ANG-ABAYA vs ANG

FACTS

Vibelle Manufacturing Corporation and Genato Investments, Inc. are family-

owned corporations, where petitioners Ma. Belen Flordeliza C. Ang-Abaya , Jason
A. Ang, Vincent G. Genato, Hanna Ang and private respondent Eduardo G. Ang
(Eduardo) are shareholders, officers and members of the board of directors.

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 against Eduardo for allegedly conniving to
fraudulently wrest control/management of the corporations. Eduardo allegedly
borrowed substantial amounts of money from the said corporations without any
intention to repay; that he repeatedly demanded for increases in his monthly
allowance and for more cash advances contrary to existing corporate policies; that
he harassed petitioner Flordeliza to transfer and/or sell certain corporate and
personal properties in order to pay off his personal obligations etc.

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 claiming that Eduardo would use the information obtained from said
inspection for purposes inimical to the corporations interests, considering that:
a) he is harassing the corporation into writing off his advances; b) 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 Section 74, in
relation to Section 144, of the Corporation Code of the Philippines.

The City Prosecutor issued a Resolution recommending that petitioners be

charged with two counts of violation of Section 74 of the Corporation Code, 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 Eduardos Motion for Reconsideration. The Court
of Appeals reversed the DOJ.

ISSUE

Whether or not the DOJ committed GADALEJ in reversing the resolution of the
prosecutor finding probable cause against petitioners after preliminary
investigation for violation of section 74 of the corporation code of the Philippines

HELD: NO

RATIO
In order for the penal provision under Section 144 of the Corporation Code to
apply in a case of violation of a stockholder or members right to inspect the
corporate books/records as provided for under Section 74 of the Corporation
Code, the following elements must be present:

First. A director, trustee, stockholder or member has made a prior demand

in writing for a copy of excerpts from the corporations records or minutes;

Second. 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;

Third. 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,

Fourth. Where the officer or agent of the corporation sets up the defense that
the person demanding to examine and copy excerpts from the corporations
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.

Thus, in a criminal complaint for violation of Section 74 of the Corporation Code,

the defense of improper use or 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. This being the case, 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.

Thus, contrary to Eduardos insistence, the stockholders right to inspect

corporate books is not without limitations. 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.

The serious allegations against Eduardo are supported by official and other
documents, such as board resolutions, treasurers affidavits and written
communication from the respondent Eduardo himself, who appears to have
withheld his objections to these charges. His silence virtually amounts to an
acquiescence. Taken together, all these serve to justify petitioners allegation that
Eduardo was not acting in good faith and for a legitimate purpose in making his
demand for inspection of the corporate books. Otherwise stated, there is lack of
probable cause to support the allegation that petitioners violated Section 74 of the
Corporation Code in refusing respondents request for examination of the
corporation books.