TITLE VIII - CORPORATE BOOKS AND RECORDS

Section 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.
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. (51a and 32a; P.B. No. 268.)
THE FOLLOWING SHALL BE KEPT AND MAINTAINED BY THE CORPORATION:
1. Records of all business transactions which include, among others,
(1) journals,
(2) ledger,
(3) contracts,
(4) vouchers and receipts,
(5) financial statements and other books of accounts,
(6) income tax returns, and
(7) voting trust agreements - which must be kept and carefully preserved at its principal
office;

2. Minutes of all meetings of stockholders or members and of the directors or trustees setting forth
in detail

(1) the date, time and place of meeting,

(2) how authorized,
(3) the notice given,
(4) whether the same be regular or special, and if special, the purpose thereof shall be
specified,
(5) those present and absent, and
(6) every act done or ordered done thereat - which must likewise be kept at the principal
office of the said corporation; and

3. Stock and Transfer Book showing the

(1) names of the stockholders,
(2) the amount paid or unpaid on all stocks for which the subscription has been made,
(3) a statement of every alienation, sale or transfer of stock made, if any
(4) the date thereof, and
(5) by whom and to whom - which must also be kept at the principal office of the
corporation or in the office of its stock transfer agent.

STOCK AND TRANSFER AGENT : is the person who records every movement of the shares by
the minute or by the hour.
NON - STOCK CORPORATIONS: can also have a stock and transfer agent for purposes of the
club share-membership.
INSPECTION & COPIES: These books are subject to inspection by any of the directors, trustees,
stockholders or members of the corporation at reasonable hours on business days and a copy of
excerpts of said records may be demanded. In fact, in so far as Financial Statements are
concerned, the Code provides:
Section 75. Right to financial statements. - Within ten (10) days from receipt of a written
request of any stockholder or member, the corporation shall furnish to him its most recent
financial statement, which shall include a balance sheet as of the end of the last taxable
year and a profit or loss statement for said taxable year, showing in reasonable detail its
assets and liabilities and the result of its operations.
At the regular meeting of stockholders or members, the board of directors or trustees shall
present to such stockholders or members a financial report of the operations of the
corporation for the preceding year, which shall include financial statements, duly signed
and certified by an independent certified public accountant.
However, if the paid-up capital of the corporation is less than P50,000.00, the financial
statements may be certified under oath by the treasurer or any responsible officer of the
corporation.

BASIS OF RIGHT: is to protect his interest as a stockholder. Thus, it has been said that: “The
right of the shareholders to ascertain how the affairs of his company are being conducted by its
directors and officers is founded by his beneficial interest through ownership of shares and the
necessity of self-protection. Managers of some corporations deliberately keep the shareholders
in ignorance or under misapprehension as to the true condition of its affairs. Business prudence
demands that the investor keep a watchful eye on the management and the condition of the
business. Those in charge of the company may be guilty of gross incompetence or dishonesty for
years and escape liability if the shareholders cannot inspect the records and obtain information.”
BOOKS OF SUBSIDIARY: The right of the stockholder to examine corporate books extends to
a wholly owned subsidiary which is completely under the control and management of the parent
company where he is such a stockholder. But if the two entities are legally being operated as
separate and distinct entities, there is no such right of inspection on the part of the stockholder of
the parent company.
INSPECTION BY AGENT: while the right is founded on stock ownership, thus personal in nature,
it may be made by the stockholder’s agent or representative since it may be unavailing in many
instances.
INSPECTION BY DIRECTOR/TRUSTEE: As compared to a stockholder or member, the right of
a director or trustee to inspect and examine corporate books and records is considered absolute
and unqualified and without regard to motive. This is because a director supervises, directs and
manages corporate business and it is necessary that he be equipped with all the information and
data with regard to the affairs of the company in order that he may manage and direct its
operations intelligently and according to this best judgment in the interest of all the stockholders
he represents. Thus, while stockholders and members are entitled to inspect and examine the
books and records as provided in Sec. 74 and 75 they may not gain access to highly sensitive
and confidential information . In the case of directors, “it is not denied” that they have such access.
This would include, among others,
(a) marketing strategies and pricing structure;
(b) budget for expansion and diversification;
(c) research and development; and (d) sources of funding, availability of personnel, proposals for
mergers or tie-ups with other firms.
REMEDIES OF STOCKHOLDERS UNJUSTIFIABLY REFUSED THE RIGHT TO INSPECT THE
CORPORATE BOOKS: (MDC)
1. Mandamus. In such event, the corporate secretary shall be included as a party respondent
since he is customarily charged with the custody of all documents or records of the corporation
and against whom personal order of the court would be made;
2. Damages either against the corporation or the responsible officer who refused the inspection;
or
3. Criminal complaint for violation of his right to inspect and copy excerpts of all business
transactions and minutes of meetings. The officer or agent who refused the examination or
copying thereof, shall be guilty and liable of an offense punishable under Sec. 144 of the Code.
Sec. 144 imposes a penalty of a fine of not less than P1,000 but not more than P10,000 or an
imprisonment for not less than 30 days but not more than 5 years, or both, at the discretion of the
court. If the refusal is pursuant to a resolution or order of the board, the liability shall be imposed
upon the directors/trustees who voted for such refusal.

