Right to Inspect and Copy Corporate Records

Basis of Right

Chua v. People
Facts:
 Joselyn Chua (Joselyn) was a stockholder of Chua Tee Corporation of Manila
o Alfredo was the president and chairman of the board ; Tomas was the corporate secretary;
Mercedes was the accountant/bookkeeper tasked with the physical custody of the corporate
records
 Joselyn invoked her right as a stockholder pursuant to Sec. 74 of the Corporation Code to inspect the
following:
o Records of the books of the business transactions of the corporation
o The minutes of the meetings of the BoD and stockholders
o Financial statements
 Joselyn hired a lawyer to send demand letters. But she was denied of such right to inspect
 Joselyn hired the services of Mr. Velayo from an accounting firm to assist her in examining the books of
the corporation
 Eventhough Velayo visited the corporation’s premises, the books of accounts were not formally
presented to them and there was no list of schedules, which would allow them to pursue their
inspection
o Velayo testified that they failed to complete their objective of inspecting the books of accounts
and examine the recorded documents
 Joselyn alleged that despite written demands, the petitioners conspired in refusing, without valid cause,
the exercise of her right to inspect Chua Tee Corporation of Manila’s (CTCM) business transaction
records, financial statements and minutes of the meetings of both the BoD and stockholders
 Petitioners denied these. CTCM argued that:
o The custody of the records sought to be inspected by Joselyn did not pertain to them
o The physical records were merely kept inside the cabinets of the corporate office
o They did not prevent Joselyn from inspecting the records
o What happened was that Mercedes was severely occupied with winding up the affairs of CTCM
after it ceased operations
 Joselyn and her lawyers then failed to set up an appointment with Mercedes
 Petitioners filed before the MeTC a Motion to Quash
o They argued that CTCM had ceased to exist as a corporate entity when the acts complained of
by Joselyn were allegedly committed
o Thus petitioners cannot be considered anymore as responsible officers of CTCM
o No criminal liability can attach to an omission to perform a duty, which no longer existed
 MeTC found petitioners guilty as charged
o Cited Ang-Abaya v. Ang:
 Elements of the offense under Sec. 74 of the Corp Code
 A stockholder’s prior demand in writing
 Refusal by corporate officers to allow the inspection
 Proofs adduce by the corporate officers of the stockholder’s prior or malicious
use of the records in the event that the same is raised as a defense for the
refusal to allow the inspection
o Cited Gokongwei, Jr. v SEC:
 A stockholder’s right to inspect corporate records is based upon the necessity of self-
protection
 Thus, the exercise of the right at reasonable hours during business days should
be allowed
 RTC affirmed the MeTC. CA affirmed RTC

Issue: Whether CTCM may still be held liable under Sec. 74 of the Corp Code despite the fact that it had
already ceased to be a corporation—Yes
Held:
 Petitioner’s Arguments:
o Since CTCM ceased business operations prior to Joselyn’s filing of her complaint before the
MeTC, there was no longer any duty pertaining to the corporate officers to allow a stockholder
to inspect corporate
o Prosecution failed to prove by competent evidence that they had actually prevented Joselyn
from exercising her right of inspection
 Joselyn admitted that the petitioner had allowed her to see the records
 That since Joselyn designated her accountant to conduct the inspection, she was not
able to physically view the records
 Hence, Joselyn did not have personal knowledge as to whether or not the
inspection of the specific records she requested was allowed or denied
 Despite the expiration CTCM’s corporate term, duties as corporate officers still pertained to the
petitioner’s when Joselyn’s complaint was filed
o Yu, et al. v . Yukayguan et al.
 The corporation continues to be a body corporate for 3 years after its dissolution
for purposes of prosecuting and defending by and against it and for enabling it to
settle and close its affairs, culminating in the disposition and distribution of its
remaining assets
 Termination of the life of a juridical entity does NOT by itself cause the extinction
of diminution of the rights and liabilities of such entity nor those of its owners and
creditors
 Secs. 122 and 145 of the Corp Code explicitly provide for the continuation of the
body corporate of the body corporate for 3 years after dissolution
 The rights and remedies against, or liabilities of, the officers shall NOT be
removed by reason of the dissolution of the corporation
 A stockholder’s right to inspect corporate record subsists during the period of
liquidation
 Hence, Joselyn as a stockholder had the right to demand for the inspection of
records
 Lodged upon the corporation is the corresponding duty to allow the said
inspection
 In the case at bar…
o During cross-examination, Joselyn admitted that permission was granted for her to see the
documents, but she was unable to actually view them as she was represented by her
accountant
o Joselyn lacked personal knowledge as to whether or not the petitioners in fact allowed or denied
the checking of the records she had requested
o Velayo stated that the letter requesting the examination of CTCM’s records was addressed to
the accounting department, and he and his colleagues did not have personal dealings with the
petitioners
 It is apparent from the foregoing that a complete examination of the CTCM’s records DID
NOT OCCUR resulting in an effective deprivation of Joselyn’s right as a stockholder
 HOWEVER, it can be inferred from the foregoing that permission to view the records
was GRANTED, BUT NOT FULLY EFFECTED
 There is no need to prove intent in this case—it is jurisprudentially settled that proof of malice or
deliberate intent is NOT ESSENTIAL in offenses
o The violation in this case is expressed in the Corp Code (deemed to be a special law)

