Ang-Abaya v. Ang
REITERATIONFacts
The Antecedents: Petitioners, who are shareholders, officers, and directors of Vibelle Manufacturing Corporation (VMC) and Genato Investments, Inc. (Genato), denied respondent Eduardo G. Ang's request to inspect the corporate books of VMC and Genato. Eduardo had previously filed a civil case against petitioners and others for allegedly conniving to fraudulently wrest control of the corporations. Petitioners alleged that Eduardo's demand for inspection was motivated by his desire to have his substantial personal advances (over P165 million) written off, his unjust demands for corporate assets and office space, and his interference in corporate operations. Procedural History: Eduardo filed an Affidavit-Complaint against petitioners for violation of Section 74 of the Corporation Code. The City Prosecutor's Office recommended the filing of charges, but the Secretary of Justice reversed this, directing the withdrawal of the information. The Court of Appeals, however, nullified the Secretary of Justice's resolution, finding that the Secretary committed grave abuse of discretion and that Eduardo's demand for inspection was made in good faith. The Court of Appeals suspended the criminal case pending the final resolution of the civil case. The Petition: Petitioners sought review of the Court of Appeals' decision, arguing that the appellate court erred in finding that the Secretary of Justice committed grave abuse of discretion and in ruling that petitioners acted in bad faith.
Issue(s)
Whether the Court of Appeals erred in finding that the Secretary of Justice committed grave abuse of discretion amounting to lack or excess of jurisdiction in reversing the resolution of the City Prosecutor regarding the inquiry into motives behind the demand for inspection. Whether the Secretary of Justice committed grave abuse of discretion in finding that petitioners acted in good faith when they denied respondent’s demand for inspection of corporate books, considering the allegations of improper use or bad faith.
Ruling
The petition is granted. The March 6, 2007 Decision and June 19, 2007 Resolution of the Court of Appeals are reversed and set aside. The July 26, 2005 and March 29, 2006 Resolutions of the Secretary of Justice directing the withdrawal of the information filed against petitioners are reinstated and affirmed.
Ratio Decidendi
On the issue of grave abuse of discretion and the Secretary of Justice's authority: The Court of Appeals erred in declaring that the Secretary of Justice exceeded his authority by inquiring into the motives behind Eduardo's demand for inspection. The determination of probable cause requires the presence of all elements of the crime charged. In cases involving Section 74 of the Corporation Code, the defense of improper use or motive is a crucial element that the investigating prosecutor, and subsequently the Secretary of Justice, must consider. The right to a preliminary investigation is a substantive right, and due process requires an inquiry into the motive behind the demand for inspection once the defense of improper use or motive is raised by the corporation. Therefore, the Secretary of Justice did not exceed his authority but rather properly exercised his discretion in considering the petitioners' defense. On the issue of good faith and legitimate purpose: The Court reiterated that the stockholder's right to inspect corporate books, as provided in Section 74 of the Corporation Code, is not absolute and is circumscribed by the proviso that the person demanding the inspection must not have improperly used prior information and must be acting in good faith and for a legitimate purpose. The petitioners presented substantial allegations, supported by documents, that Eduardo's demand was not made in good faith. These allegations included his alleged spendthrift lifestyle funded by corporate advances, his attempts to force the transfer of corporate property, his disregard for corporate policies, his interference in corporate operations, and his attempts to usurp the authority of directors and officers. The Court found that these allegations, coupled with Eduardo's silence or failure to refute them, justified the petitioners' refusal to grant the inspection, thereby negating the existence of probable cause for violation of Section 74 of the Corporation Code.
Main Doctrine
The right of a stockholder to inspect corporate books is not absolute and is circumscribed by the requirement that the demand must be made in good faith and for a legitimate purpose. A refusal based on the shareholder's improper use of information or bad faith constitutes a defense that must be considered during preliminary investigation.