Mere pendency of cases not a defense to denying right to inspect

When there is a dispute among stockholders of a corporation, there appears to be a natural inclination on the part of those who possess corporate records to limit access to certain  records by stockholders belonging to another faction.  The stockholders who are refused access will then cite violation of Section 74 of the Corporation Code, which provides that “the records of all business transaction of the corporation and the minutes of any meeting shall be open to the inspection of any director, trustee, stockholder or member of the corporation at reasonable hours on business days”;  it further provides that the the shareholder “may demand, in writing, for a copy of excerpts from said records or minutes, at his expense.”  

A corporate office or director who violates Section 74 commits a penal offense, and if found guilty, can be punished by:  (a)  a fine not less than PhP1,000 but not more than PhP10,000;  (b)  imprisonment for not less than 30 days but not more than 5 years;  (c)  or both fine and imprisonment, at the discretion of the court. 

According to the Supreme Court:

 The elements of the offense . . . are:

First. A director, trustee, stockholder or member has made a prior demand in writing for a copy of excerpts from the corporation’s records or minutes;

Second. Any officer or agent of the concerned corporation shall refuse to allow the said director, trustee, stockholder or member of the corporation to examine and copy said excerpts;

Third. If such refusal is made pursuant to a resolution or order of the board of directors or trustees, the liability under this section for such action shall be imposed upon the directors or trustees who voted for such refusal; and,

Fourth. Where the officer or agent of the corporation sets up the defense that the person demanding to examine and copy excerpts from the corporation’s records and minutes has improperly used any information secured through any prior examination of the records or minutes of such corporation or of any other corporation, or was not acting in good faith or for a legitimate purpose in making his demand, the contrary must be shown or proved.

Thus, in a criminal complaint for violation of Section 74 of the Corporation Code, the defense of improper use or motive is in the nature of a justifying circumstance that would exonerate those who raise and are able to prove the same. Accordingly, where the corporation denies inspection on the ground of improper motive or purpose, the burden of proof is taken from the shareholder and placed on the corporation. However, where no such improper motive or purpose is alleged, and even though so alleged, it is not proved by the corporation, then there is no valid reason to deny the requested inspection.

In Sy Tiong Shiou, et al. vs. Sy Chim, et al./Sy Chim, et al. vs. Sy Tiong Shiou, et al., G.R. No. 174168/G.R. No. 179438, March 30, 2009, the officers of the corporation (Sy Tiong Shiou, et al.) denied the Spouses Sy access to corporate records because of pending civil and intra-corporate cases.  This prompted the Spouses Sy to file several cases against Tiong Shiou, et al.  

Two of the complaints, I.S. Nos. 03E-15285 and 03E-15286, were for alleged violation of Section 74 in relation to Section 144 of the Corporation Code. In these complaints, the Spouses Sy averred that they are stockholders and directors of Sy Siy Ho & Sons, Inc. (the corporation) who asked Sy Tiong Shiou, et al., officers of the corporation, to allow them to inspect the books and records of the business on three occasions to no avail. In a letter dated 21 May 2003, Sy Tiong Shiou, et al. denied the request, citing civil and intra-corporate cases pending in court.

In the two other complaints, I.S. No. 03E-15287 and 03E-15288, Sy Tiong Shiou was charged with falsification under Article 172, in relation to Article 171 of the Revised Penal Code (RPC), and perjury under Article 183 of the RPC. According to the Spouses Sy, Sy Tiong Shiou executed under oath the 2003 General Information Sheet (GIS) wherein he falsely stated that the shareholdings of the Spouses Sy had decreased despite the fact that they had not executed any conveyance of their shares.

Sy Tiong Shiou, et al. argued before the prosecutor that the issues involved in the civil case for accounting and damages pending before the RTC of Manila were intimately related to the two criminal complaints filed by the Spouses Sy against them, and thus constituted a prejudicial question that should require the suspension of the criminal complaints. They also argued that the Spouses Sy’s request for inspection was premature as the latter’s concern may be properly addressed once an answer is filed in the civil case. Sy Tiong Shiou, on the other hand, denied the accusations against him, alleging that before the 2003 GIS was submitted to the Securities and Exchange Commission (SEC), the same was shown to respondents, who at that time were the President/Chairman of the Board and Assistant Treasurer of the corporation, and that they did not object to the entries in the GIS. Sy Tiong Shiou also argued that the issues raised in the pending civil case for accounting presented a prejudicial question that necessitated the suspension of criminal proceedings.

On 29 December 2003, the investigating prosecutor issued a resolution recommending the suspension of the criminal complaints for violation of the Corporation Code and the dismissal of the criminal complaints for falsification and perjury against Sy Tiong Shiou. The reviewing prosecutor approved the resolution. The Spouses Sy moved for the reconsideration of the resolution, but their motion was denied on 14 June 2004. The Spouses Sy thereupon filed a petition for review with the Department of Justice (DOJ), which the latter denied in a resolution issued on 02 September 2004. Their subsequent motion for reconsideration was likewise denied in the resolution of 20 July 2005.

