In Dee Ping Wee v. Lee Hiong Wee, the Supreme Court of the Philippines clarified that a corporation bears the burden of proving a stockholder’s bad faith or illegitimate purpose when denying access to corporate records. This ruling reinforces the statutory right of stockholders to inspect corporate books, ensuring transparency and accountability in corporate governance, unless the corporation can demonstrate the stockholder’s improper motives or intentions.

Unveiling Corporate Secrets: Does Suspicion Justify Denying a Stockholder’s Right to Inspect Records?

The case arose from a dispute among siblings and their spouses, who were stockholders in three family-owned corporations: Marcel Trading Corporation, Marine Resources Development Corporation, and First Marcel Properties, Inc. Respondents Lee Hiong Wee and Rosalind Wee, as minority stockholders, sought to inspect the corporate records of these companies. When their request was denied, they filed separate complaints with the Regional Trial Court (RTC) to enforce their right to inspection under Sections 74 and 75 of the Corporation Code. The RTC initially ruled in favor of the respondents, ordering the petitioners to allow the inspection. However, petitioners filed multiple petitions for certiorari with the Court of Appeals (CA), leading to conflicting decisions. One division of the CA dismissed the petition based on a procedural technicality, while two other divisions annulled the RTC decisions pertaining to Marine Resources Development Corporation and First Marcel Properties, Inc., citing the respondents’ failure to demonstrate a proper motive for the inspection. The Supreme Court then had to resolve whether decisions made by separate divisions of the Court of Appeals that deemed the intended inspection of corporate records for two entities as improper constituted a supervening event warranting the suspension of the execution of the decision of the RTC granting inspection of corporate records for another entity, Marcel Trading Corporation.

At the heart of the controversy lies Section 74 of the Corporation Code, which guarantees stockholders the right to inspect corporate records. This provision states that corporate records and minutes must be open for inspection by any director, trustee, stockholder, or member at reasonable hours on business days. This right is not absolute, however, and can be limited. The law provides a defense if the person demanding the examination has improperly used information from prior inspections, or is not acting in good faith or for a legitimate purpose. These limitations are critical in balancing the rights of stockholders with the need to protect corporate interests from potential abuse. The case underscores the importance of adhering to proper procedural remedies and understanding the burden of proof in intra-corporate disputes.

The Supreme Court’s analysis hinged on whether the CA’s decisions in CA-G.R. SP Nos. 85880 and 85879, which declared the intended inspection of corporate records for Marine Resource Development Corporation and First Marcel Properties Corporation as improper, could serve as a supervening event justifying the suspension of the execution of the RTC’s decision in Civil Case No. Q-04-091, concerning Marcel Trading Corporation. A supervening event, according to legal precedent such as Natalia Realty, Inc. v. Court of Appeals, refers to facts transpiring after a judgment becomes final and executory, or new circumstances arising post-finality, including matters unknown during trial.

One of the exceptions to the principle of immutability of final judgments is the existence of supervening events.  Supervening events refer to facts which transpire after judgment has become final and executory or to new circumstances which developed after the judgment has acquired finality, including matters which the parties were not aware of prior to or during the trial as they were not yet in existence at that time.

The Court held that petitioners lost their right to question the RTC Decision dated June 23, 2004, in Civil Case No. Q-04-091, and could not seek the suspension of its execution. The procedural errors in the case were significant. The Interim Rules of Procedure for Intra-Corporate Controversies under Republic Act No. 8799, as highlighted in Section 4, Rule 1, specifies that decisions and orders issued under these rules are immediately executory, except for awards of moral damages, exemplary damages, and attorney’s fees. Appeals or petitions do not stay enforcement unless restrained by an appellate court. The Court also emphasized A.M. No. 04-9-07-SC, which mandates that appeals from such cases be made through a petition for review under Rule 43 of the Rules of Court within fifteen days from notice of the decision. In this case, the petitioners erroneously filed petitions for certiorari instead of petitions for review and did so beyond the allowable appeal period.

Building on this, the Supreme Court clarified that a petition for certiorari under Rule 65 cannot substitute for a petition for review under Rule 43. As the Court underscored in Sebastian v. Morales, a petition for review is a mode of appeal aimed at correcting errors of judgment, whereas certiorari is an extraordinary remedy for correcting errors of jurisdiction. The RTC acted within its jurisdiction, and any errors were errors of judgment reviewable only by a timely appeal. Because the petitioners filed the wrong petitions, the Court of Appeals had no grounds to take jurisdiction over their claims. The petitioners’ erroneous choice of remedy, sought after losing the right to appeal, further solidified the finality of the RTC’s decision.

