WEEK 10 - CORPORATE GOVERNANCE; INFORMATION RIGHTS

G.R. No. L-15568 November 8, 1919

(1) W. G. PHILPOTTS, petitioner, plaintiff vs. PHILIPPINE MANUFACTURING This conclusion is supported by the undoubted weight of authority in the US,
COMPANY and F. N. BERRY, respondents, defendant where it is held that the provisions of law allowing the right of inspection to
stockholders of corporations are to be liberally construed and that said right
may be exercised through other properly authorized person.
TOPIC: Who may exercise the right
PONENTE: Street J. The demurrer is overruled; and it is ordered that the writ of mandamus shall
issue as prayed, unless within 5 days from notification hereof the respondents
FACTS: answer to the merits. So ordered.

The petitioner, W. G. Philpotts, a stockholder in the Philippine Manufacturing CASE LAW/ DOCTRINE: "The record of all business transactions of the
Company (respondent) seeks to obtain a writ of mandamus to compel the corporation and the minutes of any meeting shall be open to the inspection
respondents to permit the plaintiff W. G. Philpotts, in person or by some of any director, member or stockholder of the corporation at reasonable
authorized agent or attorney, to inspect and examine the records of the hours." – Sec 51 Act 1459
business transacted by said company since January 1, 1918. The petition is
filed originally in this court under section 515 of the Code of Civil Procedure.
The respondents interposed a demurrer claiming that there is a right of
examination in the stockholder granted under section 51 of the Corporation
Law, but this right must be exercised in person.

ISSUE(S):

WON the right of the 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: Yes.

RATIO: In this case petitioner desires to exercise the right to inspect through an
agent or attorney.

SC applied the 2nd paragraph of section 51 of Act No. 1459 which states –

"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."

Therefore, the right of inspection given to a stockholder in Sec 51 can be

exercised either by himself or by any proper representative or attorney in fact,
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 there is nothing in the statute that would justify the qualification of the
right as suggested by the respondent.
WEEK 10 - CORPORATE GOVERNANCE; INFORMATION RIGHTS

(2) PARDO v. HERCULES LUMBER CO. AND FERRER [41 Phil. 965, 1945] RATIO:

TOPIC: Right of Inspection; Unreasonable Restriction The general right given by the statute may not be lawfully abridged to the
PONENTE: Street, J. extent attempted in this resolution. It may be admitted that the officials in
charge of a corporation may deny inspection when sought at unusual hours
FACTS: or under other improper conditions; but neither the executive officers nor the
board of directors have the power to deprive a stockholder of the right
 Antonio Pardo is a stockholder in the Hercules Lumber Company, Inc. altogether.

 Ignacio Ferrer, the acting secretary of the company, refused to permit A by-law unduly restricting the right of inspection is undoubtedly invalid.
Pardo or his agent to inspect the records and business transactions of
Hercules, at times desired by Pardo. CASE LAW/ DOCTRINE:

 Under Article 10 of the By-laws of the corporation, it is declared that Under the law, the right of inspection can be exercised "at reasonable hours."
"Every shareholder may examine the books of the company and This means that the right of inspection may be exercised at reasonable hours
other documents pertaining to the same upon the days which the on business days throughout the year, and not merely during an arbitrary
board of directors shall annually fix." period of a few days chosen by the directors.

 On February 16, 1924, the board of directors passed a resolution
stating: "The board also resolved to call the usual general (meeting of
shareholders) for March 30 of the present year, with notice to the
shareholders that the books of the company are at their disposition
from the 15th to 25th of the same month for examination, in
appropriate hours."
NOTES: Petition for Mandamus to compel the respondents to permit Pardo
and his duly authorized agent/representative to examine the records and
business transactions of the company.
 Pardo – petitioner
 Hercules Lumber Co. and Ferrer – respondents

Petitioner’s contention: He has a right of inspection as a stockholder.

Respondents’ contentions: The resolution of the board constitutes a lawful

restriction on the right conferred by statute; and as the petitioner has not
availed himself of the permission to inspect the books and transactions of the
company within the ten days defined, his right to inspection and examination
is lost, at least for this year.

ISSUE:
Is the resolution of the board of directors limiting the right of inspection of
shareholders valid?

