SEC En Banc Case No. 10-23-528Dacon Corporation vs. Edwin M. Chua, Ferdinand C. Vido, Jennifer I. Abraham, Jocelyn A. Talania, Rolando A. Junio, Allan D. Yaphockun, Teresita T. Canlas, Theodore Q. Garcia, Richard N. Allen, and Hermoso Adlawan

Securities and Exchange Commission COMMISSION EN BANC Republic of the Philippines nent of Finance

DACON CORPORATION, Complainant-Appellee,

-versus- Promulgated: 15 February 2024 SEC En Banc Case No. 10-23-528

HERMOSO ADLAWAN, Q GARCIA,RICHARD N. ALLEN and JOCELYN A. TALANIA, ROLANDO A JUNIO, ALLAN D. YAPHOCKUN TERESITA T. CANLAS, THEODORE EDWIN M. CHUA, FERDINAND C. VIDO, JENNIFER I. ABRAHAM, Respondents-Appellants.

DECISION

which allowed DACON Corporation to exercise its rights under Section 73 of the Revised Corporation Code, the dispositive portion of which, in part, reads: Teresita T. Canlas, Theodore Q. Garcia, Richard N. Allen and Hermoso "Assailed Order") issued by the SEC Davao Extension Office (SEC Davao) Abraham, Jocelyn A. Talania, Rolando A. Junio, Allan D. Yaphockun, Adlawan (the "Appellants"), assailing the Order dated 8 August 2023 (the 2022 (the "Appeal") filed by Edwin M. Chua, Ferdinand C. Vido, Jennifer I Before this Commission is the Appeal Memorandum dated 23 April

No. 10173, otherwise known as the Data Privacy Act, remain bound by confidentiality rules under prevailing laws, corporate records. The inspecting or reproducing party shall such as the rules on trade secrets or processes under Republic Act No. 8293, otherwise known as the Intellectual Property Code of the Philippines, as amended, Republic Act records or excerpts from said records, at its expense and at reasonable hours on business days, within thirty (30) days from receipt of this Order by the custodian of the requested exercise its rights under Section 73 of the Revised Corporation Code to inspect and demand for copies of such "WHEREFORE, premises considered, it is hereby ordered that the complainant, by a representative, be allowed to

DACON Corporation vs Edwin M. Chua et. al SEC EB Case No. 10-23-528 Page 2 of 19 Decision

Regulation Code, and the Rules of Court. xxx" Republic Act No. 8799, otherwise known as the Securities

THE PARTIES

Property Management Office (PMO) Administrator of Magallanes Residences Condominium.1 Canlas, Theodore Q. Garcia, Richard N. Allen (the "Trustees"), are unit Corporation. They are also the duly elected members of the Board of Trustees of the Corporation. Hermoso Adlawan, on the other hand, is the Jocelyn A. Talania, Rolando A. Junio, Allan D. Yaphockun, Teresita T. owners and members of the Magallanes Residences Condominium Appellants, Edwin M. Chua, Ferdinand C. Vido, Jennifer I Abraham,

address is at 2281 Dacon Building, Chino Roces Avenue, Makati City. duly organized and existing under Philippine Laws, having been issued a Certificate of Incorporation bearing Registration No. 23023. Its office Appellee, DACON Corporation (DACON) is a domestic corporation

RELEVANT FACTS

bearing Registration No. CN201007772, on 25 May 2010. "Corporation"), a domestic non-stock corporation organized and existing under Philippines, having been issued a Certificate of Incorporation Magallanes Residences Condominium Corporation (the

"the board shall determine the qualifications of membership pursuant to the Documents of Sale and the Master Deed with Declaration of Restrictions of Magallanes Residences". Article 5 Section 1 of the By-laws of the Corporation provides that

"Magallanes Residences" (the "Master Deed"), provides that: Section 8(b) of the Master Deed with Declaration of Restrictions

vote per unit." (Emphasis supplied) the Condominium Corporation shall be equivalent to one (1) Condominium Corporation. The voting rights of members of "Unit owners shall automatically become members of the

Residences Condominium as shown by the Condominium Certificate of Title No. 146-2011000100 (CCT), issued by the Registry of Deeds for Davao City on 17 August 2022. DACON is the registered owner of Unit 311 of Magallanes

1 Memorandum of Appeal. Par. 1

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at 9 o'clock in the morning, a right that is granted to them under Section 73 of the Revised Corporation Code.2 inspect the corporate books and records of the latter on 27 March 2023 other members of the Corporation, demanded that they be allowed to In a letter dated 17 March 2023, Appellee DACON, together with

Hermoso Adlawan, the Property Management Office (PMO) Administrator, allegedly acting on the advice of the Trustees. intentionally and " deliberately refused/denied the authorized representative of DACON the exercise of its right to inspect the requested books and records of the Corporation.3 On the scheduled date of the inspection i.e. 27 March 2023, Mr.

