G.R. No. L-45911 - Gokongwei, Jr. v. Securities and Exchange

12/27/2018 G.R. No. L-45911 | Gokongwei, Jr. v.
Securities and Exchange
EN BANC
[G.R. No. L-45911. April 11, 1979.]
JOHN GOKONGWEI, JR., petitioner, vs. SECURITIES AND EXCHANGE

COMMISSION, ANDRES M. SORIANO, JOSE M. SORIANO, ENRIQUE ZOBEL,
ANTONIO ROXAS, EMETERIO BUÑAO, WALTHRODE B. CONDE, MIGUEL
ORTIGAS, ANTONIO PRIETO, SAN MIGUEL CORPORATION, EMIGDIO
TANJUATCO, SR., and EDUARDO R. VISAYA, respondents.
De Santos, Balgos & Perez for petitioner.
Angara, Abello, Concepcion, Regala, Cruz Law Offices for respondents Sorianos.
Sequion Reyna, Montecillo & Ongsiako for respondent San Miguel Corporation.
R. T. Capulong for respondent Eduardo R. Visaya.
SYNOPSIS
Petitioner (a) seeks to declare null and void the amended by-laws of respondent corporation which
disqualifies any stockholder engaged in any business that competes with or is antagonistic to that of the
corporation from being nominated or elected to the Board of Directors; (b) assails the order of the
Securities and Exchange Commission denying his right to inspect the books of a wholly-owned
subsidiary of respondent corporation; (c) assails the act of the Securities and Exchange Commission in
allowing the stockholders of respondent corporation to ratify the investment of corporate funds in a
foreign corporation.
The Court voted unanimously to grant the petition insofar as it prays that petitioner be allowed to
examine the books and records of the wholly-owned subsidiary of respondent corporation.
For lack of necessary votes the Court denied the petition insofar as it assails the validity of the by-laws
and ratification of the foreign investment of respondent corporation.
On the validity of the amended By-laws, six justices (Barredo, Makasiar, Antonio, Santos, Abad Santos
and De Castro, JJ.) voted to sustain the validity per se of the amended by-laws and to dismiss the
petition without prejudice to the question of petitioner's actual disqualification from running if elected
from sitting as director of respondent corporation being decided, after a new and proper hearing by the
Board of Directors of said corporation, whose decision shall be appealable to the respondent Securities
and Exchange Commission and ultimately to the Supreme Court.
The aforementioned six justices, together with Fernando, J., voted to declare the issue on the validity of
the foreign investment of respondent corporation as moot.
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12/27/2018 G.R. No. L-45911 | Gokongwei, Jr. v. Securities and Exchange
Fred Ruiz Castro, C.J., reserved his vote on the validity of the amended by-laws pending hearing by this
Court on the applicability of section 13(5) of the Corporation law to petitioner.
Fernando, J., reserved his vote on the validity of subject amendment to the by-laws but otherwise
concurs in the result.
Four Justices (Teehankee, Conception Jr., Fernandez and Guerrero, JJ.) in a separate opinion voted
against the validity of the questioned amended by-laws and held that this question should properly be
resolved first by the SEC as the agency of primary jurisdiction. They concur in the result that petitioner
may be allowed to run for and sit as director in the scheduled election and subsequent elections until
disqualified after proper hearing by the respondent's Board of Directors and petitioner's disqualification
shall have been sustained by respondent SEC en banc and ultimately by final judgment of this Court.
SYLLABUS
1. APPEAL; SUPREME COURT MAY RESOLVED CASE ON THE MERITS, INSTEAD OF

REMANDING IT TO LOWER COURT. — The Supreme Court always strives to settle the entire
controversy in a single proceeding, "leaving no root or branch to bear the seeds of future litigation," and
to decide a case on the merits instead of remanding it to the trial court for further proceedings (a) where
the ends of justice would not be subserved by the remand of the case, or (b) where public interest
demands an early disposition of the case; or (c) while the trial court had already received all the
evidence presented by both parties and the Supreme Court is in a position, based upon said evidence, to
decide the case on its merits.
2. ID.; ID.; QUESTION OF PRIMARY JURISDICTION HAS NO APPLICATION WHERE ONLY

QUESTION OF LAW IS INVOLVED. — The doctrine of primary jurisdiction has no application
where only a question of law is involved. Because uniformity may be secured through review by a
single Supreme Court questions of law may appropriately de determined in the first instance by courts.
3. ID.; VALIDITY OF BY-LAW OF CORPORATION IS A QUESTION OF LAW. — The validity of

reasonableness of a by-laws of a corporation, whether the by-law is in conflict with the law of the land,
or with the charter of the corporation, or is in a legal sense unreasonable and therefore unlawful is
purely a question of law. This rule is subject, however, to the limitation that where the reasonableness of
a by-law is a mere matter of judgment, and one upon which reasonable minds must necessarily differ, a
court would not be warranted in substituting its judgment instead of the judgment of those who are
authorized to make by-laws and who have exercised their authority.
4. CORPORATIONS; POWER TO ADOPT BY-LAWS. — Every corporation has the inherent power to
adopt by-laws for its internal government, and to regulate the conduct and prescribe the rights and
duties of its members towards itself and among themselves in reference to the management of it affairs.
In the absence of positive legislative provisions limiting it, every private corporation has this inherent
power as one of its necessary and inseparable legal incidents, independent of any specific enabling
provision in its character or in general law, such power of self-government being essential to enable the
corporation to accomplish the purposes of its creation.
5. ID.; ID.; QUALIFICATIONS OF OFFICERS AND EMPLOYEES. — The term "qualifications"

under section 21 of the Corporation Law which expressly empowers a corporation to prescribed in its
by-laws the qualifications of directors must necessarily refer to qualifications in addition to that
specified by section 30 of the Corporation law, which provides that "every director must own in his own
right at least one share of the capital stock of the stock corporation of which he is a director."
6. ID.; STOCKHOLDERS MUST ABIDE BY RULE OF THE MAJORITY. — Any person "who buys
stock in a corporation does so with the knowledge that its affairs are dominated by a majority of the
stockholders and that he impliedly contracts that the will of the majority shall govern in all matters
within the limits of the act of incorporation and lawfully enacted by-laws and not forbidden by law. To
this extent the stockholder may be considered to have parted with his personal right or privilege to
regulate the disposition of his property which he has invested in the capital stock of the corporation, and
surrendered it to the will of majority of his fellow incorporators. It cannot, therefore, be justly said that
the contract, express or implied, between the corporation and the stockholders is infringed by any act of
the former which is authorized by a majority.
7. ID.; ID.; AMENDMENT OF BY-LAWS; RIGHT OF DISSENTING MINORITY STOCKHOLDER.

— Where the articles of the incorporation or the by-laws of a corporation has been amended by the
required number of votes as provided for in the Corporation Law, and the amendment changes,
diminishes or restricts the rights of the existing stockholders, the dissenting minority has only one right,
viz.; to object thereto in writing and demand payment of his share.
8. ID.; STOCKHOLDER HAS NO VESTED RIGHT TO BE ELECTED DIRECTOR. — A

stockholder has no vested right to be elected director, where the law at the time such right as
stockholder was acquired contained the prescription that the corporate charter and the by-law will be
subject to amendment, alteration and modification.
9. ID.; DIRECTOR STANDS IN A FIDUCIARY RELATION TO CORPORATION AND

STOCKHOLDER. — Although in the strict and technical sense, directors of a private corporation are
not regarded as trustees, there cannot be any doubt that their character is that of a fiduciary insofar as
the corporation and the stockholders as a body are concerned. As agents entrusted with the management
of the corporation for the collective benefit of the stockholders, "they occupy a fiduciary relation, and in
this sense the relation is one of trust." The ordinary trust relationship of directors of a corporation and
stockholders is not a matter of statutory or technical law. It springs from the fact that directors have the
control and guidance of corporate affairs and property and hence of the property interests of the
stockholders. Equity recognizes that stockholders are the proprietors of the corporate interests and are
ultimately the only beneficiaries thereof.
10. ID.; BY-LAWS; QUALIFICATION OF DIRECTORS. — Corporations have the power to make by-
laws declaring a person employed in the service of a rival company to be ineligible for the corporation's
Board of Directors.
11. ID.; ID.; ID.; CONFLICT OF INTERESTS. — An amendment which renders ineligible, or if
elected, subjects to removal, a director if he be also a director if he be also a director in a corporation
whose business is in competition with or is antagonistic to the other corporation is valid. This is based
upon the principle that were the director also employed in the service of a rival company, he cannot
serve both, but must betray one or the other. Thus, an officer of a corporation cannot engage in a
business in direct competition with that of the corporation where he is a director by utilizing
information he has received as such officer, under "the established law that a director or officer of a
corporation may not enter into a competing enterprise which cripples or injuries the business of the
corporation of which he is an officer or director."
12. ID.; ID.; DOCTRINE OF "CORPORATE OPPORTUNITY". — Corporate officers are not
permitted to the use their position of trust and confidence to further their interests. The doctrine of
"corporate opportunity" is precisely a recognition by the courts that the fiduciary standards could not be
upheld where the fiduciary was acting for two entities with competing interests. This doctrine rests
fundamentally of the unfairness, in particular circumstances, of an officer or director taking advantage
of an opportunity for his own personal profit when the interest of the corporation justly calls for
protection.
13. ID.; MONOPOLIES. — The Constitution and the law prohibit combinations in restraint of trade and
unfair competition. Thus, section 2 of article XIV of the Constitution provides: "The State shall regulate
or prohibit private monopolies when the public interest so requires. No combination in restraint of trade
or unfair competition shall be allowed." These anti-trust laws or laws against monopolies or
combinations in restraint of trade are aimed at raising levels of competition by improving the
consumers' effectiveness as the final arbiter in free markets. They are designed to preserve free and
unfettered competition as the rule of trade, and operate to forestall concentration of economic power.
14. ID.; ID.; NATURE AND DEFINITION OF MONOPOLY. — A "monopoly" embraces any
combination, the tendency of which is to prevent competition in the broad and general sense, or to
control prices to the detriment of the public. It is the concentration of business in the hands of a few.
The material consideration in determining its existence is not that prices are raised and competition
actually excluded, but that power exists to raise prices or exclude competition when desired. It includes
a condition produced by the mere act of individuals. Its dominant thought is the notion of exclusiveness
or unity, or the suppression of competition by the unification of interest or management, or thru
agreement and concert of action. An express agreement is not necessary for the existence of a
combination or conspiracy in restraint of trade.
15. ID.; ID.; STOCK OWNERSHIP IN AGRICULTURAL CORPORATIONS, LIMITATIONS. — The

election of the president and controlling shareholder of a corporation engaged in agriculture, to the
board of another corporation, also engaged in agriculture, may constitute a violation of the prohibition
contained in section 13 (5) of the Corporation Law which provides in part that "any stockholder of more
than one corporation organized for the purpose of engaging in agriculture may hold his stock in such
corporations solely for investment and not for the purpose of bringing about or attempting to bring
about a combination to exercise control of such corporations."
16. ID.; BY-LAW; QUALIFICATION IF MEMBERS OF THE BOARD; EQUAL PROTECTION. —

If the by-law were to be applied in the case of one stockholder but waived in the case of another, then it
could be reasonably claimed that the by-law was being applied in a discriminatory manner, but not if
the by-law, by its terms, applies to all stockholders. The equal protection clause of the Constitution
requires only that the by-law operate equally upon all persons of a class. Sound principles of public
policy and management support the view that a by-law which disqualifies a competitor from election to
the Board of Directors of another corporation is valid and reasonable.
17. ID.; ID.; PROTECTION OF LEGITIMATE CORPORATE INTERESTS. — In the absence of any
legal prohibition or overriding public policy, wide latitude may be accorded to the corporation in
adopting measures to protect legitimate corporate interests.
18. ID.; COMPETITION DEFINED. — "Competition" implies a struggle for advantage between two or
more forces, each possessing, in substantially similar if not identical degree, certain characteristics
essential to the business sought. It means an independent endeavor of two or more persons to obtain the
business patronage of a third by offering more advantageous terms as an inducement to secure trade.
The test must be whether the business does in fact compete, not whether it is capable of an indirect and
highly unsubstantial duplication of an isolated or non characteristic activity.
19. ID.; ID.; EXERCISE OF POWER TO DISQUALIFY A STOCKHOLDER FROM BEING

MEMBER OF THE BOARD. — The amended by-laws which grants the Board the power by 3/4 votes
to bar a stockholder from his right to be elected as director where such stockholder is found to be
engaged in a "competitive or antagonistic business" is valid. However, consonant with the requirement
of due process, there must be due hearing at which the stockholder must be given the fullest opportunity
to show that he is not covered by the disqualification. As trustees of the corporation and of the
stockholders, it is the responsibility of directors to act with fairness to the stockholders. Pursuant to this
obligation and to remove any suspicion that this power may be utilized by the incumbent members of
the Board to perpetuate themselves in power, any decision of the Board to disqualify a candidate for the
Board of Directors should be reviewed by the Securities and Exchange Commission en banc and its
decision shall be final unless reversed by the Supreme Court on certiorari.
20. ID.; REVIEW OF ACTION OF THE BOARD OF DIRECTORS. — Where the action of a Board of
Directors is an abuse of discretion, or forbidden by statute, or is against public policy, or is ultra vires,
or is a fraud upon minority stockholders or creditors, or will result in waste, dissipation or
misapplication of the corporate assets, a court of equity has the power to grant appropriate relief.
21. ID.; STOCKHOLDER'S RIGHT; INSPECTION OF BOOKS. — The stockholders' 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 an incident of ownership of the corporate property, whether this
ownership or interest be termed an equitable ownership, a beneficial ownership, or quasi-ownership. It
is predicated upon the necessity of self-protection.
22. ID.; ID.; RIGHT MUST BE EXERCISED IN GOOD FAITH. — Where a 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
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. It must be exercised in good faith,
for specific and honest purpose, and not to gratify curiosity, or for speculative or vexatious purposes.
23. ID.; ID.; COURT MAY INQUIRE INTO MOTIVE OF STOCKHOLDER. — On application for
mandamus to enforce the right to examine the books of a corporation, it is proper for the court to inquire
into and consider the stockholder's good faith and his purpose and motives in seeking inspection. The
right given by the 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.
24. ID.; ID.; RIGHT TO EXAMINE BOOKS OF A WHOLLY OWNED SUBSIDIARY. — While the
right of a stockholder to examine the books and records of a corporation for a lawful purpose is a matter
of law, the right of such stockholder to examine the books and records of a wholly-owned subsidiary of
the corporation in which he is a stockholder is a different thing. Where a foreign subsidiary is wholly
owned by respondent corporation and, therefore, under its control, it would be in accord with equity,
good faith and fair dealing to construe the statutory right of a stockholder to inspect the books and
records of the corporation as extending to books and records of such wholly owned subsidiary which
are in respondent corporation's possession and control.
25. ID.; BOARD DIRECTORS; POWER TO INVEST FUNDS. — Section 17-1/2 of the Corporation
Law allows a corporation to "invest its fund in any corporation or business or for any purpose other than
the main purpose for which it was organized" provided that its Board of Directors has been so
authorized by the affirmative vote of stockholders holding shares entitling them to exercise at least two-
thirds of the voting power. If the investment is made in pursuance of the corporate purpose, it does not
need the approval of the stockholders. It is only when the purchase of shares is done solely for
investment and not to accomplish the purpose of its incorporation that the vote of approval of the
stockholders holding shares entitling them to exercise at least two-thirds of the voting power is
necessary.
26. ID.; ID.; RATIFICATION OF ACT OF BOARD OF DIRECTORS. — Where the Board of
Directors had no authority to make an investment, the corporation, like an individual, may ratify and
thereby render binding upon it the originally unauthorized acts of its officers or other agents. Mere ultra
vires acts or those which are not illegal and void ab initio, but are not merely within the scope of the
articles of incorporation, are merely voidable and may become binding and enforceable when ratified
by the stockholders.
27. ID.; ID.; INVESTMENT IN AID OF CORPORATE PURPOSE. — The purchase of beer
manufacturing facilities by San Miguel Corporation was an investment in the same business as its main
purpose in its Articles of Incorporation and is relevant to the corporate purpose.
28. ID.; ID.; SUBMISSION OF ASSAILED INVESTMENT FOR RATIFICATION BY