The Spouses Sy elevated the DOJ’s resolutions to the Court of Appeals through a petition for certiorari, imputing grave abuse of discretion on the part of the DOJ. The appellate court granted the petition and directed the City Prosecutor’s Office to file the appropriate informations against Sy Tiong Shiou, et al. for violation of Section 74, in relation to Section 144 of the Corporation Code and of Articles 172 and 183 of the RPC.

The appellate court ruled that the civil case for accounting and damages cannot be deemed prejudicial to the maintenance or prosecution of a criminal action for violation of Section 74 in relation to Section 144 of the Corporation Code since a finding in the civil case that respondents mishandled or misappropriated the funds would not be determinative of their guilt or innocence in the criminal complaint. In the same manner, the criminal complaints for falsification and/or perjury should not have been dismissed on the ground of prejudicial question because the accounting case is unrelated and not necessarily determinative of the success or failure of the falsification or perjury charges. Furthermore, the Court of Appeals held that there was probable cause that Sy Tiong Shiou had committed falsification and that the City of Manila where the 2003 GIS was executed is the proper venue for the institution of the perjury charges. Sy Tiong Shiou, et al. sought reconsideration of the Court of Appeals decision but their motion was denied.

Sy Tiong argue before the Supreme Court that:

. . .  in affirming, modifying or reversing the recommendations of the public prosecutor cannot be the subject of certiorari or review of the Court of Appeals because the DOJ is not a quasi-judicial body within the purview of Section 1, Rule 65 of the Rules of Court. In any event, they argue, assuming without admitting that the findings of the DOJ may be subject to judicial review under Section 1, Rule 65 of the Rules of Court, the DOJ has not committed any grave abuse of discretion in affirming the findings of the City Prosecutor of Manila.

The Supreme Cort ruled that the DOJ gravely abused its discretion when it suspended the hearing of the charges for violation of the Corporation Code on the ground of prejudicial question and when it dismissed the criminal complaints. According to the Supreme Court:
Indeed, a preliminary proceeding is not a quasi-judicial function and that the DOJ is not a quasi-judicial agency exercising a quasi-judicial function when it reviews the findings of a public prosecutor regarding the presence of probable cause. Moreover, it is settled that the preliminary investigation proper, i.e., the determination of whether there is reasonable ground to believe that the accused is guilty of the offense charged and should be subjected to the expense, rigors and embarrassment of trial, is the function of the prosecution. This Court has adopted a policy of non-interference in the conduct of preliminary investigations and leaves to the investigating prosecutor sufficient latitude of discretion in the determination of what constitutes sufficient evidence as will establish probable cause for the filing of information against the supposed offender.

As in every rule, however, there are settled exceptions. Hence, the principle of non-interference does not apply when there is grave abuse of discretion which would authorize the aggrieved person to file a petition for certiorari and prohibition under Rule 65, 1997 Rules of Civil Procedure.

As correctly found by the Court of Appeals, the DOJ gravely abused its discretion when it suspended the hearing of the charges for violation of the Corporation Code on the ground of prejudicial question and when it dismissed the criminal complaints.

A prejudicial question comes into play generally in a situation where a civil action and a criminal action are both pending and there exists in the former an issue which must be preemptively resolved before the criminal action may proceed since howsoever the issue raised in the civil action is resolved would be determinative juris et de jure of the guilt or innocence of the accused in the criminal case. The reason behind the principle of prejudicial question is to avoid two conflicting decisions. It has two essential elements: (a) the civil action involves an issue similar or intimately related to the issue raised in the criminal action; and (b) the resolution of such issue determines whether or not the criminal action may proceed.

The civil action and the criminal cases do not involve any prejudicial question.

The civil action for accounting and damages, Civil Case No. 03-106456 pending before the RTC Manila, Branch 46, seeks the issuance of an order compelling the Spouses Sy to render a full, complete and true accounting of all the amounts, proceeds and fund paid to, received and earned by the corporation since 1993 and to restitute it such amounts, proceeds and funds which the Spouses Sy have misappropriated. The criminal cases, on the other hand, charge that the Spouses Sy were illegally prevented from getting inside company premises and from inspecting company records, and that Sy Tiong Shiou falsified the entries in the GIS, specifically the Spouses Sy’s shares in the corporation. Surely, the civil case presents no prejudicial question to the criminal cases since a finding that the Spouses Sy mishandled the funds will have no effect on the determination of guilt in the complaint for violation of Section 74 in relation to Section 144 of the Corporation Code; the civil case concerns the validity of Sy Tiong Shiou’s refusal to allow inspection of the records, while in the falsification and perjury cases, what is material is the veracity of the entries made by Sy Tiong Shiou in the sworn GIS.