Section 74. Books to be kept; stock transfer agent. - Every corporation shall keep and carefully preserve at its
principal office a record of all business transactions and minutes of all meetings of stockholders or members,
or of the board of directors or trustees, in which shall be set forth in detail 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. Upon the demand of any
director, trustee, stockholder or member, the time when any director, trustee, stockholder or member entered
or left the meeting must be noted in the minutes; and on a similar demand, the yeas and nays must be taken
on any motion or proposition, and a record thereof carefully made. The protest of any director, trustee,
stockholder or member on any action or proposed action must be recorded in full on his demand.

The records of all business transactions of the corporation and the minutes of any meetings shall be open to
inspection by 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.

Any officer or agent of the corporation who shall refuse to allow any director, trustees, stockholder or member
of the corporation to examine and copy excerpts from its records or minutes, in accordance with the provisions
of this Code, shall be liable to such director, trustee, stockholder or member for damages, and in addition, shall
be guilty of an offense which shall be punishable under Section 144 of this Code: Provided, That if such refusal
is made pursuant to a resolution or order of the board of directors or trustees, the liability under this section for
such action shall be imposed upon the directors or trustees who voted for such refusal: and Provided, further,
That it shall be a defense to any action under this section that the person demanding to examine and copy
excerpts from the corporation's records and minutes has improperly used any information secured through any
prior examination of the records or minutes of such corporation or of any other corporation, or was not acting in
good faith or for a legitimate purpose in making his demand.

Stock corporations must also keep a book to be known as the "stock and transfer book", in which must be kept
a record of all stocks in the names of the stockholders alphabetically arranged; the installments paid and
unpaid on all stock for which subscription has been made, and the date of payment of any installment; a
statement of every alienation, sale or transfer of stock made, the date thereof, and by and to whom made; and
such other entries as the by-laws may prescribe. The stock and transfer book shall be kept in the principal
office of the corporation or in the office of its stock transfer agent and shall be open for inspection by any
director or stockholder of the corporation at reasonable hours on business days.

No stock transfer agent or one engaged principally in the business of registering transfers of stocks in behalf of
a stock corporation shall be allowed to operate in the Philippines unless he secures a license from the
Securities and Exchange Commission and pays a fee as may be fixed by the Commission, which shall be
renewable annually: Provided, That a stock corporation is not precluded from performing or making transfer of
its own stocks, in which case all the rules and regulations imposed on stock transfer agents, except the
payment of a license fee herein provided, shall be applicable. (51a and 32a; P.B. No. 268.)

Section 75. Right to financial statements. - Within ten (10) days from receipt of a written request of any
stockholder or member, the corporation shall furnish to him its most recent financial statement, which shall
include a balance sheet as of the end of the last taxable year and a profit or loss statement for said taxable
year, showing in reasonable detail its assets and liabilities and the result of its operations.

At the regular meeting of stockholders or members, the board of directors or trustees shall present to such
stockholders or members a financial report of the operations of the corporation for the preceding year, which
shall include financial statements, duly signed and certified by an independent certified public accountant.

