Rules of Inspection: OCAVA, Regine Victoria G. Corporation Law - 3B Atty. MIP Romero

OCAVA, Regine Victoria G.
Corporation Law – 3B
Atty. MIP Romero
Rules of inspection
Stockholder has the right to know, through the books of the corporation, how his
investment is being handled by the people entrusted with managing the corporation.
Such inspection can be exercised at reasonable hours on business days throughout the
year, and not merely during an arbitrary period of a few days chosen by the directors.
Now, it can be inspected by the shareholder or his duly authorized agent or
representative. But in accordance to the case of Gonzales v. PNB in lieu of B.P. BLG.
68, the new code has prescribed a limitation that the person requesting such inspection
must not guilty of using improperly any information secured through a prior examination,
and that the person asking for such examinations must be acting in good faith and for a
legitimate purpose in making his demand. However, it is also stated that directors of a
corporation have the unqualified right to inspect the books and records of the
corporation at all reasonable times.
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.
Furthermore, in accordance to Sec. 74 in relation to Sec. 144 of the same code, penal
provision shall apply in a case of violation of a stockholder or member's right to inspect
the corporate books/records and thus was further elaborated in the case of Ang Abaya
v. Ang the requisites on how to apply the penal provision of Sec. 144. Ultimately, the
burden is not upon the stockholder to show the propriety of his examination or that the
refusal by the officers or directors was wrongful, except under statutory provisions.
Derivative suit
A derivative suit is an action brought by a stockholder on behalf of the corporation to

enforce corporate rights against the corporation’s directors, officers or other insiders.
Under Sections 23 and 36 of the Corporation Code, the directors or officers, as provided
under the by-laws, have the right to decide whether or not a corporation should
sue. Whenever the officials of the corporation refuse to sue, or are the ones to be sued
or hold the control of the corporation, an individual stockholder is permitted to institute a
derivative or representative suit on behalf of the corporation wherein he holds stock, in
order to protect or vindicate corporate rights. In such actions, the suing stockholder is
regarded as a nominal party, with the corporation as the real party in interest. But under
the case of Pascual v. Orozco, it stated that under banking corporation, a stockholder
had a right to maintain a suit for and on behalf of the corporation, but the extent of such
right depends upon when and for what purpose he acquired the shares of stock of
which he is the owner. Unless such transactions continue and are injurious to such
stockholder or affect him especially or specifically in some other way.
In the case of SMC v. Khan it is elaborated the requisites for a derivative suit are as
follows: a) the party bringing suit should be a shareholder as of the time of the act or
transaction complained of, the number of his shares not being material; b) he has tried
to exhaust intra-corporate remedies, i.e., has made a demand on the board of directors
for the appropriate relief but the latter has failed or refused to heed his plea; and c) the
cause of action actually devolves on the corporation, the wrongdoing or harm having
been, or being caused to the corporation and not to the particular stockholder bringing
the suit. Now, with regards to Rule 8 of the Interim Rules of Procedure Governing Intra-
Corporate Controversies, a stockholder must be a member at the time the acts or
transactions subject of the action occurred and at the time the action was filed, that he
exerted reasonable efforts in obtaining what he desires, that there is no appraisal rights
available to him and lastly, it is not a harassment suit. Such two actions are mutually
exclusive the right of action and recovery belongs to either the shareholders which is
direct action and of the corporation which is the derivative suit.
Merger and Consolidation
Under Philippine law, two or more corporations can merge into a single entity, taking on
the identity of one of the constituent corporations or that of a new corporation, which will
be known as the consolidated corporation. The intent of the resolution of the Board of
Directors is not to dissolve the company but merely to transfer its assets to a new
corporation in exchange for its corporate stock 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. In the Edward Nell case, stated that transactions between
the two corporations have resulted in their consolidation or merger is negated by its
theory to the effect that one of the said corporations is an alter ego of the other. For, a
corporation cannot be its own alter ego. But in the Laguna trans co case said that
members of the partnership may be said to have simply put on a new coat, or taken on
a corporate cloak, and the corporation is a mere continuation of the partnership. In view
of the Lozano case, dispute between members of two separate and distinct corporations
with no intracorporate relation does not fall in the jurisdiction of the SEC, and thus was
further elaborated on the same case the jurisdiction of the SEC and was stated that it
must be controversies arising out of intracorporate relations. The doctrine of corporation
by estoppel advanced by private respondent cannot override jurisdictional requirements.
Jurisdiction is fixed by law and is not subject to the agreement of the parties. It cannot
be acquired through or waived, enlarged or diminished by, any act or omission of the
parties, neither can it be conferred by the acquiescence of the court
Now, on the BPI v. BPI employees union, it talks regarding the valid exemption of
absorbed employees from the coverage of the union shop clause in the CBA. Human
beings cannot be a subject of assets nor liabilities, in fact nothing stated in the
corporation code the mandatory absorption of employees from the non surviving
corporation by the surviving corporation in case of merger. Sec 80 provides the effects
of merger and consolidation which tells that surviving corporation shall have all the
privileges, immunity and power over the assets of the non surviving corporation as well
as it will be responsible for all the liabilities of the non surviving corporation. Now, in light
of the labor code, the right to form association is guaranteed by our constitution and
was promoted by the latter. In keeping with the dictates of social justice and the state
policy of according full protection to labor to deem employment contracts as
automatically assumed by the surviving corporation in a merger, even in the absence of
an express stipulation in the articles of merger or the merger plan. The union shop
cannot be a subject of termination because in accordance to labor code, employees are
entitled to security of tenure and will only be terminated upon just or authorized causes.
Ultimately, in the very recent case of Udenna Corp. it provides that parties to merger
and acquisition are required to fulfill the two tests under rule 4 sec 3 of the IRR of the
PCC, namely: the size of person test which parent entity covered 1 billion threshold and
subsidiaries aggregate assets exceeding 1 billion. While the size of transaction test
provided in rule 4 sec 3(b)(4) of the IRR requires that the value of the transaction
exceeds 1 billion and that the tool used in satisfying the threshold is met.

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OCAVA, Regine Victoria G.

A derivative suit is an action brought by a stockholder on behalf of the corporation to

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