THE PENAL PROVISION UNDER SEC.

144 OF THE CORPORATION CODE

by CESAR L. VILLANUEVA, B.S.C., LL.B, LL.M.

Sec. 144, at near the end of the Corporation Code, provides that -

"SEC. 144. Violations of the Code.--Violations of any of the provisions of this

Code or its amendments not otherwise specifically penalized therein shall be
punished by a fine of not less than one thousand (P1,000.00) pesos but not more than
ten thousand (P10,000.00) pesos or by imprisonment for not less than thirty (30) days
but not more than five (5) years, or both, in the discretion of the court. If the violation
is committed by a corporation, the same may, after the notice and hearing, be
dissolved in appropriate proceedings before the Securities and Exchange
Commission; Provided, That such dissolution shall not preclude the institution of
appropriate action against the director, trustee, or officers of the corporation
responsible for said violation: Provided, further, That nothing in this section shall be
construed to repeal the other causes for dissolution of a corporation provided in this
Code. (190-1/7a)."
Under Sec. 27 of the Code, a person convicted by final judgment of a violation
of the Code committed within five (5) years prior to the date of his election or
appointment, shall not be qualified as a director, trustee or officer of any corporation.
In-depth discussions on the proper interpretation and coverage of Sec. 144 of
the Corporation Code is essential since it provides for criminal penalties for violations
of "any" of the provisions of the Corporation Code, and therefore seems to over-
criminalize the provisions of that law. The broad language of Sec. 144, unless properly
applied, presents a codal land mine that could maim or harm the actors in the
corporate setting, or would tend to put at risk many of the actuations and decisions
of the directors, trustees, and corporate officers, as to necessarily cramp the exercise
of their business judgment.
Lately, practitioners have began to look at the seemingly all-encompassing
provisions of Sec. 144 to effectively obtain results on their demands or claims against
the corporation, by dangling a threat of criminal suit against corporate directors and
officers.

Criminal Law Principles

To effectively render a proper interpretation of the extent and reach of Sec.
144, which is essentially a criminal law provision, it is necessary to view the section in
line with prevailing Philippine Criminal Law principles.
Although the Corporation Code was essentially derived from common law
jurisprudence and legislation from the United States, nevertheless, it has been long
held by our Supreme Court that the so-called common law crimes known in the
United States and England as the body of principles, usages and rules of action, which
do not rest for their authority upon any express and positive declaration of the will of
the legislature, are not recognized in the Philippines. Unless there be a particular
provision in the penal code or special penal law that defines and punishes the act,
even if it be socially or morally wrong, no criminal liability is incurred by its
commission.
We have therefore in Philippine jurisdiction one of the fundamental rules of
construction of Criminal Law, that penal laws are strictly construed against the State
and liberally in favor of the accused.Although it has also been held that such
construction rule may be invoked only where the law is ambiguous and there is doubt
as to its interpretation; where the law is clear and unambiguous, there is no room for
the application of the rule.
Nevertheless, the Supreme Court has equally held that the rule of strict
construction of criminal law is subordinate to the rule of reasonable, sensible
construction, having in view the legislative purpose and intent, and given effect to the
same; the rule should not be unreasonably applied as to defeat the true intent and
meaning of the enactment found in the language actually used.Penal statutes shall
not, by what may be thought their spirit and equity, be extended to offenses other
than those which are specifically and clearly described and provided for since the law
will not allow constructive offenses or arbitrary punishments.This rule does not
exclude the application of common sense to the terms used in the law.

The Elements of the Criminal Offense Under Sec. 144

Looking at the language of Sec. 144, one can see that it seems all-
encompassive in nature as it imposes criminal liability for "Violations of any of the
provisions of this Code or its amendments not otherwise specifically penalized
therein." This is further bolstered by the fact that in addition, Sec. 144 does not mean
to cover other provisions of the Corporation Code which provides for specific
penalties (as Sec. 74 on violation of the right of inspection as discussed hereunder)
because is uses the phrase "not otherwise specifically penalized therein."
It is difficult to construe Sec. 144 to mean all non-compliance with the
provisions of the Corporation Code would be criminally punishable. For example,
under Sec. 26 of the Corporation Code, it is provided that within thirty (30) days after
the election of the directors, trustees and officers of the corporation, the secretary, or
any other officer of the corporation, shall submit to the SEC, the names, nationalities
and residences of the directors, trustees and officers elected. If a corporate secretary
fails to comply with this provision, would he then be subject to a criminal penalty
under Sec. 144?
Such a construction would seem too harsh, and effectively discourage
competent and well-meaning individuals from accepting positions within the
corporate setting. It would then make the corporation a very unattractive medium for
commerce.