and records of the Corporation. with the SEC Davao, praying that Appellees allow it to inspect the books This prompted DACON to file a Verified Complaint on 20 June 2023

its CCT. Appellees also deny having refused DACON the exercise of its right to inspect, as the latter failed to show proof of any order from the Corporation as it failed to submit to the latter the Certified True Copy of Board authorizing such refusal.4 Complaint for lack of cause of action and merit. In support thereof, Appellees maintain that DACON is, to date, not a member of the In their Answer, Appellees prayed for the dismissal of the

On 8 August 2023, the SEC Davao issued the Assailed Order.

for illegitimate purpose. (the "Motion"), where they claimed that the right to inspect of DACON should not be sustained as the same was attended by bad faith, and made Appellees forthwith filed their Verified Motion for Reconsideration

The SEC Davao denied the Motion for lack of merit.

Hence, the instant Appeal.

ISSUE

Whether the SEC Davao committed reversible error in allowing the inspection by DACON of the corporate books and records of the Corporation.

4 Ibid. Annex "F" 2 Ibid. see Annex "E" 3 Ibid.

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RULING

The Appeal is bereft of merit.

acting in bad faith,5 and will most probably documents/information obtained from the Corporation for illegitimate exercise of the right to inspect since the circumstances show that it is purpose. Appellants essentially maintain that DACON should be denied the use the

them;10 and to fish for evidence that it can use against them.11 the complaint for inspection was filed by DACON for the purpose of recouping from the members/unit owners thereof the expenses which it incurred in rehabilitating the condominium units.8 Considering that disturbing the operations of the Corporation; vexing or humiliating same stockholders, represented by the same persons, and their offices are in the same building.6 It was further alleged that DMC-UPDI has an existing power struggle with Appellants, where the former seeks to wrest control and management over the Corporation7 for the purpose of DACON's and DMC-UPDI's interests are the same,9 Appellants claim that associated with DMC-Urban Property Developers, Inc. (DMC-UPDI), the developer of the Corporation's condominium project; and both should be considered one and the same since they are owned and controlled by the In support of thereof, Appellants alleged that DACON is closely

member, director or trustee (or their duly authorized representatives) to) inspect and/or reproduce the corporate books and records, states: Section 73 of the RCC, which provides for right of a stockholder,

office all information relating to the corporation including, but not limited to: corporation shall keep and carefully preserve at its principal "Section 73. Books to be Kept; Stock Transfer Agent. - Every

(a) The articles of incorporation and bylaws of the [b} The current ownership structure and voting rights of the corporation and all their amendments;

and beneficial ownership. corporation, including lists of stockholders or members group structures, intra-group relations, ownership data,

: Id. Pars. 24, 29 to 32, and 34 6 Id. Par. 25 7 Id. Par. 26 9 Id. Par. 26 10 Id. Par. 49 11 Id. Pars. 51, 55 to 57, 59 5 Id. Par. 22

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(c) The names and addresses of all the members of the (d) A record of all business transactions; (f e) A record of the resolutions of the board of directors or Copies of the latest reportorial requirements submitted trustees and of the stockholders or members; board of directors or trustees and the executive officers;

(g) The minutes of all meetings of stockholders or members, upon their demand. protest of a director, trustee, stock holder or member on any action or proposed action must be recorded in full or proposition, and a record thereof carefully made. The stockholder or member, the time when any director, meeting must be noted in the minutes; and on a similar demand, the yeas and nays must be taken on any motion notice given, the agenda therefor, whether the meeting and absent, and every act done or ordered done at the meeting. Upon the demand of a director trustee, trustee, stockholder or member entered or left the was regular or special, its object if special, those present or of the board of directors or trustees. Such minutes shall set forth in detail among others; the time and the place of the meeting held, how it was authorized, the to the Commission; and

as the "Intellectual Property Code of the Philippines", as known as "The Securities Regulation Code", and the Rules of or processes under Republic Act No. 8293, otherwise known amended, Republic Act No. 10173, otherwise known as the "Data Privacy Act of 2012" Republic Act No. 8799, otherwise Court. reproducing party shall remain bound by confidentiality or excerpts from said records. The inspecting or rules under prevailing laws, such as the rules on trade secrets representative at reasonable hours on business days, and a demand in writing may be made by such director, trustee or stockholder at their expense, for copies of such records stored, shall be open to inspection by any director, trustee. stockholder or member of the corporation in person or by a Corporate records, regardless of the form in which they are

competitor shall have no right to inspect or demand record, or is a competitor, director, officer, controlling reproduction of corporate records. A requesting party who is not a stockholder or member of stockholder or otherwise represents the interests of a

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Any stockholder who shall abuse the rights granted under this section shall be penalized under Section 158 of this Code, without prejudice to the provisions of Republic Act No. 8293 otherwise known as the "Intellectual Property Code of the Philippines", as amended, and Republic Act No. 10173, otherwise known as the "Data Privacy Act of 2012".

