Reginaldo Y. Lim vs. Lim Kieh Tong & Sons, Inc., et al.

[SEC-SICD * CASE NO. 2944. May 4, 1987.] REGINALDO Y. LIM , petitioner , vs .LIM KIEH TONG & SONS, INC.,ET AL. , respondents . D E C I S I O N In his petition filed with this Commission on January 28, 1986, against Luis Lim and Rafael Lim, in their capacity as President and Corporate Secretary, respectively, of LIM KIEH TONG & SONS, INC.,petitioner sought for the examination of corporate records, for an accounting of the corporation's income from its real estate properties for the past five (5) years and for attorney's fees. After the respondents have filed their answer, the case was set for preliminary conference hearing At the pre-trial hearing on April 4, 1986, the issue on whether the inspection of books and records of the corporation carries with it auditing was raised. The parties were given time to submit their memoranda in support of their respective contentions and in the Order dated May 8, 1986, it was ruled that the petitioner's right to examine or inspect the corporate records of the corporation includes or carries with it the right to make an audit. In their motion dated May 13, 1986, respondents sought for reconsideration of the Order dated May 8, 1986. An opposition to the respondents' motion for reconsideration was filed by the petitioner and in an Order dated June 25, 1986, respondents' motion for reconsideration was denied. With the denial of the motion for reconsideration and after leave of the Commission has been obtained, petitioner filed an amended petition on August 5, 1986, to include the corporation as party respondent to satisfy the contention of counsel for the respondents in their opposition to motion to set the case for hearing filed on August 4, 1986, that the absence of the corporation as an indispensable party affects the validity of the proceedings. On September 4, 1986, respondents filed a motion to dismiss on the ground that the petitioner has neither the right nor the cause of action against any of them. An opposition to the motion to dismiss was filed on October 1, 1986 and in the Order dated October 14, 1986, respondents' motion to dismiss was denied for lack of merit. On October 28, 1986, respondents filed their answer to the amended petition. The amended petition, insofar as pertinent to the cause of action, alleged that petitioner is a stockholder of the respondent corporation while the respondents were exercising powers of management of the corporation and are responsible for the acts and/or omissions complained of; that the corporation owns and operates real properties, commercial and residential, situated in the districts of Sta. Cruz, Binondo and Tondo, conservatively estimated at about Fifty Million (P50 M) and general income from rentals of lessees/occupants thereof; that petitioner perceived serious threats to his rights as stockholder in view of the failure to assess correct rentals and/or non-collection of rentals from certain favored tenants or occupants, payment of excessively high salaries, allowances and other forms of remunerations to selected officers and/or employees of the corporation, employment of inefficient and unprofitable management methods; that petitioner directed inquiries to respondent officers pertinent to the income of the corporation's properties and related documents and corporate records; that when respondents evaded his inquiries, petitioner demanded in writing for the production of corporate records, particularly (1) list of properties owned by the corporation; (2) records of income derived from said properties for the past five (5) years, showing in detail the names of lessees or occupants and the rentals collected; (3) minutes of meetings held, whether special or regular, or stockholders and directors, including board resolutions for the past five (5) years; and (4) list of present officers/employees, dates of appointments and their compensations and other forms of remunerations; that notwithstanding said demand, respondents ignored petitioner's inquiries and demands. Hence, the petition for mandamus. In their answer, aside from making admissions and denials, respondents interposed as special defenses the allegation that the corporation being a close corporation, is not bound to keep corporate records; that the records normally kept by respondent corporation had already been previously requested by and given to petitioner; that the petitioner asserted his right to inspect books and records of the corporation in bad faith and for purposes other than legitimate, hence, assuming arguendo, that there was denial, the denial was legitimate and pursuant to law. In their answer, respondents likewise interposed compulsory counterclaims. The fact that the petitioner is a stockholder of the respondent corporation and that he has demanded for the inspection of corporate records is not denied. But while the petitioner contends that his demands for inspection of corporate records were not granted (TSN pp. 27, 28, January 19, 1987),the respondents, through Atty. Rafael Lim, stated that he has presented to the petitioner "The necessary papers that he wanted" (TSN pp. 