refused to permit Pardo, a stockholder, or his agent to inspect the records and business transactions of the company at the times desired by Pardo. Basis of the refusal was the provision in the companys bylaws which stipulated that every stockholder may examine the books of the company and other documents upon the days which the board annually fixes.
FACTS: W. G. Philpotts, a stockholder in the
Philippine Manufacturing Company, seeks to obtain a writ of mandamus to compel the Phil Manufacturing to permit the Philpotts , in person or by some authorized agent or attorney, to inspect and examine the records of the business transacted by said company since January 1, 1918. In the argument in support of the demurrer it is conceded by counsel for the respondents that there is a right of examination in the stockholder granted under section 51 of the Corporation Law, but it is insisted that this right must be exercised in person. ISSUE: Whether the right which the law concedes to a stockholder to inspect the records can be exercised by a proper agent or attorney of the stockholder as well as by the stockholder in person. HELD: There is no pretense that the respondent corporation or any of its officials has refused to allow the petitioner himself to examine anything relating to the affairs of the company, and prays for order commanding the respondents to place the records of all business transactions of the company, during a specified period, at the disposal of the plaintiff or his duly authorized agent or attorney, it being evident that the petitioner desires to exercise said right through an agent or attorney. It is advisable to say that there are some things which a corporation may undoubtedly keep secret, notwithstanding the right of inspection given by law to the stockholder; as for instance, where a corporation, engaged in the business of manufacture, has acquired a formula or process, not generally known, which has proved of utility to it in the manufacture of its products. It is not our intention to declare that the authorities of the corporation, and more particularly the Board of Directors, might not adopt measures for the protection of such process form publicity. But there nothing in the petition which would indicate that the petitioner in this case is seeking to discover anything which the corporation is entitled to keep secret; and if anything of the sort is involved in the case it may be brought out at a more advanced stage of the proceedings. (The right to inspect corporate books, although personal, may be exercised through an agent or representative since it may be unavailing in many instances.)
Pardo vs. Hercules Lumber
ISSUE: When is the time or times within which the
right of inspection may be exercised? HELD: The resolution of the board limiting the rights of stockholders to inspect its records to a period of 10 days prior to the annual SH meeting is an unreasonable restriction in accordance with the Corporation Code which provides that the right to inspect can be exercised at reasonable hours. (The corporation, or its responsible directors and officers cannot unduly restrict the right of inspection and may not arbitrarily set a few days of the year within which the stockholder may make the inspection.) VERAGUTH VS ISABELA FACTS: Veraguth, a director and stockholder of the Isabela Sugar Company, Inc., filed a petition with the lower court praying that: a final and absolute writ of mandamus be issued to each and all of the respondent directors to notify him within the reglementary period, of all regular and special meetings of the board of directors of the Company, and to place at his disposal at reasonable hours the minutes, documents, and books of said corporation for his inspection as director and stockholder. He likewise contends that when asked that he be permitted to inspect the books of the corporation, he was denied access on the ground that the board of directors adopted a resolution providing for inspection of the books and the taking of copies only by authority of the President of the corporation previously obtained in each case. ISSUE: WON Veraguth can exercise the right of inspection of the books prior to the approval of the Board. HELD: NO. Directors have the unqualified right to inspect the books and records of a corporation at all reasonable times. Pretexts may not be put forward by the officers to keep a director or stockholder from inspecting the books and minutes of the corporation, and the right to inspect cannot be denied on the grounds that the director or stockholder are on unfriendly terms with the officers. A director or stockholder has no absolute right to secure certified copies of the minutes until these
minutes have been
by the directors.
