CORPORATION LAW CASE
SERGE CENIA
** CORPORATE BOOKS AND RIGHT TO INSPECT **
CASE 46
Ma. Belen Flordeliza Ang-Abaya, et al. vs. Eduardo G. Ang
G.R. No. 178511. Dec. 4, 2005
FACTS: Vibelle Manufacturing Corporation (VMC) and Genato
Investments, Inc. (Genato) (collectively referred to as the
corporations) are family-owned corporations, where petitioners Ma.
Belen Flordeliza C. Ang-Abaya (Flordeliza), Francis Jason A. Ang
(Jason), Vincent G. Genato (Vincent), Hanna Zorayda A. Ang (Hanna)
and private respondent Eduardo G. Ang (Eduardo) are shareholders,
officers and members of the board of directors.
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; that
he attempted to forcibly evict petitioner Jason from his office and
claim it as his own; that he interfered with and disrupted the daily
business operations of the corporations; and that Michael was
placed on preventive suspension due to commission of acts of
disloyalty such as carrying out orders of Eduardo which were
detrimental to their business.
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.
COMMERCIAL LAW REVIEW ATTY.
Because of petitioners refusal, Eduardo filed an Affidavit-Complaint
charging them with violation (two counts) of Section 74, in relation
to Section 144, of the Corporation Code of the Philippines.
ISSUE: WHETHER OR NOT THE HONORABLE JUSTICE SECRETARY
COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK
OR EXCESS OF JURISDICTION IN FINDING THAT PETITIONERS ACTED
IN GOOD FAITH WHEN THEY DENIED PRIVATE RESPONDENTS
DEMAND FOR INSPECTION OF CORPORATE BOOKS.
RULING: The determination of the existence of probable cause lies
within the discretion of the prosecuting officers. Their decisions are
reviewable by the Secretary of Justice who may direct the filing of
the corresponding information or to move for the dismissal of the
case.
In reversing the Resolutions of the Secretary of Justice, the Court of
Appeals held that it was beyond the Secretary of Justices authority
to determine the motives of Eduardo in seeking an inspection of the
corporations books.
In Gokongwei, Jr. v. Securities and Exchange Commission, this Court
explained the rationale behind a stockholder's right to inspect
corporate books, to wit:
xxx 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.
In Republic v. Sandiganbayan, the Court declared that the right to
inspect and/or examine the records of a corporation under Section
74 of the Corporation Code is circumscribed by the express
limitation contained in the succeeding proviso, which states that:
[I]t shall be a defense to any action under this section that the
person demanding to examine and copy excerpts from the
CORPORATION LAW CASE
** CORPORATE BOOKS AND RIGHT TO INSPECT **
corporation's 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.
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.
In order therefore 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,
COMMERCIAL LAW REVIEW ATTY. SERGE CENIA
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.
Petitioners argue that Eduardos demand for an inspection of the
corporations books is based on the latters attempt in bad faith at
having his more than P165 million advances from the corporations
written off and Eduardos attempts at coercing the corporations,
their directors and officers into giving in to his baseless demands
involving specific corporate assets.
These serious allegations are supported by official and other
documents. 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.
CORPORATION LAW CASE
** CORPORATE BOOKS AND RIGHT TO INSPECT **
CASE 47
YUJUICO and SUMBILLA vs. QUIAMBAO and PILAPIL
FACTS: During the annual stockholder's meeting of Strategic Alliance
Development Corporation (STRADEC), petitioner Aderito Z. Yujuico
was elected as president and chairman. Yujuico replaced respondent
Cezar T. Quiambao, who had been the president and chairman of
STRADEC since 1994.
With Yujuico at the helm, STRADEC appointed petitioner Bonifacio C.
Sumbilla as treasurer and one Joselito John G. Blando (Blando) as
corporate secretary. Blando replaced respondent Eric C. Pilapil
(Pilapil), the previous corporate secretary of STRADEC.
Petitioners filed a criminal complaint against respondents The
complaint accuses respondents of violating Section 74 in relation to
Section 144 of the Corporation Code. Petitioners theorize that the
refusal by the respondents to turnover STRADEC's corporate records
and stock and transfer book violates their right, as stockholders,
directors and officers of the corporation, to inspect such records and
book under Section 7 4 of the Corporation Code. For such violation,
petitioners conclude, respondents may be held criminally liable
pursuant to Section 144 of the Corporation Code.
ISSUE: Whether or not a criminal action based on the violation of a
stockholder's right to examine or inspect the corporate records and
the stock and transfer book of a corporation under the second and
fourth paragraphs of Section 74 of the Corporation Code can only be
maintained against corporate officers or any other persons acting on
behalf of such corporation
COMMERCIAL LAW REVIEW ATTY. SERGE CENIA
HELD: YES. A perusal of the second and fourth paragraphs of Section
74, as well as the first paragraph of the same section, reveal that
they are provisions that obligates a corporation: they prescribe what
books or records a corporation is required to keep; where the
corporation shall keep them;and what are the other obligations of
the corporation to its stockholders or members in relation to such
books and records. Hence, by parity of reasoning, the second and
fourth paragraphs of Section 74, including the first paragraph of the
same section, can only be violated by a corporation.
It is clear then that a criminal action based on the violation of the
second or fourth paragraphs of Section 74 can only be maintained
against corporate officers or such other persons that are acting on
behalf of the corporation. Violations of the second and fourth
paragraphs of Section 74 contemplates a situation wherein a
corporation, acting thru one of its officers or agents, denies the right
of any of its stockholders to inspect the records, minutes and the
stock and transfer book of such corporation.