HELD: No. A resolution of the board of directors of a corporation limiting the

right of stockholders to inspect its records to a period of ten days shortly prior
to the annual stockholders' meeting is an unreasonable restriction on the right
of inspection given by section 51 of the Corporation Law.
WEEK 10 - CORPORATE GOVERNANCE; INFORMATION RIGHTS
(3) Gonzales vs PNB [G.R. No. L-33320 May 30, 1983]
TOPIC: The Right of Inspection
PONENTE: Vasquez, J.
FACTS:
 Prior to this action, Gonzales as a taxpayer instituted several cases in the
CFI questioning different transactions entered into by PNB with other
parties.
 In one of these cases, Gonzales’ personality to sue the bank and question
the letters of credit it extended was raised.
 In light of this, Gonzales acquired one share of PNB stock from
Congressman Montano.
 Gonzales then wrote a letter to the President of PNB requesting that he be
allowed to look into the books and records of the bank to look into the
validity of the following transactions:
1. PNB’s guarantee of the obligation of Southern Negros
Development Corporation in the purchase of a US$23 million
sugar-mill to be financed by Japanese suppliers and financiers;
2. Its financing of the construction of the Cebu-Mactan Bridge to be
constructed by V.C. Ponce, Inc, and the construction of Passi
Sugar Mill at Iloilo by the Honiron Philippines, Inc.
 The request was denied on the ground that it was not germane to his
interest as a one-share stockholder. His intention in acquiring the single
share of stock was also questioned.
in making his demand.” Gonzales has not proven that he was in good faith
and that his purpose was germane to his interest as a stockholder. In fact his
purpose was to arm himself with information he could use against the bank.
Furthermore, PNB’s charter (RA 1300) provides:
1. The National Bank shall be subject to inspection by the Department
of Supervision and Examination of the Central Bank (Sec. 15)
2. officers designated by law to inspect or investigate the condition of
the National Bank, shall not reveal to any person other than the
President of the Philippines, the Secretary of Finance, and the Board
of Directors the details of the inspection or investigation, nor shall
they give any information relative to the funds in its custody, its
current accounts or deposits belonging to private individuals,
corporations, or any other entity, except by order of a Court of
competent jurisdiction (Sec. 16)
3. Those who violate the provisions of this Act shall be subjected to pay
a fine or imprisonment, or both. (Sec. 30)
PNB, having its own charter, is primarily not governed by the Corporation
Code, except in a supplementary capacity. The right of a stockholder to
demand an examination of the books of the corporation under the
Corporation Code may not be reconciled with the above provisions of PNB’s
charter. And when there is a conflict between the Charter and the Corporation
Code, the Charter prevails.
NOTES:
In case sir asks, the letters of credit that PNB extended was for the purpose of
the importation of public works equipment intended for the massive
development program of the President.

Gonzales instituted this action for mandamus to compel PNB to allow him to
inspect the bank’s records with regard to the above transactions. He argued
that Sec. 51 of the Corporation Law gave him an unqualified right as a
stockholder to inspect the books of the bank at reasonable hours.