STOCKHOLDERS. — The mere fact that a corporation submits the assailed investment to the
stockholders for its ratification at the annual meeting cannot be construed as an admission that the
corporation had committed an ultra vires act, considering the common practices of corporations of
periodically submitting for ratification of their stockholders the acts of their directors, officers and
managers.
BARREDO, J., concurring:
1. JUDGMENTS; DISMISSAL FOR LACK OF NECESSARY VOTES; LAW OF THE CASE. —

Where petitioner and respondents placed the issue of the validity of amended by-laws squarely before
the Court for resolution and six justices voted in favor, while four justices voted against, its validity,
thereby resulting in the dismissal, of the petition "insofar as it assails the validity of the amended by-
laws . . . for lack of necessary votes," such dismissal is the law of the case as far as the parties are
concerned albeit the majority of six against four justices is not doctrinal in the sense that it cannot be
cited as necessarily a precedent for subsequent cases. This means that the petitioner and respondents are
bound by the foregoing result, namely that the Court en banc has not found merit in the claim that the
amended by-laws in question are invalid. In other words, the issue of the challenged amended by-laws
is already a settled matter for the parties as the law of the case, and said amended by-law already
enforceable in so far as the parties are concerned. Petitioner may not thereafter act on the assumption
that he can revive the issue of validity whether in the Securities and Exchange Commission, the
Supreme Court or in any other forum, unless, he proceeds on the basis of a different factual milieu from
the setting of the case. Only the actual implementation of the impugned amended by-laws remained to
be passed upon by the Securities and Exchange Commission.
2. ID.; ID.; DECISION ON THE MERITS. — It is somewhat of a misreading and misconstruction of

Section 11 of Rule 56, contrary to the well-known established norm observed by the Supreme Court, to
state that the dismissal of a petition for lack of necessary votes does not amount to a decision on the
merits. The Supreme Court is deemed to find no merit in a petition in two ways, namely, (1) when eight
or more members vote expressly in that sense and (2) when the required number of justices needed to
sustain the same cannot be had.
DE CASTRO, J., concurring:
1. CORPORATION; STOCKHOLDERS; DISQUALIFICATION TO BE ELECTED DIRECTOR. — If

a person became a stockholder of a corporation and gets himself elected as a director, and while he is
such a director, he forms his own corporation competitive or antagonistic to the corporation of which he
is a director, and becomes Chairman of the Board and President of his own corporation, he may be
removed from his position as director, admittedly one of trust and confidence. If this is so, a person
controlling, and also the Chairman of the Board and President of, a corporation, may be barred form
becoming a member of the Board of Directors of a competitive corporation.
2. ID.; AGRICULTURE, CORPORATION ENGAGED IN. — The scope of the provision of Section
13(5) of the Philippine Corporation Law should be limited to corporations engaged in agriculture, only
as the word "agriculture" refers to its more limited meaning as distinguished from its general and broad
connotation. The term would then mean "farming" or raising the natural products of the soil, such as by
cultivation, in the manner as is required by the Public Land Act in the acquisition of agricultural land,
such as by homestead, before the patent may be issued, but does not extend to poultry raising or piggery
which may be included in the term "agriculture" in its broad sense.
3. JUDGMENTS; LAW OF THE CASE. — Although only six votes are for upholding the validity of
the by-laws, their validity is deemed upheld as constituting the "law of the case." It could not be
otherwise, after the petition is dismissed with the relief sought do declare null and void the said by-laws
being denied in effect. A vicious circle would be created should petitioner come against to the Court,
raising the same question he raised in the present petition, unless the principle of the "law of the case" is
applied.
TEEHANKEE, CONCEPCION JR., FERNANDEZ and GUERRERO, JJ.: Supplement to separate