Anv officer or agent of the corporation who shall refuse to allow the inspection and/or reproduction of records in accordance with the provisions of this Code shall be liable to such director. trustee, stockholder or member for damages, and in addition, shall be guilty of an offense which

information secured through any prior examination of the section for such action shall be imposed upon the directors it shall be a defense to any action under this section that the corporation's records or minutes has improperly used any records or minutes of such corporation or of any other That if such refusal is made pursuant to a resolution or order of the board of directors or trustees the liability under this or trustees who voted for such refusal: Provided, further, That person demanding to examine and copy excerpts from the shall be punishable under Section 161 of this Code: Provided.

corporation, or was not acting in good faith or of any other

purpose in making the demand to examine or reproduce controlling stockholder or otherwise represents the interest corporate records or is a competitor, director, officer, of a competitor. corporation or was not acting in good faith or for a legitimate

If the corporation denies or does not act on a demand for inspection and/or reproduction, the aggrieved party may report such denial or inaction to the Commission Within five conduct a summary investigation and issue an order requested records. (5) days from receipt of such report the Commission shall directing the inspection or reproduction of the

made, and the date of payment of any installment; a Stock corporations must also keep a stock and transfer book, the date thereof, by and to whom made; and such other book shall be kept in the principal office of the corporation or which shall contain a record of all stocks in the names of the stockholders alphabetically arranged; the installments paid and unpaid on all stocks for which subscription has been statement of every alienation, sale or transfer of stock made, entries as the bylaws may prescribed, The stock and transfer

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in the office of its stock transfer agent and shall be open or at reasonable hours on business days. inspection by any director or stockholder of the corporation

A stock transfer agent or one engaged principally in the business of registering transfers of stocks in behalf of a stock corporation shall be allowed to operate in the Philippines upon securing a license from the Commission and the payment of a fee to be fixed by the Commission, which shall be renewable annually: Provided, That a stock corporation is

herein provided, shall be applicable: Provided, further, That the Commission may require stock corporations which stock transfer agents, except the payment of a license fee transfer and/or trade stocks in secondary markets to have an independent transfer agent." (Emphasis supplied) stocks, in which case all the rules and regulations imposed on not precluded from performing or making transfer of its own

adopted this ruling in the case of Tan vs Sycip,15 thus: is being managed, and where its assets are. This is the basis of the right to inspect.13 The common law inspection right was recognized by the US owners of the property."14 Our Philippine Supreme Court eventually the 1700s.12 While the legal title to assets and properties of a corporation are lodged with it being a separate legal entity, stockholders/members are granted the right to inspect, in their capacity as the ultimate beneficial Supreme Court in the 1905 case of Guthrie vs Harkness, which ruled that the corporation are merely the agents of the stockholders who are the real owners of the corporation, to enable them to know how the corporation "the right of inspection rests upon the proposition that those in charge of The right to inspect is of common law origin which dates back to

in turn, periodically elects officers to carry out management stockholders or members have residual powers over periodically elect the board of directors or trustees, who are charged with the management of the corporation. The board. functions on a day-to-day basis. As owners, though, the fundamental and major corporate changes. "Under the Corporation Code, stockholders or members

14 199 U.S. 148 (1905). Accessed at: https://supreme.justia.com/cases/federal/us/199/148/ https://www.repository.law.indiana.edu/cgi/viewcontent.cgi?article=1099&context-ili 15 G.R. No. G.R.No. 153468, August 17, 2006 12 Robin Hui Huang and Randall Thomas., The Law and Practice of Shareholder Inspection Rights: A Comparative Analysis of the United States and China. Vanderbilt Journal of Transnational Law., Vol. 53, 13 Paul McNutt. Stockholders' Right to Inspect Corporate Books and Records., Indiana Law Journal Vol. 1 Article 5 (3 May 2020) Issue (1-1926) Accessed at:

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While stockholders and members (in some instances) are entitled to receive profits, the management and direction of the corporation are lodged with their representatives and agents -- the board of directors or trustees. In other words, acts of management pertain to the board; and those of

of the stockholders or members." (Emphasis supplied) case, the board cannot act alone, but must seek approval ownership, to the stockholders or members. In the latter

properties and assets of the corporation are being prudently and properly managed.16 data and information play in making shareholders/members fully aware informed investment and business decisions. It implements the principle corporation where "absentee" shareholders/members rely upon skilled managers to run its daily affairs makes it inherently necessary that they be allowed to inspect, for them know if their investments and/or the of the current state of the corporation, and in enabling them to make an that, subject only to the limitations expressly provided by law, the right to inspect and reproduce corporate records cannot be made dependent on the prior consent of the corporation and/or its board/officers. In our jurisdiction, as well as in other jurisdictions abroad, the reality of a typical Section 73 of the RCC recognizes the critical role that the corporate

