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CORPORATION LAW CASE MATRIX 9

Section 74

TITLE FACTS ISSUE/S HELD DOCTRINEPhilpotts v.PMC

- W. G. Philpotts, a stockholder in thePhilippine Manufacturing Company,seeks to obtain a writ ofmandamus tocompel the Phil Manufacturing topermit the Philpotts , in person or bysome authorized agent or attorney, toinspect and examine the records ofthe business transacted by saidcompany since January 1, 1918.

- In the argument in support of thedemurrer it is conceded by counsel forthe respondents that there is a rightof examination in the stockholdergranted under section 51 of theCorporation Law, but it is insisted thatthis right must be exercised in person.

- Whether the rightwhich the lawconcedes to astockholder toinspect the recordscan be exercised bya proper agent orattorney of thestockholder as wellas by thestockholder inperson.

- There is no pretense that therespondent corporation or any of itsofficials has refused to allow thepetitioner himself to examineanything relating to the affairs of thecompany, and prays for ordercommanding the respondents to placethe records of all businesstransactions of the company, during aspecified period, at the disposal of theplaintiff or his duly authorized agentor attorney, it being evident that thepetitioner desires to exercise saidright through an agent or attorney.

- It is advisable to say that there aresome things which a corporation mayundoubtedly keep secret,notwithstanding the right ofinspection given by law to thestockholder; as for instance, where acorporation, engaged in the businessof manufacture, has acquired aformula or process, not generallyknown, which has proved of utility toit in the manufacture of its products.

- It is not our intention to declare thatthe authorities of the corporation, andmore particularly the Board ofDirectors, might not adopt measuresfor the protection of such processform publicity.

- But there nothing in the petition which

would indicate that the petitioner inthis case is seeking to discoveranything which the corporation isentitled to keep secret; and ifanything of the sort is involved in thecase it may be brought out at a more

- The pertinent provision ofour law is found in thesecond paragraph ofsection 51 of Act No. 1459,which reads as follows:"The record of all businesstransactions of thecorporation and theminutes of any meetingshall be open to theinspection of any director,member or stockholder ofthe corporation atreasonable hours."

- The right of inspectiongiven to a stockholder inthe provision above quotedcan be exercised either byhimself or by any properrepresentative or attorneyin fact, and either with orwithout the attendance ofthe stockholder. This is inconformity with the generalrule that what a man maydo in person he may dothrough another; and wefind nothing in the statutethat would justify us inqualifying the right in themanner suggested by therespondents.

-The right of inspection tostockholders ofcorporations are to beliberally construed and thatsaid right may be exercisedthrough any other properly


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advanced stage of the proceedings. authorized person.

Pardo v.HerculesLumber

- Pardo is a stockholder of HerculesLumber and Ferrer is the actingsecretary of the said company. Thelatter refused to permit the former toinspect the records and businesstransactions of the company.

- There was no question regarding theright to inspect as it is guaranteed in

the Corp. Law.- The main consideration in this case

has reference to the time, or times,within which the right of inspectionmay be exercised.

- The company, through variousresolutions, had designated certaintimes to which the stockholders caninspect the books. Allegedly, Pardodidnt get permission to inspect thuswas denied such.

- Hence this petition.

- WON, the companycan validly restrictthe frequency towhich shareholderscan inspect itsbooks.

- No. Such restriction made by thecompany is invalid.

- Inspection at unusual hours or underimproper conditions may be denied,otherwise it cannot be denied.

- Neither the executive officers norboard of directors have the power todeny a stockholder of the right all

together.- It will be noted that such right can be

exercised at reasonable hours,meaning reasonable hours onbusiness days through out the year;not merely during some arbitraryperiod chosen by the officers.

- Also, generally speaking, the motiveof the shareholder exercising the rightis immaterial.

- Therefore, Pardo is granted the reliefto inspect.

- Right to inspect - open toany director, trustee orstockholder or member ofthe corporation atreasonable hours onbusiness days. He maydemand in writing a copyof excerpts at his expense.

Veraguth v.Isabela Sugar

Co.

- Veraguth, a director and stockholderof the Isabela Sugar Company, Inc.,

filed a petition with the lower courtpraying that : a final and absolute writof mandamus be issued to each andall of the respondent directors tonotify him within the reglementaryperiod, of all regular and specialmeetings of the board of directors ofthe Company, and to place at hisdisposal at reasonable hours theminutes, documents, and books ofsaid corporation for his inspection asdirector and stockholder

- It appears that Veraguth has not beeninformed of previous meetings.

