to issue notices of levy and/or garnishment to any person who is in possession of any and all form of assets that is traceable or form part of the amounts or property which have been ordered forfeited by this Court, including but not limited to the accounts receivables and assets found at Banco de Oro (the successor in interest of Equitable PCI Bank) in the personal IMA Trust Account No. 101-78056-1 in the name of Jose Velarde (which has been adjudged by the Court to be owned by former President Joseph Ejercito Estrada and the depositary of the ill-gotten wealth) consisting of Promissory Notes evidencing the loan of P500,000,000.00 with due date as of August 2, 2000 and the chattel mortgage securing the loan; Waterfront shares aggregating 750,000,000 shares (estimated to be worth P652,500,000.00 at the closing price of P 0.87 per share as of January 21, 2008[.]³⁶ (Underscoring in the original, emphasis supplied)

Sheriff Edgardo A. Urieta (Sheriff Urieta) of the Sandiganbayan was commanded to implement the Writ of Execution. In his Sheriffs Progress Report submitted on February 22, 2008, Sheriff Urieta stated that Velarde's IMA account was under the Bureau of Internal Revenue's constructive distraint. Therefore, the bank could not deliver to the Sandiganbayan the assets under the IMA account.³⁷

Banco De Oro confirmed Sheriff Urieta's Report.³⁸ In the Manifestation³⁹ dated April 18, 2008, Banco de Oro stated that the assets under the IMA account remained intact but were under constructive distraint.⁴⁰cralawred

Banco de Oro likewise informed the Sandiganbayan that the Wellex Group, Inc. had earlier requested the retrieval of its Waterfront shares.⁴¹ In its Letter⁴² dated January 21, 2008, the Wellex Group, Inc. said that it directly paid the owner of the IMA account, thus extinguishing its loan obligation to the bank.⁴³ The Letter dated January 21, 2008 partly states:

It appears that interest payments on the loan were made for a certain period but these payments stopped at some point in time. Inquiries resulted in our view that coincident to the stoppage of interest payments, principal payment of the obligation was made by or on behalf of the borrower, not to your bank as investment manager, but instead directly to the owner of the account. THE WELLEX GROUP, INC. is presently interested in retrieving the shares given as security for the loan obligation which apparently has been extinguished.⁴⁴

To settle the conflicting claims to the Waterfront shares, the Sandiganbayan scheduled a hearing on May 16, 2008.⁴⁵ The Bureau of Internal Revenue, Banco de Oro, and the Wellex Group, Inc. were heard on their respective positions and were thereafter ordered to file their respective memoranda.⁴⁶ The Bureau of Internal Revenue filed a Memorandum and Banco de Oro a Submission.

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