Veraguth vs. Isabela Sugar Company, Inc.

A director or stockholder has an unqualified right to inspect corporate books and records at reasonable times, and that right cannot be defeated by pretexts or unfriendly relations; however, there is no absolute right to certified copies of minutes not yet approved by the board, and mandamus will not issue where the failure to notify of a past meeting is academic and no damage is shown. A board resolution requiring prior approval of the corporation's president before inspection is an illegal obstacle to the right of inspection, but absent enforcement to another's detriment, it does not warrant mandamus.

Eugenio Veraguth was a director and stockholder of the Isabela Sugar Company, Inc., while Gil Montilla was its acting president and Agustin B. Montilla its secretary. The parties belonged to the same family. Section 51 of the Corporation Law required all business corporations to keep and carefully preserve records of business transactions and minutes of meetings, and made those records and minutes open to inspection by any director, member, or stockholder at reasonable hours. The dispute concerned the internal governance of the corporation and the scope of a director's and stockholder's statutory inspection rights.

Eugenio Veraguth was a director and stockholder of the Isabela Sugar Company, Inc. Gil Montilla served as acting president of the company, and Agustin B. Montilla as its secretary. The corporation had by-laws and a board resolution providing for the holding of ordinary and special meetings. The parties belonged to the same family, and the dispute concerned Veraguth's rights as director and stockholder to notice of board meetings and access to corporate records.

A special meeting of the board of directors was held at which the compensation of the company's attorneys was fixed. Veraguth alleged that the secretary failed to notify him in due time of that special meeting. The Court found it impossible to determine definitively whether there was a malicious attempt to keep Veraguth from attending or whether Veraguth, in a spirit of antagonism, merely used the matter as a pretext to cause trouble. The meeting was already in the past. No damage was caused to Veraguth by the action taken at the special meeting he did not attend, since his interests were fully protected by the Philippine National Bank. As to future meetings, the Court presumed that the secretary would fulfill the requirements of the company's resolutions on regular and special meetings, and Veraguth would need to give formal notice of his post-office address if he desired notice sent to a particular residence.

On the right of inspection, Veraguth telegraphed the secretary asking him to forward in the shortest possible time a certified copy of the board resolution concerning payment of attorney's fees in the case against the Isabela Sugar Company and others. The secretary replied by letter that because the minutes of the meeting had not been signed by the directors present, a certified copy could not be furnished, and that as to other proceedings of the stockholders, a request should be made to the president of the Isabela Sugar Company, Inc. The board of directors had also adopted a resolution providing for inspection of the books and the taking of copies "by authority of the President of the corporation previously obtained in each case."

The petition was submitted on memoranda after considerable evidence had been taken before the clerk as commissioner. The Court ultimately ruled that Veraguth had not made out a case for relief by mandamus.

• Notice of Board Meetings: Petitioner sought a writ of mandamus to compel respondents to notify him, as director, of all regular and special meetings of the board of directors within the reglamentary period.
• Inspection of Corporate Records: Petitioner sought to compel respondents to place at his disposal at reasonable hours the minutes, documents, and books of the corporation for his inspection as director and stockholder.
• Certified Copies: Petitioner sought to compel respondents to issue, upon payment of fees, certified copies of any documentation in connection with the minutes, documents, and books of the corporation.
• Failure to Notify of Special Meeting: Petitioner claimed that the secretary failed to notify him in due time of a special meeting of the board at which the compensation of the company's attorneys was fixed.

• Certified Copies of Unapproved Minutes: The secretary answered that a certified copy of the resolution could not be furnished because the minutes of the meeting had not been signed by the directors present.
• Requests for Other Stockholder Proceedings: The secretary stated that as to other proceedings of the stockholders, a request should be made to the president of the Isabela Sugar Company, Inc.
• Inspection Subject to Prior Presidential Authority: The board of directors adopted a resolution providing for inspection of the books and taking of copies "by authority of the President of the corporation previously obtained in each case."

• Notice of Board Meetings: Whether mandamus lies to compel the respondents to notify petitioner, as director, of the regular and special meetings of the board of directors.
• Inspection of Corporate Books and Records: Whether petitioner, as director and stockholder, is entitled to inspect the minutes, documents, and books of the corporation at reasonable hours.
• Certified Copies of Corporate Minutes: Whether petitioner has an absolute right to secure certified copies of the minutes of the corporation upon payment of fees.
• Validity of Board Resolution Requiring Prior Presidential Approval: Whether the board resolution requiring prior authority of the president before inspection of the books is an illegal obstacle to the right of inspection.
• Propriety of Original Action in Supreme Court: Whether the petition for mandamus should have been filed in the Court of First Instance rather than the Supreme Court.