On the issue of probable cause, the Supreme Court ruled:

Anent the issue of probable cause, the Court also finds that there is enough probable cause to warrant the institution of the criminal cases.

The term probable cause does not mean ‘actual and positive cause’ nor does it import absolute certainty. It is merely based on opinion and reasonable belief. Thus a finding of probable cause does not require an inquiry into whether there is sufficient evidence to procure a conviction. It is enough that it is believed that the act or omission complained of constitutes the offense charged. Precisely, there is a trial for the reception of evidence of the prosecution in support of the charge.

In order that probable cause to file a criminal case may be arrived at, or in order to engender the well-founded belief that a crime has been committed, the elements of the crime charged should be present. This is based on the principle that every crime is defined by its elements, without which there should be-at the most-no criminal offense. . .

In the instant case, however, the Court finds that the denial of inspection was predicated on the pending civil case against the Spouses Sy. This is evident from the 21 May 2003 letter of Sy Tiong Shiou, et al.’s counsel to the Spouses Sy . . .

Even in their Joint Counter-Affidavit dated 23 September 2003, Sy Tiong Shiou, et al. did not make any allegation that “the person demanding to examine and copy excerpts from the corporation’s records and minutes has improperly used any information secured through any prior examination of the records or minutes of such corporation or of any other corporation, or was not acting in good faith or for a legitimate purpose in making his demand.”  Instead, they merely reiterated the pendency of the civil case. There being no allegation of improper motive, and it being undisputed that Sy Tiong Shiou, et al. denied Sy Chim and Felicidad Chan Sy’s request for inspection, the Court rules and so holds that the DOJ erred in dismissing the criminal charge for violation of Section 74 in relation to Section 144 of the Corporation Code.

With respect to probable cause for falsification, the Supreme Court ruled:

The Spouses Sy charge Sy Tiong Shiou with the offense of falsification of public documents under Article 171, paragraph 4; and/or perjury under Article 183 of the Revised Penal Code (RPC). The elements of falsification of public documents through an untruthful narration of facts are: (a) the offender makes in a document untruthful statements in a narration of facts; (b) the offender has a legal obligation to disclose the truth of the facts narrated;(c) the facts narrated by the offender are absolutely false; and (d) the perversion of truth in the narration of facts was made with the wrongful intent to injure a third person. On the other hand, the elements of perjury are: (a) that the accused made a statement under oath or executed an affidavit upon a material matter; (b) that the statement or affidavit was made before a competent officer, authorized to receive and administer oath; (c) that in that statement or affidavit, the accused made a willful and deliberate assertion of a falsehood; and, (d) that the sworn statement or affidavit containing the falsity is required by law or made for a legal purpose.

A General Information Sheet (GIS) is required to be filed within thirty (30) days following the date of the annual or a special meeting, and must be certified and sworn to by the corporate secretary, or by the president, or any duly authorized officer of the corporation. From the records, the 2003 GIS submitted to the SEC on 8 April 2003 was executed under oath by Sy Tiong Shiou in Manila, in his capacity as Vice President and General Manager. By executing the document under oath, he, in effect, attested to the veracity of its contents. The Spouses Sy claim that the entries in the GIS pertaining to them do not reflect the true number of shares that they own in the company. They attached to their complaint the 2002 GIS of the company, also executed by Sy Tiong Shiou, and compared the entries therein vis-a-vis the ones in the 2003 GIS. The Spouses Sy noted the marked decrease in their shareholdings, averring that at no time after the execution of the 2002 GIS, up to the time of the filing of their criminal complaints did they execute or authorize the execution of any document or deed transferring, conveying or disposing their shares or any portion thereof; and thus there is absolutely no basis for the figures reflected in the 2003 GIS. The Spouses Sy claim that the false statements were made by Sy Tiong Shiou with the wrongful intent of injuring them. All the elements of both offenses are sufficiently averred in the complaint-affidavits.

The Court agrees with the Court of Appeals’ holding, citing the case of Fabia v. Court of Appeals, that the doctrine of primary jurisdiction no longer precludes the simultaneous filing of the criminal case with the corporate/civil case. Moreover, the Court finds that the City of Manila is the proper venue for the perjury charges, the GIS having been subscribed and sworn to in the said place. Under Section 10(a), Rule 110 of the Revised Rules of Court, the criminal action shall be instituted and tried in the court of the municipality or territory where the offense was committed or where any of its essential ingredients occurred. In Villanueva v. Secretary of Justice, the Court held that the felony is consummated when the false statement is made. Thus in this case, it was alleged that the perjury was committed when Sy Tiong Shiou subscribed and sworn to the GIS in the City of Manila, thus, following Section 10(a), Rule 110 of the Revised Rules of Court, the City of Manila is the proper venue for the offense.

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