Philpotts vs. Philippine Manufacturing Company

The right of a stockholder to inspect corporate records under section 51 of the Corporation Law may be exercised either by the stockholder himself or by any proper representative or attorney in fact, with or without the stockholder's attendance. The statute contains no qualification limiting the right to personal exercise, and the general rule that what one may do in person one may do through another applies.

W. G. Philpotts was a stockholder in the Philippine Manufacturing Company, a corporation engaged in manufacturing. F. N. Berry was the corporation's secretary. Section 51 of Act No. 1459 (the Corporation Law) provided that "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 proceeding was filed originally in the Supreme Court under section 515 of the Code of Civil Procedure, which conferred concurrent jurisdiction with the Court of First Instance over cases where a corporation or person unlawfully excludes a plaintiff from a right to which he is entitled.

W. G. Philpotts was a stockholder in the Philippine Manufacturing Company. He sought by this proceeding to obtain a writ of mandamus compelling the corporation and its secretary, F. N. Berry, to permit him, in person or through an authorized agent or attorney, to inspect and examine the records of all business transacted by the company since January 1, 1918. The petition was filed originally in the Supreme Court pursuant to section 515 of the Code of Civil Procedure, which gave the tribunal concurrent jurisdiction with the Court of First Instance in cases where a corporation or person unlawfully excludes a plaintiff from a right to which he is entitled.

The respondents interposed a demurrer, raising two principal grounds. The first concerned a supposed defect of parties: it was argued that the action could not be maintained jointly against the corporation and its secretary without an allegation that the latter was the custodian of the business records. The second, and the real controversy, concerned whether the right of inspection conceded to a stockholder under section 51 of the Corporation Law could be exercised by a proper agent or attorney of the stockholder, or whether it had to be exercised in person.

There was no pretense that the respondent corporation or any of its officials had refused to allow the petitioner himself to examine anything relating to the company's affairs. The petition prayed for a peremptory order commanding the respondents to place the records at the disposal of the petitioner or his duly authorized agent or attorney, it being evident that the petitioner intended to exercise the right through a representative. Counsel for respondents conceded that a right of examination existed under section 51 of the Corporation Law but insisted that the right must be exercised personally by the stockholder.

• Right to Inspect Through Agent: Petitioner maintained that the statutory right of inspection granted to stockholders under section 51 of the Corporation Law could be exercised either by the stockholder himself or by a duly authorized agent or attorney in fact, with or without the stockholder's attendance.

• Defect of Parties: Respondents argued that the action could not be maintained jointly against the corporation and its secretary without an allegation that the secretary was the custodian of the business records.
• Personal Exercise Required: Respondents conceded the existence of a right of examination under section 51 of the Corporation Law but insisted that this right must be exercised in person by the stockholder and could not be delegated to an agent or attorney.

• Proper Parties: Whether the corporation's secretary was a proper party defendant in a mandamus proceeding to compel inspection of corporate records.
• Right of Inspection Through Agent: Whether the stockholder's right to inspect corporate records under section 51 of the Corporation Law may be exercised by a duly authorized agent or attorney, or must be exercised personally by the stockholder.

• Proper Parties: Yes. The corporation was the only absolutely necessary party, but the secretary was a proper codefendant, being customarily charged with custody of corporate documents and presumably the person against whom personal orders of the court would be made effective.
• Right of Inspection Through Agent: Yes. The right of inspection may be exercised either by the stockholder himself or by any proper representative or attorney in fact, with or without the stockholder's attendance, there being nothing in the statute qualifying the right to personal exercise only.

• Proper Parties: Under sections 515 and 222 of the Code of Civil Procedure, the right of action in such a proceeding is given against the corporation, making the corporation the only absolutely necessary party. However, naming the secretary as a codefendant was proper because such official is customarily charged with custody of corporate documents, correspondence, and records, and is presumably the person against whom the court's personal orders would be made effective. The California Supreme Court decision in Barber vs. Mulford (117 Cal., 356) confirmed that both the corporation and its officers may be joined as defendants. Nothing in the complaint indicated the secretary was an improper party.