to the board of directors/trustees of corporations, the RCC specifically enjoins them "to perform their duties as prescribed by law and the rules of good corporate governance, and by-laws of the corporation."19 Commission, and every corporation registered with it. Thus, the RCC specifically encourages and enjoins all corporations to include a provision in their By-law "such other matters as may be necessary for the of good governance and anti-graft and corruption measures."18 In relation corporate governance principles and standards which seek, among others, to protect rights of shareholders/members, especially the of corporate governance and the protection of minority investors, through, among others, the issuance of rules and regulations consistent with international best practices.17 This mandate is directed both to the proper or convenient transaction of its corporate affairs for the promotion minority. In this regard, the RCC now expressly mandates the promotion One of important objectives of the RCC is the implementation of

governance principles on disclosure, transparency and equitable treatment of shareholders/members. Here lies the purpose and objective Section 73 of the RCC is anchored on, and implements the corporate

a More Effective Statutory Model. Florida Law Review. Article 1, Volume 26, Issue 2 (January 1974) 17 Sec. 179(d) of the RCC 18 Section 46 [k] of the RCC 19 Sec. 23 of the RCC 16 Kenneth Winston Starr and Terrance E. Schmidt., Inspection Right of Corporate Stockholders: Towards

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of the right to inspect corporate books and records. The right to inspect enables and assures the board of timely access to accurate and relevant information, which is critical in their decision-making functions. This right equally ensures the timely availability of relevant corporate

financial status, determine whether and how to take proper action such information to shareholders/members (especially the minority) that will enable them to monitor the corporation's performance, evaluate its as a proxy fight to replace the incumbent management,2o actively

requires their action, decide on their investments or membership, and effectively exercise their right to influence.21 participate in meetings and/or the affairs of the corporation which

and finances of the corporation, to wit: recognize and uphold the exercise of the right to inspect, or the right of shareholders/members to have full access to information on the affairs Supreme Court emphasized that the general rule in this jurisdiction is to Thus, in the case of Gokongwei vs SEC22 (the "Gokongwei Case"), the

judicial opinion appears to be, that on application for is granted by statute to the stockholder, it is given to him as specific and honest purpose, and not to gratify curiosity, or or for speculative or vexatious purposes. The weight of mandamus to enforce the right, it is proper for the court to inquire into and consider the stockholder's good faith and his this ownership or interest be termed an equitable ownership, a beneficial ownership, or a quasi-ownership. This right is generally held by majority of the courts that where the right such and must be exercised by him with respect to his interest as a stockholder and for some purpose germane thereto or in the interest of the corporation. In other words, the inspection has to be germane to the petitioner's interest as a stockholder, and has to be proper and lawful in character and not inimical to the interest of the corporation. In Grey v. Insular Lumber, this Court held that "the right to examine the books of the corporation must be exercised in good faith, for for specific and honest purpose, and not to gratify curiosity. assets and property of the corporation. It is, therefore, an incident of ownership of the corporate property, whether predicated upon the necessity of self-protection. It is books and records is based upon their ownership of the "The stockholder's right of inspection of the corporation's

22G.R. No. L-459 11. April 11, 1979 20 Robin Hui Huang and Randall Thomas., The Law and Practice of Shareholder Inspection Rights: A 21 The G20/OECD Principles of Corporate Governance were adopted by the Commission in complying with its mandate under the RCC Comparative Analysis of the United States and China. Vanderbilt Journal of Transnational Law., Vol. 53, Article 5 (3 May 2020)

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that "the right given by statute is not absolute and may be refused when the information is not sought in good faith or is used to the detriment of the corporation." But the "impropriety of purpose such as will defeat enforcement must be set up the corporation defensively if the Court is to purpose and motives in seeking inspection. Thus, it was held

take cognizance of it as a qualification. In other words, the specific provisions take from the stockholder the burden of

corporation the burden of showing impropriety of purpose showing propriety of purpose and place upon the

is being mismanaged or that it is being managed for the stockholders to the exclusion of others." (Emphasis supplied) personal benefit of officers or directors or certain of the stockholders are entitled to full information as to the management of the corporation and the manner of expenditure of its funds, and to inspection to obtain such information, especially where it appears that the company or motive. It appears to be the general rule that

his/her right to inspect. This discloses a clear Legislative intent to make the right to inspect readily available to shareholders/members. Congress granted the Commission the power and authority to investigate and summarily issue an order (within five (5) days from receipt of the report) directing the inspection of books and records on the basis of a finding that a shareholder/member has been denied the exercise of So important is the right to inspect in our jurisdiction that the

exercise of the right to inspect. In this regard, We emphasize that the law requires proof of actual "improper use" of the documents for the same to RCC.23 In the case of Dee Ping Wee vs Lee Hiong Wee,24 the Supreme Court specifically provides that the right to inspect is not available to a corporation, or one who represents the interests of a competitor. We also constitute a valid defense in an action for violation of Section 73 of the ruled, thus: Appellants that the right to inspect is not absolute. Section 73 of the RCC competitor, or to person who is not a stockholder/member of a find in the same provision that the defenses of improper use, bad faith or illegitimate purpose can be validly invoked to justify the denial of the The foregoing notwithstanding, this Commission agrees with