ISSUE(S):
Does Gonzales have an unqualified right as a stockholder to inspect the books
of the bank at reasonable hours?
HELD/RATIO:
No. Gonzales may no longer insist on his interpretation of Section 51 of the
Corporation Law (Act No. 1459) because it has been replaced by the
Corporation Code (BP 68). Under Section 74 of the Corporation Code, The right
of inspection granted to a stockholder has been modified. It is now expressly
required that the one requesting it must not have been guilty of improperly
using any information through a prior examination, and that the person asking
for the examination must be “acting in good faith and for a legitimate purpose
WEEK 10 - CORPORATE GOVERNANCE; INFORMATION RIGHTS
(4) Veraguth vs. Isabela Sugar Co. G.R. No. L-37064 October 4, 1932
TOPIC: Remedies available if inspection refused
PONENTE: Malcolm, J.
FACTS:
 The directors of Isabela Sugar Co. conducted a special meeting, at
which the compensation of the attorneys of the company was fixed.
 However, Veraguth was not around during the special meeting due
to the secretary’s failure to notify him of the said special meeting.
 Hence, petitioner prays that (1) respondents be required to show
cause why they refuse to notify him of the regular and special
meetings of the board of directors, AND to place at his disposal at
reasonable hours, minutes and documents, and books of the
corporation, for his inspection as director and stockholder, and to
issue certified copies of documents in connection to the said meeting;
(2) w writ of mandamus be issued against respondents to notify him of
all regular and special meetings of the board of directors and issue
certified copies of documents, minutes and books of the corporation
or any documentation in connection with such meetings.
 Respondent answered but it was “too long to be here summarized”
ISSUE(S):
1. W/n there was malicious attempt to keep Director Veraguth from attending
special meeting?
2. W/n a director has an unqualified right to inspect books and records of the
company?
3. W/n the secretary erred when it refuse to hand over certified copies of the
minutes to petitioner?
HELD:
1. No
2. Yes
3. No
RATIO:
1. The meeting in question is in the past and, therefore, now merely presents
an academic question; that 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 should he wish to
receive notifications of the meeting sin the future, it is incumbent upon him to
give a formal notice to the secretary of his post-office.
2. Directors of a corporation have the unqualified right to inspect the books
and records of the corporation at all reasonable times. The act of the directors
in approving a resolution providing for inspection of the book and the taking
of the copies “by authority of the president of the Corporation previous
obtained in each case” is void. Pretexts may not be put forward by officers 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
officers of the corporation whose records are sought to be inspected.
However, a director cannot take copies of books and papers as an incident
to the right of inspection, without a court order, outside of the corporation’s
premises.
3. Director or stockholder has no absolute right to secure certified copies of
the minutes of the corporation until these have been written up and approved
by the directors present during the meeting.
NOTES: short case
Veraguth – stockholder and director
Gil Montilla – acting president
Agustin Montilla – secretary
WEEK 10 - CORPORATE GOVERNANCE; INFORMATION RIGHTS
(5) Gokongwei v. SEC
[G.R. No. DATE] G.R. No. L-45911 April 11, 1979
TOPIC: Inspection
PONENTE: ANTONIO, J.
FACTS:
This is a petition for “declaration of nullity of amended by-laws, cancellation of certificate of
filing of amended by-laws and damages” filed by petitioner John Gokongwei against the
majority of the members of the Board of Directors. He has the ff causes of action:
1. that the Board in amending the by-laws, had no authority to do so because it was
based on the a 1961 authorization and the amendment being contested was in
1976, and the authorization should have been based on votes made according to
the 1976 shares, not the 1961 shares,
2. the authority granted in 1961 had already been exercised in 1962 and 1963, after
which the authority of the Board ceased to exist,
3. membership of the Board changed since 1961, there are 6 new directors,
4. that prior to the amendment of the by-laws1, he had all the qualifications to be a
director (he was a substantial stockholder) and the aamended by-laws disqualified
him and deprived him of a vested right to be voted,
5. that the corporation has no inherent power to disqualify a stockholder from being
elected and therefore it is an ultra vires and void act.
It was prayed that the amended by-laws be declared null and void and the certificate of
filing be cancelled, and that individual respondents be made to pay damages, in specified
amounts, to petitioner.
On October 28, 1976, in connection with the same case, petitioner filed with the Securities
and Exchange Commission an "Urgent Motion for Production and Inspection of Documents",
alleging that the Secretary of respondent corporation refused to allow him to inspect its
records despite request made by petitioner for production of certain documents enumerated
in the request, and that respondent corporation had been attempting to suppress information
from its stockholders despite a negative reply by the SEC to its query regarding their authority
to do so. Among the documents requested to be copied were:
 minutes of the stockholder's meeting field on March 13, 1961,
 copy of the management contract between San Miguel Corporation and A.
Soriano Corporation (ANSCOR);
 latest balance sheet of San Miguel International, Inc.;
 authority of the stockholders to invest the funds of respondent corporation in San
Miguel International, Inc.; and
 Lists of salaries, allowances, bonuses, and other compensation, if any, received by
Andres M. Soriano, Jr. and/or its successor-in-interest.
The Securities and Exchange Commission resolved the motion for production and inspection
of documents:
…As to the Balance Sheet of San Miguel International, Inc. as well as the list of salaries,
allowances, bonuses, compensation and/or remuneration received by respondent Jose M.
Soriano, Jr. and Andres Soriano from San Miguel International, Inc. and/or its successors-in-
