CORPORATION LAW CASE MATRIX 9

Section 74
TITLE FACTS ISSUE/S HELD DOCTRINE
Philpotts v. PMC - W. G. Philpotts, a stockholder in the Philippine
Manufacturing Company, seeks to obtain a writ
of mandamus to compel the Phil
Manufacturing to permit the Philpotts , in
person or by some authorized agent or attorney,
to inspect and examine the records of the
business transacted by said company since
January 1, 1918.
- In the argument in support of the demurrer it is
conceded by counsel for the respondents that
there is a right of examination in the
stockholder granted under section 51 of the
Corporation Law, but it is insisted that this
right must be exercised in person.
- Whether the right which
the law concedes to a
stockholder to inspect the
records can be exercised
by a proper agent or
attorney of the
stockholder as well as by
the stockholder in person.
- There is no pretense that the respondent
corporation or any of its ofcials has refused to
allow the petitioner himself to examine
anything relating to the affairs of the company,
and prays for order commanding the
respondents to place the records of all business
transactions of the company, during a specied
period, at the disposal of the plaintiff or his
duly authorized agent or attorney, it being
evident that the petitioner desires to exercise
said right through an agent or attorney.
- It is advisable to say that there are some things
which a corporation may undoubtedly keep
secret, notwithstanding the right of inspection
given by law to the stockholder; as for instance,
where a corporation, engaged in the business of
manufacture, has acquired a formula or
process, not generally known, which has
proved of utility to it in the manufacture of its
products.
- It is not our intention to declare that the
authorities of the corporation, and more
particularly the Board of Directors, might not
adopt measures for the protection of such
process form publicity.
- But there nothing in the petition which would
indicate that the petitioner in this case is
seeking to discover anything which the
corporation is entitled to keep secret; and if
anything of the sort is involved in the case it
may be brought out at a more advanced stage
of the proceedings.
- The pertinent provision of our law
is found in the second paragraph
of section 51 of Act No. 1459,
which reads as follows: "The
record of all business transactions
of the corporation and the minutes
of any meeting shall be open to
the inspection of any director,
member or stockholder of the
corporation at reasonable hours."
- The right of inspection given to a
stockholder in the provision above
quoted can be exercised either by
himself or by any proper
representative or attorney in fact,
and either with or without the
attendance of the stockholder. This
is in conformity with the general
rule that what a man may do in
person he may do through
another; and we nd nothing in
the statute that would justify us in
qualifying the right in the manner
suggested by the respondents.
- The right of inspection to
stockholders of corporations are to
be liberally construed and that
said right may be exercised
through any other properly
authorized person.
Pardo v. Hercules
Lumber
- Pardo is a stockholder of Hercules Lumber and
Ferrer is the acting secretary of the said
company. The latter refused to permit the
former to inspect the records and business
transactions of the company.
- There was no question regarding the right to
inspect as it is guaranteed in the Corp. Law.
- The main consideration in this case has
reference to the time, or times, within which
the right of inspection may be exercised.
- The company, through various resolutions, had
designated certain times to which the
stockholders can inspect the books. Allegedly,
Pardo didnt get permission to inspect thus was
denied such.
- Hence this petition.
- WON, the company can
validly restrict the
frequency to which
shareholders can inspect
its books.
- No. Such restriction made by the company is
invalid.
- Inspection at unusual hours or under improper
conditions may be denied, otherwise it cannot
be denied.
- Neither the executive ofcers nor board of
directors have the power to deny a stockholder
of the right all together.
- It will be noted that such right can be exercised
at reasonable hours, meaning reasonable
hours on business days through out the year;
not merely during some arbitrary period chosen
by the ofcers.
- Also, generally speaking, the motive of the
shareholder exercising the right is immaterial.
- Therefore, Pardo is granted the relief to inspect.
- Right to inspect- open to any
director, trustee or stockholder or
member of the corporation at
reasonable hours on business
days. He may demand in writing a
copy of excerpts at his expense.
Veraguth v. Isabela
Sugar Co.
- Veraguth, a director and stockholder of the
Isabela Sugar Company, Inc., led a petition
with the lower court praying that : a nal and
absolute writ of mandamus be issued to each
and all of the respondent directors to notify him
within the reglementary period, of all regular
and special meetings of the board of directors
of the Company, and to place at his disposal at
reasonable hours the minutes, documents, and
books of said corporation for his inspection as
director and stockholder
- It appears that Veraguth has not been informed
of previous meetings.
