593 Phil. 530
Wherefore, premises considered, the assailed resolution is REVERSED and SET ASIDE. The City Prosecutor of Malabon City is hereby directed to cause the withdrawal of the corresponding information filed against respondents [herein petitioners] for violation of Section 74 of the Corporation Code of the Philippines and to report the action taken thereon within ten (10) days from the receipt hereof.The DOJ denied Eduardo's Motion for Reconsideration in a Resolution dated March 29, 2006. On appeal, the Court of Appeals rendered the assailed Decision, the dispositive portion of which states:
WHEREFORE, the instant petition is partially GRANTED. The assailed Resolutions of public respondent dated July 26, 2005 and March 29, 2006 are hereby NULLIFIED and SET ASIDE. However, due to the present existence of a prejudicial question, the criminal case docketed I.S. No. MAL-2004-1167 is hereby SUSPENDED until Civil Case No. 4257-MC is decided on the merits with finality. The appellate court ruled that the Secretary of Justice committed grave abuse of discretion amounting to lack or excess of jurisdiction in reversing the Resolutions of the Malabon City Prosecutor and in finding that Eduardo did not act in good faith when he demanded for the examination of VMC and Genato's corporate books. It further held that Eduardo can demand said examination as a stockholder of both corporations; that Eduardo raised legitimate questions that necessitated inspection of the corporate books and records; and that petitioners' refusal to allow inspection created probable cause to believe that they have committed a violation of Section 74 of the Corporation Code.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS WAS CORRECT IN ITS FINDING THAT THE HONORABLE JUSTICE SECRETARY'S REVERSAL OF THE MALABON CITY PROSECUTOR'S RESOLUTION FINDING PROBABLE CAUSE AGAINST HEREIN PETITIONERS WAS DONE CONTRARY TO THE APPLICABLE LAW AND JURISPRUDENCE TANTAMOUNT TO GRAVE ABUSE OF DISCRETION.We grant the petition.
WHETHER OR NOT THE HONORABLE JUSTICE SECRETARY COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN REVERSING THE RESOLUTION OF THE MALABON CITY PROSECUTOR FINDING PROBABLE CAUSE AGAINST PETITIONERS AFTER PRELIMINARY INVESTIGATION FOR VIOLATION OF SECTION 74 OF THE CORPORATION CODE OF THE PHILIPPINES.
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 RESPONDENT'S DEMAND FOR INSPECTION OF CORPORATE BOOKS.
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 quasi-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.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'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. (Emphasis supplied)Thus, contrary to Eduardo's insistence, the stockholder's right to inspect corporate books is not without limitations. While the right of inspection was enlarged under the Corporation Code as opposed to the old Corporation Law (Act No. 1459, as amended),
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. (Emphasis supplied)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 member's 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 corporation's records or minutes;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. In the past we have declared that if justifying circumstances are claimed as a defense, they should have at least been raised during preliminary investigation; which settles the view that the consideration and determination of justifying circumstances as a defense is a relevant subject of preliminary investigation.
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 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, the contrary must be shown or proved.
These serious allegations are supported by official and other documents, such as board resolutions, treasurer's 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 respondent's request for examination of the corporation books.
- He is a spendthrift, using the family corporations' resources to sustain his extravagant lifestyle. During his incumbency as officer of VMC and Genato (from 1984 to 2000), he was able to obtain massive amounts by way of cash advances from these corporations, amounting to more than P165 million;
- He is exercising undue pressure upon petitioners in order to acquire ownership, through the forced execution of a deed of donation, over the VAG Building in San Juan, which building belongs to Genato;
- He is putting pressure on the corporations, through their directors and officers, for the latter to disregard their respective policies which prohibit the grant of cash advances to stockholders.
- At one time, he coerced Flordeliza for the latter to sell her Wack-Wack Golf Proprietary Share;
- In May 2003, without the requisite authority, he called a "stockholders' meeting" to demand an increase in his P140,000.00 monthly allowance from the corporation to P250,000.00; demand a cash advance of US$10,000; and to demand that the corporations shoulder the medical and educational expenses of his family as well as those of the other stockholders;
- In November 2003, he demanded that he be given an office within the corporations' premises. In December 2003, he stormed the corporations' common office, ordered the employees to vacate the premises, summoned the directors to a meeting, and there he berated them for not acting on his requests. In January 2004, he returned to the office, demanding the transfer of the Accounting Department and for Jason to vacate his office by the end of the month. He likewise left a letter which contained his demands. At the end of January 2004, he returned, ordered the employees to leave the premises and demanded that Jason surrender his office and vacate his desk. He did this no less than four (4) times. As a result, the respective boards of directors of the corporations resolved to ban him from the corporate premises;
- He has been interfering in the everyday operations of VMC and Genato, usurping the duties, rights and authority of the directors and officers thereof. He attempted to lease out a warehouse within the VMC premises without the knowledge and consent of its directors and officers; during the wake of the former President of VMC and Genato, he issued instructions for the employees to close down operations for the whole duration of the wake, against the corporate officers' instructions to attend the wake by batch, so as not to hamper business operations; he has caused chaos and confusion in VMC and Genato as a result;
- He is out to sabotage the family corporations.
