Republic vs. Sandiganbayan

Sequestration of a stockholder's shares by the PCGG does not automatically deprive the stockholder of the right to inspect and examine corporate records under Section 74 of the Corporation Code, as sequestration does not transfer ownership to the PCGG or make it the stockholder of record; the PCGG is merely a conservator of sequestered property, not its owner.

The Presidential Commission on Good Government (PCGG) was created to recover ill-gotten wealth accumulated by former President Ferdinand Marcos, his family, and associates. Executive Order No. 14 vested the Sandiganbayan with exclusive and original jurisdiction over all cases involving such ill-gotten wealth, including incidents arising from or related to sequestration proceedings. Eduardo Cojuangco, Jr., was a stockholder of record owning substantial shareholdings in San Miguel Corporation (SMC) and United Coconut Planters Bank (UCPB) — 13,225 shares in SMC and 54,117,421 shares in UCPB — which shares were sequestered by the PCGG. The dispute arose from Cojuangco's attempt to exercise his statutory right as a stockholder to inspect the corporate records of both corporations, a right the PCGG sought to deny on the basis of the sequestration.

On December 26, 1988, Eduardo Cojuangco, Jr., a stockholder of record in San Miguel Corporation (SMC), requested SMC and its corporate secretary to produce corporate records for inspection, examination, verification, and photocopying. His stated purpose was to inform himself of the decisions, policies, acts, and performance of SMC's management under the PCGG-installed board. Because Cojuangco's shares in SMC had been sequestered by the PCGG, SMC sought the PCGG's advice on the effect of the sequestration on the request. SMC subsequently informed Cojuangco that all requests for examination, inspection, and photocopying of its corporate records should be coursed through the PCGG. The PCGG denied the request.

Substantially similar facts attended the companion case involving United Coconut Planters Bank (UCPB). Cojuangco, likewise a stockholder of record in UCPB, sought authority to inspect and examine the bank's corporate records. As with SMC, he was advised to course his request through the PCGG, which likewise refused to grant the inspection.

Thereafter, Cojuangco filed two separate petitions for prohibition and mandamus before the Sandiganbayan, seeking to enforce his statutory right as a stockholder to inspect the corporate records of both SMC and UCPB. The Sandiganbayan granted both petitions — on May 9, 1989, allowing inspection of UCPB records in a manner consistent with the Corporation Code and banking laws, and on May 18, 1989, allowing inspection of SMC records within the confines of Section 74 of the Corporation Code. The Republic, through the PCGG, elevated the matter to the Supreme Court via petitions for certiorari, securing temporary restraining orders on June 13, 1989 and July 20, 1989.

Cojuangco owns 13,225 shares of stock in SMC and 54,117,421 shares in UCPB, making him the ostensible owner of a substantial number of shares and a stockholder of record in both corporations. The PCGG had sequestered these shares pending judicial determination of whether they were ill-gotten.

• Jurisdiction: Petitioner argued that the Sandiganbayan had no jurisdiction over the petitions filed by Cojuangco.
• Validity of Refusal: Petitioner maintained that the PCGG may validly refuse Cojuangco's right to inspection pending judicial determination of whether the sequestered shares are ill-gotten, citing Executive Orders Nos. 1 and 2.
• State Immunity: Petitioner argued that the petition filed by Cojuangco before the Sandiganbayan is barred by the doctrine of state immunity from suit.
• Implied Amendment of Corporation Code: Petitioner contended that the Corporation Code must give way to, or be deemed amended by, Executive Orders Nos. 1, 2, 14, and related issuances, as well as the ruling in Bataan Shipyard and Engineering Corporation vs. PCGG on the effects of sequestration.
• Improper Purpose: Petitioner asserted that Cojuangco's purpose in examining the corporate records was merely to satisfy his curiosity regarding the performance of SMC and UCPB, or to "supervise" the PCGG's management, and that such motive was improper.

• Jurisdiction: Whether the Sandiganbayan has jurisdiction over the petitions filed by Cojuangco seeking to enforce his right to inspect corporate records.
• State Immunity: Whether the doctrine of state immunity from suit bars the petitions filed by Cojuangco before the Sandiganbayan.
• Effect of Sequestration on Inspection Rights: Whether sequestration of a stockholder's shares by the PCGG automatically deprives the stockholder of his right to inspect and examine corporate records under Section 74 of the Corporation Code.
• Validity of PCGG Refusal: Whether the PCGG may validly refuse a stockholder's request for inspection of corporate records on the ground that the shares have been sequestered.

