RIGHT OF INSPECTION

G.R. No. L-22442; August 1, 1924

W.G. PHILPOTTS VS PHIL. MFG. CO.

FACTS: Corporate secretary of Hercules Lumber

refused to permit Pardo, a stockholder, or his agent
to inspect the records and business transactions of
the company at the times desired by Pardo. Basis of
the refusal was the provision in the companys bylaws which stipulated that every stockholder may
examine the books of the company and other
documents upon the days which the board annually
fixes.

FACTS: 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.
ISSUE:
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.
HELD: There is no pretense that the respondent
corporation or any of its officials 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 specified 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 right to inspect corporate books, although
personal, may be exercised through an agent or
representative since it may be unavailing in many
instances.)

Pardo vs. Hercules Lumber

ISSUE: When is the time or times within which the

right of inspection may be exercised?
HELD: The resolution of the board limiting the rights
of stockholders to inspect its records to a period of
10 days prior to the annual SH meeting is an
unreasonable restriction in accordance with the
Corporation Code which provides that the right to
inspect can be exercised at reasonable hours.
(The corporation, or its responsible directors and
officers cannot unduly restrict the right of inspection
and may not arbitrarily set a few days of the year
within which the stockholder may make the
inspection.)
VERAGUTH VS ISABELA
FACTS: Veraguth, a director and stockholder of the
Isabela Sugar Company, Inc., filed a petition with
the lower court praying that: a final 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. He
likewise contends that when asked that he be
permitted to inspect the books of the corporation, 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.
ISSUE: WON Veraguth can exercise the right of
inspection of the books prior to the approval of
the Board.
HELD: NO. Directors have the unqualified right to
inspect the books and records of a corporation at all
reasonable times. Pretexts may not be put forward
by the officers to keep a director or stockholder from
inspecting the books and minutes of the corporation,
and the right to inspect cannot be denied on the
grounds that the director or stockholder are on
unfriendly terms with the officers. A director or
stockholder has no absolute right to secure
certified copies of the minutes until these

minutes have been

by the directors.

written up and approved

(Directors of a corporation have the unqualified right

to inspect the books and records of the corporation
at all reasonable hours. However, there is no
absolute right to secure certified copies of the
minutes of the corporation until these minutes have
been written up and approved by the directors.)
GOKONGWEI VS SEC
ISSUE: WON Gokongwei may be allowed to inspect
the books of the corporation.
HELD: YES. Where the right to inspect is granted
by statute to the stockholder, it is given to him as
such and must be exercised by him with respect to
his interest as a stockholder and for some purpose
germane thereto or in the interest of the corporation.
The inspection has to be germane to the petitioners
interest as a stockholder and has to be proper and
lawful in character and not inimical to the interest of
the corporation. The stockholders right to inspect is
based on his ownership of the assets and property
of the corporation. It is therefore an incident of
ownership of the corporate property, whether this
ownership or interest be termed an equitable
ownership, beneficial ownership, or quasiownership, and is predicated upon the necessity of
self-protection. On application for mandamus to
enforce the right, it is proper for the court to inquire
into and consider the stockholders good faith and
his purpose and motives in seeking inspection. But
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 law take from the
stockholder the burden of showing the propriety of
purpose and place upon the corporation the burden
of showing impropriety of purpose or motive.
The foreign subsidiary is wholly-owned by SMC and
therefore under its control, and would be more in
accord with equity, good faith, and fair dealing to
construe the statutory right of Gokongwei as
stockholder to inspect the books of the parent as
extending to the books of the subsidiary in its
control.
(General rule: The right of stockholders to examine
corporate books extends to a wholly owned
subsidiary which is completely under the control and
management of the parent company where he is
such a stockholder.
Exception: The subsidiary and the parent are
legally being operated as separate and distinct
entities.)