opinion.
1. JUDGMENTS; LAW OF THE CASE. — The doctrine of the law of the case may be invoked only
where there has been a final and conclusive determination of an issue in the first case later invoked as
the law of the case. It has no application where the judgment in the first case is inconclusive, as where
no final and conclusive determination could be reached on account of lack of necessary votes and the
case was simply dismissed pursuant to Rule 56, Section 11. It cannot be contended that the Supreme
Court in dismissing the petition for lack of necessary votes had directly ruled on the issue presented
when it itself could not reach a final conclusive vote thereon.
DECISION
ANTONIO, J : p
The instant petition for certiorari, mandamus and injunction, with prayer for issuance of writ of
preliminary injunction, arose out of two cases filed by petitioner with the Securities and Exchange
Commission, as follows:
SEC CASE NO. 1375
On October 22, 1976, petitioner, as stockholder of respondent San Miguel Corporation, filed with the
Securities and Exchange Commission (SEC) a petition for "declaration of nullity of amended by-laws,
cancellation of certificate of filing of amended by-laws, injunction and damages with prayer for a
preliminary injunction" against the majority of the members of the Board of Directors and San Miguel
Corporation as an unwilling petitioner. The petition, entitled "John Gokongwei, Jr., vs. Andres Soriano,
Jr., Jose M. Soriano, Enrique Zobel, Antonio Roxas, Emeterio Buñao, Walthrode B. Conde, Miguel
Ortigas, Antonio Prieto and San Miguel Corporation", was docketed as SEC Case No. 1375.
As a first cause of action, petitioner alleged that on September 18, 1976, individual respondents
amended by bylaws of the corporation, basing their authority to do so on a resolution of the
stockholders adopted on March 13, 1961, when the outstanding capital stock of respondent corporation
was only P70,139.740.00, divided into 5,513,974 common shares at P10.00 per share and 150,000
preferred shares at P100.00 per share. At the time of the amendment, the outstanding and paid up shares
totalled 30,127,043, with a total par value of P301,270,430.00. It was contended that according to
section 22 of the Corporation Law and Article VIII of the by-laws of the corporation, the power to
amend, modify, repeal or adopt new by-laws may be delegated to the Board of Directors only by the
affirmative vote of stockholders representing not less than 2/3 of the subscribed and paid up capital
stock of the corporation, which 2/3 should have been computed on the basis of the capitalization at the
time of the amendment. Since the amendment was based on the 1961 authorization, petitioner
contended that the Board acted without authority and in usurpation of the power of the stockholders.
As a second cause of action, it was alleged that the authority granted in 1961 had already been exercised
in 1962 and 1963, after which the authority of the Board ceased to exist.
As a third cause of action, petitioner averred that the membership of the Board of Directors had changed
since the authority was given in 1961, there being six (6) new directors.
As a fourth cause of action, it was claimed that prior to the questioned amendment, petitioner had all the
qualifications to be a director of respondent corporation, being a substantial stockholder thereof; that as
a stockholder, petitioner had acquired rights inherent in stock ownership, such as the rights to vote and
to be voted upon in the election of directors; and that in amending the by-laws, respondents purposely
provided for petitioner's disqualification and deprived him of his vested right as afore-mentioned, hence
the amended by-laws are null and void. 1
As additional causes of action, it was alleged that corporations have no inherent power to disqualify a
stockholder from being elected as a director and, therefore, the questioned act is ultra vires and void;
that Andres M. Soriano, Jr. and/or Jose M. Soriano, while representing other corporations, entered into
contracts (specifically a management contract) with respondent corporation, which was avowed because
the questioned amendment gave the Board itself the prerogative of determining whether they or other
persons are engaged in competitive or antagonistic business; that the portion of the amended by-laws
which states that in determining whether or not a person is engaged in competitive business, the Board
may consider such factors as business and family relationship, is unreasonable and oppressive and,
therefore, void; and that the portion of the amended by-laws which requires that "all nominations for
election of directors . . . shall be submitted in writing to the Board of Directors at least five (5) working
days before the date of the Annual Meeting" is likewise unreasonable and oppressive.
It was, therefore, prayed that the amended by-laws be declared null and void and the certificate of filing
thereof be cancelled, and that individual respondents be made to pay damages, in specified amounts, to
petitioner.
On October 28, 1976, in connection with the same case, petitioner filed with the Securities and
Exchange Commission an "Urgent Motion for Production and Inspection of Documents", alleging that
the Secretary of respondent corporation refused to allow him to inspect its records despite request made
by petitioner for production of certain documents enumerated in the request, and that respondent
corporation had been attempting to suppress information from its stockholders despite a negative reply
by the SEC to its query regarding their authority to do so. Among the documents requested to be copied
were (a) minutes of the stockholder's meeting held on March 13, 1961; (b) copy of the management
contract between San Miguel Corporation and A. Soriano Corporation (ANSCOR); (c) latest balance
sheet of San Miguel International, Inc.; (d) authority of the stockholders to invest the funds of
respondent corporation in San Miguel International, Inc.; and (e) lists of salaries, allowances, bonuses,
and other compensation, if any, received by Andres M. Soriano, Jr. and/or its successor-in-interest.
The "Urgent Motion for Production and Inspection of Documents" was opposed by respondents,
alleging, among others, that the motion has no legal basis; that the demand is not based on good faith;
that the motion is premature since the materiality or relevance of the evidence sought cannot be
determined until the issues are joined; that it fails to show good cause and constitutes continued
harassment; and that some of the information sought are not part of the records of the corporation and,
therefore, privileged.
During the pendency of the motion for production, respondents San Miguel Corporation, Enrique
Conde, Miguel Ortigas and Antonio Prieto filed their answer to the petition, denying the substantial
allegations therein and stating, by way of affirmative defenses that "the action taken by the Board of
Directors on September 18, 1976 resulting in the . . . amendments is valid and legal because the power
to 'amend, modify, repeal or adopt new By-laws' delegated to said Board on March 13, 1961 and long
prior thereto has never been revoked, withdrawn or otherwise nullified by the stockholders of SMC";
that contrary to petitioner's claim, "the vote requirement for a valid delegation of the power to amend,
repeal or adopt new by-laws is determined in relation to the total subscribed capital stock at the time the
delegation of said power is made, not when the Board opts to exercise said delegated power"; that
petitioner has not availed of his intra-corporate remedy for the nullification of the amendment, which is
to secure its repeal by vote of the stockholders representing a majority of the subscribed capital stock at
any regular or special meeting, as provided in Article VIII, section 1 of the by-laws and section 22 of
the Corporation Law, hence the petition is premature; that petitioner is estopped from questioning the
amendments on the ground of lack of authority of the Board, since he failed to object to other
amendments made on the basis of the same 1961 authorization; that the power of the corporation to
amend its by-laws is broad, subject only to the condition that the by-laws adopted should not be
inconsistent with any existing law; that respondent corporation should not be precluded from adopting
protective measures to minimize or eliminate situations where its directors might be tempted to put their
personal interests over that of the corporation; that the questioned amended by-laws is a matter of
internal policy and the judgment of the board should not be interfered with; that the by-laws, as
amended, are valid and binding and are intended to prevent the possibility of violation of criminal and
civil laws prohibiting combinations in restraint of trade; and that the petition states no cause of action. It
was, therefore, prayed that the petition be dismissed and that petitioner be ordered to pay damages and
attorney's fees to respondents. The application for writ of preliminary injunction was likewise on
various grounds.
Respondents Andres M. Soriano, Jr. and Jose M. Soriano filed their opposition to the petition, denying
the material averments thereof and stating, as part of their affirmative defenses, that in August 1972, the
Universal Robina Corporation (Robina), a corporation engaged in business competitive to that of
respondent corporation, began acquiring shares therein, until September 1976 when its total holding
amounted to 622,987 shares; that in October 1972, the Consolidated Foods Corporation (CFC) likewise
began acquiring shares in respondent corporation, until its total holdings amounted to P543,959.00 in
September 1976; that on January 12, 1976, petitioner, who is president and controlling shareholder of
Robina and CFC (both closed corporations) purchased 5,000 shares of stock of respondent corporation,
and thereafter, in behalf of himself, CFC and Robina, "conducted malevolent and malicious publicity
campaign against SMC" to generate support from the stockholder "in his effort to secure for himself and
in representation of Robina and CFC interests, a seat in the Board of Directors of SMC", that in the
stockholders' meeting of March 18, 1976, petitioner was rejected by the stockholders in his bid to
secure a seat in the Board of Directors on the basic issue that petitioner was engaged in a competitive
business and his securing a seat would have subjected respondent corporation to grave disadvantages;
that "petitioner nevertheless vowed to secure a seat in the Board of Directors at the next annual
meeting"; that thereafter the Board of Directors amended the by-laws as afore-stated.
As counterclaims, actual damages, moral damages, exemplary damages, expenses of obligation and
attorney's fees were presented against petitioner.
Subsequently, a Joint Omnibus Motion for the striking out of the motion for production and inspection
of documents was filed by all the respondents. This was duly opposed by petitioner. At this juncture,
respondents Emigdio Tanjuatco, Sr. and Eduardo R. Visaya were allowed to intervene as oppositors and
they accordingly filed their oppositions-in-intervention to the petition.
On December 29, 1976, the Securities and Exchange Commission resolved the motion for production
and inspection of documents by issuing Order No. 26, Series of 1977, stating, in part as follows:
"Considering the evidence submitted before the Commission by the petitioner and respondents
in the above-entitled case, it is hereby ordered:
1. That respondents produce and permit the inspection, copying and photographing, by or on
behalf of the petitioner-movant, John Gokongwei, Jr., of the minutes of the stockholders'
meeting of the respondent San Miguel Corporation held on March 13, 1961, which are in the
possession, custody and control of the said corporation, it appearing that the same is material
and relevant to the issues involved in the main case. Accordingly, the respondents should allow
petition-movant entry in the principal office of the respondent Corporation, San Miguel
Corporation on January 14, 1977, at 9:30 o'clock in the morning for purposes of enforcing the
rights herein granted; it being understood that the inspection, copying and photographing of the
said documents shall be undertaken under the direct and strict supervision of this Commission.
Provided, however, that other documents and/or papers not heretofore included are not covered
by this Order and any inspection thereof shall require the prior permission of this Commission;
2. As to the Balance Sheet of San Miguel International, Inc. as well as the list of salaries,
allowances, bonuses, compensation and/or remuneration received by respondent Jose M.
Soriano, Jr. and Andres Soriano from San Miguel International, Inc. and/or its successors-in-
interest, the Petition to produce and inspect the same is hereby DENIED, as petitioner-movant
is not a stockholder of San Miguel International, Inc. and has, therefore, no inherent right to
inspect said documents;
3. In view of the Manifestation of petitioner-movant dated November 29, 1976, withdrawing his
request to copy and inspect the management contract between San Miguel Corporation and A.
Soriano Corporation and the renewal and amendments thereof for the reason that he had already
obtained the same, the Commission takes note thereof; and
4. Finally, the Commission holds in abeyance the resolution on the matter of production and
inspection of the authority of the stockholders of San Miguel Corporation to invest the funds of
respondent corporation in San Miguel International, Inc., until after the hearing on the merits of
the principal issues in the above-entitled case.
This Order is immediately executory upon its approval." 2
Dissatisfied with the foregoing Order, petitioner moved for its reconsideration.
Meanwhile, on December 10, 1976, while the petition was yet to be heard, respondent corporation
issued a notice of special stockholders' meeting for the purpose of "ratification and confirmation of the
amendment to the By-laws", setting such meeting for February 10, 1977. This prompted petitioner to
ask respondent Commission for a summary judgment insofar as the first cause of action is concerned,
for the alleged reason that by calling a special stockholders' meeting for the aforesaid purpose, private
respondents admitted the invalidity of the amendments of September 18, 1976. The motion for
summary judgment was opposed by private respondents. Pending action on the motion, petitioner filed
an "Urgent Motion for the Issuance of a Temporary Restraining Order", praying that pending the
determination of petitioner's application for the issuance of a preliminary injunction and or petitioner's
motion for summary judgment, a temporary restraining order be issued, restraining respondents from
holding the special stockholders' meeting as scheduled. This motion was duly opposed by respondents.
On February 10, 1977, respondent Cremation issued an order denying the motion for issuance of
temporary restraining order. After receipt of the order of denial, respondents conducted the special
stockholders' meeting wherein the amendments to the by-laws were ratified. On February 14, 1977,
petitioner filed a consolidated motion for contempt and for nullification of the special stockholders'
meeting.
A motion for reconsideration of the order denying petitioner's motion for summary judgment was filed
by petitioner before respondent Commission on March 10, 1977. Petitioner alleges that up to the time of
the filing of the instant petition, the said motion had not yet been scheduled for hearing. Likewise, the
motion for reconsideration of the order granting in part and denying in part petitioner's motion for
production of records had not yet been resolved.
In view of the fact that the annual stockholders' meeting of respondent corporation had been scheduled
for May 10, 1977, petitioner filed with respondent Commission a Manifestation stating that he intended
to run for the position of director of respondent corporation. Thereafter, respondents filed a
Manifestation with respondent Commission, submitting a Resolution of the Board of Directors of
respondent corporation disqualifying and precluding petitioner from being a candidate for director
unless he could submit evidence on May 3, 1977 that he does not come within the disqualifications
specified in the amendment to the by-laws, subject matter of SEC Case No. 1375. By reason thereof,
petitioner filed a manifestation and motion to resolve pending incidents in the case and to issue a writ of
injunction, alleging that private respondents were seeking to nullify and render ineffectual the exercise
of jurisdiction by the respondent Commission, to petitioner's irreparable damage and prejudice.
Allegedly despite a subsequent Manifestation to prod respondent Commission to act, petitioner was not
heard prior to the date of the stockholders' meeting.
Petitioner alleges that there appears a deliberate and concerted inability on the part of the SEC to act,
hence petitioner came to this Court.
SEC CASE NO. 1423
Petitioner likewise alleges that, having discovered that respondent corporation has been investing
corporate funds in other corporations and businesses outside of the primary purpose clause of the
corporation, in violation of section 17-1/2 of the Corporation Law, he filed with respondent
Commission, on January 20, 1977, a petition seeking to have private respondents Andres M. Soriano, Jr.
and Jose M. Soriano, as well as the respondent corporation declared guilty of such violation, and
ordered to account for such investments and to answer for damages.
On February 4, 1977, motions to dismiss were filed by private respondents, to which a consolidated
motion to strike and to declare individual respondents in default and an opposition ad abundantiorem
cautelam were filed by petitioner. Despite the fact that said motions were filed as early as February 4,
1977, the Commission acted thereon only on April 25, 1977, when it denied respondents' motions to
dismiss and gave them two (2) days within which to file their answer, and set the case for hearing on
April 29 and May 3, 1977.
Respondents issued notices of the annual stockholders' meeting, including in the Agenda thereof, the
following:
"6. Reaffirmation of the authorization to the Board of Directors by the stockholders at the
meeting on March 20, 1972 to invest corporate funds in other companies or businesses or for
purposes other than the main purpose for which the Corporation has been organized, and
ratification of the investments thereafter made pursuant thereto."
By reason of the foregoing, on April 28, 1977, petitioner filed with the SEC an urgent motion for the
issuance of a writ of preliminary injunction to restrain private respondents from taking up Item 6 of the
Agenda at the annual stockholders' meeting, requesting that the same be set for hearing on May 3, 1977,
the date set for the second hearing of the case on the merits. Respondent Commission, however,
cancelled the dates of hearing originally scheduled and reset the same to May 16 and 17, 1977, or after
the scheduled annual stockholders' meeting. For the purpose of urging the Commission to act, petitioner
filed an urgent manifestation on May 3, 1977, but this notwithstanding, no action has been taken up to
the date of the filing of the instant petition.
With respect to the afore-mentioned SEC cases, it is petitioner's contention before this Court that
respondent Commission gravely abused its discretion when it failed to act with deliberate dispatch on
the motions of petitioner seeking to prevent illegal and/or arbitrary impositions or limitations upon his
rights as stockholder of respondent corporation, and that respondent are acting oppressively against
petitioner, in gross derogation of petitioner's rights to property and due process. He prayed that this
Court direct respondent SEC to act on collateral incidents pending before it.
On May 6, 1977, this Court issued a temporary restraining order restraining private respondents from
disqualifying or preventing petitioner from running or from being voted as director of respondent
corporation and from submitting for ratification or confirmation or from causing the ratification or
confirmation of Item 6 of the Agenda of the annual stockholders' meeting on May 10, 1977, or from
making effective the amended by-laws of respondent corporation, until further orders from this Court or
until the Securities and Exchange Commission acts on the matters complained of in the instant petition.
On May 14, 1977, petitioner filed a Supplemental Petition, alleging that after a restraining order had
been issued by this Court, or on May 9, 1977, the respondent Commission served upon petitioner copies
of the following orders:
(1) Order No. 449, Series of 1977 (SEC Case No. 1375); denying petitioner's motion for
reconsideration, with its supplement, of the order of the Commission denying in part petitioner's motion
for production of documents, petitioner's motion for reconsideration of the order denying the issuance
of a temporary restraining order denying the issuance of a temporary restraining order, and petitioner's
consolidated motion to declare respondents in contempt and to nullify the stockholders' meeting;
(2) Order No. 450, Series of 1977 (SEC Case No. 1375), allowing petitioner to run as a director of
respondent corporation but stating that he should not sit as such if elected, until such time that the
Commission has decided the validity of the by-laws in dispute, and denying deferment of Item 6 of the
Agenda for the annual stockholders' meeting; and
(3) Order No. 451, Series of 1977 (SEC Case No. 1375), denying petitioner's motion for reconsideration
of the order of respondent Commission denying petitioner's motion for summary judgment;
It is petitioner's assertions, anent the foregoing orders, (1) that respondent Commission acted with
indecent haste and without circumspection in issuing the aforesaid orders to petitioner's irreparable
damage and injury; (2) that it acted without jurisdiction and in violation of petitioner's right to due
process when it decided en banc an issue not raised before it and still pending before one of its
Commissioners, and without hearing petitioner thereon despite petitioner's request to have the same
calendared for hearing; and (3) that the respondents acted oppressively against the petitioner in violation
of his rights as a stockholder, warranting immediate judicial intervention.
It is prayed in the supplemental petition that the SEC orders complained of be declared null and void
and that respondent Commission be ordered to allow petitioner to undertake discovery proceedings
relative to San Miguel International, Inc. and thereafter to decide SEC Cases No. 1375 and 1423 on the
merits.
On May 17, 1977, respondent SEC, Andres M. Soriano, Jr. and Jose M. Soriano filed their comment,
alleging that the petition is without merit for the following reasons:
(1) that the petitioner and the interests he represents are engaged in businesses competitive and
antagonistic to that of respondent San Miguel Corporation, it appearing that he owns and controls a
greater portion of his SMC stock thru the Universal Robina Corporation and the Consolidated Foods
Corporation, which corporations are engaged in businesses directly and substantially competing with
the allied businesses of respondent SMC and of corporations in which SMC has substantial investments.
Further, when CFC and Robina had accumulated shares in SMC, the Board of Directors of SMC
realized the clear and present danger that competitors or antagonistic parties may be elected directors
and thereby have easy and direct access to SMC's business and trade secrets and plans;
(2) that the amended by-laws were adopted to preserve and protect respondent SMC from the clear and
present danger that business competitors, if allowed to become directors, will illegally and unfairly
utilize their direct access to its business secrets and plans for their own private gain to the irreparable
prejudice of respondent SMC, and, ultimately, its stockholders. Further, it is asserted that membership
of a competitor in the Board of Directors is a blatant disregard of no less than the Constitution and
pertinent laws against combinations in restraint of trade;
(3) that by-laws are valid and binding since a corporation has the inherent right and duty to preserve and
protect itself by excluding competitors and antagonistic parties, under the law of self-preservation, and
it should be allowed a wide latitude in the selection of means to preserve itself;
(4) that the delay in the resolution and disposition of SEC Cases Nos. 1375 and 1423 was due to
petitioner's own acts or omissions, since he failed to have the petition to suspend, pendente lite, the
amended by-laws calendared for hearing. It was emphasized that it was only on April 29, 1977 that
petitioner calendared the aforesaid petition for suspension (preliminary injunction) for hearing on May
3, 1977. The instant petition being dated May 4, 1977, it is apparent that respondent Commission was
not given a chance to act "with deliberate dispatch"; and
(5) that even assuming that the petition was meritorious, it has become moot and academic because
respondent Commission has acted on the pending incidents complained of. It was, therefore, prayed that
the petition be dismissed.
On May 21, 1977, respondent Emigdio G. Tanjuatco, Sr. filed his comment, alleging that the petition
has become moot and academic for the reason, among others, that the acts of private respondents sought
to be enjoined have reference to the annual meeting of the stockholders of respondent San Miguel
Corporation, which was held on May 10, 1977; that in said meeting, in compliance with the order of
respondent Commission, petitioner was allowed to run and be voted for as director; and that in the same
meeting, Item 6 of the Agenda was discussed, voted upon, ratified and confirmed. Further, it was
averred that the questions and issues raised by petitioner are pending in the Securities and Exchange
Commission which has acquired jurisdiction over the case, and no hearing on the merits has been had;
hence the elevation of these issues before the Supreme Court is premature.
Petitioner filed a reply to the aforesaid comments, stating that the petition presents justiciable questions
for the determination of this Court because (1) the respondent Commission acted without
circumspection, unfairly and oppresively against petitioner, warranting the intervention of this Court;
(2) a derivative suit, such as the instant case, is not rendered academic by the act of a majority of
stockholders, such that the discussion, ratification and confirmation of Item 6 of the Agenda of the
annual stockholders' meeting of May 10, 1977 did not render the case moot; that the amendment to the
bylaws which specifically bars petitioner from being a director is void since it deprives him of his
vested rights.
Respondent Commission, thru the Solicitor General, filed a separate comment, alleging that after
receiving a copy of the restraining order issued by this Court and noting that the restraining order did
not foreclose action by it, the Commission en banc issued Orders Nos. 449, 450 and 451 in SEC Case
No. 1375.
In answer to the allegation in the supplemental petition, it states that Order No. 450 which denied
deferment of Item 6 of the Agenda of the annual stockholders' meeting of respondent corporation, took
into consideration an urgent manifestation filed with the Commission by petitioner on May 3, 1977
which prayed, among others, that the discussion of Item 6 of the Agenda be deferred. The reason given
for denial of deferment was that "such action is within the authority of the corporation as well as falling
within the sphere of stockholders' right to know, deliberate upon and/or to express their wishes
regarding disposition of corporate funds considering that their investments are the ones directly
affected." It was alleged that the main petition has, therefore, become moot and academic.
On September 29, 1977, petitioner filed a second supplemental petition with prayer for preliminary
injunction, alleging that the actuations of respondent SEC tended to deprive him of his right to due
process, and "that all possible questions on the facts now pending before the respondent Commission
are now before this Honorable Court which has the authority and the competence to act on them as it
may see fit." (Rollo, pp. 927-928.)
Petitioner, in his memorandum, submits the following issues for resolution;
(1) Whether or not the provisions of the amended by-laws of respondent corporation, disqualifying a
competitor from nomination or election to the Board of Directors are valid and reasonable;
(2) whether or not respondent SEC gravely abused its discretion in denying petitioner's request for an
examination of the records of San Miguel International, Inc., a fully owned subsidiary of San Miguel
Corporation; and
(3) whether or not respondent SEC committed grave abuse of discretion in allowing discussion of Item
6 of the Agenda of the Annual Stockholders' Meeting on May 10, 1977, and the ratification of the
investment in a foreign corporation of the corporate funds, allegedly in violation of section 17-1/2 of the
Corporation Law.
Whether or not amended by-laws are valid is purely a legal question, which public interest requires to
be resolved —
It is the position of the petitioner that "it is not necessary to remand the case to respondent SEC for an
appropriate ruling on the intrinsic validity of the amended by-laws in compliance with the principle of
exhaustion of administrative remedies", considering that: first: "whether or not the provisions of the
amended by-laws are intrinsically valid . . . is purely a legal question. There is no factual dispute as to
what the provisions are and evidence is not necessary to determine whether such amended by-laws are
valid as framed and approved . . ."; second: "it is for the interest and guidance of the public that an
immediate and final ruling on the question be made . . ."; third: "petitioner was denied due process by
SEC" when "Commissioner de Guzman had openly shown prejudice against petitioner . . .", and
"Commissioner Sulit . . . approved the amended by-laws ex-parte and obviously found the same
intrinsically valid"; and finally: "to remand the case to SEC would only entail delay rather than serve
the ends of justice."
Respondents Andres M. Soriano, Jr. and Jose M. Soriano similarly pray that this Court resolve the legal
issues raised by the parties in keeping with the "cherished rules of procedure" that "a court should
always strive to settle the entire controversy in a single proceeding leaving no root or branch to bear the
seeds of future ligiation", citing Gayos v. Gayos. 3 To the same effect is the prayer of San Miguel
Corporation that this Court resolve on the merits the validity of its amended by-laws and the rights and
obligations of the parties thereunder, otherwise "the time spent and effort exerted by the parties
concerned and, more importantly, by this Honorable Court, would have been for naught because the
main question will come back to this Honorable Court for final resolution." Respondent Eduardo R.
Visaya submits a similar appeal.
It is only the Solicitor General who contends that the case should be remanded to the SEC for hearing
and decision of the issues involved, invoking the latter's primary jurisdiction to hear and decide cases
involving intra-corporate controversies.
It is an accepted rule of procedure that the Supreme Court should always strive to settle the entire
controversy in a single proceeding, leaving no root or branch to bear the seeds of future litigation. 4
Thus, in Francisco v. City of Davao, 5 this Court resolved to decide the case on the merits instead of
remanding it to the trial court for further proceedings since the ends of justice would not be subserved
by the remand of the case. In Republic v. Security Credit and Acceptance Corporation, et al., 6 this
Court, finding that the main issue is one of law, resolved to decide the case on the merits "because
public interest demands an early disposition of the case", and in Republic v. Central Surety and
Insurance Company, 7 this Court denied remand of the third-party complaint to the trial court for further
proceedings, citing precedents where this Court, in similar situations, resolved to decide the cases on the
merits, instead of remanding them to the trial court where (a) the ends of justice would not be subserved
by the remand of the case; or (b) where public interest demands an early disposition of the case; or (c)
where the trial court had already received all the evidence presented by both parties and the Supreme
Court is now in a position, based upon said evidence, to decide the case on its merits. 8 It is settled that
the doctrine of primary jurisdiction has no application where only a question of law is involved. 8
Because uniformity may be secured through review by a single Supreme Court, questions of law may
appropriately be determined in the first instance by courts. 8 In the case at bar, there are facts which
cannot be denied, viz: that the amended by-laws were adopted by the Board of Directors of the San
Miguel Corporation in the exercise of the power delegated by the stockholders ostensibly pursuant to
section 22 of the Corporation Law; that in a special meeting on February 10, 1977 held specially for
that purpose, the amended by-laws were ratified by more than 80% of the stockholders of record; that
the foreign investment in the Hongkong Brewery and Distillery, a beer manufacturing company in
Hongkong, was made by the San Miguel Corporation in 1948; and that in the stockholders' annual
meeting held in 1972 and 1977, all foreign investments and operations of San Miguel Corporation were
ratified by the stockholders.
II
Whether or not the amended by-laws of SMC disqualifying a competitor from nomination or election to
the Board of Directors of SMC are valid and reasonable —
The validity or reasonableness of a by-law of a corporation is purely a question of law. 9 Whether the
by-law is in conflict with the law of the land, or with the charter of the corporation, or is in a legal sense
unreasonable and therefore unlawful is a question of law. 10 This rule is subject, however, to the
limitation that where the reasonableness of a by-law is a mere matter of judgment, and one upon which
reasonable minds must necessarily differ, a court would not be warranted in substituting its judgment
instead of the judgment of those who are authorized to make by-laws and who have exercised their
authority. 11
Petitioner claims that the amended by-laws are invalid and unreasonable because they were tailored to
suppress the minority and prevent them from having representation in the Board", at the same time
depriving petitioner of his "vested right" to be voted for and to vote for a person of his choice as
director.
Upon the other hand, respondents Andres M. Soriano, Jr., Jose M. Soriano and San Miguel Corporation
content that exclusion of a competitor from the Board is legitimate corporate purpose, considering that
being a competitor, petitioner cannot devote an unselfish and undivided loyalty to the corporation; that
it is essentially a preventive measure to assure stockholders of San Miguel Corporation of reasonable
protection from the unrestrained self-interest of those charged with the promotion of the corporate
enterprise; that access to confidential information by a competitor may result either in the promotion of
the interest of the competitor at the expense of the San Miguel Corporation, or the promotion of both
the interests of petitioner and respondent San Miguel Corporation, which may, therefore, result in a
combination or agreement in violation of Article 186 of the Revised Penal Code by destroying free
competition to the detriment of the consuming public. It is further argued that there is not vested right of
any stockholder under Philippine Law to be voted as director of a corporation. It is alleged that
petitioner, as of May 6,1978, has exercised, personally or thru two corporations owned or controlled by
him, control over the following shareholdings in San Miguel Corporation, vis.: (a) John Gokongwei, Jr.
— 6,325 shares; (b) Universal Robina Corporation — 738,647 shares; (c) CFC Corporation — 658,313
shares, or a total of 1,403,285 shares. Since the outstanding capital stock of San Miguel Corporation, as
of the present date, is represented by 33,139,749 shares with a par value of P10.00, the total shares
owned or controlled by petitioner represents 4.2344% of the total outstanding capital stock of San
Miguel Corporation. It is also contended that petitioner is the president and substantial stockholder of
Universal Robina Corporation and CFC Corporation, both of which are allegedly controlled by
petitioner and members of his family. It is also claimed that both the Universal Robina Corporation and
the CFC Corporation are engaged in businesses directly and substantially competing with the allied
businesses of San Miguel Corporation, and of corporations in which SMC has substantial investments.
ALLEGED AREAS OF COMPETITION BETWEEN PETITIONER'S CORPORATIONS AND SAN

