Grey v. Insular Lumber
REITERATIONFacts
The Antecedents: M. E. Grey, a stockholder of Insular Lumber Company, a corporation organized under the laws of New York and licensed to do business in the Philippines, sought to inspect the books and records of the company. Procedural History: The plaintiff requested to examine the books and records at the defendant's offices in Manila and Fabrica, Occidental Negros, but was denied. The parties submitted a stipulation of facts to the lower court, which rendered a judgment denying the writ of mandamus and absolving the defendant. The plaintiff appealed this decision. The Appeal: The plaintiff-appellant contended that under Philippine Corporation Law (Act No. 1459, Section 51), he, as a stockholder, is entitled to inspect the corporation's transaction records, a right recognized by common law and not altered by Section 77 of the New York Stock Corporation Law. He argued this right could be enforced by mandamus.
Issue(s)
Whether a stockholder of a foreign corporation doing business in the Philippines, who does not own three percent of the capital stock, is entitled to inspect the corporation's books and records under Philippine law, notwithstanding the limitations imposed by the law of the state of incorporation. Whether the stipulation of facts, which limited the stockholder's right to inspection to those provided by New York law, binds the parties on appeal.
Ruling
The Supreme Court affirmed the judgment of the lower court, denying the plaintiff-appellant's petition for mandamus and holding that he is not entitled to inspect the books and records of the defendant corporation. The Court ruled that the right of inspection is governed by the law of the state of incorporation, which in this case was New York, and that the plaintiff failed to meet the statutory requirements.
Ratio Decidendi
On Issue 1: The Court held that the right of a stockholder to inspect the books and records of a corporation is governed by the laws of the state of incorporation. In this instance, the Insular Lumber Company was organized under the laws of New York. The stipulation of facts explicitly stated that the rights of a stockholder to examine the books and records of a corporation organized under New York law were limited to those provided in Section 77 of the New York Stock Corporation Law. This section required a stockholder to own at least three percent of the capital stock to be entitled to a statement of affairs and to examine such statements. Since the plaintiff did not own three percent of the capital stock and had not requested a statement of affairs as provided by the New York law, he was not entitled to the inspection he sought. The Court found that the plaintiff had not met the statutory prerequisites for exercising this right. On Issue 2: The Court affirmed that a stipulation of facts entered into by the parties is binding upon them and cannot be altered on appeal. The plaintiff-appellant was bound by his agreement in paragraph four of the stipulation of facts, which stipulated that the rights of a stockholder under the law of New York to examine the books and records of a corporation organized under that state's laws were only those provided in Section 77 of the New York Stock Corporation Law. Furthermore, the Court noted that the plaintiff had not sought to alter or change this stipulation in the lower court, and therefore, could not raise the issue for the first time on appeal. The Court also addressed the common law right to inspection, stating it could only be granted at the discretion of the court under certain conditions, such as showing an honest purpose to protect the stockholder's interest, which the appellant failed to demonstrate.
Main Doctrine
The right of a stockholder to inspect the books and records of a corporation is primarily governed by the laws of the state or country where the corporation is organized. In this case, the Insular Lumber Company, being a New York corporation, its stockholders' right to inspection was determined by Section 77 of the New York Stock Corporation Law. This provision explicitly required a stockholder to own at least three percent of the capital stock to be entitled to a statement of the corporation's affairs, and to have such statement exhibited to them. The Court emphasized that without meeting this statutory requirement or demonstrating a proper purpose for inspection, the right cannot be enforced, even if other laws or common law principles might otherwise grant such a right.