DEFENSE OF CORPRATE OFFICERS: (INL)

1. That the person demanding has improperly used any information secured through any prior
examination of the records or minutes of such corporation or any other corporation; 2. That he
was not acting in good faith or for a legitimate purpose in making his demand; or
3. The right is limited or restricted by special law or the law of its creation.
W. G. PHILPOTTS, petitioner, vs. PHILIPPINE MANUFACTURING COMPANY and F. N.
BERRY, respondents. ( G.R. No. L - 15568; November 8, 1919 )
FACTS: Petitioner seeks to obtain a writ of mandamus to compel the respondents to permit him,
in person or by some authorized agent or attorney, to inspect and examine the records of the
business by Philippine Manufacturing Company, of which he is a stockholder.
Respondents interposed a demurrer.
ISSUE: WON the right the law concedes to a stockholder may be exercised by a proper agent or
attorney?
HELD: Yes. The right of inspection given to a stockholder 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.
This conclusion is supported by the undoubted weight of authority in the United States, where it
is generally held that the provisions of law conceding the right of inspection to stockholders of
corporations are to be liberally construed and that said right may be exercised through any other
properly authorized person. As was said in Foster vs. White (86 Ala., 467), "The right may be
regarded as personal, in the sense that only a stockholder may enjoy it; but the inspection and
examination may be made by another. Otherwise it would be unavailing in many instances." An
observation to the same effect is contained in Martin vs. Bienville Oil Works Co. (28 La., 204),
where it is said: "The possession of the right in question would be futile if the possessor of it,
through lack of knowledge necessary to exercise it, were debarred the right of procuring in his
behalf the services of one who could exercise it." In Deadreck vs. Wilson (8 Baxt. [Tenn.], 108),
the court said: "That stockholders have the right to inspect the books of the corporation, taking
minutes from the same, at all reasonable times, and may be aided in this by experts and counsel,
so as to make the inspection valuable to them, is a principle too well settled to need discussion."
Authorities on this point could be accumulated in great abundance, but as they may be found
cited in any legal encyclopedia or treaties devoted to the subject of corporations, it is unnecessary
here to refer to other cases announcing the same rule.
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 answer to the merits.
ANTONIO PARDO, petitioner, vs. THE HERCULES LUMBER CO., INC., and IGNACIO
FERRER, respondents (G.R. No. L - 22442; August 1, 1924)
FACTS: Petitioner Antonio Pardo seeks to obtain a writ of mandamus to compel respondent
company to permit petitioner and his duly authorized agent and representative to examine the
records and business transactions of said company.
Respondents raised the defense that under Art. 10 of the by-laws, it is declared that “every
shareholder may examine the books of the company and other documents pertaining to the same
upon the days which the board of directors’ shall annually fix”. And thus was set from 15th to 25th
of March by virtue of a board resolution.
ISSUE: WON the BOD may choose specific performance and particular dates when the right of
inspection may be exercised?
HELD: No. The general right given by the statute may not be lawfully abridged to the 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 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
altogether. A by-law unduly restricting the right of inspection is undoubtedly invalid. Authorities to
this effect are too numerous and direct to require extended comment. (14 C.J., 859; 7 R.C.L.,
325; 4 Thompson on Corporations, 2nd ed., sec. 4517; Harkness vs . Guthrie, 27 Utah, 248; 107
Am., St. Rep., 664. 681.)
The demurrer is, therefore, sustained; and the writ of mandamus will issue as prayed, with the
costs against the respondent.
EUGENIO VERAGUTH, Director and Stockholder of the Isabela Sugar Company, Inc.,
petitioner, vs. ISABELA SUGAR COMPANY, INC., GIL MONTILLA, Acting President, and
AGUSTIN B. MONTILLA, Secretary of the same corporation, respondents. (G.R. No. L -
37064; October 4, 1932)
FACTS: Petitioner Eugenio Veraguth seeks to obtain a final and absolute writ of mandamus to be
issued to each and all of the respondents to, among others, place at his disposal at reasonable
hours the minutes, documents and books of Isabela Sugar Company, Inc. (which he is a director