However, if the paid-up capital of the corporation is less than P50,000.00, the financial statements may be
certified under oath by the treasurer or any responsible officer of the corporation. (n)

Section 141. Annual report or corporations. - Every corporation, domestic or foreign, lawfully doing business in
the Philippines shall submit to the Securities and Exchange Commission an annual report of its operations,
together with a financial statement of its assets and liabilities, certified by any independent certified public
accountant in appropriate cases, covering the preceding fiscal year and such other requirements as the
Securities and Exchange Commission may require. Such report shall be submitted within such period as may
be prescribed by the Securities and Exchange Commission. (n)
Gonzales v PNB
Facts:

 This is a special civil action for mandamus filed by Gonzales against PNB praying that the latter be
ordered to allow him to look into the books and records of the respondent bank in order to satisfy
himself as to the truth of the published reports with regard to the following:
o Respondent bank’s guarantee of the obligation of Southern Negros Development Corporation in
the purchase of a $23M sugar-mill to be financed by Japanese suppliers
o That the respondent bank is financing the construction of the P21M Cebu-Mactan bridge to be
constructed by VC Ponce, Inc.
o That the respondent bank is financing the construction o the Passi Sugar Mill at Iloilo by the
Honiron Philippines, Inc.
o As well as to inquire into the validity of older transactions
 A written request for such examination was denied by respondent bank
 Apparently, to sue the bank and question the letters of credit it has extended to the abovementioned
transactions, he expressed and made known his intention to acquire one share of stock which
eventually was transferred to him
 Thereafter, petitioner, in his dual capacity as a taxpayer and stockholder filed cases involving the bank
or the members of its BoD
 The petitioner addressed a letter to the President of the bank requesting the submission to look into the
records of its transactions covering the purchases mentioned
 The Asst. Vice President and Legal Counsel of the Bank answered the petitioner’s letter denying his
request for being not germane to his interest as one-share stockholder for the cloud of doubt as to his
real intention and purpose in acquiring said share
 The court a quo denied the prayer of the petitioner
o The right of the stockholder to inspect the record of business transactions of a corporation is
NOT ABSOLUTE
 Limited to purposes reasonably related to the interest of the stockholder
 Must be asked in good faith for a specific and honest purpose
 Such request is not merely to gratify curiosity or for speculative or vicious purposes
o Such examination would violate the confidentiality of the records of the respondent bank as
provided in its charter
o And petitioner has not exhausted admin remedies

Issue: Whether the court a quo erred in ruling that his alleged improper motive in asking for an examination of
the books and records disqualifies him to exercise the right of a stockholder—No

Held:

 The former corporation law has been replaced by BP 68 known as the “Corporation Code” (before Act.
1459 “Corporation Law”)
 Under the Corp Code, the following are the changes introduced with respect to the right of inspection
granted to a stockholder:
o The records must be kept at the principal office of the corporation
o The inspection must be made on business days
o The stockholder may demand a copy of the excerpts of the records or minutes
o Refusal to allow such inspection shall subject the erring officer or agent of the corporation to
civil and criminal liabilities
o The new Code has prescribed limitations to the same:
 It is now expressly required as a condition for such examination that the one requesting
it must not have been guilty of using improperly any information through a prior
examination
 The person asking for such examination must be acting in good faith and for a legitimate
purpose in making his demand
 In the case at bar…
o Although the petitioner has claimed that he has justifiable motives in seeking the inspection of
 the books of the respondent bank, he has not set forth reasons and purposes for which he
desires such inspection, except to satisfy himself as to the truth of published reports regarding
certain transactions
o The circumstances under which he acquired one share of stock in the respondent bank
purposely to exercise the right of inspection DO NOT argue in favor of his good faith and proper
motivation
 Admittedly, he sought to be a stockholder in order to pry into the transaction entered into
by PNB even before he became a stockholder
 His obvious purpose was to arm himself with materials which he can use against the
respondent bank for acts done by the latter when the petitioner was a total stranger to
the same
o The inspection sought to be exercised would also be violative of its charter
 PNB is not an ordinary corporation; it has its own charter, thus is not governed by the
Corp Code