MIGUEL CORPORATION
According to respondent San Miguel Corporation, the areas of, competition are enumerated in its Board
the areas of competition are enumerated in its Board Resolution dated April 28, 1978, thus:
Product Line Estimated Market Share Total

1977 SMC Robina-CFC
Table Eggs 0.6% 10.0% 10.6%
Layer Pullets 33.0% 24.0% 57.0%
Dressed Chicken 35.0% 14.0% 49.0%
Poultry & Hog Feeds 40.0% 12.0% 52.0%
Ice Cream 70.0% 13.0% 83.0%
Instant Coffee 45.0% 40.0% 85.0%
Woven Fabrics 17.5% 9.1% 26.6%
Thus, according to respondent SMC, in 1976, the areas of competition affecting SMC involved product
sales of over P400 million or more than 20% of the P2 billion total product sales of SMC. Significantly,
the combined market shares of SMC and CFC-Robina in layer pullets, dressed chicken, poultry and hog
feeds, ice cream, instant coffee and woven fabrics would result in a position of such dominance as to
affect the prevailing market factors.
It is further asserted that in 1977, the CFC-Robina group was in direct competition on product lines
which, for SMC, represented sales amounting to more than P478 million. In addition, CFC-Robina was
directly competing in the sale of coffee with Filipino, a subsidiary of SMC, which product line
represented sales for SMC amounting to more than P275 million. The CFC-Robina group (Robitex,
excluding Litton Mills recently acquired by petitioner) is purportedly also in direct competition with
Ramie Textile, Inc., subsidiary of SMC, in product sales amounting to more than P95 million. The areas
of competition between SMC and CFC-Robina in 1977 represented, therefore, for SMC, product sales
of more than P849 million.
According to private respondents, at the Annual Stockholders' Meeting of March 18, 1976, 9,894
stockholders, in person or by proxy, owning 23,436,754 shares in SMC, or more than 90% of the total
outstanding shares of SMC, rejected petitioner's candidacy for the Board of Directors because they
"realized the grave dangers to the corporation in the event a competitor gets a board seat in SMC." On
September 18, 1978, the Board of Directors of SMC, by "virtue of powers delegated to it by the
stockholders," approved the amendment to the by-laws in question. At the meeting of February 10,
1977, these amendments were confirmed and ratified by 5,716 shareholders owning 24,283,945 shares,
or more than 80% of the total outstanding shares. Only 12 shareholders, representing 7,005 shares,
opposed the confirmation and ratification. At the Annual Stockholders' Meeting of May 10, 1977,
11,349 shareholders, owning 27,257.014 shares, or more than 90% of the outstanding shares, rejected
petitioner's candidacy, while 946 stockholders, representing 1,648,801 shares voted for him. On the
May 9, 1978 Annual Stockholders' Meeting, 12,480 shareholders, owning more than 30 million shares,
or more than 90% of the total outstanding shares, voted against petitioner.
AUTHORITY OF CORPORATION TO PRESCRIBE QUALIFICATIONS OF DIRECTORS

EXPRESSLY CONFERRED BY LAW
Private respondents contend that the disputed amended by-laws were adopted by the Board of Directors
of San Miguel Corporation as a measure of self-defense to protect the corporation from the clear and
present danger that the election of a business competitor to the Board may cause upon the corporation
and the other stockholders "irreparable prejudice." Submitted for resolution, therefore, is the issue —
whether or not respondent San Miguel Corporation could, as a measure of self-protection, disqualify a
competitor from nomination and election to its Board of Directors.
It is recognized by all authorities that 'every corporation has the inherent power to adopt by-laws 'for its
internal government, and to regulate the conduct and prescribe the rights and duties of its members
towards itself and among themselves in reference to the management of its affairs.'" 12 At common law,
the rule was "that the power to make and adopt by-laws was inherent in every corporation as one of its
necessary and inseparable legal incidents. And it is settled throughout the United States that in the
absence of positive legislative provisions limiting it, every private corporation has this inherent power
as one of its necessary and inseparable legal incidents, independent of any specific enabling provision in
its charter or in general law, such power of self-government being essential to enable the corporation to
accomplish the purposes of its creation." 13
In this jurisdiction under section 21 of the Corporation Law, a corporation may prescribe in its by-laws
"the qualifications, duties and compensation of directors, officers and employees . . ." This must
necessarily refer to a qualification in addition to that specified by section 30 of the Corporation Law,
which provides that "every director must own in his right at least one share of the capital stock of the
stock corporation of which he is a director . . ." In Government v. El Hogar, 14 the Court sustained the
validity of a provision in the corporate by-law requiring that persons elected to the Board of Directors
must be holders of shares of the paid up value of P5,000.00, which shall be held as security for their
action, on the ground that section 21 of the Corporation Law expressly gives the power to the
corporation to provide in its by-laws for the qualifications of directors and is "highly prudent and in
conformity with good practice."
NO VESTED RIGHT OF STOCKHOLDER TO BE

ELECTED DIRECTOR
Any person "who buys stock in a corporation does so with the knowledge that its affairs are dominated
by a majority of the stockholders and that he impliedly contracts that the will of the majority shall
govern in all matters within the limits of the act of incorporation and lawfully enacted by-laws and not
forbidden by law." 15 To this extent, therefore, the stockholder may be considered to have "parted with
his personal right or privilege to regulate the disposition of his property which he has invested in the
capital stock of the corporation, and surrendered it to the will of the majority of his fellow
incorporators. . . . It can not therefore be justly said that the contract, express or implied, between the
corporation and the stockholders is infringed . . . by any act of the former which is authorized by a
majority . . ." 16
Pursuant to section 18 of the Corporation Law, any corporation may amend its articles of incorporation
by a vote or written assent of the stockholders representing at least two-thirds of the subscribed capital
stock of the corporation. If the amendment changes, diminishes or restricts the rights of the existing
shareholders, then the dissenting minority has only one right, viz.: "to object thereto in writing and
demand payment for his share." Under section 22 of the same law, the owners of the majority of the
subscribed capital stock may amend or repeal any by-law or adopt new by-laws. It cannot be said,
therefore, that petitioner has a vested right to be elected director, in the face of the fact that the law at
the time such right as stockholder was acquired contained the prescription that the corporate charter and
the by-law shall be subject to amendment, alteration and modification. 17
It being settled that the corporation has the power to provide for the qualifications of its directors, the
next question that must be considered is whether the disqualification of a competitor from being elected
to the Board of Directors is a reasonable exercise of corporate authority.
A DIRECTOR STANDS IN A FIDUCIARY RELATION TO THE CORPORATION AND ITS

SHAREHOLDERS
Although in the strict and technical sense, directors of a private corporation are not regarded as trustees,
there cannot be any doubt that their character is that of a fiduciary insofar as the corporation and the
stockholders as a body are concerned. As agents entrusted with the management of the corporation for
the collective benefit of the stockholders, "they occupy a fiduciary relation, and in this sense the relation
is one of trust." 18 "The ordinary trust relationship of directors of a corporation and stockholders",
according to Ashaman v. Miller, 19 "is not a matter of statutory or technical law. It springs from the fact
that directors have the control and guidance of corporate affairs and property and hence of the property
interests of the stockholders. Equity recognizes that stockholders are the proprietors of the corporate
interests and are ultimately the only beneficiaries thereof . . ."
Justice Douglas, in Pepper v. Litton, 20 emphatically restated the standard of fiduciary obligation of the
directors of corporations, thus:
"A director is a fiduciary. . . . Their powers are powers in trust. . . . He who is in such fiduciary
position cannot serve himself first and his cestuis second. . . . He cannot manipulate the affairs
of his corporation to their detriment and in disregard of the standards of common decency. He
cannot by the intervention of a corporate entity violate the ancient precept against serving two
masters. . . . He cannot utilize his inside information and strategic position for his own
preferment. He cannot violate rules of fair play by doing indirectly through the corporation
what he could not do so directly. He cannot violate rules of fair play by doing indirectly through
the corporation what he could not do so directly. He cannot use his power for his personal
advantage and to the detriment of the stockholders and creditors no matter how absolute in
terms that power may be and no matter how meticulous he is to satisfy technical requirements.
For that power is at all times subject to the equitable limitation that it may not be exercised for
the aggrandizement, preference, or advantage of the fiduciary to the exclusion or detriment of
the cestuis."
And in Cross v. West Virginia Cent, & P. R. R. Co., 21 it was said:
". . . A person cannot serve two hostile and adverse masters without detriment to one of them. A
judge cannot be impartial if personally interested in the cause. No more can a director. Human
nature is too weak for this. Take whatever statute provision you please giving power to
stockholders to choose directors, and in none will you find any express prohibition against a
discretion to select directors having the company's interest at heart, and it would simply be
going far to deny by mere implication the existence of such a salutary power.
". . . If the by-law is to be held reasonable in disqualifying a stockholder in a competing

company from being a director, the same reasoning would apply to disqualify the wife and
immediate member of the family of such stockholder, on account of the supposed interest of the
wife in her husband's affairs, and his supposed influence over her. It is perhaps true that such
stockholders ought not to be condemned as selfish and dangerous to the best interest of the
corporation until tried and tested. So it is also true that we cannot condemn as selfish and
dangerous and unreasonable the action of the board in passing the by-law. The strife over the
matter of control in this corporation as in many others is perhaps carried on not altogether in the
spirit of brotherly love and affection. The only test that we can apply is as to whether or not the
action of the Board is authorized and sanctioned by law. . . ." 22
These principles have been applied by this Court in previous cases. 23