and stockholder) for his inspection and to issue immediately, upon payment of the fees, certified
copies of any documentation in connection with said minutes, documents and the books of the
aforesaid corporation.
Director Veraguth telegraphed the secretary of the company, asking the latter to forward in the
shortest possible time a certified copy of the resolution of the board of directors concerning the
payment of attorney's fees in the case against the Isabela Sugar Company and others. To this
the secretary made answer by letter stating that, since the minutes of the meeting in question had
not been signed by the directors present, a certified copy could not be furnished and that as to
other proceedings of the stockholders a request should be made to the president of the Isabela
Sugar Company, Inc. It further appears that the board of directors adopted a resolution providing
for inspection of the books and the taking of copies "by authority of the President of the corporation
previously obtained in each case."
ISSUE: WON the corporate secretary is justified in refusing to furnish copies of the minutes of the
meeting of the BOD?
HELD: Yes. The Corporation Law, section 51, provides that:
“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
detail the time and place of holding 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 inspection of any director, member, or stockholder of the corporation at reasonable
hours.”
The above puts in statutory form the general principles of Corporation Law. 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 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 cannot 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. ( See Fisher's
Philippine Law of Stock Corporations, sec. 153, and Fletcher Cyclopedia Corporations, vol. 4,
Chap. 45.)
Combining the facts and the law, we do not think that anything improper occurred when the
secretary declined to furnish certified copies of minutes which had not been approved by the
board of directors, and that while so much of the last resolution of the board of directors as
provides for prior approval of the president of the corporation before the books of the corporation
can be inspected puts an illegal obstacle in the way of a stockholder or director, that resolution,
so far as we are aware, has not been enforced to the detriment of anyone. In addition, it should
be said that this is a family dispute, the petitioner and the individual respondents belonging to the
same family; that a test case between the petitioner and the respondents has not been begun in
the Court of First Instance of Occidental Negros involving hundreds of thousands of pesos, and
that the appellate court should not intrude its views to give an advantage to either party. We rule
that the petitioner has not made out a case for relief by mandamus .
GOKONGWEI VS. SEC
(supra , C H A P T E R 7 a n d 8 ) –
ISSUE: WON petitioner may be properly denied examination of the books and records of San
Miguel International, Inc., a fully owned subsidiary of SMC?
HELD: No. 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 . In Grey v. Insular Lumber, this Court held that "the right to examine the books of the
corporation must be exercised in good faith, for specific and honest purpose, and not to gratify
curiosity, or for specific and honest purpose, and not to gratify curiosity, or for speculative or
vexatious purposes. The weight of judicial opinion appears to be, that on application for
mandamus to enforce the right, it is proper for the court to inquire into and consider the
stockholder's good faith and his purpose and motives in seeking inspection. Thus, it was held that
"the right given by statute is not absolute and may be refused when the information is not sought
in good faith or is used to the detriment of the corporation." But the "impropriety of purpose such
as will defeat enforcement must be set up the corporation defensively if the Court is to take
cognizance of it as a qualification. In other words, the specific provisions take from the stockholder
the burden of showing propriety of purpose and place upon the corporation the burden of showing
impropriety of purpose or motive. It appears to be the general rule that stockholders are entitled
to full information as to the management of the corporation and the manner of expenditure of its
funds, and to inspection to obtain such information, especially where it appears that the company
is being mismanaged or that it is being managed for the personal benefit of officers or directors