PASAR v. Lim
Facts:

 PASAR is a corporation engaged in copper smelting and refining. Pablito Lim et al. were former senior
officers and presently shareholders of PASAR holding 500 shares each
 An Amended Petition for Injunction with prayer for Preliminary Injunction and/or TRO was filed by
PASAR seeking to restrain petitioners from demanding inspection of its confidential and inexistent
records
 RTC issued an order granting PASAR’s prayer for a writ of preliminary injunction
o The right to inspect books should not be denied to the stockholders, however, the same may be
restricted
o Such right is limited to the ordinary records as identified and classified by PASAR
o Thus pending the determination of which records are confidential or inexistent, the petitioner
should be enjoined from inspecting the books
 CA held that there was no basis to issue the injunctive writ
o The petition was a pre-emptive action unjustly intended to impeded and restrain the
stockholder’s rights
o If a stockholder demands the inspection of corporate books, the corporation could refuse to
heed such demand
o When the corporation refuses, stockholders can then go to court and enforce their rights
o It is then that the corporation could set up its defenses and the reasons for denial of such right
 Thus the proper remedy available for the enforcement of the right of inspection is the writ
of mandamus to be filed by the stockholders and not a petition filed by the corporation
 Petitioner now argues:
o The right to inspect is limited in that any demand must be made in good faith or for a legitimate
purpose
o If respondents were to gain access to the records, PASAR’s trade secrets and other confidential
information will be used by its former officers to give undue commercial advantage third parties
o That to hold that objection to the right of inspection can only be raised in an action for
mandamus brought by the stockholder, would leave a corporation helpless and without an
adequate legal remedy
o To leave the corporation helpless negates the doctrine that where there is a right, there is a
remedy for its violation
o That PASAR has the right to protect itself against all forms of embarrassment or harassment
against its officers

Issue: Whether the CA erred in lifting the injunction and TRO imposed by the RTC—No

Held:

 An action for injunction filed by a corporation generally does not lie to prevent the enforcement
 by a stockholder of his or her right to inspection
 For an injunction to prosper, the applicant must show the existence of a right, as well as the
actual or threatened violation of this right
 Duaz Corp:
o Requisites for preliminary injunction relief:
 The invasion of the right sought to be protected is material and substantial
 The right of the plaintiff is clear and unmistakable
 There is an urgent and paramount necessity for the writ to prevent serious damage
o The writ may be issued only upon clear showing of an actual existing right to be protected
during the pendency of the principal action
o Twin requirements: existence of a right & its actual or threatened violation
 Almeida:
o Applicant of the writ of injunction is burdened to adduce testimonial and/or documentary
evidence to establish her right to the injunctive writs
o Injunction is not designed
o Injunction is NOT a remedy to protect or enforce CONTINGENT,ABSTRACT, or FUTURE
RIGHTS
 It will not issue to protect a right not in esse and which may never arise, or to restrain an
action which did not give rise to a cause of action
 There must be an existence of an actual right
o An injunction may only be resorted to when there is a pressing necessity to avoid injurious
consequences which cannot be remedied under any standard compensation
o It should be granted only when the court is fully satisfied that the law permits it and the
emergency demands it
 The right to inspect under Sec. 74 of the Corporation Code is subject to certain limitations
o The person demanding to examines and copy from the corporation’s records and
minutes has not improperly used any information secured through any previous
examination of the records of such corporation
o The demand is made in good faith or for legitmate purpose
 Gokingwei: The impropriety of purpose must be set up by the corporation DEFENSIVELY
 Terelay Investment and Development Corp: although the corporation may deny a stockholder’s request
to, the corporation must show that the purpose of the shareholder is improper by way of defense
 In the case at bar…
o The petitioner invokes its right to raise the limitation under Sec. 74 BUT provides scant legal
basis to claim this right because it does not raise the limitation as a matter of defense
 Stockholders cannot be prevented from gaining access to the:
o Records of all business transaction of the corporation
o Minutes of any meeting of stockholders or BoD, including their various committees and
subcommittees
 The grant of legal personality is conditioned on its compliance with certain obligations
o Among these are its fiduciary responsibilities to its stockholders
o Providing stockholders access to information is a fundamental basis for their intelligent
participation in the governance of the corporation as a business organization they partially own
o Each individual stockholder should be given reasonable access so that he or she can
assess or share his or her assessment of the management of the corporation with other
stockholders
o The separate legal personality of a corporation is NOT so absolutely separate that it
divorces itself from its responsibility to its constituent owners
 The phraseology of the text of the law provides that access to the information mentioned in Sec.
74 of the Corp Code is MANDATORY
o If it has basis for denial, then the corporation shoulders the risks of being sued and of
successfully raising the proper defenses
o The corporation cannot immediately deploy its resources—part of which is owned by the
requesting stockholder--- to put the owner on the defensive
 Corporations may raise their objections to the right of inspection through affirmative defense in
an ordinary civil action for specific performance or damages, or through a comment in a
 petition for MANDAMUS
o The corporation or defendant or respondent still carries the burden of proving:
 That the stockholder has improperly used information before
 Lack of good faith
 Lack of legitimate purpose
 Good faith and a legitimate purpose are PRESUMED
o It is the duty of the corporation to allege and prove with sufficient evidence the facts that give
rise to the claim of bad faith as to the existence of an illegitimate purpose
 “The confidentiality of business transactions is not a magical incantation that will defeat the request of a
stockholder to inspect the records “
o Facts must be pleaded to convince the court that a specific stockholder’s request for inspection,
under certain conditions, would violate the corporation’s own legal right
o The discomfort caused to the management of a corporation when a request for inspection is
claimed is part of the regular matters that a business wanting to ensure good governance must
endure