The Meaning of "Violation" Under Sec. 144

The proper and reasonable interpretation of Sec. 144 is to determine what the
term "violations" covers.
"Violation" means "Injury; infringement; breach of right, duty or law;" the
action of breaking a law, rule, agreement, promise, or instruction.
 Therefore, the "violations" covered by Sec. 144 covers only those provisions in
the Corporation Code which are expressly mandatory in nature to show the true intent
of Congress to impose a penal sanction for non-compliance therewith.
For example, Sec. 15 of the Corporation Code provides for the form to be
followed in preparing and filing the articles of incorporation of a corporation.
Certainly, non- compliance therewith would not subject the incorporators to penal
sanction, although certainly that would be a "violation" of the provisions of the
Corporation Code in broad use of the term "violation". Especially so when the Code
itself under Sec. 17 gives the SEC authority to reject the articles of incorporation or
disapprove the same if it does not comply with the Code. In fact that same section
grants the incorporator a reasonable time "within which to correct or modify the
objectionable portions of the articles."
There are other provisions in the Corporation Code where it would seem clear
that civil sanction for damages is imposed rather than the criminal sanction under
Sec. 144 thereof. Under Sec. 31 thereof, a director or trustee who willfully and
knowingly votes for or assents to patently unlawful acts of the corporation or who are
guilty of gross negligence or bad faith in directing the affairs of the corporation or
acquire any personal or pecuniary interest in conflict with their duty as such directors
or trustees shall be liable jointly and severally for all damages resulting therefrom
suffered by the corporation, its stockholders or members and other persons. Under
Sec. 32, where a director, by virtue of his office, acquires for himself a business
opportunity which should belong to the corporation, thereby obtaining profits to the
prejudice of such corporation, he must account to the corporation for all such profits
by refunding the same.
So also, under Sec. 65, any director or officer of a corporation consenting to
the issuance of stocks for a consideration less than its par or issued value or for a
consideration in any form other than cash, valued in excess of its fair value, or who,
having knowledge thereof, does not forthwith express his objection in writing and file
the same with the corporate secretary, shall be solidarily liable with the stockholder
concerned to the corporation and its creditors for the difference between the fair
value received at the time of issuance of the stock and the par or issued value of the
same.
In all the foregoing instances, it would not be proper to subject erring directors,
trustees, or corporate officers to criminal penalty under Sec. 144 since the specific
provisions themselves provide for the proper remedies in each case. This is the proper
and reasonable interpretation of the phrase in Sec. 144 "not otherwise specifically
penalized therein" to mean that even when the provisions seems to be mandatory
and the violation thereof is a serious breach, when the particular provision already
provides for a specific penalty the penal sanction under Sec. 144 should not be made
to apply.
There is a specific provisions of the Corporation Code where the Legislature
has made it clear or apparent that it seeks to impose the penal sanctions under Sec.
144 for non-compliance therewith. Under Sec. 74, any officer or agent of the
corporation who shall refuse to allow any director, trustee, stockholder or member of
the corporation to examine or copy excerpts from its records and minutes, 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 shall be punishable under Section 144 of this Code." Section 174 of the
Corporation Code is therefore a clear example of the intent of Legislature that when
it seeks to impose the criminal sanction under Sec. 144 for violation of the provision
of the Code, then it uses clear words to indicate so.
At present, only Sec. 74 of the Corporation Code refers to Sec. 144, so that
effectively only violation of the right of inspection under Sec. 74 are criminally
punishable under Sec. 144. In effect, the broad coverage of Sec. 144 is meaningless
since it is applicable only to Sec. 74 of the Code. If that is the legal effect, then it could
be argued that Legislature, when it enacted Sec. 144 of part of the Corporation Code,
had not intended it to be a practically useless provision since the penal sanctions
provided therein could have effectively been stated in Sec. 74 if it is indeed the only
violation applicable to said provision. However, such a position fails to consider that
indeed Sec. 144 was meant to be the over-all penal sanction under the Code, if and
when Legislature deems it appropriate to impose a penal sanction for violation
thereof not only based on the current provisions of the Code, but also "its
amendments" in the future.
It should also be noted that although a penal provision like Sec. 144 is usual in
special laws, nevertheless, the implementation dura lex, sed lex of such penal
provisions under most special laws is without controversy because the subject thereof
is limited and the acts covered therein are clearly defined. Such position cannot be
equated to Sec. 144, since the Corporation Code, indeed is a "code" that necessary
covers a broad subject and almost innumerable acts.