3 "xxx Provided, further, That it shall be a defense to any action under this section that the person 3

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 of any other corporation or was not acting in good faith or for a legitimate purpose in making the demand to examine or reproduce the interest of a competitor." (Emphasis supplied) 24 G.R. No. 169345. August 25, 2010 demanding to examine and copy excerpts from the corporation's records or minutes has improperly corporate records or is a competitor, director, officer, controlling stockholder or otherwise represents

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shown that the stockholders have improperly used any information secured through a previous examination or "The exercise of these rights may be denied, however, if it is

that the demand is purely speculative or merely to satisfy

in this case." (Emphasis supplied) curiosity. These grounds have not been shown to be present

important rule embodied in Sec. 73 of the RCC, which was reiterated by the Supreme Court in Philippine Associated Smelting and Refining Corporation vs Lim,25 that a denial by a corporation of the right to inspect cannot be based on speculation, thus: The afore-quoted ruling explains and serves as basis for the equally

authority, when an inspection by a shareholder is contested, the burden is usually held to be upon the corporation to establish a probability that the applicant is attempting to gain inspection for a purpose not connected with his interests as a shareholder, or that his purpose is otherwise improper. The burden is not upon the petitioner to show the propriety of his examination or that the refusal by the officers or directors was wrongful, except under statutory provisions." (Emphasis supplied) has provided, on mere doubt or suspicion as to the authority to close the office doors against shareholders for whom they are only agents, and withhold from them the right to inspect the books which furnishes the most motives of the shareholder. While there is some conflict of "In general, however, officers and directors have no legal effective method of gaining information which the law

dependent upon prior showing of a dispute or mismanagement, thus: faithfully managing the affairs of the corporation, as well as in a regime corporation is being mismanaged, or its directors/trustees are abusing stockholders/members, contrary to the position of Appellants. In the Supreme Court ruled that the exercise of the right to inspect is not in ordinary circumstances, where the board/officers are prudently and their positions to the detriment of the corporation and/or its case of Terelay Investment and Development Corporation vs Yulo,26 the where there are abuses and/or mismanagement of the corporation. In other words, the right to inspect is not dependent on an allegation that a Gokongwei Case, the exercise of the right to inspect can be invoked both Moreover, prescinding from the earlier-quoted doctrine in the

25 G.R. No. 172948. October 5, 2016 26 G.R. No. 160924. August 5, 2015

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condition of a showing of any particular dispute or ofproving burden of proof is upon the corporation to show that the purpose of the shareholder is improper, by way of defense." records of the petitioner should not be made subiect to the examination proper, but if the right is to be denied, the "The right of the shareholder to inspect the books and any mismanagement or other occasion rendering an (Emphasis supplied)

shareholder/member is always presumed, thus: directors/officers will be invoking the grounds to deny the exercise of the thereof since good faith on the part of the requesting right to inspect, the existing rule is that such corporation and/or its directors/officers has the burden of positively showing the existence In all circumstances where a corporation and/or its

bad faith as to the existence of an illegitimate purpose. "Good faith and a legitimate purpose are presumed. It is the duty of the corporation to allege and prove with sufficient evidence the facts that give rise to a claim of

magical incantation that will defeat the request of a be pleaded to convince the court that a specific The confidentiality of business transactions is not a stockholder to inspect the records. Although it is true that the business is entitled to the protection of its trade secrets and other intellectual property rights, facts must stockholder's request for inspection, under certain conditions, would violate the corporation's own legal right.

personalities of those involved. Furthermore, the discomfort caused to the management of a of the regular matters that a business wanting to ensure good governance must endure. The range between discomfort and vexation is a broad one, which may tend to be located in the corporation when a request for inspection is claimed is part

to conclude bad faith on the part of the requesting stockholder. Courts must be convinced that the scope or of evidence that this happened here."27 Emphasis supplied) manner of the request and the conditions under which it was made are so frivolous that the huge cost to the business will, in equity, be unfair to the other stockholders. There is no iota Certainly, by themselves, these are not sufficient factual basis

27 Philippine Associated Smelting and Refining Corp. v. Lim (G.R. No. 172948, October 5, 2016)

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In the instant case, Appellants maintain that DACON should be

be in bad faith, and will use the information obtained for illegitimate used to ultimately wrest control and management of the Corporation, allegedly disrupted the operations of the Corporation and humiliated them, should be imputed to, and considered an act of DACON since they are essentially one and the same. In other words, Appellants are telling because its sister corporation i.e. DMC-UPDI, has allegedly been shown to through the information that will be obtained therefrom. In support of this claim, Appellants argued that the vexatious acts of DMC-UPDI which this Commission that DACON cannot exercise its statutory right to inspect rightfully denied the right to inspect on the ground that the same will be

purposes.