Section 144. Violations of the Code. - Violations of any of the provisions of this Code or its amendments not
otherwise specifically penalized therein shall be punished by a fine of not less than one thousand (P1,000.00)
pesos but not more than ten thousand (P10,000.00) pesos or by imprisonment for not less than thirty (30) days
but not more than five (5) years, or both, in the discretion of the court. If the violation is committed by a
corporation, the same may, after notice and hearing, be dissolved in appropriate proceedings before the
Securities and Exchange Commission: Provided, That such dissolution shall not preclude the institution of
appropriate action against the director, trustee or officer of the corporation responsible for said violation:
Provided, further, That nothing in this section shall be construed to repeal the other causes for dissolution of a
corporation provided in this Code. (190 1/2 a)

Ang-Abaya v. Ang
Facts

 Vibelle Manufacturing Corporation (VMC) and Genato Investments, Inc. are family-owned corporations,
where petitioners are shareholders, officers and members of the BoD
 Prior to the instant controversy, VMC, Genato and Oriana Manufacturing Corporation (Oriana) filed a
case for damages with prayer for issuance of a TRO and/or writ of preliminary injunction Eduardo Ang
for allegedly conniving to fraudulently wrest control/management of the corporations
o Eduardo allegedly borrowed substantial amounts of money from the said corporations without
any intention to repay
o That Eduardo repeatedly demanded increases in his monthly allowance and for more cash
advances contrary to existing corporate policies
o That Eduardo harassed petitioner Flordeliza to transfer and/or sell certain corporate and
personal properties in order to pay off his personal obligations
 Eduardo sought permission to inspect the corporate books of VMC and Genato on account of
petitioners’ alleged failure and/or refusal to update him on the financial and business activities of these
family corporations
 Petitioners denied the request
o Petitioners claimed that Eduardo would use the information obtained from said inspection for
purposes inimical to the corporations’ interests, considering that:
 He is harassing the corporation into writing off his advances
 He is unjustly demanding that he be given an office/position already occupied and
usurping corporate powers as well as making demands with regard to corporate
properties
 Because of petitioners’ refusal to grant his request to inspect the corporate books of VMC and Genato,
Eduardo filed an Affidavit-Complaint against petitioners Flordeliza and Jason charging them with
violation (two counts) of Sec. 74 in relation to Sec. 144 of the Corp Code
 The City Prosecutor issued a Resolution recommending that petitioners be charaged with 2 counts of
violation of Sec. 74, but dismissed the complaint against Belinda for lack of evidence
 Petitioners filed a petition for review before the DoJ, which reversed the recommendation of the City
 Prosecutor
 The DoJ denied Eduardo’s MR/ the CA reversed the DoJ