AN AMENDMENT TO THE CORPORATE BY-LAW WHICH RENDERS A STOCKHOLDER
INELIGIBLE TO BE DIRECTOR, IF HE BE ALSO DIRECTOR IN A CORPORATION WHOSE
BUSINESS IS IN COMPETITION WITH THAT OF THE OTHER CORPORATION, HAS BEEN
SUSTAINED AS VALID
It is a settled state law in the United States, according to Fletcher, that corporations have the power to
make by-laws declaring a person employed in the service of a rival company to be ineligible for the
corporation's Board of Directors. ". . . (A)n amendment which renders ineligible, or if elected, subjects
to removal, a director if he be also a director in a corporation whose business is in competition with or
is antagonistic to the other corporation is valid." 24 This is based upon the principle that where the
director is so employed in the service of a rival company, he cannot serve both, but must betray one or
the other. Such an amendment "advances the benefit of the corporation and is good." An exception
exists in New Jersey, where the Supreme Court held that the Corporation Law in New Jersey prescribed
the only qualification, and therefore the corporation was not empowered to add additional
qualifications. 25 This is the exact opposite of the situation in the Philippines because as stated
heretofore, section 21 of the Corporation Law expressly provides that a corporation may make by-laws
for the qualifications of directors. Thus, it has been held that an officer of a corporation cannot engage
in a business in direct competition with that of the corporation where he is a director by utilizing
information he has received as such officer, under "the established law that a director or officer of a
corporation may not enter into a competing enterprise which cripples or injures the business of the
corporation of which he is an officer or director." 26
It is also well established that corporate officers "are not permitted to use their position of trust and
confidence to further their private interests." 27 In a case where directors of a corporation cancelled a
contract of the corporation for exclusive sale of a foreign firm's products, and after establishing a rival
business, the directors entered into a new contract themselves with the foreign firm for exclusive sale of
its products, the court held that equity would regard the new contract as an offshoot of the old contract
and, therefore, for the benefit of the corporation, as a "faultless fiduciary may not reap the fruits of his
misconduct to the exclusion of his principal. 28
The doctrine of "corporate opportunity" 29 is precisely a recognition by the courts that the fiduciary
standards could not be upheld where the fiduciary was acting for two entities with competing interests.
This doctrine rests fundamentally on the unfairness, in particular circumstances, of an officer or director
taking advantage of an opportunity for his own personal profit when the interest of the corporation
justly calls for protection. 30
It is not denied that a member of the Board of Directors of the San Miguel Corporation has access to
sensitive and highly confidential information, such as: (a) marketing strategies and pricing structure; (b)
budget for expansion and diversification; (c) research and development; and (d) sources of funding,
availability of personnel, proposals of mergers or tie-ups with other firms.
It is obviously to prevent the creation of an opportunity for an officer or director of San Miguel
Corporation, who is also the officer or owner of a competing corporation, from taking advantage of the
information which he acquires as director to promote his individual or corporate interests to the
prejudice of San Miguel Corporation and its stockholders, that the questioned amendment of the by-
laws was made. Certainly, where two corporations are competitive in a substantial sense, it would seem
improbable, if not impossible, for the director, if he were to discharge effectively his duty, to satisfy his
loyalty to both corporations and place the performance of his corporation duties above his personal
concerns.
Thus, in McKee & Co. v. First National Bank of San Diego, supra, the court sustained as valid and
reasonable an amendment to the by-laws of a bank, requiring that its directors should not be directors,
officers, employees, agents, nominees or attorneys of any other banking corporation, affiliate or
subsidiary thereof. Chief Judge Parker, in McKee, explained the reasons of the court, thus:
". . . A bank director has access to a great deal of information concerning the business and plans
of a bank which would likely be injurious to the bank if known to another bank, and it was
reasonable and prudent to enlarge this minimum disqualification to include any director, officer,
employee, agent, nominee, or attorney of any other bank in California. The Ashkins case, supra,
specifically recognizes protection against rivals and others who might acquire information
which might be used against the interests of the corporation as a legitimate object of by-law
protection. With respect to attorneys or persons associated with a firm which is attorney for
another bank, in addition to the direct conflict or potential conflict of interest, there is also the
danger of inadvertent leakage of confidential information through casual office discussions or
accessibility of files. Defendant's directors determined that its welfare was best protected if this
opportunity for conflicting loyalties and potential misuse and leakage of confidential
information was foreclosed."
In McKee, the Court further listed qualificational by-laws upheld by the courts, as follows:
"(1) A director shall not be directly or indirectly interested as a stockholder in any other firm,
company, or association which competes with the subject corporation.
(2) A director shall not be the immediate member of the family of any stockholder in any other
firm, company, or association which competes with the subject corporation.
(3) A director shall not be an officer, agent, employee, attorney, or trustee in any other firm,
company, or association which compete with the subject corporation.
(4) A director shall be of good moral character as an essential qualification to holding office.
(5) No person who is an attorney against the corporation in a law suit is eligible for service on
the board." (At p. 7.)
These are not based on theorical abstractions but on human experience — that a person cannot serve
two hostile masters without detriment to one of them.
The offer and assurance of petitioner that to avoid any possibility of his taking unfair advantage of his
position as director of San Miguel Corporation, he would absent himself from meetings at which
confidential matters would be discussed, would not detract from the validity and reasonableness of the
by-laws here involved. Apart from the impractical results that would ensue from such arrangement, it
would be inconsistent with petitioner's primary motive in running for board membership — which is to
protect his investments in San Miguel Corporation. More important, such a proposed norm of conduct
would be against all accepted principles underlying a director's duty of fidelity to the corporation, for
the policy of the law is to encourage and enforce responsible corporate management. As explained by
Oleck: 31 "The law will not tolerate the passive attitude of directors . . . without active and conscientious
participation in the managerial functions of the company. As directors, it is their duty to control and
supervise the day to day business activities of the company or to promulgate definite policies and rules
of guidance with a vigilant eye toward seeing to it that these policies are carried out. It is only then that
directors may be said to have fulfilled their duty of fealty to the corporation."
Sound principles of corporate management counsel against sharing sensitive information with a director
whose fiduciary duty of loyalty may well require that he disclose this information to a competitive rival.
These dangers are enhanced considerably where the common director such as the petitioner is a
controlling stockholder of two of the competing corporations. It would seem manifest that in such
situations, the director has an economic incentive to appropriate for the benefit of his own corporation
the corporate plans and policies of the corporation where he sits as director.
Indeed, access by a competitor to confidential information regarding marketing strategies and pricing
policies of San Miguel Corporation would subject the latter to a competitive disadvantage and unjustly
enrich the competitor, for advance knowledge by the competitor of the strategies for the development of
existing or new markets of existing or new products could enable said competitor to utilize such
knowledge to his advantage. 32
There is another important consideration in determining whether or not the amended by-laws are
reasonable. The Constitution and the law prohibit combinations in restraint of trade or unfair
competition. Thus, section 2 of Article XIV of the Constitution provides: "The State shall regulate or
prohibit private monopolies when the public interest so requires. No combinations in restraint of trade
or unfair competition shall be allowed."
Article 186 of the Revised Penal Code also provides:
"Art. 186. Monopolies and combinations in restraint of trade. — The penalty of prision
correccional in its minimum period or a fine ranging from two hundred to six thousand pesos,
or both, shall be imposed upon:
1. Any person who shall enter into any contract or agreement or shall take part in any
conspiracy or combination in the form of a trust or otherwise, in restraint of trade or commerce
or to prevent by artificial means free competition in the market.
2. Any person who shall monopolize any merchandise or object of trade or commerce, or shall
combine with any other person or persons to monopolize said merchandise or object in order to
alter the price thereof by spreading false rumors or making use of any other artifice to restrain
free competition in the market.
3. Any person who, being a manufacturer, producer, or processor of any merchandise or object
of commerce or an importer of any merchandise or object of commerce from any foreign
country, either as principal or agent, wholesale or retailer, shall combine, conspire or agree in
any manner with any person likewise engaged in the manufacture, production, processing,
assembling or importation of such merchandise or object of commerce or with any other
persons not so similarly engaged for the purpose of making transactions prejudicial to lawful
commerce, or of increasing the market price in any part of the Philippines, or any such
merchandise or object of commerce manufactured, produced, processed, assembled in or
imported into the Philippines, or of any article in the manufacture of which such manufactured,
produced, processed, or imported merchandise or object of commerce is used."
There are other legislation in this jurisdiction, which prohibit monopolies and combinations in restraint
of trade. 33 Basically, these anti-trust laws or laws against monopolies or combinations in restraint of
trade are aimed at raising levels of competition by improving the consumers' effectiveness as the final
arbiter in free markets. These laws are designed to preserve free and unfettered competition as the rule
of trade. "It rests on the premise that the unrestrained interaction of competitive forces will yield the
best allocation of our economic resources, the lowest prices and the highest quality . . ." 34 they operate
to forestall concentration of economic power. 35 The law against monopolies and combinations in
restraint of trade is aimed at contracts and combinations that, by reason of the inherent nature of the
contemplated acts, prejudice the public interest by unduly restraining competition or unduly obstructing
the course of trade. 36
The terms "monopoly", "combination in restraint of trade" and "unfair competition" appear to have a
well defined meaning in other jurisdictions. A "monopoly" embraces any combination the tendency of
which is to prevent competition in the broad and general sense, or to control prices to the detriment of
the public. 37 In short, it is the concentration of business in the hands of a few. The material
consideration in determining its existence is not that prices are raised and competition actually
excluded, but that power exists to raise prices or exclude competition when desired. 38 Further, it must
be considered that the idea of monopoly is now understood to include a condition produced by the mere
act of individuals. Its dominant thought is the notion of exclusiveness or unity, or the suppression of
competition by the unification of interest or management, or it may be thru agreement and concert of
action. It is, in brief, unified tactics with regard to prices. 39
From the foregoing definitions, it is apparent that the contentions of petitioner are not in accord with
reality. The election of petitioner to the Board of respondent Corporation can bring about an illegal
situation. This is because an express agreement is not necessary for the existence of a combination or
conspiracy in restraint of trade. 40 It is enough that a concert of action is contemplated and that the
defendants conformed to the arrangements, 41 and what is to be considered is what the parties actually
did and not the words they used. For instance, the Clayton Act prohibits a person from serving at the
same time as a director in any two or more corporations, if such corporations are, by virtue of their
business and location of operation, competitors so that the elimination of competition between them
would constitute violation of any provision of the anti-trust laws. 42 There is here a statutory recognition
of the anti-competitive dangers which may arise when an individual simultaneously acts as a director of
two or more competing corporations. A common director of two or more competing corporations would
have access to confidential sales, pricing and marketing information and would be in a position to
coordinate policies or to aid one corporation at the expense of another, thereby stifling competition.
This situation has been aptly explained by Travers, thus:
"The argument for prohibiting competing corporations from sharing even one director is that
the interlock permits the coordination of policies between nominally independent firms to an
extent that competition between them may be completely eliminated. Indeed, if a director, for
example, is to be faithful to both corporations, some accommodation must result. Suppose X is
a director of both Corporation A and Corporation B. X could hardly vote for a policy by A that
would injure B without violating his duty of loyalty to B; at the same time he could hardly
abstain from voting without depriving A of his best judgment. If the firms really do compete —
in the sense of vying for economic advantage at the expense of the other — there can hardly be
any reason for an interlock between competitors other than the suppression of competition." 43
(Emphasis supplied.)
According to the Report of the House Judiciary Committee of the U. S. Congress on section 9 of the
Clayton Act, it was established that: "By means of the interlocking directorates one man or group of
men have been able to dominate and control a great number of corporations . . . to the detriment of the
small ones dependent upon them and to the injury of the public." 44
Shared information on cost accounting may lead to price fixing. Certainly, shared information on
production, orders, shipments, capacity and inventories may lead to control of production for the
purpose of controlling prices.
Obviously, if a competitor has access to the pricing policy and cost conditions of the products of San
Miguel Corporation, the essence of competition in a free market for the purpose of serving the lowest
priced goods to the consuming public would be frustrated. The competitor could so manipulate the
prices of his products or vary its marketing strategies by region or by brand in order to get the most out
of the consumers. Where the two competing firms control a substantial segment of the market this could
lead to collusion and combination in restraint of trade. Reason and experience point to the inevitable
conclusion that the inherent tendency of interlocking directorates between companies that are related to
each other as competitors is to blunt the edge of rivalry between the corporations, to seek out ways of
compromising opposing interests, and thus eliminate competition. As respondent SMC aptly observes,
knowledge by CFC-Robina of SMC's costs in various industries and regions in the country will enable
the former to practice price discrimination. CFC-Robina can segment the entire consuming population
by geographical areas or income groups and change varying prices in order to maximize profits from
every market segment. CFC-Robina could determine the most profitable volume at which it could
produce for every product line in which it competes with SMC. Access to SMC pricing policy by CFC-
Robina would in effect destroy free competition and deprive the consuming public of opportunity to buy
goods of the highest possible quality at the lowest prices.
Finally, considering that both Robina and SMC are, to a certain extent, engaged in agriculture, then the
election of petitioner to the Board of SMC may constitute a violation of the prohibition contained in
section 13(5) of the Corporation Law. Said section provides in part that "any stockholder of more than
one corporation organized for the purpose of engaging in agriculture may hold his stock in such
corporations solely for investment and not for the purpose of bringing about or attempting to bring about
a combination to exercise control of such corporations . . .)."
Neither are We persuaded by the claim that the by-law was intended to prevent the candidacy of
petitioner for election to the Board. If the by-law were to be applied in the case of one stockholder but
waived in the case of another, then it could be reasonably claimed that the by-law was being applied in a
discriminatory manner. However, the by-law, by its terms, applies to all stockholders. The equal
protection clause of the Constitution requires only that the by-law operate equally upon all persons of a
class. Besides, before petitioner can be declared ineligible to run for director, there must be hearing and
evidence must be submitted to bring his case within the ambit of the disqualification. Sound principles
of public policy and management, therefore, support the view that a by-law which disqualifies a
competition from election to the Board of Directors of another corporation is valid and reasonable.
In the absence of any legal prohibition or overriding public policy, wide latitude may be accorded to the
corporation in adopting measures to protect legitimate corporate interests. Thus, "where the
reasonableness of a by-law is a mere matter of judgment, and upon which reasonable minds must
necessarily differ, a court would not be warranted in substituting its judgment instead of the judgment of
those who are authorized to make by-laws and who have expressed their authority." 45
Although it is asserted that the amended by-laws confer on the present Board powers to perpetuate
themselves in power, such fears appear to be misplaced. This power, by its very nature, is subject to
certain well established limitations. One of these is inherent in the very concept and definition of the
terms "competition" and "competitor". "Competition" implies a struggle for advantage between two or
more forces, each possessing, in substantially similar if not identical degree, certain characteristics
essential to the business sought. It means an independent endeavor of two or more persons to obtain the
business patronage of a third by offering more advantageous terms as an inducement to secure trade. 46
The test must be whether the business does in fact compete, not whether it is capable of an indirect and
highly unsubstantial duplication of an isolated or non-characteristic activity. 47 It is, therefore, obvious
that not every person or entity engaged in business of the same kind is a competitor. Such factors as
quantum and place of business, identity of products and area of competition should be taken into
consideration. It is, therefore, necessary to show that petitioner's business covers a substantial portion of
the same markets for similar products to the extent of not less than 10% of respondent corporation's
market for competing products. While We here sustain the validity of the amended by-laws, it does not
follow as a necessary consequence that petitioner is ipso facto disqualified. Consonant with the
requirement of due process, there must be due hearing at which the petitioner must be given the fullest
opportunity to show that he is not covered by the disqualification. As trustees of the corporation and of
the stockholders, it is the responsibility of directors to act with fairness to the stockholders. 48 Pursuant
to this obligation and to remove any suspicion that this power may be utilized by the incumbent
members of the Board to perpetuate themselves in power, any decision of the Board to disqualify a
candidate for the Board of Directors should be reviewed by the Securities and Exchange Commission
en banc and its decision shall be final unless reversed by this Court on certiorari. 49 Indeed, it is a settled
principle that where the action of a Board of Directors is an abuse of discretion, or forbidden by statute,
or is against public policy, or is ultra vires, or is a fraud upon minority stockholders or creditors, or will
result in waste, dissipation or misapplication of the corporation assets, a court of equity has the power to
grant appropriate relief. 50
III
Whether or not respondent SEC gravely abused its discretion in denying petitioner's request for an
examination of the records of San Miguel International, Inc., a fully owned subsidiary of San Miguel
Corporation —
Respondent San Miguel Corporation stated in its memorandum that petitioner's claim that he was
denied inspection rights as stockholder of SMC "was made in the teeth of undisputed facts that, over a
specific period, petitioner had been furnished numerous documents and information," to wit: (1) a
complete list of stockholders and their stockholdings; (2) a complete list of proxies given by the
stockholders for use at the annual stockholders' meeting of May 18, 1975; (3) a copy of the minutes of
the stockholders' meeting of March 18, 1976; (4) a breakdown of SMC's P186.6 million investment in
associated companies and other companies as of December 31, 1975; (5) a listing of the salaries,
allowances, bonuses and other compensation or remunerations received by the directors and corporate
officers of SMC; (6) a copy of the US$100 million Euro-Dollar Loan Agreement of SMC; and (7)
copies of the minutes of all meetings of the Board of Directors from January 1975 to May 1976, with
deletions of sensitive data, which deletions were not objected to by petitioner.
Further, it was averred that upon request, petitioner was informed in writing on September 18, 1976; (1)
that SMC's foreign investments are handled by San Miguel International, Inc., incorporated in Bermuda
and wholly owned by SMC; this was SMC's first venture abroad, having started in 1948 with an initial
outlay of P500,000.00, augmented by a loan of Hongkong $6 million from a foreign bank under the
personal guaranty of SMC's former President, the late Col. Andres Soriano; (2) that as of December 31,
1975, the estimated value of SMI would amount to almost P400 million; (3) that the total cash
dividends received by SMC from SMI since 1953 has amount to US$9.4 million; and (4) that from
1972-1975, SMI did not declare cash or stock dividends, all earnings having been used in line with a
program for the setting up of breweries by SMI.
These averments are supported by the affidavit of the Corporate Secretary, enclosing photocopies of the
afore-mentioned documents. 51
Pursuant to the second paragraph of section 51 of the Corporation Law, "(t)he record of all business
transactions of the corporation and minutes of any meeting shall be open to the inspection of any
director, member or stockholder of the corporation at reasonable hours."
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. 52 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. 53 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. 54 In Grey v. Insular Lumber, 55 this Court held that
"the right to examine the books of the corporation must be exercised in good faith, for specific and
honest purpose, and not to gratify curiosity, or for speculative or vexatious purposes." The weight of
judicial opinion appears to be, that on application for mandamus to enforce the right, it is proper for the
court to inquire into and consider the stockholder's good faith and his purpose and motives in seeking
inspection. 56 Thus, it was held 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." 57 But the
"impropriety of purpose such as will defeat enforcement must be set up the corporation defensively if
the Court is to take cognizance of it as a qualification. In other words, the specific provisions take from
the stockholder the burden of showing propriety of purpose and place upon the corporation the burden
of showing impropriety of purpose or motive." 58 It appears to be the "general rule that 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 is
being mismanaged or that it is being managed for the personal benefit of officers or directors or certain
of the stockholders to the exclusion of others." 59
While the right of a stockholder to examine the books and records of a corporation for a lawful purpose
is a matter of law, the right of such stockholder to examine the books and records of a wholly-owned
subsidiary of the corporation in which he is a stockholder is a different thing.
Some state courts recognize the right under certain conditions, while others do not. Thus, it has been
held that where a corporation owns approximately no property except the shares of stock of subsidiary
corporations which are merely agents or instrumentalities of the holding company, the legal fiction of
distinct corporate entities may be disregarded and the books, papers and documents of all the
corporations may be required to be produced for examination, 60 and that a writ of mandamus may be
granted, as the records of the subsidiary were, to all intents and purposes, the records of the parent even
though the subsidiary was not named as a party. 61 Mandamus was likewise held proper to inspect both
the subsidiary's and the parent corporation's books upon proof of sufficient control or dominion by the
parent showing the relation of principal or agent or something similar thereto. 62
On the other hand, mandamus at the suit of a stockholder was refused where the subsidiary corporation
is a separate and distinct corporation domiciled and with its books and records in another jurisdiction,
and is not legally subject to the control of the parent company, although it owned a vast majority of the
stock of the subsidiary. 63 Likewise, inspection of the books of an allied corporation by a stockholder of
the parent company which owns all the stock of the subsidiary has been refused on the ground that the
stockholder was not within the class of "persons having an interest." 64
In the Nash case, 65 The Supreme Court of New York held that the contractual right of former
stockholders to inspect books and records of the corporation "included the right to inspect corporation's
subsidiaries' books and records which were in corporation's possession and control in its office in New
York."
In the Bailey case, 66 stockholders of a corporation were held entitled to inspect the records of a
controlled subsidiary corporation which used the same offices and had identical officers and directors.
In his "Urgent Motion for Production and Inspection of Documents" before respondent SEC, petitioner
contended that respondent corporation "had been attempting to suppress information from the
stockholders" and that petitioner, "as stockholder of respondent corporation, is entitled to copies of
some documents which for some reason or another, respondent corporation is very reluctant in revealing
to the petitioner notwithstanding the fact that no harm would be caused thereby to the corporation." 67
There is no question that stockholders are entitled to inspect the books and records of a corporation in
order to investigate the conduct of the management, determine the financial condition of the
corporation, and generally take an account of the stewardship of the officers and directors. 68
In the case at bar, considering that the foreign subsidiary is wholly owned by respondent San Miguel
Corporation and, therefore, under Its control, it would be more in accord with equity, good faith and fair
dealing to construe the statutory right of petitioner as stockholder to inspect the books and records of
the corporation as extending to books and records of such wholly owned subsidiary which are in
respondent corporation's possession and control.
IV
Whether or not respondent SEC gravely abused its discretion in allowing the stockholders of respondent
corporation to ratify the investment of corporate funds in a foreign corporation
Petitioner reiterates his contention in SEC Case No. 1423 that respondent corporation invested
corporate funds in SMI without prior authority of the stockholders, thus violating section 17-112 of the
Corporation Law, and alleges that respondent SEC should have investigated the charge, being a
statutory offense, instead of allowing ratification of the investment by the stockholders.
Respondent SEC's position is that submission of the investment to the stockholders for ratification is a
sound corporate practice and should not be thwarted but encouraged.
Section 17-1/2 of the Corporation Law allows a corporation to "invest its funds in any other corporation
or business or for any purpose other than the main purpose for which it was organized" provided that its
Board of Directors has been so authorized by the affirmative vote of stockholders holding shares
entitling them to exercise at least two-thirds of the voting power. If the investment is made in pursuance
of the corporate purpose, it does not need the approval of the stockholders. It is only when the purchase
of shares is done solely for investment and not to accomplish the purpose of its incorporation that the
vote of approval of the stockholders holding shares entitling them to exercise at least two-thirds of the
voting power is necessary. 69
As stated by respondent corporation, the purchase of beer manufacturing facilities by SMC was an
investment in the same business stated as its main purpose in its Articles of Incorporation, which is to
manufacture and market beer. It appears that the original investment was made in 1947-1948, when
SMC, then San Miguel Brewery, Inc., purchased a beer brewery in Hongkong (Hongkong Brewery &
Distillery, Ltd.) for the manufacture and marketing of San Miguel beer thereat. Restructuring of the
investment was made in 1970-1971 thru the organization of SMI in Bermuda as a tax free
reorganization.
Under these circumstances, the ruling in De la Rama v. Ma-ao Sugar Central Co., Inc., supra, appears
relevant. In said case, one of the issues was the legality of an investment made by Ma-ao Sugar Central
Co., Inc., without prior resolution approved by the affirmative vote of 2/3 of the stockholders' voting
power, in the Philippine Fiber Processing Co., Inc., a company engaged in the manufacture of sugar
bags. The lower court said that "there is more logic in the stand that if the investment is made in a
corporation whose business is important to the investing corporation and would aid it in its purpose, to
require authority of the stockholders would be to unduly curtail the power of the Board of Directors."
This Court affirmed the ruling of the court a quo on the matter and, quoting Prof. Sulpicio S. Guevara,
said:
"'j. Power to acquire or dispose of shares or securities. — A private corporation, in order to