• Jurisdiction: Yes. The Sandiganbayan has exclusive and original jurisdiction over all matters of sequestration and incidents arising therefrom, pursuant to Executive Order No. 14, and the propriety of the PCGG's denial of inspection may be challenged before it.
• State Immunity: No. The doctrine of state immunity does not apply because Cojuangco's petition demanded no affirmative performance by the State in its political capacity.
• Effect of Sequestration on Inspection Rights: No. Sequestration does not automatically deprive a stockholder of his right of inspection, the PCGG being a conservator and not the owner of sequestered shares.
• Validity of PCGG Refusal: No. The PCGG cannot unilaterally deny a stockholder's statutory right to inspection based on an unsupported assertion of improper motive, the burden of proving impropriety of purpose resting on the corporation.

• Jurisdiction: Under Section 2 of Executive Order No. 14, all cases of the PCGG regarding funds, moneys, assets, and properties illegally acquired or misappropriated by former President Marcos and his associates, whether civil or criminal, are lodged within the exclusive and original jurisdiction of the Sandiganbayan, and all incidents arising from, incidental to, or related to such cases necessarily fall likewise under the Sandiganbayan's jurisdiction. As ruled in PCGG vs. Peña and reiterated in Soriano vs. Yuson, those who wish to challenge the PCGG's acts or orders in such cases must seek recourse in the Sandiganbayan. Because all matters of sequestration fall within the Sandiganbayan's jurisdiction, the propriety of the PCGG's denial of Cojuangco's right of inspection — ostensibly based on the order of sequestration — may be challenged before that court.

• State Immunity: The doctrine of state immunity from suit was held inapplicable. Cojuangco's petition before the Sandiganbayan demanded no affirmative performance by the State in its political capacity that would call for the application of immunity from suit. The Court cited Republic vs. Sandiganbayan and cases cited therein in support of this conclusion.

• Effect of Sequestration on Inspection Rights: The right of a stockholder to inspect and examine corporate records is explicitly provided in Section 74 of the Corporation Code. The Court found nothing in Executive Orders Nos. 1, 2, and 14, nor in the BASECO case relied upon by petitioner, to indicate that the Corporation Code had been deemed amended or that a stockholder's right to inspection had been impliedly modified. The BASECO ruling established that the PCGG cannot exercise acts of dominion over sequestered property; sequestration does not import or bring about divestment of title and does not make the PCGG the owner. The PCGG is a conservator, not an owner. The PCGG does not become ipso facto the owner of shares merely because they have been sequestered, nor does it become the stockholder of record. The Court had recently ruled that the PCGG cannot vote the sequestered shares of Cojuangco in SMC (Cojuangco, Jr. vs. Roxas; Cojuangco, Jr. vs. Azcuna). If the PCGG cannot vote the sequestered shares, with much more reason it cannot restrain or prevent the stockholder from inspecting the corporate records at reasonable hours on business days.

• Validity of PCGG Refusal: While the right of inspection under Section 74 is not absolute — it may be denied when the stockholder is not acting in good faith, when the demand is purely speculative or merely to satisfy curiosity, or when the stockholder has improperly used information from prior examinations — the burden of proving impropriety of purpose rests on the corporation, not the stockholder. The specific provisions take from the stockholder the burden of showing impropriety of purpose or motive; the corporation must set up such impropriety defensively. In the case at bar, the PCGG failed to discharge this burden. It offered no evidence — not even a scintilla — that Cojuangco was motivated by bad faith, that the demand was for an illegitimate purpose, or that it was impelled by idle curiosity. Cojuangco's substantial shareholdings in SMC and UCPB cannot be an object of mere curiosity.

• Sequestration Does Not Divest Title — The act of sequestration, freezing, or provisional takeover of property does not import or bring about a divestment of title over said property; it does not make the PCGG the owner thereof. In relation to sequestered property, the PCGG is a conservator, not an owner. The PCGG does not become ipso facto the owner of shares just because they have been sequestered, nor does it become the stockholder of record by virtue of such sequestration. The Court applied this doctrine to hold that the PCGG could not prevent Cojuangco from exercising his statutory right of inspection, since it was not the owner or stockholder of record of the sequestered shares.

• Stockholder's Right of Inspection — The right of a stockholder to inspect and examine the corporate records of a corporation is explicitly granted by Section 74 of the Corporation Code and is based upon the stockholder's ownership of the assets and property of the corporation. It is an incident of ownership, predicated upon the necessity of self-protection. The right is not absolute and is subject to three limitations: (1) it must be exercised at reasonable hours on business days; (2) the person demanding inspection must not have improperly used any information secured through any previous examination of the corporation's records; and (3) the demand must be made in good faith or for a legitimate purpose. The latter two limitations must be set up as a defense by the corporation if they are to merit judicial cognizance — the burden of proving impropriety of purpose rests on the corporation, not the stockholder.