• Right of Inspection Through Agent: The pertinent provision of section 51 of Act No. 1459 states that corporate records "shall be open to the inspection of any director, member or stockholder of the corporation at reasonable hours." The Court found nothing in the statute justifying a qualification limiting the right to personal exercise. The general rule that what a person may do in person he may do through another applied. The weight of American authority supported a liberal construction of stockholder inspection provisions, holding that the right may be exercised through a properly authorized person. In Foster vs. White (86 Ala., 467), the court noted that the right is personal only in the sense that only a stockholder may enjoy it, but the inspection itself may be made by another, "otherwise it would be unavailing in many instances." In Martin vs. Bienville Oil Works Co. (28 La., 204), the court observed that the right would be futile if the possessor, through lack of knowledge, were debarred from procuring the services of one who could exercise it. The Court noted, however, that corporations may keep certain things secret — such as proprietary manufacturing formulas or processes not generally known — and that the Board of Directors may adopt measures to protect such matters from publicity, though nothing in the petition indicated the petitioner was seeking to discover anything the corporation was entitled to keep secret.

• Stockholder's Right to Inspect Corporate Records — A stockholder has a statutory right to inspect the records of all business transactions and minutes of meetings of the corporation at reasonable hours. This right, though personal in the sense that only a stockholder may enjoy it, may be exercised by the stockholder himself or by any properly authorized agent or attorney in fact, with or without the stockholder's attendance. The rule rests on the general principle that what a person may do in person he may do through another, and on the practical consideration that the right would be futile if a stockholder lacking the requisite knowledge were unable to procure the services of one who could effectively exercise it. The Court recognized a limitation: corporations may keep certain matters secret, such as proprietary formulas or processes not generally known, and the Board of Directors may adopt measures to protect such matters from publicity.

• Proper Parties in Mandamus Against a Corporation — In a mandamus proceeding to compel inspection of corporate records, the corporation is the only absolutely necessary party, but corporate officers charged with custody of records — such as the secretary — are proper codefendants, being the persons against whom the court's personal orders would be made effective.

• "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." — This quotation, drawn from Foster vs. White (86 Ala., 467) and adopted by the Court, articulates the rationale for permitting inspection through an agent: the right is personal as to entitlement but not as to execution.

• "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." — This passage, taken from Martin vs. Bienville Oil Works Co. (28 La., 204), reinforces the practical necessity of allowing agent inspection by emphasizing the futility of a right that cannot be effectively exercised by an uninformed stockholder.

• Cincinnati Volksblatt Co. vs. Hoffmister, 61 Ohio St. 432; 48 L.R.A. 735 — Cited for the proposition that in a proceeding to compel inspection of corporate records, only the corporation need be named as defendant, supporting the conclusion that the corporation was the only absolutely necessary party.
• Barber vs. Mulford, 117 Cal. 356 — Cited as authority that both the corporation and its officers may be joined as defendants in a mandamus proceeding, since section 222 of the Code of Civil Procedure was derived from the California Code.
• Foster vs. White, 86 Ala. 467 — Cited for the principle that the stockholder's right of inspection, while personal as to entitlement, may be exercised by another person, as the right would otherwise be unavailing in many instances.
• Martin vs. Bienville Oil Works Co., 28 La. 204 — Cited for the proposition that the right of inspection would be futile if the stockholder, lacking necessary knowledge, were debarred from procuring the services of one who could exercise it.
• Deadreck vs. Wilson, 8 Baxt. (Tenn.) 108 — Cited for the established principle that stockholders may inspect corporate books at reasonable times and may be aided by experts and counsel to make the inspection valuable.

• Section 51, Act No. 1459 (Corporation Law) — Provides that "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 Court construed this provision as permitting inspection not only by the stockholder personally but also by a duly authorized agent or attorney in fact, finding no statutory language restricting the right to personal exercise.
• Sections 515 and 222, Code of Civil Procedure — Section 515 conferred on the Supreme Court concurrent jurisdiction with the Court of First Instance over cases where a corporation or person unlawfully excludes a plaintiff from a right to which he is entitled. Section 222, derived from the California Code, was cited for the proposition that both the corporation and its officers may be joined as defendants.

Arellano, C.J., Torres, Johnson, Araullo, Malcolm, and Avanceña, JJ., concurred.