accomplish is purpose as stated in its articles of incorporation, and subject to the limitations
imposed by the Corporation Law, has the power to acquire, hold, mortgage, pledge or dispose
of shares, bonds, securities, and other evidences of indebtedness of any domestic or foreign
corporation. Such an act, if done in pursuance of the corporate purpose, does not need the
approval of stockholders; but when the purchase of shares of another corporation is done solely
for investment and not to accomplish the purpose of its incorporation, the vote of approval of
the stockholders is necessary. In any case, the purchase of such shares or securities must be
subject to the limitations established by the Corporation law; namely, (a) that no agricultural or
mining corporation shall in anywise be interested in any other agricultural or mining
corporation; or (b) that a non-agricultural or non-mining corporation shall be restricted to own
not more than 15% of the voting stock of any agricultural or mining corporation; and (c) that
such holdings shall be solely for investment and not for the purpose of bringing about a
monopoly in any line of commerce or combination in restraint of trade.' (The Philippine
Corporation Law by Sulpicio S. Guevara, 1967 Ed., p. 89) (Emphasis ours.)
"'40. Power to invest corporate funds. — A private corporation has the power to invest its
corporate funds "in any other corporation or business, or for any purpose other than the main
purpose for which it was organized, provided that 'its board of directors has been so authorized
in a resolution by the affirmative vote of stockholders holding shares in the corporation entitling
them to exercise at least two-thirds of the voting power on such a proposal at a stockholders'
meeting called for that purpose,' and provided further, that no agricultural or mining corporation
shall in anywise be interested in any other agricultural or mining corporation. When the
investment is necessary to accomplish its purpose or purposes as stated in its articles of
incorporation, the approval of the stockholders is not necessary."" (Id., p. 108.) (Emphasis
ours.)" (pp. 258-259.)
Assuming arguendo that the Board of Directors of SMC had no authority to make the assailed
investment, there is no question that a corporation, like an individual, may ratify and thereby render
binding upon it the originally unauthorized acts of its officers or other agents. 70 This is true because the
questioned investment is neither contrary to law, morals, public order or public policy. It is a corporate
transaction or contract which is within the corporate powers, but which is defective from a purported
failure to observe in its execution the requirement of the law that the investment must be authorized by
the affirmative vote of the stockholders holding two-thirds of the voting power. This requirement is for
the benefit of the stockholders. The stockholders for whose benefit the requirement was enacted may,
therefore, ratify the investment and its ratification by said stockholders obliterates any defect which it
may have had at the outset. "Mere ultra vires acts", said this Court in Pirovano, 71 "or those which are
not illegal and void ab initio, but are not merely within the scope of the articles of incorporation, are
merely voidable and may become binding and enforceable when ratified by the stockholders."
Besides, the investment was for the purchase of beer manufacturing and marketing facilities which is
apparently relevant to the corporate purpose. The mere fact that respondent corporation submitted the
assailed investment to the stockholders for ratification at the annual meeting of May 10, 1977 cannot be
construed as an admission that respondent corporation had committed an ultra vires act, considering the
common practice of corporations of periodically submitting for the ratification of their stockholders the
acts of their directors, officers and managers.
WHEREFORE, judgment is hereby rendered as follows:
The Court voted unanimously to grant the petition insofar as it prays that petitioner be allowed to
examine the books and records of San Miguel International, Inc., as specified by him.
On the matter of the validity of the amended by-laws of respondent San Miguel Corporation, six (6)
Justices, namely, Justices Barredo, Makasiar, Antonio, Santos, Abad Santos and De Castro, voted to
sustain the validity per se of the amended by-laws in question and to dismiss the petition without
prejudice to the question of the actual disqualification of petitioner John Gokongwei, Jr. to run and if
elected to sit as director of respondent San Miguel Corporation being decided, after a new and proper
hearing by the Board of Directors of said corporation, whose decision shall be appealable to the
respondent Securities and Exchange Commission deliberating and acting en banc, and ultimately to this
Court. Unless disqualified in the manner herein provided, the prohibition in the afore-mentioned
amended by-laws shall not apply to petitioner.
The afore-mentioned six (6) Justices, together with Justice Fernando, voted to declare the issue on the
validity of the foreign investment of respondent corporation as moot.
Chief Justice Fred Ruiz Castro reserved his vote on the validity of the amended by-laws, pending
hearing by this Court on the applicability of section 13(5) of the Corporation Law to petitioner.
Justice Fernando reserved his vote on the validity of subject amendment to the by-laws but otherwise
concurs in the result.
Four (4) Justices, namely, Justices Teehankee, Concepcion Jr., Fernandez and Guerrero filed a separate
opinion, wherein they voted against the validity of the questioned amended by-laws and that this
question should properly be resolved first by the SEC as the agency of primary jurisdiction. They
concur in the result that petitioner may be allowed to run for and sit as director of respondent SMC in
the scheduled May 6, 1979 election and subsequent elections until disqualified after proper hearing by
the respondent's Board of Directors and petitioner's disqualification shall have been sustained by
respondent SEC en banc and ultimately by final judgment of this Court.
In resume, subject to the qualifications afore-stated, judgment is hereby rendered GRANTING the
petition by allowing petitioner to examine the books and records of San Miguel International, Inc. as
specified in the petition. The petition, * insofar as it assails the validity of the amended by-laws and the
ratification of the foreign investment of respondent corporation, for lack of necessary votes, is hereby
DISMISSED. No costs.
Makasiar, Santos, Abad Santos and De Castro, JJ., concur.
Castro, C J., reserves his right to file a separate opinion.
Fernando, J., concurs in the result and reserves his right to file a separate opinion.
Aquino, and Melencio Herrera, JJ., took no part.
CERTIFICATION
The undersigned hereby certifies that Justice VICENTE ABAD SANTOS concurred in the opinion of
Justice FELIX Q. ANTONIO.
Separate Opinions
TEEHANKEE, CONCEPCION JR.,
FERNANDEZ and GUERRERO, JJ., concurring:
As correctly stated in the main opinion of Mr. Justice Antonio, the Court is unanimous in its judgment
granting the petitioner as stockholder of respondent San Miguel Corporation the right to inspect,
examine and secure copies of the records of San Miguel International, Inc. (SMI), a wholly owned
foreign subsidiary corporation of respondent San Miguel Corporation. Respondent commission's en
banc Order No. 449, Series of 1977, denying petitioner's right of inspection for "not being a stockholder
of San Miguel International, Inc." has been accordingly set aside. It need be only pointed out that:
a) The commission's reasoning grossly disregards the fact that the stockholders of San Miguel
Corporation are likewise the owners of San Miguel International, Inc. as the corporation's wholly
owned foreign subsidiary and therefore have every right to have access to its books and records
otherwise, the directors and management of any Philippine corporation by the simple device of
organizing with the corporation's funds foreign subsidiaries would be granted complete immunity from
the stockholders' scrutiny of its foreign operations and would have a conduit for dissipating, if not
misappropriating, the corporate funds and assets by merely channeling them into foreign subsidiaries'
operations; and
b) Petitioner's right of examination herein recognized refers to all books and records of the foreign
subsidiary SMI which are "in respondent corporation's possession and control" 1 , meaning to say
regardless of whether or not such books and records are physically within the Philippines. All such
books and records of SMI are legally within respondent corporation's "possession and control" and if
any books or records are kept abroad, (e.g. in the foreign subsidiary's state of domicile, as is to be
expected), then the respondent corporation's board and management are obliged under the Court's
judgment to bring and make them (or true copies thereof) available within the Philippines for
petitioner's examination and inspection.
II
On the other main issue of the validity of respondent San Miguel Corporation's amendment of its by-
laws 2 whereby respondent corporation's board of directors under its resolution dated April 29, 1977
declared petitioner ineligible to be nominated or to be voted or to be elected as of the board of directors,
the Court, composed of 12 members (since Mme. Justice Ameurfina Melencio Herrera inhibited herself
from taking part herein, while Mr. Justice Ramon C. Aquino upon submittal of the main opinion of Mr.
Justice Antonio decided not to take part), failed to reach a conclusive vote or the required majority of 8
votes to settle the issue one way or the other.
Six members of the Court, namely, Justices Barredo, Makasiar, Antonio, Santos, Abad Santos and De
Castro, considered the issue purely legal and voted to sustain the validity per se of the questioned
amended by-laws but nevertheless voted that the prohibition and disqualification therein provided shall
not apply to petitioner Gokongwei until and after he shall have been given "a new and proper hearing"
by the corporation's board of directors and the board's decision of disqualification shall have been
sustained on appeal by respondent Securities and Exchange Commission and ultimately by this Court.
The undersigned Justices do not consider the issue as purely legal in the light of respondent
commission's Order No. 451, Series of 1977, denying petitioner's "Motion for Summary Judgment" on
the ground that "the Commission en banc finds that there (are) unresolved and genuine issues of fact" 3
as well as its position in this case thru the Solicitor General that the case at bar is "premature" and that
the administrative remedies before the commission should first be availed of and exhausted. 4
We are of the opinion that the questioned amended by-laws, as they are, (adopted after almost a century
of respondent corporation's existence as a public corporation with its shares freely purchased and traded
in the open market without restriction and disqualification) which would bar petitioner from
qualification, nomination and election as director and worse, grant the board by 3/4 vote the arbitrary
power to bar any stockholder from his right to be elected as director by the simple expedient of
declaring him to be engaged in a "competitive or antagonistic business" or declaring him as a
"nominee" of the "competitive or antagonistic" stockholder are illegal, oppressive, arbitrary and
unreasonable.
We consider the questioned amended by-laws as being specifically tailored to discriminate against
petitioner and depriving him in violation of substantive due process of his vested substantial rights as
stockholder of respondent corporation. We further consider said amended by-laws as violating specific
provisions of the Corporation Law which grant and recognize the right of a minority stockholder like
petitioner to be elected director by the process of cumulative voting ordained by the Law (secs. 21 and
30) and the right of a minority director once elected not to be removed from office of director except for
cause by vote of the stockholders holding 2/3 of the subscribed capital stock (sec. 31). If a minority
stockholder could be disqualified by such a by-laws amendment under the guise of providing for
"qualifications," these mandates of the Corporation Law would have no meaning or purpose.
These vested and substantial rights granted stockholders under the Corporation Law may not be diluted
or defeated by the general authority granted by the Corporation Law itself to corporations to adopt their
by-laws (in section 21) which deal principally with the procedures governing their internal business.
The by-laws of any corporation must be always within the charter limits. What the Corporation Law has
granted stockholders may not be taken away by the corporation's by-laws. The amendment is further an
instrument of oppressiveness and arbitrariness in that the incumbent directors are thereby enabled to
perpetuate themselves in office by the simple expedient of disqualifying any unwelcome candidate, no
matter how many votes he may have.
However, in view of the inconclusiveness of the vote, we sustain respondent commission's stand as
expressed in its Orders Nos. 450 and 451, Series of 1977 that there are "unresolved and genuine issues
of fact" and that it has yet to rule on and finally decide the validity of the disputed by-law provision",
subject to appeal by either party to this Court.
In view of prematurity of the proceedings here (as likewise expressed by Mr. Justice Fernando), the case
should as a consequence be remanded to the Securities and Exchange Commission as the agency of
primary jurisdiction for a full hearing and reception of evidence of all relevant facts (which should
property be submitted to the commission instead of the piecemeal documents submitted as annexes to
this Court which is not a trier of facts) concerning not only the petitioner but the members of the board
of directors of respondent corporation as well, so that it may determine on the basis thereof the issue of
the legality of the questioned amended by-laws, and assuming that it holds the same to be valid whether
the same are arbitrarily and unreasonably applied to petitioner vis a vis other directors, who, petitioner
claims, should in such event be likewise disqualified from sitting in the board of directors by virtue of
conflict of interests or their being likewise engaged in "competitive or antagonistic business" with the
corporation such as investment and finance, coconut oil mills, cement, milk and hotels. 5
It should be noted that while the petition may be dismissed in view of the inconclusiveness of the vote
and the Court's failure to attain the required 8-vote majority to resolve the issue, such as dismissal (for
lack of necessary votes) is of no doctrinal value and does not in any manner resolve the issue of the
validity of the questioned amended by-laws nor foreclose the same. The same should properly be
determined in a proper case in the first instance by the Securities and Exchange Commission as the
agency of primary jurisdiction, as above indicated.
The Court is unanimous, therefore, in its judgment that petitioner Gokongwei may run for the office of,
and if elected, sit as, member of the board of directors of respondent San Miguel Corporation as stated
in the dispositive portion of the main opinion of Mr. Justice Antonio, to wit: Until and after petitioner
has been given a "new and proper hearing by the board of directors of said corporation, whose decision
shall be appealable to the respondent Securities and Exchange Commission deliberating and acting en
banc and ultimately to this Court" and until "disqualified in the manner herein provided, the prohibition
in the aforementioned amended by-laws shall not apply to petitioner." In other words, until and after
petitioner shall have been given due process and proper hearing by the respondent board of directors as
to the question of his qualification or disqualification under the questioned amended by-laws (assuming
that the respondent Securities and Exchange Commission ultimately upholds the validity of said by-
laws), and such disqualification shall have been sustained by respondent Securities and Exchange
Commission and ultimately by final judgment of this Court, petitioner is deemed eligible for all legal
purposes and effects to be nominated and voted and if elected to sit as a member of the board of
directors of respondent San Miguel Corporation.
In view of the Court's unanimous judgment on this point, the portion of respondent commission's Order
No. 450, Series of 1977 which imposed "the condition that he [petitioner] cannot sit as board member if
elected until after the Commission shall have finally decided the validity of the disputed by-law
provision" has been likewise accordingly set aside.
III
By way of recapitulation, so that the Court's decision and judgment may be clear and not subject to
ambiguity, we state the following:
1. With the votes of the six Justices concurring unqualifiedly in the main opinion added to our four
votes, plus the Chief Justice's vote and that of Mr. Justice Fernando, the Court has by twelve (12) votes
unanimously rendered judgment granting petitioner's right to examine and secure copies of the books
and records of San Miguel International, Inc. as a foreign subsidiary of respondent corporation and
respondent commission's Order No. 449, Series of 1977, to the contrary is set aside:
2. With the same twelve (12) votes, the Court has also unanimously rendered judgment declaring that
until and after petitioner shall have been given due process and proper hearing by the respondent board
of directors as to the question of his disqualification under the questioned amended by-laws (assuming
that the respondent Securities and Exchange Commission ultimately upholds the validity of said by-
laws), and such disqualification shall have been sustained by respondent Securities and Exchange
Commission and ultimately by final judgment of this Court petitioner is deemed eligible for all legal
purposes and effect to be nominated and voted and if elected to sit as a member of the board of directors
of respondent San Miguel Corporation. Accordingly, respondent commission's Order No. 450, Series of
1977 to the contrary has likewise been set aside; and
3. The Court's voting on the validity of respondent corporation's amendment of the by-laws (sec. 2, Art.
III) is inconclusive without the required majority of eight votes to settle the issue one way or the other
having been reached. No judgment is rendered by the Court thereon and the statements of the six
Justices who have signed the main opinion on the legality thereof have no binding effect, much less
doctrinal value. LLphil
The dismissal of the petition insofar as the question of the validity of the disputed by-laws amendment
is concerned is not by any judgment with the required eight votes but simply by force of Rule 56,
section 11 of the Rules of Court, the pertinent portion of which provides that "where the court en banc
is equally divided in opinion, or the necessary majority cannot be had, the case shall be reheard, and if
on re-hearing no decision is reached, the action shall be dismissed if originally commenced in the court
. . ." The end result is that the Court has thereby dismissed the petition which prayed that the Court
bypass the commission and directly resolved the issue and therefore the respondent commission may
now proceed, as announced in its Order No. 450, Series of 1977, to hear the case before it and receive
all relevant evidence bearing on the issue as hereinabove indicated, and resolve the "unresolved and
genuine issues of fact" (as per Order No. 451, Series of 1977) and the issues of legality of the disputed
by-laws amendment.
Guerrero, J., concurred.
Fernandez, J., concurs.
TEEHANKEE, CONCEPCION JR.,

