Terelay Investment and Development Corporation vs. Yulo

A stockholder's right to inspect corporate books and records under Section 74 of the Corporation Code is not dependent on the magnitude of shareholding, and the corporation bears the burden of proving that the demand is made in bad faith or for an improper purpose to justify refusal.

Cecilia Teresita Yulo, claiming ownership of five shares (representing a 0.001% interest) in Terelay Investment and Development Corporation (TERELAY), sought to inspect the corporation's books and records to inquire into its financial condition and the conduct of its affairs by principal officers. TERELAY denied the request, questioning her status as a bona fide stockholder and asserting that the donation of shares from her late father was void for non-compliance with Article 748 of the Civil Code. The dispute originated from Yulo's letter-requests for inspection in September 1999, which were refused, prompting her to file a petition for mandamus with the Securities and Exchange Commission (SEC).

• The Demand and Refusal: On September 14, 1999, Cecilia Teresita Yulo sent a letter to TERELAY requesting permission to examine its corporate records, books of account, and other financial records on September 17, 1999. TERELAY denied the request in a reply-letter dated September 15, 1999, demanding proof that she was a bona fide stockholder. On September 16, 1999, Yulo sent another letter clarifying that her purpose was to inquire into the financial condition of TERELAY and the conduct of its affairs by the principal officers. On September 17, 1999, TERELAY's counsel faxed a letter advising her not to continue with the inspection to avoid trouble.
• SEC Proceedings and Stipulations: On October 11, 1999, Yulo filed a Petition for Mandamus with the SEC. During the preliminary conference on May 16, 2000, the parties stipulated that: (1) petitioner Yulo is registered as a stockholder in the corporation's stock and transfer book subject to the qualification in the Answer; and (2) petitioner had informed TERELAY of her desire to inspect the records, but the same was denied.
• Evidence of Stockholder Status: Corporate documents submitted as evidence included the Articles of Incorporation and Amended Articles of Incorporation bearing Yulo's signatures (as Cecilia J. Yulo and Cecilia Y. Blancaflor, respectively), as well as General Information Sheets from December 31, 1977 up to February 20, 2002, showing her as a director, corporate secretary, and subscriber to five shares of stock.
• Nature of Shareholding: Yulo's five shares represented a 0.001% interest in TERELAY, which the petitioner characterized as "measly" and "insignificant."

• Jurisdiction: TERELAY maintained that the RTC lacked jurisdiction to determine whether Yulo was a stockholder because the validity of the alleged donation of shares from her late father was a prejudicial question pending resolution in the probate proceedings for the settlement of his estate before the Regional Trial Court of Manila.
• Prematurity: The petition for mandamus was premature because Yulo failed to exhaust all available administrative remedies before filing the judicial action.
• Stockholder Status: Yulo was not a bona fide stockholder because the donation of the five shares was null and void for failure to comply with the requisites of a donation under Article 748 of the Civil Code; she did not subscribe to the shares nor pay for them; her name as incorporator in the Articles of Incorporation was unsigned; and she had never seen the stock certificates.
• Purpose and Good Faith: Yulo's purpose—to inquire into the financial condition and the conduct of affairs by principal officers—was not a just and sufficient ground for inspection; she was acting in bad faith or with an ulterior motive, thus the presumption of good faith could not be accorded her.
• Shareholding Magnitude: The right to inspect should not be granted to a stockholder holding a mere 0.001% interest.
• Indispensable Parties: The principal officers (Atty. Reynaldo G. Geronimo, Ma. Antonia Yulo Loyzaga, and Teresa J. Yulo) were indispensable parties who should have been impleaded as respondents.
• Attorney's Fees: The award of P50,000.00 in attorney's fees was improper and should be set aside.

• Stockholder Status: The Corporation Code does not require a specific amount of shareholding before a stockholder can exercise the right of inspection; it is the subscription to shares that grants statutory rights, and she was registered as a stockholder in the books.
• Jurisdiction: The RTC, sitting as a corporate court, had jurisdiction over intra-corporate controversies, including the determination of stockholder status.
• Purpose: She possessed just and sufficient grounds to inspect the corporate records, namely to protect her interest by inquiring into the financial condition and management conduct.
• Prematurity: The petition was not premature because she had made specific demands for inspection which were unlawfully denied, satisfying the requisites for mandamus.
• Indispensable Parties: The corporate officers were not indispensable parties to the mandamus action against the corporation.
• Attorney's Fees: The award was justified because she was compelled to litigate to enforce a statutory right.

• Jurisdiction: Whether the Regional Trial Court had jurisdiction to determine Yulo's status as a stockholder.
• Exhaustion of Remedies: Whether the petition for mandamus was premature for failure to exhaust administrative remedies.
• Stockholder Status: Whether Yulo was a registered stockholder entitled to inspection under Section 74 of the Corporation Code.
• Purpose and Good Faith: Whether Yulo's stated purpose for inspection was valid and whether TERELAY sufficiently proved bad faith or improper motive.
• Shareholding Magnitude: Whether the right to inspect corporate records depends on the percentage of shares owned by the stockholder.
• Indispensable Parties: Whether the principal officers of the corporation were indispensable parties.
• Attorney's Fees: Whether the award of P50,000.00 in attorney's fees was proper.