written up and approved
(Directors of a corporation have the unqualified right
to inspect the books and records of the corporation at all reasonable hours. However, there is no absolute right to secure certified copies of the minutes of the corporation until these minutes have been written up and approved by the directors.) GOKONGWEI VS SEC ISSUE: WON Gokongwei may be allowed to inspect the books of the corporation. HELD: YES. Where the right to inspect 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. The inspection has to be germane to the petitioners interest as a stockholder and has to be proper and lawful in character and not inimical to the interest of the corporation. The stockholders right to inspect is based on his 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, beneficial ownership, or quasiownership, and is predicated upon the necessity of self-protection. On application for mandamus to enforce the right, it is proper for the court to inquire into and consider the stockholders good faith and his purpose and motives in seeking inspection. But the impropriety of purpose such as will defeat enforcement must be set up by the corporation defensively if the Court is to take cognizance of it as a qualification. In other words, the law take from the stockholder the burden of showing the propriety of purpose and place upon the corporation the burden of showing impropriety of purpose or motive. The foreign subsidiary is wholly-owned by SMC and therefore under its control, and would be more in accord with equity, good faith, and fair dealing to construe the statutory right of Gokongwei as stockholder to inspect the books of the parent as extending to the books of the subsidiary in its control. (General rule: The right of stockholders 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. Exception: The subsidiary and the parent are legally being operated as separate and distinct entities.)
GONZALES VS PNB
FACTS: The petitioner requested from the
respondent that he be allowed to examine the records of the latter. Petitioner claimed that he wanted to determine the veracity of reports that the respondent has guaranteed the obligation of another corporation in the purchase of a sugar mill and that the respondent financed the construction of a bridge and a sugar mill. When the respondent denied his request, the petitioner sought mandamus from the CFI of Manila, adding that he acquired one (1) share of stock in PNB and was thus entitled to examine the respondents records. The CFI dismissed the petition on the ground that the petitioner had improper motives and his purpose was not germane to his interest as a stockholder. The petitioner argued that his right was unconditional. ISSUE: The issue was whether the petitioner could examine the records of the respondent. HELD: NO. The former Corporation Law was already replaced by the Corporation Code which requires that the person requesting the examination of a corporations records must be acting in good faith and for a legitimate purpose. Examination could not be granted on the ground of mere curiosity. The petitioner acquired only one share of stock and did so only after making a request to examine acts done by the respondent when the former was still a stranger to the same. The circumstances showed that the petitioners purpose was not germane to his interest as a stockholder. Lastly, the right to examine the records of a corporation under the Corporation Code was violative of the PNBs charter. The petition was dismissed. (It is a required condition for the inspection of corporate books 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.) MERGER AND CONSOLIDATION Associated Bank vs. Court of Appeals CASE DIGEST: G. R. No. 123793, June 29, 1998 FACTS: Associated Banking Corporation and Citizens Bank and Trust Company (CBTC) merged to form just one banking corporation known as Associated Citizens Bank (later renamed Associated Bank), the surviving bank. After the merger agreement had been signed, but before a certificate of merger was issued, respondent Lorenzo Sarmiento, Jr. executed
in favor of Associated Bank a promissory note,
promising to pay the bank P2.5 million on or before due date at 14% interest per annum, among other accessory dues. For failure to pay the amount due, Sarmiento was sued by Associated Bank. Respondent argued that the plaintiff is not the proper party in interest because the promissory note was executed in favor of CBTC. Also, while respondent executed the promissory note in favor of CBTC, said note was a contract pour autrui, one in favor of a third person who may demand its fulfillment. Also, respondent claimed that he received no consideration for the promissory note and, in support thereof, cites petitioner's failure to submit any proof of his loan application and of his actual receipt of the amount loaned. ISSUE: 1.) Whether or not Associated Bank, the surviving corporation, may enforce the promissory note made by private respondent in favor of CBTC, the absorbed company, after the merger agreement had been signed, but before a certificate of merger was issued? 2.) Whether or not the promissory note was a contract pour autrui and was issued without consideration? HELD:
note names CBTC as the payee, the reference to
CBTC in the note shall be construed, under the very provisions of the merger agreement, as a reference to petitioner bank. On the issue that the promissory note was a contract pour autrui and was issued without consideration, the Supreme Court held it was not. In a contract pour autrui, an incidental benefit or interest, which another person gains, is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person. The "fairest test" in determining whether the third person's interest in a contract is a stipulation pour autrui or merely an incidental interest is to examine the intention of the parties as disclosed by their contract. It did not indicate that a benefit or interest was created in favor of a third person. The instrument itself says nothing on the purpose of the loan, only the terms of payment and the penalties in case of failure to pay. Private respondent also claims that he received no consideration for the promissory note, citing petitioner's failure to submit any proof of his loan application and of his actual receipt of the amount loaned. These arguments deserve no merit. Res ipsa loquitur. The instrument, bearing the signature of private respondent, speaks for itself. Respondent Sarmiento has not questioned the genuineness and due execution thereof. That he partially paid his obligation is itself an express acknowledgment of his obligation.