20-21, February 10, 1987).Atty. Rafael Lim likewise testified that only those records necessary for compliance with the reportorial requirements of the Securities and Exchange Commission are kept by the corporation. He testified thus: "Q Now does the corporation keep formal records of its affairs? "A No, Sir. "Q Does it keep any record at all? "A It keeps records, like for example, the annual stockholders' meeting, the organizational meeting of the board of directors. Of course, these are all for the reportorial requirements of the Securities and Exchange Commission. "Q How about financial statements? "A Yes, we do keep financial statements. "Q Now, aside from the records which you keep for purposes of complying the reportorial requirements of the SEC, does the corporation keep other records? "A Stock and transfer book, that is all." (TSN pp. 19-20, February 10, 1987) The testimony of Atty. Rafael Lim that he has presented to the petitioner the necessary papers the latter wanted, however, is contrary to the reply of his counsel dated January 27, 1986 (Exh. "2") to the letter of the petitioner dated January 18, 1986, (Exh. "A") demanding for copies of corporate records. In the reply, Exh. "2", counsel for the respondents stated that "until our client is satisfied with the good faith and legitimacy of the purpose of your client, ours may not be called upon to respond affirmatively to your request". We are, therefore, inclined to believe that the demands of the petitioner for the production/inspection of the corporate records of the respondent corporation has not been complied with, which is a right of stockholders under Sec. 74 and 75 of the Corporation Code of the Philippines. The right of inspection, however, is not absolute. The demand for inspection must be in good faith and for a legitimate purpose (Gonzales vs. PNB, G.R. No. L-33320, May 30, 1983,). This brings us to the defense of the respondents that the petitioners not acting in good faith and the purpose is not legitimate. And to prove their defense, Atty. Rafael Lim testified that "the reason why he filed the case is that he likes to manage the corporation. That is what he told one of my uncles and he also prepared a board resolution authorizing him, to be signed by all stockholders to sell a property in Camba, Tondo, Manila". (TSN pp. 32-33, February 10, 1987) The aspiration of petitioner to manage the respondent corporation and his desire to sell a property of the corporation with the concurrence of all stockholders are not, to the mind of this Hearing Officer, per se, proof of bad faith and illegitimate purpose and the petitioner, therefore, is still entitled to his right to inspect the corporate records of the respondent corporation. The records being kept by the respondent corporation for purposes of complying with the reportorial requirements of the Commission has been marked and submitted in evidence. And except for the stock and transfer book, those are the only records being kept by the respondent corporation (TSN pp. 19-20, February 10, 1987).And the records for reportorial requirements are the only records being kept for the reason that the respondent corporation is a close corporation and as such, corporate affairs are conducted in an informal manner such that stockholders attend meetings even in pajamas. (TSN pp. 18-19, January 10, 1987). From the evidence presented by the parties, we have here a case where the petitioner was able to show his entitlement to the inspection of corporate records and this inspection to include auditing (Order dated May 8, 1986). prLL The corporate records submitted in evidence have the list of properties of the corporation, the income derived from said properties, the minutes of meetings held and the directors and officers elected. However, the Financial Statements contained items which could not possibly be prepared without supporting documents and/or receipts such as salaries and wages, taxes and licenses. On the part of the respondents, no evidence was presented to support their counterclaims. WHEREFORE, judgment is hereby rendered directing the respondents, particularly the corporate secretary, to allow the petitioner to inspect/examine the corporate records of Lim Kieh Tong & Sons, Inc..specifically 1. list of properties owned by the corporation; 2. records of income derived from said properties for the past five (5) years, showing the names of lessees or occupants and the rentals collected; 3. minutes of meetings held, whether special or regular, or stockholders and directors, including board resolutions for the past five (5) years; and (4) list of present officers/employees, dates of appointments and their compensations and other forms of remunerations, as well as the supporting documents and/or receipts to the items contained in the Financial Statements. As to the corporate records presented as exhibits by respondents and now in the custody of this Commission, the petitioner may examine the same at any time during office days and hours. There being no evidence to substantiate respondents' counter claim, the same is hereby DISMISSED. SO ORDERED. (SGD.) FELIPE S. TONGCO Hearing Officer