Sec. 190-1/7: Historical Background to Sec. 144

As indicated at the end of Sec. 144, it is an amended version of Sec. 190-1/7 of
the old Corporation Law. A contrary view to the position taken in this paper does not
take into consideration that the present Sec. 144 of the Corporation Code, is a carry-
over of Sec. 190-1/7 of the old Corporation Law. It should be recalled that when the
then Corporation Law sought to impose a criminal penalty on a prohibited act, it
spelled it our clearly, thus:
(a) Under then Sec. 15 of the Law, it punished as an offense by a fine of P20,000
employment of persons in slavery in a corporation doing business in the Philippines
or receiving any grant, franchise or concession from the Philippine Government;
(b) Under Sec. 19 of the Law, any corporation which fails to report to the SEC
any cessation or change of address, if any, shall be subject to a fine of not less than
P100 nor more than P1,000;
(c) Under then Sec. 69 of the Law, any officer, or agent of the corporation or
any person transacting business or any foreign corporation not having the license
prescribed by law shall be punished by imprisonment of not less than six (6) months
nor more than two (2) years or by a fine of not less than P200 nor more than P1,000,
or by both such imprisonment and fine, in the discretion of the court.
Subsequently, then Sec. 190-1/7 became the general sanction under the then
Corporation Law for violations of the above-enumerated offenses.Such offenses,
considered to be archaic, have not been carried over into the Corporation Code.
Therefore, Sec. 144 should now be viewed not as a contemporary enactment of
Legislature as a "new" policy towards violation of the any and all provisions of the
Corporation Code, but really a relic or carry-over of the old Corporation Law provision
which therefore should be interpreted in the same manner as then Sec. 190-1/7 of
the Law, which also carried the phrase "not otherwise penalized therein."
As originally enacted, the old Corporation Lawdid not contain any appropriate
clause directly penalizing the act of a corporation, or member of a corporation for
violation of certain prohibited acts under that law. The Philippine Legislature
undertook to remedy the situation in section 3 of Act No. 2792, approved on 18
February 1919, providing for the original version of Sec. 190.
Government of the Philippine Islands v. El Hogar Filipinoheld that the section
was not intended to make every casual violation of one of the Corporation Law
provisions ground for involuntary dissolution of the corporation and that the court
was entitled to exercise discretion in such matters. At the time of El Hogar, the version
of then Sec. 190 on the dissolution of corporate violator was expressed in mandatory
terms, thus:
"SEC. 190. (A). Penalties.--The violation of any of the provisions of this Act and
its amendments not otherwise penalized therein, shall be punished by a fine of nor
more than one thousand pesos, or by imprisonment for not more than one thousand
pesos, or by imprisonment for not more than five years, or both, in the discretion of
the court. If the violation is committed by a corporation, the same shall, upon such
violation being proved, be dissolved quo warranto proceedings instituted by the
Attorney-General or by any provincial fiscal by order of said Attorney-General x x x."
The Court held that although the section uses the word "shall" the provision
on dissolution should be interpreted to mean "may". It held another way to put the
same conclusion is to say that the expression "shall be dissolved by quo warranto
proceedings" means in effect, "may be dissolved by quo warranto proceedings in the
discretion of the court." The Court also held that "The proposition that the word `shall'
may be construed as `may', when addressed by the Legislature to the courts is well
supported in jurisprudence."
Nevertheless, El Hogar declared the section invalid for lack of adequate title to
the Act. Subsequently, the Philippine Legislature reenacted substantially the same
penal provision in section 21 of Act No. 3518, under a title sufficiently broad to
comprehend the subject matter.
Harden v. Benguet Consolidated Mining Co. held that violation of the
provisions of the old Corporation Law prohibiting one mining corporation from
acquiring interest in another was held not to permit repudiation of the contract for
such interest, though it might subject the corporation to quo warranto or criminal
proceedings. What is important is the ruling in Harden is the pronouncement of the
Court that Sec. 190 "was adopted by the lawmakers with a sole view to the public
policy that should control in the granting of mining rights. Furthermore, the penalties
imposed in what is now section 190(A) of the Corporation Law for the violation of the
prohibition in question are of such nature that they can be enforced only by a criminal
prosecution or by an action of quo warranto. But these proceedings can be
maintained only by the Attorney-General in representation of the Government."
The implication in Harden is that, as dissolution of a corporation is a matter
addressed to the courts, and can be commenced only by the State, through the
Solicitor General, when enforcing a public policy, as distinguished from answering a
private wrong, so also criminal prosecutions under Sec. 144, as a derivative from the
old Sec. 190 of the Corporation Law, can be proceeded by the State only for violations
of the provisions of the Corporation Code that go into prohibitory provisions of the
Code covering fundamental public policy, and can only be commenced by the
Solicitor General, in representation of the Government, and not upon the complaint
of any ordinary citizen.