• Notice of Board Meetings: No. The meeting was in the past and presented only an academic question; no damage was caused to Veraguth, and future compliance by the secretary is presumed.
• Inspection of Corporate Books and Records: Yes, but qualified. Directors have an unqualified right to inspect at reasonable times, and pretexts or unfriendly relations cannot defeat it; however, there is no absolute right to certified copies of unapproved minutes.
• Certified Copies of Corporate Minutes: No. A director or stockholder has no absolute right to secure certified copies of minutes until they have been written up and approved by the directors.
• Validity of Board Resolution Requiring Prior Presidential Approval: The resolution is an illegal obstacle to inspection, but it had not been enforced to anyone's detriment, so it did not warrant mandamus.
• Propriety of Original Action in Supreme Court: No. The correct practice was to require petitioner to present the action in the Court of First Instance, which is better equipped for taking testimony and resolving questions of fact. The Court nevertheless proceeded to decide.

• Notice of Board Meetings: The by-laws and a board resolution provided for the holding of ordinary and special meetings. The Court could not determine whether there was a malicious attempt to keep Veraguth from attending the special meeting or whether Veraguth, in a spirit of antagonism, merely used the matter as a pretext to cause trouble. The decisive considerations were that the meeting was already in the past and presented merely an academic question; that no damage was caused to Veraguth by the action taken at the special meeting he did not attend, since his interests were fully protected by the Philippine National Bank; and that as to future meetings, the secretary was presumed to fulfill the requirements of the company's resolutions on regular and special meetings. Veraguth would need to give formal notice of his post-office address if he desired notice sent to a particular residence. Mandamus therefore did not lie on this ground.
• Inspection of Corporate Books and Records: Section 51 of the Corporation Law put in statutory form the general principles of corporation law. Directors of a corporation have the unqualified right to inspect the books and records of the corporation at all reasonable times. Pretexts may not be put forward by officers of corporations to keep a director or shareholder from inspecting the books and minutes of the corporation, and the right of inspection is not to be denied on the ground that the director or shareholder is on unfriendly terms with the officers of the corporation whose records are sought to be inspected. The Court also noted that a director or stockholder cannot, without an order of a court, be permitted to take books from the office of the corporation. The right of inspection, however, does not carry an absolute right to secure certified copies of minutes not yet approved by the directors.
• Certified Copies of Corporate Minutes: The secretary declined to furnish certified copies of the minutes because they had not been signed by the directors present. The Court found nothing improper in that refusal. A director or stockholder has no absolute right to secure certified copies of the minutes of the corporation until those minutes have been written up and approved by the directors. The Court cited Fisher's Philippine Law of Stock Corporations, sec. 153, and Fletcher Cyclopedia Corporations, vol. 4, Chap. 45, on this point. Accordingly, mandamus did not lie to compel the issuance of certified copies of the unapproved minutes.
• Validity of Board Resolution Requiring Prior Presidential Approval: So much of the board resolution as provided for prior approval of the president of the corporation before the books of the corporation could be inspected put an illegal obstacle in the way of a stockholder or director. However, the resolution, so far as the Court was aware, had not been enforced to the detriment of anyone. Because it had not been applied to prejudice any party, it did not by itself justify relief by mandamus in this case.
• Propriety of Original Action in Supreme Court: When the case was filed in the Supreme Court, it was initially dismissed without prejudice to the petitioner's right to present the action before the Court of First Instance of Occidental Negros. On reconsideration, that order was set aside and the case was permitted to continue in the Supreme Court. On further reflection, the Court held that this was error and that the correct practice would have been to require the petitioner to present the action in a Court of First Instance, which is better equipped for the taking of testimony and the resolution of questions of fact than the appellate court. Only with considerable difficulty could the Court decide the issues of fact, since none of its members saw or heard the witnesses testify. Nevertheless, the Court proceeded to decide the case.