FERNANDEZ and GUERRERO, JJ., concurring:
Supplement to separate opinion.
JUDGMENT; LAW OF THE CASE. — The doctrine of the law of the case may be invoked
only where there has been a final and conclusive determination of an issue in the first case later
invoked as the law of the case. It has no application where the judgment in the first case is
inconclusive, as where no final and conclusive determination could be reached on account of lack of
necessary votes and the case was simply dismissed pursuant to Rule 56, Section 11. It cannot be
contended that the Supreme Court is dismissing the petition for lack of necessary votes had directly
ruled on the issue presented when it itself could not reach a final and conclusive vote thereon.
This supplemental opinion is issued with reference to the advance separate opinion of Mr. Justice
Barredo issued by him as to "certain misimpressions as to the import of the decision in this case" which
might be produced by our joint separate opinion of April 11, 1979 and "urgent(ly) to clarify (his)
position in respect to the rights of the parties resulting from the dismissal of the petition herein and the
outline of the procedure by which the disqualification of petitioner Gokongwei can be made effective."
1. Mr. Justice Barredo's advances separate opinion "that as between the parties herein, the issue of the
validity of the challenged by-laws is already settled" had, of course, no binding effect. The judgment of
the Court is found on pages 59-61 of the decision of April 11, 1979, penned by Mr. Justice Antonio,
wherein on the question of the validity of the amended by-laws the Court's inconclusive voting is set
forth as follows:
"Chief Justice Fred Ruiz Castro reserved his vote on the validity of the amended by-laws,
pending hearing by this Court on the applicability of section 13(5) of the Corporation Law to
petitioner.
"Justice Fernando reserved his vote on the validity of subject amendment to the by-laws but
otherwise concurs in the result.
"Four (4) Justices, namely, Justices Teehankee, Concepcion Jr., Fernandez and Guerrero filed a
separate opinion, wherein they voted against the validity of the questioned amended by-laws
and that this question should properly be resolved first by the SEC as the agency of primary
jurisdiction . . ." 1
As stated in said judgment itself, for lack of the necessary votes, the petition, insofar as it assails the
validity of the questioned by-laws, was dismissed.
2. Mr. Justice Barredo now contends contrary to the undersigned's understanding, as stated on pages 8
and 9 of our joint separate opinion of April 11, 1979 that the legal effect of the dismissal of the petition
on the question of validity of the amended by-laws for lack of the necessary votes simply means that
"the Court has thereby dismissed the petition which prayed that the Court by-pass the commission and
directly resolve the issue and therefore the respondent commission may now proceed, as announced in
its Order No. 450, Series of 1977, to hear the case before it and receive all relevant evidence bearing on
the issue as hereinabove indicated, and resolve the 'unresolved and genuine issues of fact' (as per Order
No. 451, Series of 1977) and the issue of legality of the disputed by-laws amendment," that such
dismissal "has no other legal consequence than that it is the law of the case as far as the parties are
concerned, albeit the majority of the opinion of six against four Justices is not doctrinal in the sense that
it cannot be cited as necessarily a precedent for subsequent cases."
We hold on our part that the doctrine of the law of the case invoked by Mr. Justice Barredo has no
applicability for the following reasons:
a) Our jurisprudence is quite clear that this doctrine may be invoked only where there has been a final
and conclusive determination of an issue in the first case later invoked as the law of the case.
Thus, in People vs. Olarte 2 , we held that
"'Law of the case' has been defined as the opinion delivered on a former appeal. More
specifically, it means that whatever is once irrevocably established as the controlling legal rule
of decision between the same parties in the same case continues to be the law of the case,
whether correct on general principles or not, so long as the facts on which such decision was
predicated continue to be the facts of the case before the court. . . .
"It need not be stated that the Supreme Court, being the court of last resort, is the final arbiter of
all legal questions properly brought before it and that its decision in any given case constitutes
the law of that particular case. Once its judgment becomes final it is binding on all inferior
courts, and hence beyond their power and authority to alter or modify (Kabigting vs. Acting
Director of Prisons, G. R. No. L-15548, October 30, 1962).
"'The decision of this Court on that appeal by the government from the order of dismissal,
holding that said appeal did not place the appellants, including Absalon Bignay, in double
jeopardy, signed and concurred in by six Justices as against three dissenters headed by the Chief
Justice, promulgated way back in the year 1952, has long become the law of the case. It may be
erroneous, judged by the law on double jeopardy as recently interpreted by this same Tribunal.
Even so, it may not be disturbed and modified. Our recent interpretation of the law may be
applied to new cases, but certainly not to an old one finally and conclusively determined. As
already stated, the majority opinion in that appeal is now the law of the case.'" (People vs.
Pinuila)
The doctrine of the law of the case, therefore, has no applicability whatsoever herein insofar as the
question of the validity or invalidity of the amended by-laws is concerned. The Court's judgment of
April 11, 1979 clearly shows that the voting on this question was inconclusive with six against four
Justices and two other Justices (the Chief Justice and Mr. Justice Fernando) expressly reserving their
votes thereon, and Mr. Justice Aquino while taking no part in effect likewise expressly reserved his vote
thereon. No final and conclusive determination could be reached on the issue and pursuant to the
provisions of Rule 56, section 11, since this special civil action originally commenced in this Court, the
action was simply dismissed with the result that no law of the case was laid down insofar as the issue of
the validity or invalidity of the questioned by-laws is concerned, and the relief sought herein by
petitioner that this Court by-pass the SEC which has yet to hear and determine the same issue pending
before it below and that this Court itself directly resolve the said issue stands denied.
b) The contention of Mr. Justice Barredo that the result of the dismissal of the case was that "petitioner
Gokongwei may not hereafter act on the assumption that he can revive the issue of the validity whether
in the Securities and Exchange Commission, in this Court or in any other forum, unless he proceeds on
the basis of a factual milieu different from the setting of this case. Not even the Securities and Exchange
Commission may pass on such question anymore at the instance of herein petitioner or anyone acting in
his stead or on his behalf," appears to us to be untenable.
The Court through the decision of April 11, 1979, by the unanimous votes of the twelve participating
Justices headed by the Chief Justice, ruled that petitioner Gokongwei was entitled to a "new and proper
hearing" by the SMC board of directors on the matter of his disqualification under the questioned by-
laws and that the board's "decision shall be appealable to the respondent Securities and Exchange
Commission deliberating and acting en banc and ultimately to this Court (and) unless disqualified in the
manner herein provided, the prohibition in the aforementioned amended by-laws shall not apply to
petitioner."
The entire Court, therefore, recognized that petitioner had not been given procedural due process by the
SMC board on the matter of his disqualification and that he was entitled to a "new and proper hearing".
It stands to reason that in such hearing, petitioner could raise not only questions of fact but questions of
law, particularly questions of law affecting the investing public and their right to representation on the
board as provided by law — not to mention that as borne out by the fact that no restriction whatsoever
appears in the Court's decision, it was never contemplated that petitioner was to be limited to questions
of fact and could not raise the fundamental questions of law bearing on the invalidity of the questioned
amended by-laws at such hearing before the SMC board. Furthermore, it was expressly provided
unanimously in the Court's decision that the SMC board's decision on the disqualification of petitioner
("assuming the board of directors of San Miguel Corporation should, after the proper hearing, disqualify
him" as qualified in Mr. Justice Barredo's own separate opinion, at page 2) shall be appealable to
respondent Securities and Exchange Commission "deliberating and acting en banc" and "untimately to
this Court." Again, the Court's judgment as set forth in its decision of April 11, 1979 contains nothing
that would warrant the opinion now expressed that respondent Securities and Exchange Commission
may not pass anymore on the question of the invalidity of the amended by-laws. Certainly, it cannot be
contended that the Court in dismissing the petition for lack of necessary votes actually by-passed the
Securities and Exchange Commission and directly ruled itself on the invalidity of the questioned by-
laws when it itself could not reach a final and conclusive vote (a minimum of eight votes) on the issue
and three other Justices (the Chief Justice and Messrs. Justices Fernando and Aquino) had expressly
reserved their vote until after further hearings (first before the Securities and Exchange Commission and
ultimately in this Court).
Such a view espoused by Mr. Justice Barredo could conceivably result in an incongruous situation
where supposedly under the law of this case the questioned by-laws would be held valid as against
petitioner Gokongwei and yet the same may be stricken off as invalid as to all other SMC shareholders
in a proper case.
3. It need only be pointed out that Mr. Justice Barredo's advance separate opinion can in no way affect
or modify the judgment of this Court as set forth in the decision of April 11, 1979 and discussed
hereinabove. The same bears the unqualified concurrence of only three Justices out of the six Justices
who originally voted for the validity per se of the questioned by-laws, namely, Messrs. Justices
Antonio, Santos and De Castro. Messrs. Justices Fernando and Makasiar did not concur therein but they
instead concurred with the limited concurrence of the Chief Justice touching on the law of the case
which guardedly held that the Court has not found merit in the claim that the amended by-laws in
question are invalid but without in any manner foreclosing the issue and as a matter of fact and law,
without in any manner changing or modifying the above-quoted vote of the Chief Justice as officially
rendered in the decision of April 11, 1979, wherein he precisely "reserved (his) vote on the validity of
the amended by-laws."
4. A word on the separate opinion of Mr. Justice Pacifico de Castro attached to the advance separate
opinion of Mr. Justice Barredo. Mr. Justice De Castro advances his interpretation as to a restrictive
construction of section 13(5) of the Philippine Corporation Law, ignoring or disregarding the fact that
during the Court's deliberations it was brought out that this prohibitory provision was and is not raised
in issue in this case whether here or in the Securities and Exchange Commission below (outside of a
passing argument by Messrs. Angara, Abello, Concepcion, Regala & Cruz, as counsels for respondent
Sorianos in their Memorandum of June 26, 1978 that "(T)he disputed By-Laws does not prohibit
petitioner from holding onto, or even increasing his SMC investment; it only restricts any shifting on
the part of petitioner from passive investor to a director of the company." 3
As a consequence, the Court abandoned the idea of calling for another hearing wherein the parties could
properly raise and discuss this question as a new issue and instead rendered the decision in question,
under which the question of section 13(5) could be raised at a new and proper hearing before the SMC
board and in the Securities and Exchange Commission and in due course before this Court (but with the
clear understanding that since both corporations, the Robina and SMC are engaged in agriculture as
submitted by the Sorianos' counsel in their said memorandum, the issue could be raised likewise against
SMC and its other shareholders, directors, if not against SMC itself. As expressly stated in the Chief
Justice's reservation of his vote, the matter of the question of the applicability of the said section 13(5)
to petitioner would be heard by this Court at the appropriate time after the proceedings below (and
necessarily the question of the validity of the amended by-laws would be taken up anew and the Court
would at that time be able to reach a final and conclusive vote).
Mr. Justice De Castro's personal interpretation of the decision of April 11, 1979 that petitioner may be
allowed to run for election despite adverse decision of both the SMC board and the Securities and
Exchange Commission "only if he comes to this Court and obtains an injunction against the
enforcement of the decision disqualifying him" is patently contradictory of his vote on the matter as
expressly given in the judgment in the Court's decision of April 11, 1979 (at page 59) that petitioner
could run and if elected, sit as director of the respondent SMC and could be disqualified only after a
"new and proper hearing by the board of directors of said corporation, whose decision shall be
appealable to the respondent Securities and Exchange Commission deliberating and acting en banc and
ultimately to this Court. Unless-disqualified in the manner herein provided, the prohibition in the
aforementioned amended by-laws shall not apply to petitioner."
BARREDO, J., concurring:
1. JUDGMENTS; DISMISSAL FOR LACK OF NECESSARY VOTES; LAW OF THE CASE. —

