CORPORATION LAW CASE MATRIX 9

Section 74 TITLE
Philpotts v. PMC

FACTS
- W. G. Philpotts, a stockholder in the Philippine Manufacturing Company, seeks to obtain a writ of mandamus to compel the Phil Manufacturing to permit the Philpotts , in person or by some authorized agent or attorney, to inspect and examine the records of the business transacted by said company since January 1, 1918. - In the argument in support of the demurrer it is conceded by counsel for the respondents that there is a right of examination in the stockholder granted under section 51 of the Corporation Law, but it is insisted that this right must be exercised in person.

ISSUE/S
- Whether the right which the law concedes to a 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
- There is no pretense that the respondent corporation or any of its officials has refused to allow the petitioner himself to examine anything relating to the affairs of the company, and prays for order commanding the respondents to place the records of all business transactions of the company, during a specified period, at the disposal of the plaintiff or his duly authorized agent or attorney, it being evident that the petitioner desires to exercise said right through an agent or attorney. - It is advisable to say that there are some things which a corporation may undoubtedly keep secret, notwithstanding the right of inspection given by law to the stockholder; as for instance, where a corporation, engaged in the business of manufacture, has acquired a formula or process, not generally known, which has proved of utility to it in the manufacture of its products. - It is not our intention to declare that the authorities of the corporation, and more particularly the Board of Directors, might not adopt measures for the protection of such process form publicity. - But there nothing in the petition which would indicate that the petitioner in this case is seeking to discover anything which the corporation is entitled to keep secret; and if anything of the sort is involved in the case it may be brought out at a more

DOCTRINE
- The pertinent provision of our law is found in the second paragraph of section 51 of Act No. 1459, which reads as follows: "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." - The right of inspection given to a stockholder in the provision above quoted can be exercised either by himself or by any proper representative or attorney in fact, and either 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 we find nothing in the statute that would justify us in qualifying the right in the manner suggested by the respondents. - The right of inspection to stockholders of corporations are to be liberally construed and that said right may be exercised through any other properly
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Pardo v. Hercules Lumber

Veraguth v. Isabela Sugar Co.

- Pardo is a stockholder of Hercules Lumber and Ferrer is the acting secretary of the said company. The latter refused to permit the former to inspect the records and business transactions of the company. - There was no question regarding the right 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 inspection may be exercised. - The company, through various resolutions, had designated certain times to which the stockholders can inspect the books. Allegedly, Pardo didnt get permission to inspect thus was denied such. - Hence this petition. - Veraguth, a director and stockholder of the Isabela Sugar Company, Inc., filed a petition with the lower court praying that : a final and absolute writ of mandamus be issued to each and all of the respondent directors to notify him within the reglementary period, of all regular and special meetings of the board of directors of the Company, and to place at his disposal at reasonable hours the minutes, documents, and books of said corporation for his inspection as director and stockholder - It appears that Veraguth has not been informed of previous meetings. - He likewise contends that when asked that he be permitted to inspect the books of the Cop, he was denied access on the ground that the board of directors adopted a resolution providing for inspection of the books

- WON, the company can validly restrict the frequency to which shareholders can inspect its books.

- Is Veraguth entitled to 1) receive notification before meetings are held 2) inspect the books of the corporation

advanced stage of the proceedings. - No. Such restriction made by the company is invalid. - Inspection at unusual hours or under improper conditions may be denied, otherwise it cannot be denied. - Neither the executive officers nor board of directors have the power to deny a stockholder of the right all together. - It will be noted that such right can be exercised at reasonable hours, meaning reasonable hours on business days through out the year; not merely during some arbitrary period chosen by the officers. - Also, generally speaking, the motive of the shareholder exercising the right is immaterial. - Therefore, Pardo is granted the relief to inspect. - YES. - As to the first issue, the SC held: 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 that as to meetings in the future it is to be presumed that the secretary of the company will fulfill the requirements of the resolutions of the company pertaining to regular and special meetings. It will, of course, be incumbent upon Veraguth to give formal notice to the secretary of his post-office address if he desires notice sent to a particular residence. - Directors of a corporation have the unqualified right to inspect the books and records of the corporation at all reasonable times. Pretexts may not be put forward by officers of corporations

authorized person. - Right to inspect- open to any director, trustee or stockholder or member of the corporation at reasonable hours on business days. He may demand in writing a copy of excerpts at his expense.

- "All business corporations shall keep and carefully preserve a record of all business transactions, and a minute of all meetings of directors, members, or stockholders, in which shall be set forth in detain 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. . . . - "The record of all business transactions of the corporation and the minutes of any meeting shall be open to the
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and the taking of copies only "by authority of the President of the corporation previously obtained in each case."

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. A director or stockholder can of course make copies, abstracts, and memoranda of documents, books, and papers as an incident to the right of inspection, but cannot, without an order of a court, be permitted to take books from the office of the corporation. We do not conceive, however, that a director or stockholder has any absolute right to secure certified copies of the minutes of the corporation until these minutes have been written up and approved by the directors. - Whether or not the officers of PNB can be compelled to allow Gonzalez to inspect the records of the former - The SC held in the negative, - First and foremost, the new Corporation Code amended the provision of the Corporation law pertaining to the rights of directors and stockholders to inspect corporate books . The Corporatio Code has prescribed a limitationto the same by requiring as a condition precedent that the one requesting the information must not have used improperly any information secured through pior examination. Furthermore, the Code also required that the request must be in good faith and and for a legitimate purpose. Thus, Gonzalez contention that he has an unqualified right to inspection no longer stands.

inspection of any director, member, or stockholder of the corporation at reasonable hours."

Gonzalez v. PNB

- Ramon A. Gonzalez bought a share of stock from the PNB, and as a stockholder, Gonzalez sought to look over the books and records of PNB. - It was admitted that Gonzalezs purpose in doing so was to verify the truth on certain transactions which the bank entered into as well as to inquire into the validity of said transactions. These include the undertaking of the bank to finance Southern Negros Devt Bank in the latters purchase of a sugar mill, thefinsncing of the Cebu-Mactan Bridge and he construction of Passi Sugar Mill at Ilo-ilo - In fact, Gonzalez previously instituted several cases against the bank questioning the propriety of these

- The right of a stockholder to inspect the record of a business transactions of a corporation is not absolute but is limited to purposes reasonably related to the interest of the stockholder, must be asked fro in goodfaith for a specific and honest purpose and not to gratify curiosity or for speculative or vicious purposes. - (See Sec 74)

transactions. It was also found that Gonzalez procured a share from the bank precisely to pry into its records and use the information against the latter. - Thus, Gonzalez was subsequently denied by the officers of the bank in its attempt to be furnished once gain of its records. The bank contended that his request was not germane to his interest as one-stock shareholder. - Thus, Gonzalez instituted an action for mandamus against PNB.

- Second, the Court found Gonzalez to be in bad faith and that his purpose was not germane to the to his interest as a stockholder. The fact that Gonzalez procured a share of stock purposely to exercise the right of inspection belies his claim of good faith. - Finally, the inspection would run counter to the express mandate of PNBs charter. Its charter limits the inspection of the banks records to certain qualified officials. - Having its own charter, PNB is not governed by the Corp Code and the right of inspection could not be made to apply given the express restriction in its charter.