• Right of inspection of corporate books and records — Directors of a corporation have the unqualified right to inspect the books and records of the corporation at all reasonable times. Pretexts may not be put forward by corporate officers to keep a director or shareholder from inspecting the books and minutes, and the right of inspection is not denied merely because the director or shareholder is on unfriendly terms with the officers whose records are sought. In this case, the Court recognized the right but found that it did not entitle petitioner to the specific relief of mandamus under the circumstances.
• No absolute right to certified copies of unapproved minutes — A director or stockholder has no absolute right to secure certified copies of the minutes of the corporation until those minutes have been written up and approved by the directors. The Court applied this limitation to uphold the secretary's refusal to furnish a certified copy of a resolution whose minutes had not been signed by the directors present.
• Illegal obstacle in corporate resolution — A board resolution requiring prior approval of the corporation's president before the books of the corporation can be inspected puts an illegal obstacle in the way of a stockholder or director. In this case, however, the resolution had not been enforced to anyone's detriment, so it did not warrant mandamus.
• Mootness or academic question in corporate governance — The failure to notify a director of a past special meeting presents merely an academic question where no damage was caused by the action taken at the meeting and future compliance with corporate resolutions is presumed. The Court applied this principle to deny mandamus on the notice issue.
• Proper forum for factual issues — A Court of First Instance is better equipped than the appellate court for the taking of testimony and the resolution of questions of fact. The Court held that the original petition should have been filed in the Court of First Instance, although it proceeded to decide the case.

• "Directors of a corporation have the unqualified right to inspect the books and records of the corporation at all reasonable times." — This states the core statutory and doctrinal right of inspection recognized by the Court under Section 51 of the Corporation Law.
• "Pretexts may not be put forward by officers of corporations to keep a director or shareholder from inspecting the books and minutes of the corporation, and the right of inspection is not to be denied on the ground that the director or shareholder is on unfriendly terms with the officers of the corporation whose records are sought to be inspected." — This is the Court's canonical formulation of the scope of the inspection right and the limits on corporate officers' defenses against it.
• "We do not conceive, however, that a director or stockholder has any absolute right to secure certified copies of the minutes of the corporation until these minutes have been written up and approved by the directors." — This defines the key limitation on the inspection right and supplies the ratio for denying certified copies of the unapproved minutes.
• "while so much of the last resolution of the board of directors as provides for prior approval of the president of the corporation before the books of the corporation can be inspected puts an illegal obstacle in the way of a stockholder or director, that resolution, so far as we are aware, has not been enforced to the detriment of anyone." — This passage holds that the prior-approval requirement is illegal but did not justify mandamus because it had not been enforced to anyone's prejudice.

• Section 51, Corporation Law — All business corporations shall keep and carefully preserve a record of all business transactions, and a minute of all meetings of directors, members, or stockholders, setting forth in detail the time and place of holding the meeting, whether regular or special, the object if special, those present and absent, and every act done or ordered done at the meeting. The record of all business transactions 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 applied this provision as the statutory basis for the director's and stockholder's right of inspection, while holding that it did not confer an absolute right to certified copies of minutes not yet approved by the directors.

Avanceña, C.J., Villamor, Villa-Real, Hull and Imperial, JJ., concur.

• Justice Vickers — Dissented. He found that no notice of the April 21, 1932 extraordinary meeting of the directors was given to the plaintiff because the notice was sent to Isabela instead of Pulupandan, the plaintiff's post-office address, which was known to the defendant officers. Considering the relations between the parties, he was satisfied that the notice was misaddressed for the purpose of depriving the plaintiff of an opportunity to attend. He disagreed that the failure to notify was merely an academic question, because the plaintiff sought protection of his right to notice of all meetings and would have no redress under the majority's theory if the officers again failed to notify him. On the second ground, he believed the plaintiff was clearly within his rights in demanding an opportunity to examine the resolution adopted on April 21, 1932; there was no necessity for the directors to sign the resolution, and as a director he had a right to see it. The existence of ill-feeling and another pending suit only furnished additional reason to protect the plaintiff's lawful rights. The writ should be granted. Street, Ostrand and Abad Santos, JJ., concurred.
• Justice Butte — Concurred in the foregoing dissent insofar as it related to the actions of the respondent corporation and its officers in denying to the petitioner, as stockholder and director, the rights conferred by statute to examine and make or receive copies of any and all of the books and papers of the corporation pertaining to the conduct of its business. The record clearly showed that the officers and remaining directors had adopted a policy of obstruction toward the petitioner in this respect and had imposed for the future, by resolution, illegal conditions upon the petitioner's exercise of that right.