The petition is impressed with merit.
WHEREFORE, the petition is GRANTED. Associated Bank assumed all the rights of CBTC. Although absorbed corporations are dissolved, there is no winding up of their affairs or liquidation of their assets, because the surviving corporation automatically acquires all their rights, privileges and powers, as well as their liabilities. The merger, however, does not become effective upon the mere agreement of the constituent corporations. The Securities and Exchange Commission (SEC) and majority of the respective stockholders of the constituent corporations must have approved the merger. (Section 79, Corporation Code) It will be effective only upon the issuance by the SEC of a certificate of merger. Records do not show when the SEC approved the merger. But assuming that the effectivity date of the merger was the date of its execution, we still cannot agree that petitioner no longer has any interest in the promissory note. The agreement itself clearly provides that all contracts irrespective of the date of execution entered into in the name of CBTC shall be understood as pertaining to the surviving bank, herein petitioner. Such must have been deliberately included in the agreement in order to avoid giving the merger agreement a farcical interpretation aimed at evading fulfillment of a due obligation. Thus, although the subject promissory
BPI VS BPI EMPLOYEES UNION
FACTS: In 2000, Far East Bank and trust Company (FEBTC) merged with Bank of the Philippine Islands. Petitioner had a Union Shop agreement with respondent BPI Employees Union-Davao ChapterFederation of Unions in BPI Unibank (the Union).Pursuant to the merger, respondent requested BPI to terminate the employment of those new employees from FEBTC who did not join the union. BPI refused to undertake such action and brought the controversy before a voluntary arbitrator. Although BPI won the initial battle at the Voluntary Arbitrator level, BPIs position was rejected by the Court of Appeals which ruled that the Voluntary Arbitrators interpretation of the Union Shop Clause was at war with the spirit and rationale why the Labor Code allows the existence of such provision. This was followed and affirmation by the Supreme Court of the CA decision holding that former employees of the Far East Bank and Trust Company (FEBTC) "absorbed" by BPI pursuant to
the two banks merger. The absorbed employees
were covered by the Union Shop Clause in the then existing collective bargaining agreement (CBA)of BPI with respondent BPI Employees Union-Davao Chapter-Federation of Unions in BPI Unibank (the Union). Petitioners, despite the August 2010 decision moved for a Motion for reconsideration of the decision. ISSUE: WON the employees of the dissolved Corporation is absorbed by the surviving corporation in a merger HELD: The court agreed with Justice Brions view that it is more 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, without break in the continuity of their employment, and even in the absence of an express stipulation in the articles of merger or the merger plan. By upholding the automatic assumption of the nonsurviving corporations existing employment contracts by the surviving corporation in a merger, the Court strengthens judicial protection of the right to security of tenure of employees affected by a merger and avoid confusion regarding the status of their various benefits. However, it shall be noted that nothing in the Resolution shall impair the right of an employer to terminate the employment of the
absorbed employees for a lawful or authorized
cause or the right of such an employee to resign, retire or otherwise sever his employment, whether before or after the merger, subject to existing contractual obligations. Although by virtue of the merger BPI steps into the shoes of FEBTC as a successor employer as if the former had been the employer of the latters employees from the beginning it must be emphasized that, in reality, the legal consequences of the merger only occur at a specific date, i.e., upon its effectivity which is the date of approval of the merger by the SEC. Thus, the court observed in the Decision that BPI and FEBTC stipulated in the Articles of Merger that they will both continue their respective business operations until the SEC issues the certificate of merger and in the event no such certificate is issued, they shall hold each other blameless for the non-consummation of the merger. In other words, the obligation of BPI to pay the salaries and benefits of the former FEBTC employees and its right of discipline and control over them only arose with the effectivity of the merger. Concomitantly, the obligation of former FEBTC employees to render service to BPI and their right to receive benefits from the latter also arose upon the effectivity of the merger. What is material is that all of these legal consequences of the merger took place during the life of an existing and valid CBA between BPI and the Union wherein they have mutually consented to include a Union Shop Clause.