Contrary View
It should be noted, however, that Guevarra, in his treatise on the old
Corporation Lawtook the contrary position that the Law "provides special penalties
for violations of some provisions of the Corporation Law and also a general penalty
for violations not specifically penalized therein."
We must also take note of the obiter dictum expressed in Home Insurance
Company v. Eastern Shipping Lines.In that case, Home Insurance Company, a foreign
corporation, which admittedly had engaged in business in the Philippines, had issued
insurance contracts in the Philippines without obtaining the necessary license.
Subsequently, it obtained the license before filing the cases for collection under the
insurance contracts. The lower court dismissed the complaint and declared that
pursuant to its understanding of the basic public policy reflected in the Corporation
Law, the insurance contracts executed before a license was secured must be held null
and void, and the subsequent procurement of the license did not validate the
contracts.
The Supreme Court, although it recognized there were conflicting schools of
thought both here and abroad which are divided on whether such contracts are void
or merely voidable, took its cue from the doctrine laid down in Marshall Wells Co. v.
Elserthat the doctrine of then Sec. 69 of the old Corporation Law "was to subject the
foreign corporation doing business in the Philippines to the jurisdiction of our courts
x x x and not to prevent the foreign corporation from performing single acts, but to
prevents it from acquiring domicile for the purpose of business without taking the
necessary steps to render it amenable to suit in the local courts."
However, although the issue of criminal sanction was not at issue, Justice
Gutierrez in Home Insurance held that Sec. 133 of the present Corporation Code,
which unlike its counterpart Sec. 69 of the Corporation Law provided specifically for
penal sanctions for foreign corporations engaging in business in the Philippines
without obtaining the requisite license, should be deemed to have a penal sanction
by virtue of Sec. 144 of the Corporation Code, thus:
"Significantly, Batas Pambansa Blg. 68, the Corporation Code of the Philippines
has corrected the ambiguity caused by the wording of Section 69 of the old
Corporation Law. x x x.
"x x x.
"The old Section 69 has been reworded in terms of non-access to courts and
administrative agencies in order to maintain or intervene in any action or proceedings.
"The prohibition against doing business without first securing a license is now
given penal sanction which is also applicable to other violations of the Corporation
Code under the general provisions of Section 144 of the Code.
 "It is, therefore, not necessary to declare the contract null and void even as
against the erring foreign corporation. The penal sanction for the violation and the
denial of access to our courts and administrative bodies are sufficient from the
viewpoint of legislative policy."
Home Insurance in dealing with the scope and reach of Sec. 144, has not only
expressed an obiter dictum, but more importantly has not looked into the
implications of such broad pronouncements on the basis of Criminal Law principles,
since such principles have not been raised, discussed nor focused into appropriately
in the rendering of the decision. When the appropriate case is brought to the
Supreme Court, and the proper factual basis and principles of Criminal Law are
discussed and detailed before the Court, we believe that the Court will take a contrary
position on ratio decidendi considerations. After all, it was in Home Insurance where
the Court itself expressed the position that "[t]he Corporation Law must be given a
reasonable, not an unduly harsh, interpretation which does not hamper the
development of trade relations." Otherwise, Sec. 144, hangs like a Democles sword
ready to chop off the neck of corporate directors, trustees, and officers.