or certain of the stockholders to the exclusion of others."
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. Thus, 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 in contents 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 Nash case, The Supreme Court of New York held that the contractual right of former
stockholders to inspect books and records of the corporation included the right to inspect
corporation's subsidiaries' books and records which were in corporation's possession and control
in its office in New York."
In the Bailey case, stockholders of a corporation were held entitled to inspect the records of a
controlled subsidiary corporation which used the same offices and had identical officers and
directors.
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-owned
subsidiary which are in respondent corporation's possession and control.
The Court voted unanimously to grant the petition insofar as it prays that petitioner be allowed to
examine the books and records of San Miguel International, Inc., as specified by him.
RAMON A. GONZALES, petitioner, vs. THE PHILIPPINE NATIONAL BANK, respondent.
(G.R. No. L - 33320; May 30, 1983)
FACTS: Petitioner Ramon A. Gonzales instituted in the CFI of Manila a special civil action for
mandamus against the herein respondent PNB praying that the latter be ordered to allow him to
look into the books and records of PNB to satisfy himself as to the truth of the published report
that (1) the respondent has guaranteed the obligation of South Negros Development Corporation
in the purchase of a US$ 23M sugar-mill to be financed by Japanese suppliers and financiers;
that the respondent; (2) the respondent is financing the construction of the P21M Cebu-Mactan
Bridge to be constructed by VC Ponce, Inc.; and (3) the construction of Passi Sugar Mill at Iloilo
by the Homion Philippines, Inc.; as well as (4) to inquire into the validity of said transactions.
The CFI dismissed the special civil action.
Assailing the conclusions of the lower court, the petitioner has assigned the single error to the
lower court of having ruled that his alleged improper motive in asking for an examination of the
books and records of the respondent bank disqualifies him to exercise the right of a stockholder
to such inspection under Section 51 of Act No. 1459, as amended. Said provision reads in part
as follows:
Sec. 51. ... 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.
Petitioner maintains that the above-quoted provision does not justify the qualification made by the
lower court that the inspection of corporate records may be denied on the ground that it is intended
for an improper motive or purpose, the law having granted such right to a stockholder in clear and
unconditional terms. He further argues that, assuming that a proper motive or purpose for the
desired examination is necessary for its exercise, there is nothing improper in his purpose for
asking for the examination and inspection herein involved.
ISSUE: WON Petitioner is correct in saying that he has an unqualified right to inspect the books
as provided under Sec. 51 of the Corporation Law?
HELD: No. Petitioner may no longer insist on his interpretation of Section 51 of Act No. 1459, as
amended, regarding the right of a stockholder to inspect and examine the books and records of
a corporation. The former Corporation Law (Act No. 1459, as amended) has been replaced by
Batas Pambansa Blg. 68, otherwise known as the "Corporation Code of the Philippines."
The right of inspection granted to a stockholder under Section 51 of Act No. 1459 has been
retained, but with some modifications. The second and third paragraphs of Section 74 of Batas
Pambansa Blg. 68 provide the following:
“The records of all business transactions of the corporation and the minutes of any meeting 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, trustee, 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.”
As may be noted from the above-quoted provisions, among the changes introduced in the new
Code with respect to the right of inspection granted to a stockholder are the following (1) the
records must be kept at the principal office of the corporation; (2) the inspection must be made
on business days; (3) the stockholder may demand a copy of the excerpts of the records or
minutes; (4) and the refusal to allow such inspection shall subject the erring officer or agent of the
corporation to civil and criminal liabilities.
However, while seemingly enlarging the right of inspection, the new Code has prescribed