We find Appellants' position to be bereft of merit and basis.

reiterated in their Appeal, to wit: pleadings, that Appellants attributed to DMC-UPDI the acts that they considered as valid to justify the denial of the right to inspect. These are The Commission particularly notes, in practically all of its

in compliance with its warranty against hidden defects under inferiorly constructed condominium buildings, presumably the Civil Code. "31. DMC-UPDI therefore had to retrofit and upgrade its

imposition of dues. corporation and the remaining unit owners. This was even unit owners had experienced mismanagement and unjust had to spend millions of pesos. It was for this reason that DMC-UPDI wanted to take full control of the Board of Trustees so that it could recoup its expenses from the confirmed when DMC-UPDI was able to wrest control of the Board of Trustees in the other condominiums it owned in Davao City, to wit: Palmetto Place and Verdon Parc, of which "32. In the process of these buy-backs and repairs, DMC-UPDI

board with their own representatives or employees, and "34. The intention of DMC-UPDI to wrest control of the Board owners, or those who did not opt to have their units be bought back by DMC-UPDI. of Trustees, was even made manifest when in the general assembly of July 17, 2021, they wanted to fill up the entire disregard the interests of the independent or retained unit

"40. In the following election conducted during the General

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Assembly of Year 2022, DMC-UPDI again attempted to wrest control of MRCC's Board of Trustees. However, they were

they did not yet qualify as members of the corporation (i.e. failure to submit the certified true copies of their CTCs, failure again disqualified from participating in the election because

CABREROS Group from conducting a separate and to pay the association dues, joining fee and real property taxes). This however did not deter DMC-UPDI through illegitimate election.

to the July 15, 2023 election, DMC-UPDI made some actions "44. The power struggle between the 2 groups was even which were sought to cast doubts to Respondents- continued in the 2023 General Assembly and election. Prior Appellants' integrity and intended to tarnish their reputations in time for the election. xxx. (Emphasis supplied)

is the author of the actions which are allegedly tainted with bad faith and because DMC-UPDI committed the alleged acts that might justify or warrant such denial. Appellants are thus bereft of any justification, ill motives, according to Appellants. Accordingly, this Commission is of recognized by law and jurisprudence, that will sustain a valid denial of DACON's right to inspect. the position that DACON cannot be denied of its right to inspect just The foregoing constitutes a (judicial) admission28 that DMC-UPDI

jurisprudential rule that, in the absence of fraud which must be around the world, the statutory grant of a separate juridical personality corporations, from which the other attributes flow as a legal the doctrine of separate juridical personality, contrary to the position of Appellants. In our jurisdiction, as well as in practically all jurisdictions to corporate entities is considered to be the most important attribute of consequence.29 The law, therefore protects and guards this attribute to promote business and economic development. This finds support in the DACON of its right to inspect the books and records of the Corporation, on the ground that DACON and DMC-UPDI are not one and same, applying constitute bad faith, the same will not suffice and operate to deprive Granting, ex gratia argumenti, that the alleged acts of DMC-UPDI

a party or a party's attorney during judicial proceedings. 28 " A judicial admission is a formal statement, either by party or his or her attorney, in course of judicial proceeding which removes an admitted fact from field of controversy. It is a voluntary concession of fact by

judicial proceedings or judicial admissions waive or dispense with, the production of evidence, and the actual opponent is true." (Agbayani vs Lupa Realty Holding Corporation. G.R. No. 201193, June 10, 2019) Judicial admissions are used as a substitute for legal evidence at trial. Admissions made in the course of proof of facts by conceding for the purpose of litigation that the proposition of the fact alleged by the

Personality, (2018) 29 Cesar Villanueva and Teresa Villanueva-Tiansay, Philippine Corporate Law, Corporate Juridical