Absence of Malice or Defense of Good Faith Under the Corporation Code

Even if one where to meet head-on the position that Sec. 144 was meant by
Legislature to encompass every violation of the provisions Corporation Code, it would
be extremely difficult to obtain a conviction under Sec. 144, except for the specific
violation under Sec. 74 of the Code. Not only must the guilt of the accused be proven
beyond reasonable doubt, but more so, since violations of the Corporation Code are
not mala prohibita, but constitute mala in se, then the evil intent or malice of the
accused is an essential element for a crime punishable under Sec. 144. This is
demonstrated by no less than Sec. 74 which provides good faith as a defense: "That
it shall be a defense to any action under this section 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 or 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."
In cases, therefore, of prosecutions under Sec. 144, the director, trustee or
officer accused, could have more than enough legal basis to claim good faith because
of the varied interpretations and applications of the principles of Corporate Law.
It should be recalled that Corporate Law is essentially a transplant of that
specific body of law coming from the common law jurisdiction of the various states
of the United States. The Corporation Code may have expressed in statutory form
many of the common law principles of Corporate Law, however there are various
interpretations of similar provisions in various codes. In addition, there are various
common law principles in Corporate Law that are applicable in our jurisdiction that
have not even found their way in the Corporation Code, but which nevertheless are
applied by our Supreme Court. A prime example of this are the principles pertaining
to derivative suits, which are all found in decisions of the Supreme Court which have
no direct statutory basis in the Corporation Code.
Our own Supreme Court every now and then relies on discussions of Fletcher
to resolves issues in Corporate Law. In addition, there are varying, and sometimes
conflicting decisions on the same principle or statutory provision in Corporate Law
among the various courts in the United States. Finally, the often fast development in
our commercial transactions which have by practice allowed previously outlawed
practices to be accepted (such as rights of first refusal practice, classification of the
board seats, etc.) have often been recognized as reasonable and lawful bases to
validly animate board decisions or actuations of corporate officers.
There is therefore every leeway for the defense in a criminal suit based on Sec.
144 of the Corporation Code, to show that the element of malice does not pertain to
an act or a transaction upon which the criminal imputation is based upon.

---oOo---

Published last February, 1996 in THE LAWYERS' REVIEW, Vol. X, Nos 2.

U.S. v. Taylor, 28 Phil. 599, 604 (1914).
U.S. v. Abad Santos, 36 Phil. 243 (1917); People v. Yu Hai, 99 Phil. 725 (1956); People
v. Terrado, 125 SCRA 648 (1983).
People v. Gatchalian, 104 Phil. 664 (1958).
People v. Padilla and Von Arend, 71 Phil. 261 (1941).
People v. Abuyen, 52 Phil. 722, 726 (1929).
Ibid.
Black's Law Dictionary, 5th Ed.
World Book Dictionary, 1983 Ed., Doubleday & Company, Inc. Chicago Illinois.
Salonga, PHILIPPINE LAW ON PRIVATE CORPORATIONS, p. 629 (1968 Ed.).
Act No. 1459.
50 Phil. 399 (1927).
Ibid, at p. 414, citing Becker v. Lebanon and M. St. Ry. Co., 188 Pa., 484.
58 Phil. 141 (1933).
Ibid, at p. 149; emphasis supplied.
Guevarra, CORPORATION LAW (Phil. Jur. Series I), 1978 Ed., U.P. Law Center.
Ibid, at p. 250.
123 SCRA 424 (1988).
46 Phil. 70 (1924).
Ibid, at pp. 438-439; emphasis supplied.
Ibid, at p. 435.

-------------

Alejandro D.C. Roque v. People, GRN 211108, Jun 7, 2017, Tijam, J.