Furthermore, the Court addressed the contention that the Decision dated March 11, 2005, of the Court of Appeals (Fourth Division) in CA-G.R. SP No. 85880 constituted a supervening event. It dismissed this claim, emphasizing that the judgment in CA-G.R. SP No. 85880 did not affect or change the substance of the judgment in Civil Case No. Q-04-091. The two cases involved separate corporate entities: Marine Resources Development Corporation in CA-G.R. SP No. 85880 and Marcel Trading Corporation in Civil Case No. Q-04-091. These corporations engage in different businesses, do not share the same stockholders, and the cases were not consolidated. Therefore, any ruling in one case would not alter the substance of the judgment in the other.

Moreover, the Court reaffirmed the burden of proof lies with the corporation. Citing Republic v. Sandiganbayan, the Court reiterated that it is the corporation’s responsibility to demonstrate that a stockholder’s request for inspection is driven by unlawful or ill-motivated designs, rather than the stockholder having to prove good faith. In this light, the Court made the important point that the fact that the decisions of the Court of Appeals in CA-G.R. SP Nos. 85880 and 85879 had become final and executory did not alter this burden. These decisions were limited to the specific requests for inspection made on April 16, 2004, concerning Marine Resources Development Corporation and First Marine Properties, Inc. The execution of the Decision dated June 23, 2004, in Civil Case No. Q-04-091, involving Marcel Trading Corporation, was to proceed as a matter of course.

This case underscores the importance of understanding the procedural requirements and the burden of proof in intra-corporate disputes. It reinforces the statutory right of stockholders to inspect corporate records while also acknowledging the corporation’s right to protect itself from improper demands. The Court’s emphasis on the corporation bearing the burden of proving a stockholder’s bad faith or illegitimate purpose in seeking inspection provides a clear guideline for future cases.

FAQs

What was the key issue in this case?	The key issue was whether the decisions of the Court of Appeals regarding two corporations justified suspending the execution of a decision regarding a third, related corporation, all concerning a stockholder’s right to inspect corporate records.
What is a supervening event?	A supervening event is a fact or circumstance that arises after a judgment has become final and executory, which may affect the substance of the judgment and render its execution inequitable.
What is the proper mode of appeal in intra-corporate controversies?	According to A.M. No. 04-9-07-SC, the proper mode of appeal is a petition for review under Rule 43 of the Rules of Court, which must be filed within fifteen days from notice of the decision.
What is the difference between a petition for review and a petition for certiorari?	A petition for review aims to correct errors of judgment, while a petition for certiorari is an extraordinary remedy used to correct errors of jurisdiction. They are distinct, mutually exclusive, and not alternative or successive remedies.
Who bears the burden of proof regarding a stockholder’s right to inspect corporate records?	The corporation bears the burden of proving that a stockholder’s action in seeking to examine corporate records is motivated by unlawful or ill-motivated designs.
What are the limitations on a stockholder’s right to inspect corporate records?	The right is limited if the stockholder has improperly used information from prior inspections or is not acting in good faith or for a legitimate purpose in making the demand.
Why was the petition for certiorari in CA-G.R. SP No. 85878 dismissed?	The petition was dismissed because it was deemed a mere substitute for the lost remedy of appeal, as the petitioners failed to file a timely appeal within the prescribed period.
Did the Supreme Court disturb the Court of Appeals decisions in CA-G.R. SP Nos. 85880 and 85879?	No, the Supreme Court did not disturb those decisions, but clarified that their applicability was limited to the specific facts and circumstances of the cases involving Marine Resources Development Corporation and First Marine Properties, Inc.

In conclusion, the Supreme Court’s decision in Dee Ping Wee v. Lee Hiong Wee reinforces the importance of adhering to procedural rules in intra-corporate disputes and clarifies the burden of proof regarding a stockholder’s right to inspect corporate records. This case serves as a reminder that corporations must justify denying access to corporate records based on concrete evidence of a stockholder’s bad faith or illegitimate purpose.

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Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Dee Ping Wee, G.R. No. 169345, August 25, 2010