-

He likewise contends that when askedthat he be permitted to inspect thebooks of the Cop, he was deniedaccess on the ground that the boardof directors adopted a resolutionproviding for inspection of the books

- Is Veraguth entitledto 1) receive

notification beforemeetings are held 2)inspect the books ofthe corporation

- YES.- As to the first issue, the SC held: no

damage was caused to Veraguth bythe action taken at the specialmeeting which he did not attend,since his interests were fully protectedby the Philippine National Bank; andthat as to meetings in the future it isto be presumed that the secretary ofthe company will fulfill therequirements of the resolutions of thecompany pertaining to regular andspecial meetings. It will, of course, beincumbent upon Veraguth to giveformal notice to the secretary of hispost-office address if he desires notice

sent to a particular residence.- Directors of a corporation have the

unqualified right to inspect the booksand records of the corporation at allreasonable times. Pretexts may not beput forward by officers of corporations

- "All business corporationsshall keep and carefully

preserve a record of allbusiness transactions, anda minute of all meetings ofdirectors, members, orstockholders, in which shallbe set forth in detain thetime and place of holdingthe meeting, howauthorized, the noticegiven, whether the meetingwas regular or special, ifspecial its object, thosepresent and absent, andevery act done or ordered

done at the meeting. . . .- "The record of all business

transactions of thecorporation and theminutes of any meetingshall be open to the


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and the taking of copies only "byauthority of the President of thecorporation previously obtained ineach case."

to keep a director or shareholder frominspecting the books and minutes ofthe corporation, and the right ofinspection is not to be denied on theground that the director orshareholder is on unfriendly termswith the officers of the corporationwhose records are sought to beinspected. A director or stockholder

can of course make copies, abstracts,and memoranda of documents, books,and papers as an incident to the rightof inspection, but cannot, without anorder of a court, be permitted to takebooks from the office of thecorporation. We do not conceive,however, that a director orstockholder has any absolute right tosecure certified copies of the minutesof the corporation until these minuteshave been written up and approvedby the directors.

inspection of any director,member, or stockholder ofthe corporation atreasonable hours."

Gonzalez v.PNB

- Ramon A. Gonzalez bought a share ofstock from the PNB, and as astockholder, Gonzalez sought to lookover the books and records of PNB.

- It was admitted that Gonzalezspurpose in doing so was to verify thetruth on certain transactions whichthe bank entered into as well as toinquire into the validity of saidtransactions. These include theundertaking of the bank to financeSouthern Negros Devt Bank in thelatters purchase of a sugar mill,

thefinsncing of the Cebu-MactanBridge and he construction of PassiSugar Mill at Ilo-ilo

- In fact, Gonzalez previously institutedseveral cases against the bankquestioning the propriety of these

- Whether or not theofficers of PNB canbe compelled toallow Gonzalez toinspect the recordsof the former

- The SC held in the negative,- First and foremost, the new

Corporation Code amended theprovision of the Corporation lawpertaining to the rights of directorsand stockholders to inspect corporatebooks . The Corporatio Code hasprescribed a limitationto the same byrequiring as a condition precedentthat the one requesting theinformation must not have usedimproperly any information securedthrough pior examination.

Furthermore, the Code also requiredthat the request must be in good faithand and for a legitimate purpose.Thus, Gonzalez contention that he hasan unqualified right to inspection nolonger stands.

- The right of a stockholderto inspect the record of abusiness transactions of acorporation is not absolutebut is limited to purposesreasonably related to theinterest of the stockholder,must be asked fro ingoodfaith for a specific andhonest purpose and not togratify curiosity or forspeculative or viciouspurposes.

-

(See Sec 74)


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transactions. It was also found thatGonzalez procured a share from thebank precisely to pry into its recordsand use the information against thelatter.

- Thus, Gonzalez was subsequentlydenied by the officers of the bank inits attempt to be furnished once gainof its records. The bank contended

that his request was not germane tohis interest as one-stock shareholder.- Thus, Gonzalez instituted an action for

mandamus against PNB.

- Second, the Court found Gonzalez tobe in bad faith and that his purposewas not germane to the to his interestas a stockholder. The fact thatGonzalez procured a share of stockpurposely to exercise the right ofinspection belies his claim of goodfaith.

- Finally, the inspection would run

counter to the express mandate ofPNBs charter. Its charter limits theinspection of the banks records tocertain qualified officials.

- Having its own charter, PNB is notgoverned by the Corp Code and theright of inspection could not be madeto apply given the express restrictionin its charter.

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