Section 74 of the Corporation Code provides for the liability for damages of any officer. or
agent of the corporation for refusing to allow any director, trustee, stockholder or member
of the corporation to examine and copy excerpts from its records or minutes. Section 144 of
the same Code further provides for other applicable penalties in case of violation of any
provision of the Corporation Code.
Hence, to prove any violation under the aforementioned provisions, it is necessary that: (1) a
director, trustee, stockholder or member has made a prior demand in writing for a copy of
excerpts from the corporations records or minutes; (2) 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; (3) if such refusal is made pursuapt to a
resolution or order of the board of directors or trustees, the liability under this section for
such action spall be imposed upon the directors or trustees who voted for such refusal; and
(4) 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.
[Flordeliza v. Ang, G.R. No. 178511, December 4, 2008]

xxxx

In any case, the revocation of a corporation's Certificate of Registration does automatically

warrant the extinction of the corporation itself such that its rights and liabilities are likewise
altogether extinguished. In the case of Clemente v. Court of Appeals [No. 82407, March 27,
1995], the Court explained that the termination of the life of a juridical entity does not, by
itself, cause the extinction or diminution of the rights and liabilities of such entity nor those
of its owners and creditors.

Thus, the revocation of BMTODA's registration does not automatically strip off Ongjoco of
his right to examine pertinent documents and records relating to such association.

Also, since Roque admitted the revocation of BMTODA's registration, he cannot come
forward and disclaim BMTODA's registration with the SEC as a corporation. It is logical to
presume that a registration precedes the revocation thereof; as any registration cannot be
revoked without its valid existence.

Moreover, Roque also tries to exculpate himself from liability by claiming Singson's denial of
the request of Ongjoco as Singson's personal act.

We do not agree.

A reading of this present Petition reveals that Roque admitted his denial of Ongjoco's request,
i.e., to furnish him a copy of BMTODA's list of its members with the corresponding franchise
body numbers of their respective tricycles and franchise fees paid by each member. Also,
what was requested from Singson pertains to an entirely different document. Thus, Singson's
denial is immaterial, and does not detract from Roque' s denial of Ongjoco's request to access
the above-mentioned document. For his individual and separate act, Roque should be held
accountable. Hence, Roque's denial is unquestionably considered as a violation under the
Corporation Code.

-------------------

Ma. Belen Flordeliza C. Ang-Baya et al., v. Eduardo G. Ang, G.R. No. 178511, Dec 4, 2008
Ynares-Santiago, J.

In Gokongwei, Jr. v. Securities and Exchange Commission [178 Phil. 266 (1979)], this Court
explained the rationale behind a stockholder's right to inspect corporate books, to wit:
The stockholder's right of inspection of the corporation's books and records
is based upon their ownership of the assets and property of the corporation. It is,
therefore, an incident of ownership of the corporate property, whether this ownership
or interest be termed an equitable ownership, a beneficial ownership, or a quasi-
ownership. This right is predicated upon the necessity of self-protection. It is generally
held by majority of the courts that where the right is granted by statute to the
stockholder, it is given to him as 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. [Id. at 314-315, citing
Fletcher Cyc, Private Corporations, Vol. 5, 1976 Rev. Ed., . 2213, 2218 & 2222, pp. 693,
709, 725. (Emphasis supplied)]

In Republic v. Sandiganbayan [G.R. Nos. 88809 and 88858, July 10, 1991, 199 SCRA 39], the
Court declared that the right to inspect and/or examine the records of a corporation under
Section 74 of the Corporation Code is circumscribed by the express limitation contained in
the succeeding proviso, which states that:
[I]t shall be a defense to any action under this section 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. (Emphasis
supplied)

Thus, contrary to Eduardos insistence, the stockholders right to inspect corporate books is
not without limitations. While the right of inspection was enlarged under the Corporation
Code as opposed to the old Corporation Law (Act No. 1459, as amended),
It is now expressly required as a condition for such examination that the one
requesting it must not have been guilty of using improperly any information secured
through a prior examination, or that the person asking for such examination must be
acting in good faith and for a legitimate purpose in making his demand.[ Gonzales v.
Philippine National Bank, 207 Phil. 425, 430.] (Emphasis supplied)