limitations to the same. It is now expressly required as a condition for such examination that (1)
the one requesting it must not have been guilty of using improperly any information through a
prior examination, and (2) that the person asking for such examination must be "acting in good
faith and for a legitimate purpose in making his demand."
The unqualified provision on the right of inspection previously contained in Section 51, Act No.
1459, as amended, no longer holds true under the provisions of the present law. The argument
of the petitioner that the right granted to him under Section 51 of the former Corporation Law
should not be dependent on the propriety of his motive or purpose in asking for the inspection of
the books of the respondent bank loses whatever validity it might have had before the amendment
of the law. If there is any doubt in the correctness of the ruling of the trial court that the right of
inspection granted under Section 51 of the old Corporation Law must be dependent on a showing
of proper motive on the part of the stockholder demanding the same, it is now dissipated by the
clear language of the pertinent provision contained in Section 74 of Batas Pambansa Blg. 68.
ISSUE2: WON petitioner is in good faith in the exercise of his right to inspect the books of PNB?
HELD: No. Although the petitioner has claimed that he has justifiable motives in seeking the
inspection of the books of the respondent bank, he has not set forth the reasons and the purposes
for which he desires such inspection, except to satisfy himself as to the truth of published reports
regarding certain transactions entered into by the respondent bank and to inquire into their
validity. The circumstances under which he acquired one share of stock in the respondent bank
purposely to exercise the right of inspection do not argue in favor of his good faith and proper
motivation . Admittedly he sought to be a stockholder in order to pry into transactions entered into
by the respondent bank even before he became a stockholder. His obvious purpose was to arm
himself with materials which he can use against the respondent bank for acts done by the latter
when the petitioner was a total stranger to the same. He could have been impelled by a laudable
sense of civic consciousness, but it could not be said that his purpose is germane to his interest
as a stockholder.
ISSUE3: WON the right of a stockholder to inspect the books provided under Sec. 74 of the
Corporation Code is applicable to PNB?
HELD: No. We also find merit in the contention of the respondent bank that the inspection sought
to be exercised by the petitioner would be violative of the provisions of its charter. (Republic Act
No. 1300, as amended.) Sections 15, 16 and 30 of the said charter provide respectively as follows:
Sec. 15.
Inspection by Department of Supervision and Examination of the Central Bank . — The National
Bank shall be subject to inspection by the Department of Supervision and Examination of the
Central Bank'
Sec. 16.
Confidential information . —The Superintendent of Banks and the Auditor General, or other
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. 30. Penalties for violation of the provisions of this Act .— Any director, officer, employee, or
agent of the Bank, who violates or permits the violation of any of the provisions of this Act, or any
person aiding or abetting the violations of any of the provisions of this Act, shall be punished by
a fine not to exceed ten thousand pesos or by imprisonment of not more than five years, or both
such fine and imprisonment.
The Philippine National Bank is not an ordinary corporation. Having a charter of its own, it is not
governed, as a rule, by the Corporation Code of the Philippines. Section 4 of the said Code
provides:
SEC. 4.
Corporations created by special laws or charters . — Corporations created by special laws or
charters shall be governed primarily by the provisions of the special law or charter creating them
or applicable to them. supplemented by the provisions of this Code, insofar as they are applicable.
The provision of Section 74 of Batas Pambansa Blg. 68 of the new Corporation Code with respect
to the right of a stockholder to demand an inspection or examination of the books of the
corporation may not be reconciled with the abovequoted provisions of the charter of the
respondent bank. It is not correct to claim, therefore, that the right of inspection under Section 74
of the new Corporation Code may apply in a supplementary capacity to the charter of the
respondent bank.

