Corporations are required to keep records of all business transactions and minutes of the meetings of the stockholders and directors and upon demand, any stockholder or director can inspect the corporate records and obtain copies at their own expense. So stockholders are given this right of inspection so that they will be properly informed and will be able to exercise their right as stockholders intelligently. The right of directors to inspect the corporate records is broader than that of stockholders because they are the ones involved in the management of the corporation so they would need information to be able to make decisions wisely. The directors and stockholders have the right to examine the records at reasonable hours on business days. The corporation cannot limit the right to inspect on specific days only. If the right of inspection is denied, the officers responsible for the withholding of the records are criminally liable under section 144 and will also be liable for damages. There are reasons given in
the code for not allowing inspection, but the right exists as concurred by law; therefore, the burden is on the corporation to show that a stockholder or director is not entitled to be allowed to inspect the records of the corporation.
Case of Gokongwei vs. SEC
The Court said Gokongwei had the right to examine the record of San Miguel International. San Miguel Corporation was arguing that that is a separate corporation. But the court said it is a wholly-owned subsidiary corporation so its capital gained from San Miguel Corporation, and therefore Gokongwei as stockholder of San Miguel Corporation had the right to examine the records of San Miguel International.
What are the grounds for not allowing inspection? 1. If the person demanding to examine the records has
improperly used any information secured for prior examination For example, a stockholder who was earlier allowed to examine the records made use of insider trading. So he was able to buy shares because of information that became available to him which was not available to others. 2. If he is not acting in good faith. For example, a stockholder
who wants to get information on the business plans of the corp. because he's a stockholder of another competing corp., and so he will pass on the info. to that other corp. Or for example a stockholder would want to know the formula of Coca-Cola.
3. It is not being exercised for a legitimate purpose.
Case of Ramon Gonzales - He filed a petition for
mandamus to examine the records of certain transactions entered into by the Philippine National Bank. He filed it as a taxpayer. His petition was denied. So what he did was he bought one share. He said that since he is now a stockholder, he has the right to examine the records of those transactions which he earlier wanted to see. The Court denied his petition because it said he was not exercising his right of inspection properly. This right is given to stockholders in order to protect their investment of the corp. But that is not the situation here. He earlier tried to see the records and when that wasn't allowed he bought one share, and he's using that as justification for looking into the records. He bought the one share to be able to look and pry into the records, because he was earlier denied access to the records. So he's not exercising the right to protect his investment.
Catindig Class Notes
Q: What are the 2 corporate books? A: STB and Minutes Book
Q: What are the other books? A: Those required by the Tax Code Q: Who keeps the STB?
A: The Corporate Secretary.
Tip: If you are a corp sec, do not leave it in the corp. Keep it with you to exercise lawyer‟s lien.
What books are required to be maintained by the corporation? (1) Books of minutes of stockholders meetings; (2) Book of minutes of board meetings;
(3) Record or Book of all business transactions; (4) Stock and transfer book.
What are the contents of the stock and transfer book?
(1) All stocks in the name of the stockholders alphabetically arranged;
(2) Amount paid and unpaid on all stocks and the date of payment of any installment;
(3) Alienation, sale or transfer of stocks; (4) Other entries as the by-laws may prescribe;
STB
A stock and transfer book is which records the names and addresses of all stockholders arranged alphabetically, the installments paid and unpaid on all stock for which subscription has been made, and the date of payment thereof, 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 may be prescribed by law. A stock and transfer book, like other corporate books and record, is not in any sense a public record, and thus is not exclusive evidence of the matters and things which ordinarily are or should be written therein. (Lanuza v. CA, 2005)
What is the probative value of the stock and transfer book? The stock and transfer book is the best evidence of the transactions that must be entered or stated therein. However, the entries are considered prima facie evidence only and may be subject to proof to the contrary. (Bitong v. CA)
9.2 Case
Torres v. CA (1997)
Who are authorized to make entries in the stock and transfer book?
The corporate secretary is the officer who is duly authorized to make entries on the stock and transfer book. Hence, entries made by the Chairman or President are invalid. (Torres Jr. v. CA)
9.3 Who may inspect corporate books and records
and what is the extent of this right? (Section 74)
Persons given right to inspect corporate books:(1) Any director, trustee, or stockholder or member; (2) Voting trust certificate holder;
(3) Stockholder of a sequestered company
(4) Beneficial owner of shares. (Page 621 of De Leon, 2006)
What are the requirements for the exercise of the right of inspection?
(1) It must be exercised at reasonable hours on business days; (2) The stockholder has not improperly used any information he
secured through any previous examination;
(3) Demand is made in good faith or for legitimate purpose
The right to inspect corporate books and records:
Is exercisable through agents and representatives, otherwise it would often be useless to the stockholder who does not
know corporate intricacies. W.G. Philpotts v. Philippine Manufacturing Co., 40 Phil. 471 (1919).
Cannot be denied on the ground that the director is on unfriendly terms with the officers of the corporation whose records are sought to be inspected. Veraguth v. Isabela Sugar Co., 57 Phil. 266 (1932).
Although it includes the right to make copies, does not authorize bringing the books or records outside of corporate premises. Veraguth v. Isabela Sugar Co., 57 Phil. 266 (1932).
Does not include the right of access to minutes until such minutes have been written up and approved by the directors. Veraguth v. Isabela Sugar Co., 57 Phil. 266 (1932).
Cannot be limited to a period of ten days shortly prior to the annual stockholders’ meeting, as such would be an unreasonable restriction and violates the legal provision granting the exercise of such right ―at reasonable hours.‖ Pardo v. Hercules Lumber Co., 47 Phil. 964 (1924).
Limitation: The only express limitations on the right of inspection under Sec. 74 of Corporation Code are: (a) it should be exercised at reasonable hours on business days; (b) the person demanding the right to examine and copy excerpts from the corporate records and minutes has not improperly used any information secured through any previous examination of records; and (c) the demand is made in good faith or for a legitimate purpose. Africa v. PCGG, 205 SCRA 39 (1992).