In order therefore for the penal provision under Section 144 of the Corporation Code to apply
in a case of violation of a stockholder or members right to inspect the corporate
books/records as provided for under Section 74 of the Corporation Code, the following
elements must be present:
First. A director, trustee, stockholder or member has made a prior demand in writing
for a copy of excerpts from the corporations 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 corporations 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. [5A Fletcher Cyc. Corp. . 2220, 2008.] This
being the case, it would be improper for the prosecutor, during preliminary investigation, to
refuse or fail to address the defense of improper use or motive, given its express statutory
recognition. In the past we have declared that if justifying circumstances are claimed as a
defense, they should have at least been raised during preliminary investigation [People v.
Caratao, G.R. No. 126281, June 10, 2003, 403 SCRA 482; People v. Dorado, G.R. No. 122248,
February 11, 1999, 303 SCRA 61; People v. Ronquillo, G.R. No. 96125, August 31, 1995, 247
SCRA 793; People v. Salazar, G.R. No. 84391, April 7, 1993, 221 SCRA 170; People v. Vicente,
G.R. No. L-31725, February 18, 1986, 141 SCRA 347]; which settles the view that the
consideration and determination of justifying circumstances as a defense is a relevant subject
of preliminary investigation.

xxxxx

Petitioners argue that Eduardos demand for an inspection of the corporations books is based
on the latters attempt in bad faith at having his more than P165 million advances from the
corporations written off; that Eduardo is unjustly demanding that he be given the office of
Jason, or the Vice Presidency for Finance and Corporate Secretary; that Eduardo is usurping
rights belonging exclusively to the corporations; and Eduardos attempts at coercing the
corporations, their directors and officers into giving in to his baseless demands involving
specific corporate assets. Specifically, petitioners accuse Eduardo of the following:
1. He is a spendthrift, using the family corporations resources to sustain his
extravagant lifestyle. During his incumbency as officer of VMC and Genato (from 1984 to
2000), he was able to obtain massive amounts by way of cash advances from these
corporations, amounting to more than P165 million;
2. He is exercising undue pressure upon petitioners in order to acquire ownership,
through the forced execution of a deed of donation, over the VAG Building in San Juan, which
building belongs to Genato;
 3. He is putting pressure on the corporations, through their directors and officers, for
the latter to disregard their respective policies which prohibit the grant of cash advances to
stockholders.
4. At one time, he coerced Flordeliza for the latter to sell her Wack-Wack Golf
Proprietary Share;
5. In May 2003, without the requisite authority, he called a "stockholders meeting" to
demand an increase in his P140,000.00 monthly allowance from the corporation to
P250,000.00; demand a cash advance of US$10,000; and to demand that the corporations
shoulder the medical and educational expenses of his family as well as those of the other
stockholders;
6. In November 2003, he demanded that he be given an office within the corporations
premises. In December 2003, he stormed the corporations common office, ordered the
employees to vacate the premises, summoned the directors to a meeting, and there he
berated them for not acting on his requests. In January 2004, he returned to the office,
demanding the transfer of the Accounting Department and for Jason to vacate his office by
the end of the month. He likewise left a letter which contained his demands. At the end of
January 2004, he returned, ordered the employees to leave the premises and demanded that
Jason surrender his office and vacate his desk. He did this no less than four (4) times. As a
result, the respective boards of directors of the corporations resolved to ban him from the
corporate premises;
7. He has been interfering in the everyday operations of VMC and Genato, usurping
the duties, rights and authority of the directors and officers thereof. He attempted to lease
out a warehouse within the VMC premises without the knowledge and consent of its directors
and officers; during the wake of the former President of VMC and Genato, he issued
instructions for the employees to close down operations for the whole duration of the wake,
against the corporate officers instructions to attend the wake by batch, so as not to hamper
business operations; he has caused chaos and confusion in VMC and Genato as a result;
8. He is out to sabotage the family corporations.

These serious allegations are supported by official and other documents, such as board
resolutions, treasurers affidavits and written communication from the respondent Eduardo
himself, who appears to have withheld his objections to these charges. His silence virtually
amounts to an acquiescence. [Lagon v. Hooven Comalco Industries, Inc., G.R. No. 135657,
January 17, 2001, 349 SCRA 363] Taken together, all these serve to justify petitioners
allegation that Eduardo was not acting in good faith and for a legitimate purpose in making
his demand for inspection of the corporate books. Otherwise stated, there is lack of probable
cause to support the allegation that petitioners violated Section 74 of the Corporation Code
in refusing respondents request for examination of the corporation books.