LADIA NOTES:

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. (51a and
32a; P.B. No. 268.)

These corporate books and records, inclusive of all business transactions and minutes of
meetings, are subject to inspection by any of the directors, trustees, stockholders or
members of the corporation at reasonable hours on business days and a copy of excerpts
of said records may be demanded. In fact, in so far as financial statement is concerned,
the Code clearly provides:

 May books and records be examined? Who may examine? Can they copy them? In whose
expense?

- Yes, according to the code:

“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. “

 Is there any defense available that could be raised? By the corporate officers to justify the
refusal?

- Yes, the code provides that:

“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.”

 What is the stock and transfer? Where should stock and transfer be kept? Can it be kept
elsewhere?

“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. “

 Stock and transfer agent

- Records every movement

- Person who monitors movement by the minutes or by the hours
- Non-stock corporation- stock and transfer books
- Club share- membership

 Are stockholders entitled to financial statements?

- Yes, they are entitled to a copy, the code provides that:

Section 75. Right to financial statements. - Within ten (10) days from receipt of a
written request of any stockholder or member, the corporation shall furnish to him its most
recent financial statement, which shall include a balance sheet as of the end of the last
taxable year and a profit or loss statement for said taxable year, showing in reasonable
detail its assets and liabilities and the result of its operations.

At the regular meeting of stockholders or members, the board of directors or

trustees shall present to such stockholders or members a financial report of the operations
of the corporation for the preceding year, which shall include financial statements, duly
signed and certified by an independent certified public accountant.

However, if the paid-up capital of the corporation is less than P50,000.00, the
financial statements may be certified under oath by the treasurer or any responsible officer
of the corporation. (n)

- Audited financial statement filed in the SEC, 120 days from the end of the final year, or
must be filed on or before April of each year
- Must be stamp received by the BIR

 Those in the stock exchange

- Disclosure of any matter that have to do with increasing and decreasing

- If not “kulong” violation of securities and regulation act

 Why is this right of inspection granted to a stockholder?

- The basis of the right of the stockholder to inspect the books and records of the corporation
for a proper purpose is to protect his interest as a stockholder. Thus, it has been said that:

“The right of the shareholders to ascertain how the affairs of his company are being
conducted by its directors and officers is founded by his beneficial interest through
ownership of shares and the necessity of self-protection. Managers of some
corporations deliberately keep the shareholders in ignorance or under
misapprehension as to the true condition of its affairs. Business prudence
 demands that the investor keep a watchful eye on the management and the
condition of the business. Those in charge of the company may be guilty of gross
incompetence or dishonesty for years and escape liability if the shareholders
cannot inspect the records and obtain information.”

 Is there any distinction of the right of inspection of a stockholder and that of a director?

- Yes, as compared to a stockholder or member, the right of a director or trustee to inspect

and examine corporate books and records is considered absolute and unqualified and
without regard to motive. This is because a director supervises, directs and manages
corporate business and it is necessary that he be equipped with all the information and
data with regard to the affairs of the company in order that he may manage and direct its
operations intelligently and according to his best judgment in the interest of all the
stockholders he represents. Thus, while stockholders and members are entitled to inspect
and examine the books and records as provided in sections 74 and 75 they may not gain
access to highly sensitive and confidential information. In the case of directors. “it is not
denied” that they have such access. This would include, among others,

a. Marketing strategies and pricing structure;

b. Budget for expansion and diversification;
c. Research and development;
d. Sources of funding, availability of personnel, proposals of mergers or tie-ups with other
firms

 May this right be exercised, other than by the stockholders themselves?

- Yes, while the right is founded on stock ownership thus personal in nature it may be made
by the stockholder’s agent or representative since it may be unavailing in many instances

 What if the right of the stockholder to inspect is denied? What is his remedy?

1. Mandamus
2. Damages either against the corporation or responsible officer who refused the inspection
3. Criminal complaint for violation of his right to inspect and copy excerpts of all business
transactions and minutes of meeting. Section 74 provides that 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. The latter provision imposes a penalty of a fine of not less than
P1,000 but not more than P10,000 or an imprisonment for not less than 30 days but not
more than 5 years, or both, at the discretion of the court. If the refusal is pursuant to a
resolution or order of the board, the liability shall be imposed upon the directors or trustees
who voted for such refusal.