Issue: Whether the DoJ committed GADALEJ in reversing the resolution of the prosecutor finding probable
cause against petitioner after preliminary investigation for violation of Sec. 74 of the Corp Code-- No

Held:

 In order for the penal provision under Sec. 144 of the Corp Code to apply in a case of violation of a
stockholder’s or member’s right inspect the corporate books/records as provided for under Sec. 74 of
the Corp Code, the following elements must be present:
o A director, trustee, stockholder or member has made a prior demand in writing for a copy
of excerpts from the corporation’s record or minutes
o Any officer or agent of the concerned corporation shall refuse to allow the said director,
trustee, stockholder or member of the corporation to examine and copy said excerpts
o If such refusal is made pursuant to a resolution or order of the board of directors or
trustees, the liability under this section for such action shall be imposed the directors or
trustees who voted for such refusal
o Where the officer or agent of the corporation sets up the defense that the person
demanding to examine and copy excerpts from the corporation’s records and minutes
has improperly used any information secured through any prior examination of the
records or minutes of such corporation or of any other corporation, or was not acting in
good faith or for a legitimate purpose in making his demand, the contrary must be shown
or proved
 In a criminal complaint under Sec. 74 of the Corp Code, the defense of improper use of motive is in the
nature of a JUSTIFYING CIRCUMSTANCE that would exonerate those who raise and are able to prove
the same
 Accordingly, where the corporation denies inspection on the ground of improper motive or purpose, the
burden of proof is taken from the shareholder and placed on the corporation
 It would be improper for the prosecutor, during preliminary investigation, to refuse or fail to address the
defense of improper use or motive, given its express statutory recognition
 In the case at bar….
o Contrary to Eduardo’s insistence, the stockholder’s right to inspect corporate books is not
without limitation
 It is now expressly required as a condition for such examination that the one requesting
it must not have been guilty of using improperly any information secured through a prior
examination, or that the person asking for such examination must be acting in good faith
and for a legitimate purpose in making his demand
o The serious allegations against Eduardo are supported by official and other documents, such as
board resolutions, treasurer’s affidavits and written communication from the respondent
Eduardo himself
 Eduardo appeared to have withheld his objections to these charges
 His silence virtually amounts to an acquiescence
o All in all, the serve to justify petitioner’s allegation that Eduardo was not acting in good faith and
for a legitimate purpose in making his demand for inspection of the corporate books
o Otherwise stated, there is lack of probable cause to support the allegation that petitioners
violated Sec. 74 of the Corp Code in refusing respondent’s request for examination of the
corporation’s books

Section 142. Confidential nature of examination results. - All interrogatories propounded by the Securities and
Exchange Commission and the answers thereto, as well as the results of any examination made by the
Commission or by any other official authorized by law to make an examination of the operations, books and
records of any corporation, shall be kept strictly confidential, except insofar as the law may require the same to
be made public or where such interrogatories, answers or results are necessary to be presented as evidence
before any court. (n)
Section 81. Instances of appraisal right. - Any stockholder of a corporation shall have the right to dissent and
demand payment of the fair value of his shares in the following instances:

1. In case any amendment to the articles of incorporation has the effect of changing or restricting the rights of
any stockholder or class of shares, or of authorizing preferences in any respect superior to those of
outstanding shares of any class, or of extending or shortening the term of corporate existence;

2. In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or substantially all of
the corporate property and assets as provided in the Code; and

3. In case of merger or consolidation. (n)

Section 86. Notation on certificates; rights of transferee. - Within ten (10) days after demanding payment for
his shares, a dissenting stockholder shall submit the certificates of stock representing his shares to the
corporation for notation thereon that such shares are dissenting shares. His failure to do so shall, at the option
of the corporation, terminate his rights under this Title. If shares represented by the certificates bearing such
notation are transferred, and the certificates consequently cancelled, the rights of the transferor as a dissenting
stockholder under this Title shall cease and the transferee shall have all the rights of a regular stockholder; and
all dividend distributions which would have accrued on such shares shall be paid to the transferee. (n)