Sec. 74. Books to be kept; stock transfer agent. - Every corporation shall keep and carefully preserve at its principal office a record of all business transactions and minutes of all meetings of stockholders or members, or of the board of directors or trustees, in which shall be set forth in detail 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. Upon the demand of any director, trustee, stockholder or member, the time when any director, trustee, stockholder or member entered or left the meeting must be noted in the minutes; and on a similar demand, the yeas and nays must be taken on any motion or proposition, and a record thereof carefully made. The protest of any director, trustee, stockholder or member on any action or proposed action must be recorded in full on his demand. Rollo, pp. 67-74.
The records of all business transactions of the corporation and the minutes of any meetings shall be open to inspection by any director, trustee, stockholder or member of the corporation at reasonable hours on business days and he may demand, in writing, for a copy of excerpts from said records or minutes, at his expense.
Any officer or agent of the corporation who shall refuse to allow any director, trustees, stockholder or member of the corporation to examine and copy excerpts from its records or minutes, in accordance with the provisions of this Code, shall be liable to such director, trustee, stockholder or member for damages, and in addition, shall be guilty of an offense which shall be punishable under Section 144 of this Code: Provided, That 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 Provided, further, That it shall be a defense to any action under this section that the person demanding to examine and copy excerpts from the 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.
Stock corporations must also keep a book to be known as the "stock and transfer book", in which must be kept a record of all stocks in the names of the stockholders alphabetically arranged; the installments paid and unpaid on all stock for which subscription has been made, and the date of payment of any installment; a statement of every alienation, sale or transfer of stock made, the date thereof, and by and to whom made; and such other entries as the by-laws may prescribe. The stock and transfer book shall be kept in the principal office of the corporation or in the office of its stock transfer agent and shall be open for inspection by any director or stockholder of the corporation at reasonable hours on business days.
No stock transfer agent or one engaged principally in the business of registering transfers of stocks in behalf of a stock corporation shall be allowed to operate in the Philippines unless he secures a license from the Securities and Exchange Commission and pays a fee as may be fixed by the Commission, which shall be renewable annually: Provided, That a stock corporation is not precluded from performing or making transfer of its own stocks, in which case all the rules and regulations imposed on stock transfer agents, except the payment of a license fee herein provided, shall be applicable.
Sec. 144. Violations of the Code. - Violations of any of the provisions of this Code or its amendments not otherwise specifically penalized therein shall be punished by a fine of not less than one thousand (P1,000.00) pesos but not more than ten thousand (P10,000.00) pesos or by imprisonment for not less than thirty (30) days but not more than five (5) years, or both, in the discretion of the court. If the violation is committed by a corporation, the same may, after notice and hearing, be dissolved in appropriate proceedings before the Securities and Exchange Commission: Provided, That such dissolution shall not preclude the institution of appropriate action against the director, trustee or officer of the corporation responsible for said violation: Provided, further, That nothing in this section shall be construed to repeal the other causes for dissolution of a corporation provided in this Code.
WHEREFORE, premises considered, judgment is hereby rendered: CA-G.R. CV No. 84736, penned by Associate Justice Enrico A. Lanzanas and concurred in by Associate Justices Edgardo P. Cruz, and Jose C. Reyes, Jr.; Rollo, pp. 911-927.
Further, defendants are hereby ordered to pay plaintiffs the amount of P500,000.00 for and as attorney's fees and costs of the suit.
- Permanently enjoining defendants Eduardo Genato Ang and Michael Edward Chi Ang, and/or any of their agents, representatives, lawyers, assignees, heirs, or any other persons acting under their authority or instructions, from:
- Occupying, demanding, claiming or otherwise attempting to occupy any position or office in Plaintiff corporations, (except those concomitant to their rights as stockholders, as the case may be), without the consent of the boards of directors of plaintiff corporations;
- Entering the offices of plaintiff corporations located at 18 J.P. Bautista Ave., Malabon City, Metro Manila, or any of plaintiff corporations' satellite offices, business centers, distribution offices, warehouses, or any other property belonging to plaintiff corporations or otherwise used by them, without consent of the boards of directors of plaintiff corporations;
- Communicating with the officers and employees, clients, distributors, business associates of plaintiff corporations, as well as pertinent government agencies, for the purpose of sowing enmity between said persons and plaintiff corporations, or to otherwise disrupt the smooth operation and management of plaintiff corporations;
- Usurping or exercising rights, privileges or property belonging to plaintiff corporations, or representing plaintiff corporations or acting for and in behalf of plaintiff corporations in any transactions or dealing with clients, distributors and banks of plaintiff corporations, or government agencies, or any other persons with business with plaintiff corporations;
- Seizing, interfering with or otherwise disrupting the management, operations and/or business of plaintiff corporations, and other similar acts of harassment and extortion that would tend to cause damage to plaintiff corporations.