GONZALES VS PNB

FACTS: The petitioner requested from the

respondent that he be allowed to examine the
records of the latter. Petitioner claimed that he
wanted to determine the veracity of reports that the
respondent has guaranteed the obligation of
another corporation in the purchase of a sugar mill
and that the respondent financed the construction of
a bridge and a sugar mill. When the respondent
denied his request, the petitioner sought mandamus
from the CFI of Manila, adding that he acquired one
(1) share of stock in PNB and was thus entitled to
examine the respondents records. The CFI
dismissed the petition on the ground that the
petitioner had improper motives and his purpose
was not germane to his interest as a stockholder.
The petitioner argued that his right was
unconditional.
ISSUE: The issue was whether the petitioner could
examine the records of the respondent.
HELD: NO. The former Corporation Law was
already replaced by the Corporation Code which
requires that the person requesting the examination
of a corporations records must be acting in good
faith and for a legitimate purpose. Examination
could not be granted on the ground of mere
curiosity. The petitioner acquired only one share of
stock and did so only after making a request to
examine acts done by the respondent when the
former was still a stranger to the same. The
circumstances showed that the petitioners purpose
was not germane to his interest as a stockholder.
Lastly, the right to examine the records of a
corporation under the Corporation Code was
violative of the PNBs charter. The petition was
dismissed.
(It is a required condition for the inspection of
corporate books that the one requesting it must not
have been guilty of using improperly any information
secured through a prior examination and that the
person asking for such examination must be acting
in good faith and for a legitimate purpose in making
his demand.)
MERGER AND CONSOLIDATION
Associated Bank vs. Court of Appeals
CASE DIGEST: G. R. No. 123793, June 29, 1998
FACTS:
Associated Banking Corporation and Citizens Bank
and Trust Company (CBTC) merged to form just
one banking corporation known as Associated
Citizens Bank (later renamed Associated Bank), the
surviving bank. After the merger agreement had
been signed, but before a certificate of merger was
issued, respondent Lorenzo Sarmiento, Jr. executed

in favor of Associated Bank a promissory note,

promising to pay the bank P2.5 million on or before
due date at 14% interest per annum, among other
accessory dues. For failure to pay the amount due,
Sarmiento was sued by Associated Bank.
Respondent argued that the plaintiff is not the
proper party in interest because the promissory note
was executed in favor of CBTC. Also, while
respondent executed the promissory note in favor of
CBTC, said note was a contract pour autrui, one in
favor of a third person who may demand its
fulfillment. Also, respondent claimed that he
received no consideration for the promissory note
and, in support thereof, cites petitioner's failure to
submit any proof of his loan application and of his
actual receipt of the amount loaned.
ISSUE:
1.) Whether or not Associated Bank, the surviving
corporation, may enforce the promissory note made
by private respondent in favor of CBTC, the
absorbed company, after the merger agreement had
been signed, but before a certificate of merger was
issued?
2.) Whether or not the promissory note was a
contract pour autrui and was issued without
consideration?
HELD:

note names CBTC as the payee, the reference to

CBTC in the note shall be construed, under the very
provisions of the merger agreement, as a reference
to petitioner bank.
On the issue that the promissory note was a
contract pour autrui and was issued without
consideration, the Supreme Court held it was not. In
a contract pour autrui, an incidental benefit or
interest, which another person gains, is not
sufficient. The contracting parties must have clearly
and deliberately conferred a favor upon a third
person. The "fairest test" in determining whether the
third person's interest in a contract is a stipulation
pour autrui or merely an incidental interest is to
examine the intention of the parties as disclosed by
their contract. It did not indicate that a benefit or
interest was created in favor of a third person. The
instrument itself says nothing on the purpose of the
loan, only the terms of payment and the penalties in
case of failure to pay.
Private respondent also claims that he received no
consideration for the promissory note, citing
petitioner's failure to submit any proof of his loan
application and of his actual receipt of the amount
loaned. These arguments deserve no merit. Res
ipsa loquitur. The instrument, bearing the signature
of private respondent, speaks for itself. Respondent
Sarmiento has not questioned the genuineness and
due execution thereof. That he partially paid his
obligation is itself an express acknowledgment of
his obligation.

The petition is impressed with merit.

