Pardo vs. Hercules Lumber Co., Inc.

A corporation's board of directors cannot, by by-law or resolution, restrict a stockholder's statutory right of inspection to an arbitrary few days each year, the right being exercisable at reasonable hours on business days throughout the year and regardless of the stockholder's motive.

Antonio Pardo was a stockholder of Hercules Lumber Company, Inc., whose acting secretary was Ignacio Ferrer. Section 51 of Act No. 1459 conferred upon stockholders a right to inspect corporate records and business transactions. Article 10 of the corporation's by-laws declared that every shareholder could examine company books and documents upon days annually fixed by the board of directors.

Antonio Pardo was a stockholder of the Hercules Lumber Company, Inc., a domestic corporation, while Ignacio Ferrer served as its acting secretary. Pardo sought to examine the records and business transactions of the company, either personally or through a duly authorized agent and representative, at times of his choosing.

On February 16, 1924, the board of directors of the company passed a resolution calling the usual general meeting of shareholders for March 30 of that year, with notice that the books were at the shareholders' disposition from the 15th to the 25th of March for examination in appropriate hours. This action was taken pursuant to article 10 of the by-laws, which stated that every shareholder could examine the books and other documents upon days annually fixed by the board. Ferrer, as acting secretary, refused to permit Pardo or his agent to inspect at other times desired by Pardo.

According to respondents, the information was sought for ulterior purposes in connection with a competitive firm with which Pardo was allegedly connected, and to obtain evidence preparatory to an action Pardo intended to bring against the corporation concerning a former contract of employment between himself and the company. Because inspection outside the designated ten-day period was refused, Pardo filed an original proceeding for mandamus in the Supreme Court.

Upon the pleadings, stockholder status and refusal of inspection at the times desired were inferentially if not directly admitted, with no serious contest on Pardo's entitlement by himself or proper representative to exercise inspection under section 51 of Act No. 1459.

• Lawful Restriction by By-Law and Resolution: Respondents argued that article 10 of the by-laws and the February 16, 1924 board resolution lawfully restricted inspection to March 15 to 25, 1924, and that having failed to avail himself of that permission, petitioner's right to inspection was lost, at least for that year.
• Ulterior Motive: Respondents argued that inspection should be denied because the information was desired for ulterior purposes connected with a competitive firm and to gather evidence for an anticipated employment-contract action against the corporation.

• Time Restriction on Inspection: Whether the board of directors may, by by-law and resolution, confine a stockholder's statutory right of inspection to a ten-day period annually fixed by the board.
• Motive for Inspection: Whether the stockholder's alleged ulterior or hostile motive bars exercise of the statutory right of inspection.

• Time Restriction on Inspection: No. The general statutory right may not be abridged to a few arbitrary days chosen by the directors, being exercisable at reasonable hours on business days throughout the year.
• Motive for Inspection: No. The motive prompting the shareholder to exercise inspection is generally immaterial and does not defeat the right.

• Time Restriction on Inspection: Inspection at unusual hours or under improper conditions may be denied by corporate officials, but neither executive officers nor the board may deprive a stockholder of the right altogether. A by-law unduly restricting inspection is invalid, and the resolution closing inspection except for March 15 to 25 was an unlawful abridgment of section 51 of Act No. 1459. The statutory phrase at reasonable hours was construed to mean reasonable hours on business days throughout the year, supported by American authorities and by the ruling that a resolution closing transfer books thirty days before an election did not affect a similar statutory right.
• Motive for Inspection: The allegations of connection with a competitive firm and of gathering evidence for prospective employment litigation were held entirely apart from the issue. Because the right of examination is conferred by statute, the shareholder's purpose in seeking information does not condition entitlement, and refusal cannot be justified on that ground.

• Stockholder's right of inspection — A stockholder, either in person or through a duly authorized agent or representative, is entitled to examine corporate records and business transactions under section 51 of Act No. 1459. The right was applied here to sustain Pardo's demand for examination by himself and his agent, with no serious question raised against its existence.
• Invalidity of unreasonable restrictions on inspection — Corporate officials may regulate the exercise of inspection as to unusual hours or improper conditions, but may not deprive the stockholder of the right altogether; a by-law or board resolution unduly restricting inspection is invalid. The ten-day limitation imposed for 1924 was therefore denied effect as an unlawful abridgment of the statute.
• Meaning of reasonable hours — Reasonable hours means reasonable hours on business days throughout the year, not merely during an arbitrary period of a few days chosen by directors. That construction preserved year-round access subject only to reasonableness as to time and manner.
• Immateriality of motive — Generally speaking, the motive of the shareholder in exercising inspection is immaterial. Alleged desire to aid a competitor or to prepare litigation against the corporation thus did not bar mandamus.

• "The general right given by the statute may not be lawfully abridged to the extent attempted in this resolution." — States the ratio invalidating the board's ten-day limitation as an excessive abridgment of the statutory inspection right.
• "This means at reasonable hours on business days throughout the year, and not merely during some arbitrary period of a few days chosen by the directors." — Defines the canonical meaning of reasonable hours under the inspection statute.
• "These suggestions are entirely apart from the issue, as, generally speaking, the motive of the shareholder exercising the right is immaterial." — Establishes that alleged ulterior or hostile purpose does not defeat inspection.

• Philpotts vs. Philippine Manufacturing Co. and Berry, 40 Phil., 471 — Followed as authority that the statutory right of examination may be exercised by a stockholder in person or by any duly authorized agent or representative.
• Harkness vs. Guthrie, 27 Utah, 248; 107 Am. St. Rep., 664, 681 — Cited with treatises as supporting authority that a by-law unduly restricting inspection is invalid.
• State vs. St. Louis Railroad Co., 29 Mo. App., 301 — Cited as holding under a similar statute that a board resolution closing transfer books thirty days before an election did not affect the statutory right of inspection.

• Section 51, Act No. 1459 — Confers upon stockholders the right to examine corporate records and business transactions at reasonable hours; applied to entitle Pardo to inspection by himself or agent throughout the year and to invalidate confinement of the right to March 15 to 25, 1924.

Johnson, Malcolm, Villamor, Ostrand, and Romualdez, JJ., concurred.