REPUBLIC OF THE PHILIPPINES, (PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT), PETITIONER, VS. THE HONORABLE SANDIGANBAYAN (FIRST DIVISION) AND EDUARDO COJUANGCO, JR., RESPONDENTS.

Republic versus Sandiganbayan

The Case

This is a special civil action of certiorari brought by the Republic of the Philippines, through the Presidential Commission on Good Government, against the First Division of the Sandiganbayan and Eduardo Cojuangco, Junior. The Republic asks the Supreme Court to annul two Sandiganbayan resolutions that allowed Cojuangco, as a stockholder of record, to inspect and copy the corporate records of United Coconut Planters Bank and San Miguel Corporation. The case matters because it fixes the boundary between the power of sequestration and the ordinary corporate right of inspection: it tells us that the Commission is a conservator, not an owner, and that sequestration alone does not strip a stockholder of his statutory right to look at the books.

Procedural History

Cojuangco first asked San Miguel Corporation and United Coconut Planters Bank, through their corporate secretaries, to allow him to inspect, examine, and photocopy their corporate records. Both corporations, whose shares in his name had been sequestered by the Presidential Commission on Good Government, told him to course his request through the Commission. The Commission denied the request.

Cojuangco then filed two separate petitions for prohibition and mandamus before the Sandiganbayan to enforce his stockholder's right of inspection. The Sandiganbayan granted both petitions: by resolution dated May 9, 1989, it directed United Coconut Planters Bank and its corporate secretary to respond to his request in a manner consistent with their duties to all registered stockholders under the Corporation Code and the laws governing banking institutions; and by resolution dated May 18, 1989, it granted his petition to examine the records of San Miguel Corporation within the confines of Section 74 of the Corporation Code.

The Republic came to the Supreme Court by petitions for certiorari with prayers for temporary restraining orders, which the Court issued in June and July 1989. The Court dismissed the petitions for lack of merit, lifted the restraining orders, and declared its resolution immediately executory.

Facts

On December 26, 1988, Cojuangco, a stockholder of record in San Miguel Corporation, requested the corporation and its corporate secretary to produce, for inspection, examination, verification, and photocopying, the corporate records that would inform him of the decisions, policies, acts, and performance of management under the Commission-installed board. Because his shares had been sequestered by the Commission, the corporation sought the Commission's advice, and he was later told that all such requests should be coursed through the Commission.

The same pattern unfolded at United Coconut Planters Bank, where he was likewise a stockholder of record. He asked to inspect and examine its corporate records, and he was again advised to course the request through the Commission, which denied it.

He then went to the Sandiganbayan, which upheld his right of inspection in the two resolutions now challenged. Before the Supreme Court, the Republic argued that the Sandiganbayan had no jurisdiction, that the Commission could validly refuse inspection while the status of the sequestered shares remained undetermined, and that the suit was barred by state immunity.

Issues

• Whether or not the Sandiganbayan has jurisdiction over Cojuangco's petitions to enforce his right of inspection against the Commission's refusal.
• Whether or not the doctrine of state immunity from suit bars those petitions.
• Whether or not sequestration of a stockholder's shares automatically deprives him of his statutory right to inspect the corporate records.
• Whether or not the Commission may unilaterally deny inspection on the ground that the stockholder's purpose is improper, speculative, or mere curiosity.

Applicable Provisions

Section 74 of the Corporation Code provides:

The records of all business transactions of the corporation and the minutes of any meeting shall be open to the inspection of any director, trustee, stockholder or member of the corporation at reasonable hours on business days and he may demand, in writing, for a copy of excerpts from said records or minutes, at his expense.

This is the statutory source of the right the Court enforced, and its only express limitation on its face is that inspection be made at reasonable hours on business days.

Ruling

On the first issue, the Court held that the Sandiganbayan has jurisdiction. Under Section 2 of Executive Order Number 14, all cases regarding the funds, moneys, assets, and properties illegally acquired or misappropriated by former President Ferdinand Marcos, his family, close relatives, subordinates, business associates, dummies, agents, or nominees, whether civil or criminal, fall within the exclusive and original jurisdiction of the Sandiganbayan, and all incidents arising from, incidental to, or related to such cases fall likewise under that jurisdiction. Since all matters of sequestration lie there, the propriety of the Commission's denial of the right of inspection, ostensibly based on the order of sequestration, may be challenged before the Sandiganbayan.

On the second issue, the Court held that state immunity cannot be invoked, because Cojuangco's petition demanded no affirmative performance by the State in its political capacity.

On the third issue, the Court answered in the negative: sequestration does not automatically deprive a stockholder of the right of inspection. The Court found nothing in Executive Orders Numbers 1, 2, and 14, or in the Bataan Shipyard and Engineering Corporation case, to indicate that the Corporation Code had been amended or that the right under Section 74 had been modified. Quoting that earlier case, the Court stressed:

One thing is certain, and should be stated at the outset: the PCGG cannot exercise acts of dominion over property sequestered, frozen or provisionally taken over. As already earlier stressed with no little insistence, the act of sequestration, freezing or provisional takeover of property does not import or bring about a divestment of title over said property; does not make the PCGG the owner thereof. In relation to the property sequestered, frozen or provisionally taken over, the PCGG is a conservator, not an owner.

The Commission does not become the owner, nor the stockholder of record, by sequestration. Having recently held that the Commission cannot even vote the sequestered shares, the Court reasoned that with much more reason it cannot restrain the stockholder from inspecting the records at reasonable hours on business days.

On the fourth issue, the Court held that the Commission cannot unilaterally deny inspection on a naked assertion of improper motive. The right is not absolute: it must be exercised at reasonable hours on business days; the person demanding inspection must not have improperly used information from a previous examination; and the demand must be in good faith or for a legitimate purpose. But the latter two limitations must be set up as a defense by the corporation if they are to merit judicial cognizance. The burden of showing impropriety of purpose is taken from the stockholder. Here the Commission offered not even a scintilla of evidence of bad faith, illegitimate purpose, speculation, or idle curiosity, and the Court noted that substantial shareholdings cannot be an object of mere curiosity.

Doctrine

Sequestration is not confiscation. The Presidential Commission on Good Government is a conservator, not an owner; it acquires neither title to nor record ownership of sequestered shares, and it cannot vote them. It follows that sequestration does not suspend the stockholder's right of inspection under Section 74 of the Corporation Code.

That right is not absolute, but its limits are affirmative defenses. The corporation, not the stockholder, bears the burden of proving improper use of prior information or lack of good faith and legitimate purpose; absent evidence, a unilateral denial by the Commission cannot stand.

Challenges to the Commission's acts in sequestration cases belong to the Sandiganbayan, which has exclusive and original jurisdiction over such cases and their incidents, and such a suit for inspection does not offend state immunity because it demands no affirmative performance by the State in its political capacity.

Disposition

The Supreme Court dismissed the Republic's petitions for lack of merit, lifted and set aside the temporary restraining orders, and left standing the Sandiganbayan's resolutions allowing Cojuangco to inspect the corporate records of United Coconut Planters Bank and San Miguel Corporation.

Remember This

Memorize the line that the Commission is a conservator, not an owner, so sequestration never divests title and never kills the stockholder's right of inspection. Examiners use this case to test the limits of the Section 74 right and the burden of proving improper motive, and to test the Sandiganbayan's exclusive jurisdiction over sequestration incidents.