- He likewise contends that when asked that he
be permitted to inspect the books of the Cop,
he was denied access on the ground that the
board of directors adopted a resolution
providing for inspection of the books and the
taking of copies only "by authority of the
President of the corporation previously
obtained in each case."
- Is Veraguth entitled to 1)
receive notication before
meetings are held 2)
inspect the books of the
corporation
- YES.
- As to the rst issue, the SC held: no damage
was caused to Veraguth by the action taken at
the special meeting which he did not attend,
since his interests were fully protected by the
Philippine National Bank; and that as to
meetings in the future it is to be presumed that
the secretary of the company will fulll the
requirements of the resolutions of the company
pertaining to regular and special meetings. It
will, of course, be incumbent upon Veraguth to
give formal notice to the secretary of his post-
ofce address if he desires notice sent to a
particular residence.
- Directors of a corporation have the unqualied
right to inspect the books and records of the
corporation at all reasonable times. Pretexts
may not be put forward by ofcers of
corporations to keep a director or shareholder
from inspecting the books and minutes of the
corporation, and the right of inspection is not to
be denied on the ground that the director or
shareholder is on unfriendly terms with the
ofcers of the corporation whose records are
sought to be inspected. A director or
stockholder can of course make copies,
abstracts, and memoranda of documents,
books, and papers as an incident to the right of
inspection, but cannot, without an order of a
court, be permitted to take books from the
ofce of the corporation. We do not conceive,
however, that a director or stockholder has any
absolute right to secure certied copies of the
minutes of the corporation until these minutes
have been written up and approved by the
directors.
- "All business corporations shall
keep and carefully preserve a
record of all business transactions,
and a minute of all meetings of
directors, members, or
stockholders, in which shall be set
forth in detain the time and place
of holding the meeting, how
authorized, the notice given,
whether the meeting was regular
or special, if special its object,
those present and absent, and
every act done or ordered done at
the meeting. . . .
- "The record of all business
transactions of the corporation and
the minutes of any meeting shall
be open to the inspection of any
director, member, or stockholder
of the corporation at reasonable
hours."
Gonzalez v. PNB - Ramon A. Gonzalez bought a share of stock
from the PNB, and as a stockholder, Gonzalez
sought to look over the books and records of
PNB.
- It was admitted that Gonzalezs purpose in
doing so was to verify the truth on certain
transactions which the bank entered into as
well as to inquire into the validity of said
transactions. These include the undertaking of
the bank to nance Southern Negros Devt Bank
in the latters purchase of a sugar mill,
thensncing of the Cebu-Mactan Bridge and he
construction of Passi Sugar Mill at Ilo-ilo
- In fact, Gonzalez previously instituted several
cases against the bank questioning the
propriety of these transactions. It was also
found that Gonzalez procured a share from the
bank precisely to pry into its records and use
the information against the latter.
- Thus, Gonzalez was subsequently denied by
the ofcers of the bank in its attempt to be
furnished once gain of its records. The bank
contended that his request was not germane to
his interest as one-stock shareholder.
- Thus, Gonzalez instituted an action for
mandamus against PNB.
- Whether or not the
ofcers of PNB can be
compelled to allow
Gonzalez to inspect the
records of the former
- The SC held in the negative,
- First and foremost, the new Corporation Code
amended the provision of the Corporation law
pertaining to the rights of directors and
stockholders to inspect corporate books . The
Corporatio Code has prescribed a limitationto
the same by requiring as a condition precedent
that the one requesting the information must
not have used improperly any information
secured through pior examination.
Furthermore, the Code also required that the
request must be in good faith and and for a
legitimate purpose. Thus, Gonzalez contention
that he has an unqualied right to inspection no
longer stands.
- Second, the Court found Gonzalez to be in bad
faith and that his purpose was not germane to
the to his interest as a stockholder. The fact
that Gonzalez procured a share of stock
purposely to exercise the right of inspection
belies his claim of good faith.
- Finally, the inspection would run counter to the
express mandate of PNBs charter. Its charter
limits the inspection of the banks records to
certain qualied ofcials.
- Having its own charter, PNB is not governed
by the Corp Code and the right of inspection
could not be made to apply given the express
restriction in its charter.
- The right of a stockholder to
inspect the record of a business
transactions of a corporation is not
absolute but is limited to purposes
reasonably related to the interest
of the stockholder, must be asked
fro in goodfaith for a specic and
honest purpose and not to gratify
curiosity or for speculative or
vicious purposes.
- (See Sec 74)