• Jurisdiction: The RTC had jurisdiction to determine Yulo's status as a stockholder because the action was an intra-corporate controversy within the competence of the RTC acting as a special court; the probate court's jurisdiction over the estate settlement was separate and distinct.
• Exhaustion of Remedies: The petition was not premature; a writ of mandamus is the proper remedy when a corporation refuses a stockholder's demand for inspection despite prior written requests, as occurred here through two distinct demands and refusals.
• Stockholder Status: Yulo was a registered stockholder based on the parties' stipulation in the SEC and the overwhelming documentary evidence (Articles of Incorporation, Amended Articles, General Information Sheets) showing her subscription and registration.
• Purpose and Good Faith: The purpose to inquire into financial condition and management conduct is a valid and legitimate ground for inspection; the burden of proving improper purpose or lack of good faith rests upon the corporation, which TERELAY failed to discharge by sufficient proof.
• Shareholding Magnitude: The right to inspection attaches to all stockholders regardless of the size of their interest; the law makes no distinction (ubi lex non distinguit nee nos distinguere debemos), and the corporation cannot arbitrarily deny the right based on the stockholder's "insignificant" holding.
• Indispensable Parties: The resolution of this issue was unnecessary because it was incapable of defeating the established fact that Yulo possessed the right to inspection as a registered stockholder.
• Attorney's Fees: The award of P50,000.00 was affirmed as Yulo was compelled to litigate to exercise her statutory right.

• Right of Inspection (Section 74, Corporation Code) — Every stockholder has the statutory right to inspect corporate books and records at reasonable hours on business days to be informed of the corporation's condition and management. This right is predicated upon self-preservation and protection from mismanagement. The only statutory defenses to such a demand are: (1) the person demanding has improperly used information secured through prior examination; (2) the person was not acting in good faith; or (3) the person lacked a legitimate purpose.
• Burden of Proof — When a corporation refuses a stockholder's demand for inspection, the burden of proof is upon the corporation to establish a probability that the applicant seeks inspection for an improper purpose or wrongful motives; it is not upon the stockholder to prove the propriety of the examination or to show any particular dispute or mismanagement beforehand.
• No Minimum Shareholding Requirement — The statutory grant of the right of inspection to "any" stockholder means the right attaches regardless of the number of shares owned or the percentage of interest held; the law does not distinguish between majority and minority stockholders, or between substantial and minimal shareholders.
• Proper vs. Improper Purposes — Proper purposes include ascertaining the financial condition of the company, the value of shares, whether there has been mismanagement, obtaining information for shareholder meetings, and aiding litigation. Improper purposes include obtaining business secrets to aid a competitor, securing advertising lists, or bringing "strike suits" for blackmail or extortion.

• "The Corporation Code has granted to all stockholders the right to inspect the corporate books and records, and in so doing has not required any specific amount of interest for the exercise of the right to inspect."
• "Ubi lex non distinguit nee nos distinguere debemos. When the law has made no distinction, we ought not to recognize any distinction."
• "The right of the shareholder to inspect the books and records of the petitioner should not be made subject to the condition of a showing of any particular dispute or of proving any mismanagement or other occasion rendering an examination proper, but if the right is to be denied, the burden of proof is upon the corporation to show that the purpose of the shareholder is improper, by way of defense."
• "The writ should not be granted for speculative purposes or to gratify idle curiosity or to aid a blackmailer, but it may not be denied to the stockholder who seeks the information for legitimate purposes."

• Guthrie v. Harkness — Cited via Ballantine's treatise on Corporations; recognized authority establishing that the writ of mandamus to inspect should be granted under proper safeguards to protect the interests of all concerned, but not for speculative purposes or to aid blackmailers.
• Republic v. Mangotara — Controlling precedent on the finality of factual findings by lower courts in petitions for review on certiorari under Rule 45.
• Sps. Moises and Clemencia Andrada v. Pilhino Sales Corporation — Cited for the enumeration of exceptions where the Supreme Court may review factual findings despite the general rule of finality.
• Chuayuco Steel Manufacturing Corporation v. Buklod ng Manggagawa sa Chuayuco Steel Manufacturing Corporation — Cited similarly regarding exceptions to the finality of factual findings.

• Section 74 (paragraphs 2 and 3), Corporation Code of the Philippines — Grants the right of inspection to any director, trustee, stockholder, or member, and specifies the limited defenses available to the corporation (improper use of prior information, lack of good faith, or lack of legitimate purpose).
• Section 75, Corporation Code of the Philippines — Grants stockholders the right to receive financial statements upon written request.
• Section 1, Rule 45, Rules of Court — Limits petitions for review on certiorari to questions of law.
• Article 748, Civil Code of the Philippines — Invoked by petitioner regarding the requisites for donation (impliedly rejected by the Court).

Sereno, C.J., Velasco, Jr., Leonardo-De Castro, and Perez, JJ.