WHEREFORE, the petition is GRANTED.
Associated Bank assumed all the rights of CBTC.
Although absorbed corporations are dissolved, there
is no winding up of their affairs or liquidation of their
assets, because the surviving corporation
automatically acquires all their rights, privileges and
powers, as well as their liabilities. The merger,
however, does not become effective upon the mere
agreement of the constituent corporations. The
Securities and Exchange Commission (SEC) and
majority of the respective stockholders of the
constituent corporations must have approved the
merger. (Section 79, Corporation Code) It will be
effective only upon the issuance by the SEC of a
certificate of merger. Records do not show when the
SEC approved the merger.
But assuming that the effectivity date of the merger
was the date of its execution, we still cannot agree
that petitioner no longer has any interest in the
promissory note. The agreement itself clearly
provides that all contracts irrespective of the date
of execution entered into in the name of CBTC
shall be understood as pertaining to the surviving
bank, herein petitioner. Such must have been
deliberately included in the agreement in order to
avoid giving the merger agreement a farcical
interpretation aimed at evading fulfillment of a due
obligation. Thus, although the subject promissory

BPI VS BPI EMPLOYEES UNION

FACTS:
In 2000, Far East Bank and trust Company (FEBTC)
merged with Bank of the Philippine Islands.
Petitioner had a Union Shop agreement with
respondent BPI Employees Union-Davao ChapterFederation of Unions in BPI Unibank (the
Union).Pursuant to the merger, respondent
requested BPI to terminate the employment of those
new employees from FEBTC who did not join the
union.
BPI refused to undertake such action and brought
the controversy before a voluntary arbitrator.
Although BPI won the initial battle at the Voluntary
Arbitrator level, BPIs position was rejected by the
Court of Appeals which ruled that the Voluntary
Arbitrators interpretation of the Union Shop Clause
was at war with the spirit and rationale why the
Labor Code allows the existence of such provision.
This was followed and affirmation by the Supreme
Court of the CA decision holding that former
employees of the Far East Bank and Trust
Company (FEBTC) "absorbed" by BPI pursuant to

the two banks merger. The absorbed employees

were covered by the Union Shop Clause in the then
existing collective bargaining agreement (CBA)of
BPI with respondent BPI Employees Union-Davao
Chapter-Federation of Unions in BPI Unibank (the
Union). Petitioners, despite the August 2010
decision moved for a Motion for reconsideration of
the decision.
ISSUE:
WON the employees of the dissolved Corporation is
absorbed by the surviving corporation in a merger
HELD:
The court agreed with Justice Brions view that it is
more in keeping with the dictates of social justice
and the State policy of according full protection to
labor to deem employment contracts as
automatically assumed by the surviving corporation
in a merger, without break in the continuity of their
employment, and even in the absence of an express
stipulation in the articles of merger or the merger
plan.
By upholding the automatic assumption of the nonsurviving
corporations
existing
employment
contracts by the surviving corporation in a merger,
the Court strengthens judicial protection of the right
to security of tenure of employees affected by a
merger and avoid confusion regarding the status of
their various benefits. However, it shall be noted that
nothing in the Resolution shall impair the right of an
employer to terminate the employment of the

absorbed employees for a lawful or authorized

cause or the right of such an employee to resign,
retire or otherwise sever his employment, whether
before or after the merger, subject to existing
contractual obligations.
Although by virtue of the merger BPI steps into the
shoes of FEBTC as a successor employer as if the
former had been the employer of the latters
employees from the beginning it must be
emphasized that, in reality, the legal consequences
of the merger only occur at a specific date, i.e.,
upon its effectivity which is the date of approval of
the merger by the SEC. Thus, the court observed in
the Decision that BPI and FEBTC stipulated in the
Articles of Merger that they will both continue their
respective business operations until the SEC issues
the certificate of merger and in the event no such
certificate is issued, they shall hold each other
blameless for the non-consummation of the merger.
In other words, the obligation of BPI to pay the
salaries and benefits of the former FEBTC
employees and its right of discipline and control
over them only arose with the effectivity of the
merger. Concomitantly, the obligation of former
FEBTC employees to render service to BPI and
their right to receive benefits from the latter also
arose upon the effectivity of the merger. What is
material is that all of these legal consequences of
the merger took place during the life of an existing
and valid CBA between BPI and the Union wherein
they have mutually consented to include a Union
Shop Clause.