[ G.R. No.

172948, October 05, 2016]

PHILIPPINE ASSOCIATED SMELTING AND REFINING CORPORATION, Petitioner, vs. PABLITO O. LIM,
MANUEL A. AGCAOILI, AND CONSUELO M. PADILLA, Respondents.

LEONEN, J.:

Philippine Associated Smelting and Refining Corporation is a corporation duly organized and existing under the laws of the
Philippines and is engaged in copper smelting and refining. On the other hand, Lim, Agcaoili and Padilla were former senior
officers and presently shareholders of PASAR holding 500 shares each. An Amended Petition for Injunction and Damages
with prayer for Preliminary Injunction and/or Temporary Restraining Order was filed by PASAR seeking to restrain petitioners
from demanding inspection of its confidential and inexistent records.

The RTC issued an Order granting PASAR's prayer for a writ of preliminary injunction. The RTC held that the right to inspect
book should not be denied to the stockholders, however, the same may be restricted. The right to inspect should be limited to
the ordinary records as identified and classified by PASAR. Thus, pending the determination of which records are confidential
or inexistent, the petitioners should be enjoined from inspecting the books.

Petitioners then filed a Motion for Dissolution of the Writ of Preliminary Injunction claiming that the enforcement of the right
to inspect book should be on the stockholders and not on PASAR. Petitioners further claim that no irreparable injury is caused
to PASAR which justifies the issuance of the writ of preliminary injunction.

The RTC issued the assailed Order, denying the Motion to Dismiss filed by petitioners on the ground that it is a prohibited
pleading under the Interim Rules on Intra-Corporate Controversies under the Securities Regulation Code. The Motion for
Dissolution of the Writ of Preliminary Injunction was likewise denied on the ground that the writ does not completely result in
unjust denial of petitioners' right to inspect the books of the corporation. The RTC further stated that if no preliminary injunction
is issued, petitioners may, before final judgment, do the act which PASAR is seeking the Court to restrain which will make
ineffectual the final judgment that it may afterward render.

Aggrieved, Lim, Agcaoili, and Padilla filed before the Court of Appeals a Petition for Certiorari[8] questioning the propriety of
the writ of preliminary injunction. The Court of Appeals held that there was no basis to issue an injunctive writ.

Petitioner argues that the right of a stockholder to inspect corporate books and records is limited in that any demand must be
made in good faith or for a legitimate purpose. Respondents, however, have no legitimate purpose in this case. [21] If respondents
gain access to petitioner's confidential records, petitioner's trade secrets and other confidential information will be used by its
former officers to give undue commercial advantage to third parties.[22] Petitioner insists that to hold that objections 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.[23] To leave the corporation helpless negates the doctrine that where there is a right, there is
a remedy for its violation.[24]

Petitioner argues that it has the right to protect itself against all forms of embarrassment or harassment against its officers,
including the filing of criminal cases against them.[25] Moreover, respondents' request for inspection of confidential corporate
records and documents violates and breaches petitioner's right to peaceful and continuous possession of its confidential records
and documents.[26]

ISSUE: Whether injunction properly lies to prevent respondents from invoking their right to inspect. -- NO

RULING:

The Corporation Code provides that a stockholder has the right to inspect the records of all business transactions of the
corporation and the minutes of any meeting at reasonable hours on business days. The stockholder may demand in writing for
a copy of excerpts from these records or minutes, at his or her expense. The right to inspect under Section 74 of the Corporation
Code is subject to certain limitations. However, these limitations are expressly provided as defenses in actions filed under
Section 74. Thus, this Court has held that a corporation's objections to the right to inspect must be raised as a defense.