interest, the Petition to produce and inspect the same is DENIED, as petitioner-movant is not a
stockholder of San Miguel International, Inc. and has, therefore, no inherent right to inspect
said documents.
ISSUE(S): W/N respondent SEC gravely abused its discretion in denying petitioner's request for
an examination of the records of San Miguel International Inc., a fully owned subsidiary of San
Miguel Corporation
HELD: Yes
RATIO:
Pursuant to the second paragraph of section 51 of the Corporation Law, "(t)he record of all
business transactions of the corporation and minutes of any meeting shall be open to the
inspection of any director, member or stockholder of the corporation at reasonable hours."
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 ownership. This right is predicated upon the
necessity of self-protection. It is generally held by majority of the courts that where the right 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. 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.
While the right of a stockholder to examine the books and records of a corporation for a
lawful purpose is a matter of law, the right of such stockholder to examine the books and
records of a wholly-owned subsidiary of the corporation in which he is a stockholder is a
different thing.
Some state courts recognize the right under certain conditions, while others do not. It has
been held that where a corporation owns approximately no property except the shares of
stock of subsidiary corporations which are merely agents or instrumentalities of the holding
company, the legal fiction of distinct corporate entities may be disregarded and the books,
papers and documents of all the corporations may be required to be produced for
examination, and that a writ of mandamus, may be granted, as the records of the subsidiary
were, to all intents and purposes, the records of the parent even though subsidiary was not
named as a party. mandamus was likewise held proper to inspect both the subsidiary's and
the parent corporation's books upon proof of sufficient control or dominion by the parent
showing the relation of principal or agent or something similar thereto.
On the other hand, mandamus at the suit of a stockholder was refused where the subsidiary
corporation is a separate and distinct corporation domiciled and with its books and records in
another jurisdiction, and is not legally subject to the control of the parent company, although
it owned a vast majority of the stock of the subsidiary. Likewise, inspection of the books of an
allied corporation by stockholder of the parent company which owns all the stock of the
subsidiary has been refused on the ground that the stockholder was not within the class of
"persons having an interest."
In the case at bar, considering that the foreign subsidiary is wholly owned by respondent San
Miguel Corporation and, therefore, under its control, it would be more in accord with equity,
good faith and fair dealing to construe the statutory right of petitioner as stockholder to
inspect the books and records of the corporation as extending to books and records of such
wholly subsidiary which are in respondent corporation's possession and control.
WEEK 10 - CORPORATE GOVERNANCE; INFORMATION RIGHTS
(6) YUJUICO vs. QUIAMBAO
G.R. No. 168639, January 29, 2007
FACTS:
On July 27, 1998, the Securities and Exchange Commission (SEC) approved
the amendment of Strategic Alliance Development Corporation’s (STRADEC)
Articles of Incorporation authorizing the change of its principal office
from Pasig City Pangasinan.
On March 1, 2004, STRADEC held its annual stockholders meeting in Pasig City
its office as indicated in the notices sent to the stockholders. Herein petitioners
and respondents were elected members of the Board of Directors.
Five months thereafter, respondents filed with the RTC in Pangasinan a
complaint against STRADEC. The complaint seeks for the nullification of the
election on the ground of improper venue, pursuant to Section 51 of the
Corporation Code, next is the nullification of all subsequent transactions
conducted by the elected directors and lastly that a special stockholder’s
meeting be held once again. The RTC under pairing Judge Emuslan issued an
Order for granting respondents application for preliminary injunction ordering
(1) the holding of a special stockholders meeting of STRADEC on December
10, 2004 in the principal office of the corporation in Bayambang, Pangasinan;
and (2) the turn-over by petitioner Bonifacio Sumbilla to the court of the
duplicate key of the safety deposit box in Export Industry Bank, Shaw
Boulevard, Pasig City where the original Stock and Transfer Book of STRADEC
was deposited. The plaintiff filed with the Court of Appeals (CA) a Petition for
Certiorari.
CA dismissed such petition and upheld the jurisdiction of the RTC.
ISSUE: Whether the RTC has the power to call a special stockholder’s meeting
involving an intra-corporate controversy?
HELD: YES
RULING: Upon the enactment of R.A. No. 8799, otherwise known as The
Securities Regulation Code which took effect on August 8, 2000, the
jurisdiction of the SEC over intra-corporate controversies and other cases
enumerated in Section 5 of P.D. No. 902-A has been transferred to the courts
of general jurisdiction, or the appropriate RTC. Section 5.2 of R.A. No. 8799
provides: 5.2. The Commissions jurisdiction over all cases enumerated in
Section 5 of Presidential Decree No. 902-A is hereby transferred to the Courts
of general jurisdiction or the appropriate Regional Trial Court, Provided, That
the Supreme Court in the exercise of its authority may designate the Regional
Trial Court branches that shall exercise jurisdiction over these cases. The
Commission shall retain jurisdiction over pending cases involving intra-
corporate disputes submitted for final resolution which should be resolved
within one (1) year from the enactment of this Code. The Commission shall
retain jurisdiction over pending suspension of payments/rehabilitation cases
filed as of 30 June 2000 until finally disposed.
The RTC has the power to hear and decide the intra-corporate
controversy of the parties herein. Concomitant to said power is the authority
to issue orders necessary or incidental to the carrying out of the powers
expressly granted to it. Thus, the RTC may, in appropriate cases, order the
holding of a special meeting of stockholders or members of a corporation
involving an intra-corporate dispute under its supervision.