The problem with the petitioners' complaint and the evidence that
they submitted during preliminary investigation is that they do not
establish that respondents were acting on behalf of STRADEC. Quite
the contrary, the scenario painted by the complaint is that the
respondents are merely outgoing officers of STRADEC who, for some
reason, withheld and refused to turn-over the company records of
STRADEC; that it is the petitioners who are actually acting on behalf
of STRADEC; and that STRADEC is actually merely trying to recover
custody of the withheld records.
In other words, petitioners are not actually invoking their right to
inspect the records and the stock and transfer book of STRADEC
under the second and fourth paragraphs of Section 74. What they
seek to enforce is the proprietary right of STRADEC to be in
possession of such records and book. Such right, though certainly
CORPORATION LAW CASE
** CORPORATE BOOKS AND RIGHT TO INSPECT **
legally enforceable by other means, cannot be enforced by a
criminal prosecution based on a violation of the second and fourth
paragraphs of Section 74. That is simply not the situation
contemplated by the second and fourth paragraphs of Section 74 of
the Corporation Code.
COMMERCIAL LAW REVIEW ATTY. SERGE CENIA
CASE 48
BANK OF COMMERCE VS RADIO PHILIPPINES NETWORK INC
FACTS: Traders Royale Bank (TRB) proposed to sell to Bank of
Commerce (BOC) its banking business for Php 10.4 billion, consisting
of specific assets and liabilities.
Bank of Commerce agreed subject to prior BSP approval purchase
and assumption (P&A) agreement. BSP approved the agreement
subject to the condition the Bank of Commerce and Traders Royale
Bank would set up an escrow fund of Php 50 million with another
bank to cover TRBs liabilities for contingent claims which is excluded
from purchase price.
The paries have agreed to set up the said escrow fund of Php 50
million in cash to be invested in government securities to answer
claim that shall be judicially established. BOC and TRB placed said
amount to Metrobank and BSP approved such agreement.
Thereafter, court ordered TRB to pay RADIO PHILIPPINES NETWORK
(RPN) ET. AL. actual damages amounting to Php 9,790,716.00 plus
12 % legal interest. RPN filed a motion for execution against TRB
before the RTC of Q.C. Rather than pursue from the escrow fund
with Metrobank they filed against TRB as now BOC based on the
assumption that TRB merged with BOC.
BOC questioned the jurisdiction of the RTC over them and denied
that there was merger between BOC and TRB. However, Rtc still
granted and issued a writ of execution to cover any assets of TRB
including those subject to the merger and/or against the escrow
fund of TRB and BOC with Metrobank.
BOC filed a petition for certiorari with the Court of Appels but
denied such petition and pointed out that RTCs decision was clear,
CORPORATION LAW CASE
** CORPORATE BOOKS AND RIGHT TO INSPECT **
BOC was not being made to answer the liabilities of TRB but rather
the assets of TRB under the possession and custody of BOC.
ISSUE:Wheteher or not Court of Appeals erred in affirming RTCs
order of execution against Bank of Commerce because Bank of
Commerce and Traders Royale Bank were merged and consolidated.
HELD: The Corporation Code requires the following steps for merger
and consolidation:
1. Board of each corporation will plan for the merger and
consolidation and such plan must include amendments
of AOI, in necessary, or all the statements required in
the AOI of a corporation,
2. Submission of the plan to stockholders for approval in a
meeting, with 2 week- notice and 2/3 vote of the
stockholders representing outstanding capital stock will
be obtained,
3. Execution of the article of merger or consolidationby
the corporate officers of each,
4. Submission of the article of merger or consolidationto
SEC for approval,
5. SEC will set a hearing,
6. SEC will issue a certificate of merger or consolidation.
It is clear that no merger or consolidation that took place between
BOC and TRB as the requirements for such merger ware absent. All
requirements must be complied with in order that merger or
consolidation to take effect. BOC and TRB remained separate
corporations with distinct personalities. What happened is that TRB
sold and BOC purchased identified and recorded assets of TRB in
consideration of BOCs assumption to the latters identified recorded
liabilities. There is no law that prohibits that kind of transaction
especially whendone openly with government approval. Therefore,
COMMERCIAL LAW REVIEW ATTY. SERGE CENIA
1. The petion is granted. RTC and CAs decision is REVERSED and SET
ASIDE. 2. Writ of execution was ANNULLED and SET ASIDE. 3. TRO is
thereby made PERMANENT.
DISSENTING OPIONION by Justice Mendoza:
The idea of a de facto merger came about because, prior to
the present Corporation Code, no law authorized the merger or
consolidation of Philippine Corporations, except insurance
companies, railway corporations, and public utilities. And, except in
the case of insurance corporations, no procedure existed for
bringing about a merger. Still, the Supreme Court held in Reyes v.
Blouse, that authority to merge or consolidate can be derived from
Section 28 (now Section 40) of the former Corporation Law which
provides, among others, that a corporation may "sell, exchange,
lease or otherwise dispose of all or substantially all of its property
and assets" if the board of directors is so authorized by the
affirmative vote of the stockholders holding at least two-thirds of
the voting power. The words "or otherwise dispose of," according to
the Supreme Court, is very broad and in a sense, covers a merger or
consolidation.
It is apparent that the purpose of the resolution is not to
dissolve the company but merely to transfer its assets to a new
corporation in exchange for its corporation stock. This intent is
clearly deducible from the provision that the company will not be
dissolved but will continue existing until its stockholders decide to
dissolve the same. This comes squarely within the purview of
Section 28 of the corporation law which provides, among others,
that a corporation may sell, exchange, lease, or otherwise dispose of
all its property and assets, including its good will, upon such terms
and conditions as its Board of Directors may deem expedient when
authorized by the affirmative vote of the shareholders holding at
least 2/3 of the voting power. The phrase "or otherwise dispose of"
is very broad and in a sense covers a merger or consolidation."