The stockholder's right of inspection of the corporation's books and records is based upon their 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, a beneficial ownership, or a quasi-ownership. This right is predicated upon the
necessity of self-protection. In other words, the inspection has to be germane to the petitioner's interest as a stockholder, and
has to be proper and lawful in character and not inimical to the interest of the corporation. The right to examine the books of
the corporation must be exercised in good faith, for specific and honest purpose, and not to gratify curiosity, or for speculative
or vexatious purposes. Thus, it was held that "the right given by statute is not absolute and may be refused when the information
is not sought in good faith or is used to the detriment of the corporation." But the "impropriety of purpose such as will defeat
enforcement must be set up 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 propriety of purpose and place upon the
corporation the burden of showing impropriety of purpose or motive." It appears to be the "general rule that stockholders are
entitled to full information as to the management of the corporation and the manner of expenditure of its funds, and to inspection
to obtain such information, especially where it appears that the company is being mismanaged or that it is being managed for
the personal benefit of officers or directors or certain of the stockholders to the exclusion of others."

In this case, petitioner invokes its right to raise the limitations provided under Section 74 of the Corporation Code. However,
petitioner provides scant legal basis to claim this right because it does not raise the limitations as a matter of defense. As
properly appreciated by the Court of Appeals:

We agree. The act of PASAR in filing a petition for injunction with prayer for writ of preliminary injunction is uncalled for.
The petition is a pre-emptive action unjustly intended to impede and restrain the stockholders' rights. If a stockholder demands
the inspection of corporate books, the corporation could refuse to heed to such demand. When the corporation, through its
officers, denies the stockholders of such right, the latter could then go to court and enforce their rights. It is then that the
corporation could set up its defenses and the reasons for the denial of such right. Thus, the proper remedy available for the
enforcement of the right of inspection is undoubtedly the writ of mandamus to be filed by the stockholders and not a petition
for injunction filed by the corporation.[60]

The clear provision in Section 74 of the Corporation Code is sufficient authority to conclude that an action for injunction and,
consequently, a writ of preliminary injunction filed by a corporation is generally unavailable to prevent stockholders from
exercising their right to inspection. Specifically, stockholders cannot be prevented from gaining access to the (a) records of all
business transactions of the corporation; and (b) minutes of any meeting of stockholders or the board of directors, including
their various committees and subcommittees.

The grant of legal personality to a corporation is conditioned on its compliance with certain obligations. Among these are its
fiduciary responsibilities to its stockholders. Providing stockholders with access to information is a fundamental basis for their
intelligent participation in the governance of the corporation as a business organization that they partially own. The law is
agnostic with respect to the amount of shares required. Generally, 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.
The separate legal personality of a corporation is not so absolutely separate that it divorces itself from its responsibility to its
constituent owners.

The law takes into consideration the potential disparity in the financial legal resources between the corporation and an ordinary
stockholder. The phraseology of the text of the law provides that access to the information mentioned in Section 74 of the
Corporation Code is mandatory. The presumption is that the corporation should provide access. If it has basis for denial, then
the corporation shoulders the risks of being sued and of successfully raising the proper defenses. The corporation cannot
immediately deploy its resources—part of which is owned by the requesting stockholder—to put the owner on the defensive.

Specifically, 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 (if one is required) in a petition for mandamus. [64] The
corporation or defendant or respondent still carries the burden of proving (a) that the stockholder has improperly used
information before; (b) lack of good faith; or (c) lack of legitimate purpose.[65]

Good faith and a legitimate purpose are presumed. It is the duty of the corporation to allege and prove with sufficient evidence
the facts that give rise to a 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. Although it is true
that the business is entitled to the protection of its trade secrets and other intellectual property rights, 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.

Furthermore, 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. The range between discomfort and vexation
is a broad one, which may tend to be located in the personalities of those involved.

Certainly, by themselves, these are not sufficient factual basis to conclude bad faith on the part of the requesting stockholder.
Courts must be convinced that the scope or manner of the request and the conditions under which it was made are so frivolous
that the huge cost to the business will, in equity, be unfair to the other stockholders. There is no iota of evidence that this
happened here.

WHEREFORE, the Petition is DENIED.