Section 105. Withdrawal of stockholder or dissolution of corporation. - In addition and without prejudice to
other rights and remedies available to a stockholder under this Title, any stockholder of a close corporation
may, for any reason, compel the said corporation to purchase his shares at their fair value, which shall not be
less than their par or issued value, when the corporation has sufficient assets in its books to cover its debts
and liabilities exclusive of capital stock: Provided, That any stockholder of a close corporation may, by written
petition to the Securities and Exchange Commission, compel the dissolution of such corporation whenever any
of acts of the directors, officers or those in control of the corporation is illegal, or fraudulent, or dishonest, or
oppressive or unfairly prejudicial to the corporation or any stockholder, or whenever corporate assets are being
misapplied or wasted.

Derivative Suits

Chua v CA
Facts:

 Private respondent, Lydia Hao. Treasurer of Siena Realty Corporation, filed a complaint-affidavit
against Francis Chua (petitioner) for committing acts of falsification by falsifying the minutes of the
annual stockholders’ meeting of the BoD by causing it to appear in said minutes that Lydia Hao Chua
was present and had participated in said proceedings, when in truth and in fact, as the said accused
knew full well that said Lydia Hao was never present during the meeting
 Petitioner alleges that respondent Lydia Hao has no authority to bring a suit in behalf of the corporation
since there was no board resolution authorizing her to filed the suit
 Lydia Hao claimed that the suit was brought under the concept of a derivative suit

Issue: Whether the criminal complaint is in the nature of a derivative suit; whether Siena Realty Corporation a
proper petitioner in this case

Held:

 Sec 36 of the Corp Code, read in relation to Sec. 23, where a corporation is an injured party, its
power to sue is lodged with its BoD
o An individual stockholder is permitted to institute a DERIVATIVE SUIT on behalf of the
corporation wherein he holds stocks in order to protect or vindicate corporate rights,
whenever the officials of the corporation refuse to sue, or are the ones to be sued, or
hold the control of the corporation
o In such actions, the suing stockholder is regarded as a NOMINAL party, with the
corporation as the REAL PARTY IN INTEREST

o
 A derivative suit is a suit by a shareholder to enforce a corporate cause of action
o The corporation is a necessary party to the suit
o The relief granted is a judgment against a third person in favor of the corporation
o Similarly, if a corporation has a defense to an action against it and is not asserting it, a
stockholder may intervene and defend on behalf of the corporation
 In the case at bar…
o The complaint was instituted by respondent against petitioner for falsifying corporate documents
whose subject concerns corporate projects of Siena Realty Corporation
o SRC is an offended party
 Therefore, SRC has a cause of action, and the civil case for the corporate cause of
action is deemed instituted in the criminal action
o HOWEVER, the BoD of the corporaton DID NOT institute the action against petitioner
 Private respondent was the one who instituted the action
 Private respondent asserts that she filed a derivative suit in behalf of the corporation
 THIS IS INACCURATE
o Not every suit filed in behalf of the corporation is a derivative suit
o For a derivative suit to prosper, it is required that:
 A minority stockholder suing for and in behalf of the corporation
 Such stockholder must allege in his complaint that he is suing on a derivative
cause of action on behalf of the corporation and all other stockholders similarly
situated who may wish to join him in the suit
o It is a condition sine qua non that the corporation be impleaded as a party because not
only is the corporation an indispensible party, but it is also the present rule that it must
be served with the process
o The judgment must be made binding on the corporation in order that the corporation
may get the benefit of the suit and may not bring subsequent suit against the same
defendants for the same cause of action
o In other words, the corporation must be joined as a party because it is its cause of action
that is being litigated and because judgment must be a res judicata against it
o In the criminal complaint filed by Lydia, NOWHERE IS IT STATED THAT SHE IS FILING THE
SAME IN BEHALF AND FOR THE BENEFIT OF THE CORPORATION
 THUS THE CRIMINAL COMPLAINT, INCLUDING THE CIVIL ASPECT THEREOF
COULD NOT BE DEEMED IN THE NATURE OF A DERIVATIVE SUIT