 Defense of the responsible corporate officer

1. That the person demanding has improperly used any information secured through any
prior examination of the records or minutes of such corporation or of any other corporation;
2. That he was not acting in good faith or for a legitimate purpose in making his demand;
3. The right is limited or restricted by special law or the law of it creation.

W.G. Philpotts vs. Philippine Manufacturing Co.

- The right of inspection given to a stockholder 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
- The right may be regarded as personal, in the sense that only a stockholder may enjoy it;
but the inspection and examination may be made by another. Otherwise it would be
unavailing in many instances.

o Note: Usually hires an auditor or accountant to safeguard his interest

Pardo vs. Hercules Lumber Co.

- The law is clear, it may be exercised during reasonable hours on any business days, the
by-laws cannot deny this right all together
- The general right given by the statute may not be lawfully abridged to the 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 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 altogether.
- The corporation, or its responsible directors and officers cannot unduly restrict this right of
inspection and may not arbitrarily set a few days of the year within which the stockholder
may make the inspection.
- A by-law unduly restricting the right of inspection is undoubtedly invalid

Vegaruth vs. Isabela Sugar Co.

- Directors of a corporation have the unqualified right to inspect the books and records of
the corporation at all reasonable hours.
- 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.

 May a stockholder of a holding company inspect the books and records of a subsidiary?

- It depends
- The right of the stockholders to examine corporate books extends to wholly-owned
subsidiary which is completely under the control and management of the parent company
where he is such a stockholder. But if the two entities (subsidiary and parent) are legally
being operated as separate and distinct entities, there is no such right of inspection on the
part of the stockholder of the parent company.

AYALA- HOLDING COMPANY/PARENT COMPANY

SUBSIDIARIES: BPI/GLOBE/AYALA LAND (not wholly-owned subsidiary)

o HOLD ATLEAST 50 +1 shares in order to be a PARENT COMPANY

 A, is a stockholder of Ayala, does he have a right to inspect the records of its subsidiaries?

- If wholly owned pwede, but its subsidiaries are not wholly owned kaya hindi pwede

Gokongwei vs. SEC

- San Miguel corporation owns all of the shares of stock of San Miguel International
- It is wholly-owned
- It would be 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 such wholly-owned
subsidiary which are in respondent corporation’s possession and control

 If being operated as separate and distinct corporations, there is no such right

 Telecommunications- special franchise, it is a legislative grant

Gonzales vs. PNB

- Provisions of the old law was unqualified, when it granted stockholders the right to inspect
- However, whole seemingly enlarging the right of inspection, the new code has prescribed
limitations to the same. 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 and that the person asking for such examination must
be acting in good faith and for a legitimate purpose in making his demand
- Admittedly, he sought to be a stockholder in order to pry into transactions entered into by
the respondent bank even before he became a stockholder. His obvious purpose was to
arm himself with materials he can use against the respondent bank for acts done by the
latter when the petitioner was a total stranger to the same.
- Bank was created by a special law, it has its own charter and primarily governed by the
law creating them
- The bank is only subject to the inspection of the Central Bank and any information
pertaining to the bank is confidential and shall not be revealed to any person other than
the President of the Philippines, the Secretary of Finance and the Board of Directors, nor
shall any information relative to the funds in its custody, its current accounts or deposits
belonging to private individuals, corporations or other entities except by order of a Court
of Competent Jurisdiction, hence inspection sought to by the petitioner is violative of the
provisions of its charter and is even subject to penal sanctions

 Assuming you are a stockholder of PNB, and then it was privatized, may you already have
the right to inspect?

- No, unless its charter has been altered or repealed it is still subject to the same law

 3 stages in the life of a corporation

- Formation or birth
- We now discuss the union of the corporation
- The last would be its death or dissolution