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another corporation of all or nearly all of the capital stocks of the sufficiently proven, mere ownership by a single stockholder or by interlocking directors, corporate officers and shareholders, or that two sufficient ground to disregard the separate corporate personality. corporation3o, or substantial identity of the incorporators or stockholders of two (2) corporations,31 or the fact that a corporation has (2) corporations have offices in the same building,32 is not, by itself, a

have interlocking directors and stockholders, and hold office in the same of DACON's right to inspect, in the absence of clear and convincing evidence that they have used the corporate vehicle to perpetrate fraud, violate a law or evade an obligation. building does not warrant the piercing of their corporate veils for purposes of considering them as a single entity, and justifying the denial Thus, the fact that both DACON and DMC-UPDI are related entities,

is nothing in the evidence which shows that DACON or even DMC-UPDI previously obtained from the Corporation. The speculative nature of the ground(s) relied upon by the Appellants is shown in the following has actually improperly used a document/information that was statements: Appellants to support their allegation of bad faith are speculative. There In the same manner, We find that the grounds relied upon by the

retrofitting. buck to all unit owners of all their expenses in the repairs and independent or retained unit owners was that due to DMC- buy-back, they could suppress the minority and just dictate whatever their whims and caprices are, including passing the "42. The fear of the Respondents-Appellants and the UPDI having owned the majority of the units by reason of the

Appellants in the three-year power struggle and the desire of the DMC-UPDI to wrest control of the Board. "59. Basically, Complainant-Appellee's legitimate reason for evidence which they can use against the Respondents- inspection is highly dubitable as again, it would appear that thev were only on a fishing expedition to find

present an opportunity for them to get additional "63. In fact, they should even be disallowed inspection due to the existence of these cases. Allowing the Complainant. Appellee to inspect corporate records at this time, would only

30 Saverio vs Puyat (G.R. No. 186433. Nov. 27, 2013) 31 McLeod vs NLRC (146667. January 23, 2007) 32 Ibid.

DACON Corporation vs Edwin M. Chua et. al. SEC EB Case No. 10-23-528 Page 16 of 19 Decision

information or evidence which they might use in the cases which are now pending in courts and quasi-judicial bodies. (Emphasis supplied)

DACON the right to inspect on the ground that it is not a member of the Appellants also maintained that they were correct in denying

that the failure of DACON to formally file the Certified True Copy of its Corporation, contrary to the finding of the SEC Davao. Appellants claimed

CCT with it, prevented DACON from being a member of the Corporation

presented by the parties, this Commission finds no cogent reason to disturb the ruling of the SEC Davao. After a careful consideration of the arguments and the evidence

As correctly found by the SEC Davao, We agree with SEC Davao that pursuant to Section 8(b) of the Master Deed, DACON automatically

Condominium on 17 August 2022. The use of the word "automatically" in as a member of the Corporation. Thus, Article 5 Section 1 of the By-laws of the Corporation specifically directs the Board to determine the of Deeds of Davao the CCT over Unit 311 of Magallanes Residences the Master Deed means that unit owners who are able to secure titles to their respective units need not do any positive act to obtain their status qualifications of membership in accordance with the Master Deed and the Documents of Sale. In other words, the provisions of the By-laws and the Master Deed which are binding upon all the members thereof,33 do not became a member of the Corporation after it secured from the Register

grant the Appellants the authority membership beyond what is provided to prescribe a requirement fon in the said documents. The

registration of shares in the books, is applicable by analogy to the instant case which involves a non-stock corporation, thus: doctrine in Teng vs SEC34 where the Supreme Court ruled that the board or officers cannot create restrictions not sanctioned by law on the

"It is the delivery of the certificate, coupled with the representative that is the operative act of transfer of shares emphatically declared. in Fil-Estate Golf and Development, from the original owner to the transferee. The Court even endorsement by the owner or his duly authorized

corporate affairs; they established norms of procedure for exercising rights, and reflected the purposes and them. The by-laws were self-imposed private laws binding on all members, directors and officers of Forest Hills. The prevailing rule is that the provisions of the articles of incorporation and the by-laws must be strictly 34G.R. No.184332. February 17, 2016 33 "-The charter and the by-laws were thus the fundame intentions of the incorporators. Until repealed, the by-laws were a continuing rule for the government of of Forest Hills. The bylaws constituted a binding contract as between Forest Hills and its members. and as complied with and applied to the letter." (Forest Hills Golf and Country Club, Inc. vs Gardpro, Inc. (G.R. Forest Hills and its officers, the proper function being to regulate the transaction of the incidental business No. 164868. October 22, 2014) between the members themselves. Every stockholder governed by the by-laws was entitled to access ental dos uments governing the conduct of Forest Hills

DACON Corporation vs Edwin M. Chua et. al SEC EB Case No. 10-23-528 Page 17 of 19 Decision

Inc., et al. v. Vertex Sales and Trading, Inc. that in "a sale of shares of stock, physical delivery of a stock certificate is one of the essential requisites for the transfer of ownership of the stocks purchased." The delivery contemplated in Section 63, however, pertains to the delivery of the certificate of shares by the transferor to the transferee, that is, from the original stockholder named in the certificate to the person or entity the stockholder was transferring the shares to, whether by sale or some other valid form of absolute conveyance of ownership. "[S]hares of stock may be transferred by delivery to the transferee of the certificate properly indorsed. Title may be vested in the transferee by the delivery of the duly indorsed certificate of stock.'