• Jurisdiction of the Sandiganbayan Over Sequestration Incidents — Under Section 2 of Executive Order No. 14, all cases of the PCGG regarding ill-gotten wealth, civil or criminal, and all incidents arising from, incidental to, or related to such cases, fall under the exclusive and original jurisdiction of the Sandiganbayan, subject to review on certiorari exclusively by the Supreme Court. Those who wish to challenge the PCGG's acts or orders in such cases must seek recourse in the Sandiganbayan.

• "Does sequestration automatically deprive a stockholder of his right of inspection? We rule in the negative." — This passage states the central legal question and the Court's direct answer, encapsulating the ratio decidendi that sequestration does not extinguish a stockholder's statutory inspection rights.

• "The PCGG does not become, ipso facto, the owner of the shares just because the same have been sequestered; nor does it become the stockholder of record by virtue of such sequestration." — This formulation, drawn from the BASECO doctrine as applied in this case, defines the limits of the PCGG's authority over sequestered property and is frequently cited in subsequent sequestration jurisprudence.

• "If the PCGG cannot vote the sequestered shares of private respondent, with much more reason it cannot restrain or prevent private respondent, as stockholder from inspecting the corporate records of the SMC and the UCPB at reasonable hours on business days." — This a fortiori reasoning links the Court's prior ruling on voting rights to the inspection-rights question, establishing the logical chain that the lesser power (preventing inspection) cannot be exercised when the greater power (voting shares) has already been denied.

• "the 'impropriety of purpose such as will defeat enforcement must be set up (by) the corporation defensively if the Court is to take cognizance of it as a qualification. In other words, the specific provisions take from the stockholder the burden of showing impropriety of purpose or motive." — This passage defines the burden-shifting rule in stockholder inspection cases: the corporation, not the stockholder, bears the burden of proving improper motive, a principle important for bar review.

• PCGG vs. Peña, 159 SCRA 556 (1988) — Controlling precedent on Sandiganbayan jurisdiction over sequestration cases and incidents. The Court quoted extensively from this case to establish that all matters of sequestration, including challenges to PCGG acts, fall within the Sandiganbayan's exclusive and original jurisdiction.

• Soriano vs. Yuson, 164 SCRA 226 (1988) — Followed as reiteration of the Peña ruling on Sandiganbayan jurisdiction.

• Bataan Shipyard and Engineering Corporation vs. PCGG, 150 SCRA 181 (1987) — Cited by petitioner but distinguished. The Court relied on this case to affirm that the PCGG is a conservator, not an owner, of sequestered property, and that sequestration does not divest title.

• Cojuangco, Jr. vs. Roxas, G.R. No. 91925 (April 16, 1991) and Cojuangco, Jr. vs. Azcuna, G.R. No. 93005 (April 16, 1991) — Controlling companion rulings establishing that the PCGG cannot vote sequestered shares, used by the Court as the basis for the a fortiori argument that the PCGG likewise cannot prevent inspection.

• Gokongwei, Jr. vs. Securities and Exchange Commission, 89 SCRA 336 (1979) — Cited for the rationale of the stockholder's right of inspection as an incident of ownership and for the burden-shifting rule on impropriety of purpose.

• Gonzales vs. PNB, 122 SCRA 489 (1983) — Cited as authority that the right of inspection is not absolute and may be denied when the stockholder is not acting in good faith or for a legitimate purpose.

• Republic vs. Sandiganbayan, 184 SCRA 382 (1990) — Cited for the proposition that the doctrine of state immunity does not apply where no affirmative performance by the State in its political capacity is demanded.

• Section 74, Corporation Code — Provides that the records of all business transactions of a corporation and the minutes of any meeting shall be open to inspection by any director, trustee, stockholder, or member at reasonable hours on business days, and that such person may demand, in writing, a copy of excerpts from said records or minutes at his expense. The Court held that this statutory right of inspection survives sequestration and that the PCGG cannot unilaterally deny it.

• Section 2, Executive Order No. 14 — Vests the Sandiganbayan with exclusive and original jurisdiction over all cases of the PCGG regarding ill-gotten wealth, civil or criminal, and all incidents arising from, incidental to, or related to such cases. The Court applied this provision to uphold the Sandiganbayan's jurisdiction over Cojuangco's petitions.

• Executive Orders Nos. 1 and 2 — Cited by petitioner as basis for the PCGG's authority to refuse inspection pending judicial determination of whether sequestered shares are ill-gotten. The Court examined these issuances and found nothing therein indicating that the Corporation Code had been deemed amended or that a stockholder's right to inspection had been modified.

Gutierrez, Jr., Cruz, Paras, Griño-Aquino, Medialdea, and Regalado, JJ., concurred. Fernan, C.J., Narvasa, Feliciano, and Davide, Jr., JJ., concurred in the result. Melencio-Herrera, J., concurred in G.R. No. 88809 (SMC) but took no part in G.R. No. 88858 (UCPB), her son's law office being one of the bank's retained counsel.