It is thus clear that Teng's position - that Ting Ping must first surrender Chiu's and Maluto's respective certificates of stock before the transfer to Ting Ping may be registered in the books of the corporation - does not have legal basis. The delivery or surrender adverted to by Teng, i.e., from Ting Ping to TcL, is not a requisite before the conveyance may be

holds any unpaid claim against the shares intended to be his name, which is not sanctioned by law. The only limitation imposed by Section 63 is when the corporation recorded in its books. To compel Ting Ping to deliver to the corporation the certificates as a condition for the registration of the transfer would amount to a restriction transferred. on the right of Ting Ping to have the stocks transferred to

its board, its by-laws,or the act of its officers, cannot a transferee/assignee to have stocks transferred to his the bank the deeds of assignment for registration, transfer of the shares assigned in the bank's books, cancellation of the stock certificates, and issuance of new stock certificates, which the bank refused. In ruling favorably for the private In Rural Bank of Salinas, the Court ruled that the right of name is an inherent right flowing from his ownership of the stocks. In said case, the private respondent presented to respondent, the Court stressed that a corporation, either by create restrictions in stock transfers." (Emphasis supplied)

made DACON a member of the Corporation, and entitled it to the right to Appellants with a copy of the CCT for Unit 311 of Magallanes Residences Condominium showing its ownership thereof. Under the Master Deed, in relation to the By-laws of the Corporation, such document automatically In the instant case, DACON already furnished the Corporation and

DACON COL SEC EB Case No. 10-23-528 vs Edwin M. Chua et. al Page 18 of 19 Decision

+

inspect. Thus, We hold that the requirement in Resolution No. 18-2021 relating to the presentation of a Certified True Copy of the CCT is a formal

in the Master Deed and/or the By-laws of the Corporation which registered unit owner in the Corporation. As mentioned earlier, the Appellants cannot, by a mere Resolution, modify or vary the provision(s) automatically recognizes the registered owners of condominium units under a CCT as members of the Corporation. Being a registered owner of its right to inspect the books and records of the Corporation. Unit 311 of Magallanes Residences Condominium, DACON is well within requirement that does not affect or negate the fact of membership of a

Cabadbaran,35 that the recordal of a transfer of shares (as well as membership in a non-stock corporation) is ministerial and can be compelled by mandamus, thus: Relative thereto, We reiterate the ruling in Andaya vs Rural Bank of

transferee's established ownership of the stocks, a right that has been recognized by this Court as early as in Price v. Martin: the transfer. This legal right inherently flows from the "It is already settled jurisprudence that the registration of a transfer of shares of stock is a ministerial duty on the part of the corporation. Aggrieved parties may then resort to the remedy of mandamus to wrongfully or unjustifiably refuse to record the transfer or to issue new certificates of stock. This remedy is available even upon the instance of a bona fide transferee who is able to establish a clear legal right to the registration of compel corporations that

A person who has purchased stock, and who desires to be recognized as a stockholder, for the purpose of voting, must books. If the transfer is not duly made upon request, he has, as his remedy, to compel it to be made." (Emphasis supplied) secure a standing by having the transfer recorded upon the

were informed of the demand to inspect which was sent to them by provisions on "Service and Filing" under the 2016 Rules of Procedure of the SEC is misplaced and not applicable since a demand letter is not a pleading, and when the same was served, there was no case pending with the Commission. Thus, We hold that the Corporation and the Appellants prior demand to inspect corporate records was not complied with by DACON. The evidence on record shows that the demand letter of DACON was addressed to the Corporation, and specifically mentioned the Appellants who are the members of the Board. Appellants' reliance on the Finally, We do not agree with Appellants that the requirement for

35 G.R. No. 188769. August 3, 2016

DACON Corporation vs Edwin M. Chua et. al SEC EB Case No. 10-23-528 Page 19 of 19 Decision

ground justified DACON's invocation of the exercise by this Commission of its regulatory authority under Section 73 of the RCC DACON. Their refusal to recognize and address the same without a valid

Abraham, Jocelyn A. Talania, Rolando A. Junio, Allan D. Yaphockun, dated 23 April 2022 filed by Edwin M. Chua, Ferdinand C. Vido, Jennifer I Teresita T. Canlas, Theodore Q. Garcia, Richard N. Allen and Hermoso Adlawan is hereby DENIED for lack of merit. The Order dated 8 August 2023 issued by the SEC Davao Extension Office is hereby AFFIRMED. WHEREFORE, premises considered, the Appeal Memorandum

SO ORDERED

Makati City; February 15, 2024.

EMILIO B. AQUINO Chair arsor

JAVFY PAUL D. FRANCISCO Commissioner KELVIN LESTER K.LEE Commissioner

KARIO S. BELLO Commissioner MCJILL BRYANT T. FERNANDEZ Commissioner