Where petitioner and respondents placed the issue of the validity of amended by-laws squarely before
the Court for resolution and six justices vote in favor, while four justices voted against, its validity,
thereby resulting in the dismissal of the petition "insofar as it assails the validity of the amended by-
laws . . . for lack of necessary votes," such dismissal is the law of the case as far as the parties are
concerned, albeit the majority of six against four justices is not doctrinal in the sense that it cannot be
cited as necessarily a precedent for subsequent cases. This means that the petitioner and respondents are
bound by the forgoing result, namely, that the Court en banc has not found merit in the claims that the
amended by-laws in question are invalid. In other words, the issue of the challenged amended by-laws
is already a settled matter for the parties as the law of the case, and said amended by-laws already
enforceable in so far as the parties are concerned. Petitioner may not thereafter act on the assumption
that he can revive the issue of validity whether in the Securities and Exchange Commission, the
Supreme Court or in any other forum, unless, he proceeds on the basis of a different factual milieu from
the setting of the case. Only the actual implementation of the impugned amended by-laws remained to
be passed upon by the Securities and Exchange Commission.
2. ID.; ID.; DECISION ON THE MERITS. — It is somewhat of a misreading and misconstruction of

Section 11 of Rule 56, contrary to the well-known established norm observed by the Supreme Court, to
estate that the dismissal of a petition for lack of necessary votes does not amount to a decision on the
merits. The Supreme Court is deemed to find no merit in a petition in two ways, namely, (1) when eight
or more members vote expressly in that sense and (2) when the required number of justices needed to
sustain the same cannot be had.
I reserved the filing of a separate opinion in order to state my own reasons for voting in favor of the
validity of the amended by-laws in question. Regrettably, I have not yet finished preparing the same. In
view, however, of the joint separate opinion of Justices Teehankee, Concepcion Jr., Fernandez and
Guerrero, the full text of which has just come to my attention, and which I am afraid might produce
certain misimpressions as to the import of the decision in this case, I consider it urgent to clarify my
position in respect to the rights of the parties resulting from the dismissal of the petition herein and the
outlining of the procedure by which the disqualification of petitioner Gokongwei can be made effective,
hence this advance separate opinion.
To start with, inasmuch as petitioner Gokongwei himself placed the issue of the validity of said
amended by-laws squarely before the Court for resolution, because he feels, rightly or wrongly, he can
no longer have due process or justice from the Securities and Exchange Commission, and the private
respondents have joined with him in that respect, the six votes cast by Justices Makasiar, Antonio,
Santos, Abad Santos, de Castro and this writer in favor of validity of the amended by-laws in question,
with only four members of this Court, namely, Justices Teehankee, Concepcion Jr., Fernandez and
Guerrero opining otherwise, and with Chief Justice Castro and Justice Fernando reserving their votes
thereon, and Justices Aquino and Melencio Herrera not voting, thereby resulting in the dismissal of the
petition "insofar as it assails the validity of the amended by-laws . . . for lack of necessary votes", has no
other legal consequence than that it is the law of the case as far as the parties herein are concerned,
albeit the majority opinion of six against four Justices is not doctrinal in the sense that it cannot be cited
as necessarily a precedent for subsequent cases. This means that petitioner Gokongwei and the
respondents, including the Securities and Exchange Commission, are bound by the foregoing result,
namely, that the Court en banc has not found merit in the claim that the amended by-laws in question
are invalid. Indeed, it is one thing to say that dismissal of the case is not doctrinal and entirely another
thing to maintain that such dismissal leaves the issue unsettled. It is somewhat of a misreading and
misconstruction of Section 11 of Rule 56, contrary to the well-known established norm observed by this
Court, to state that the dismissal of a petition for lack of the necessary votes does not amount to a
decision on the merits. Unquestionably, the Court is deemed to find no merit in a petition in two ways,
namely, (1) when eight or more members vote expressly in that sense and (2) when the required number
of justices needed to sustain the same cannot be had. cdphil
I reiterate, therefore, that as between the parties herein, the issue of validity of the challenged by-laws is
already settled. From which it follows that the same are already enforceable insofar as they are
concerned. Petitioner Gokongwei may not hereafter act on the assumption that he can revive the issue
of validity whether in the Securities and Exchange Commission, in this Court or in any other forum,
unless he proceeds on the basis of a factual milieu different from the setting of this case. Not even the
Securities and Exchange Commission may pass on such question anymore at the instance of herein
petitioner or anyone acting in his stead or on his behalf. The vote of four justices to remand the case
thereto cannot alter the situation.
It is very clear that under the decision herein, the issue of validity is a settled matter for the parties
herein as the law of the case, and it is only the actual implementation of the impugned amended by-laws
in the particular case of petitioner that remains to be passed upon by the Securities and Exchange
Commission, and on appeal therefrom to Us, assuming the board of directors of San Miguel
Corporation should, after the proper hearing, disqualify him.
To be sure, the record is replete with substantial indications, nay admissions of petitioner himself, that
he is a controlling stockholder of corporations which are competitors of San Miguel Corporation. The
very substantial areas of such competition involving hundreds of millions of pesos worth of businesses
stand uncontroverted in the records hereof. In fact, petitioner has even offered, if he should be elected,
as director, not to take part when the board takes up matters affecting the corresponding areas of
competition between his corporation and San Miguel. Nonetheless, perhaps, it is best that such evidence
be formally offered at the hearing contemplated in Our decision.
As to whether or not petitioner may sit in the board, if he win, definitely, under the decision in this case,
even if petitioner should win, he will have to immediately leave his position or should be ousted, the
moment this Court settles the issue of his actual disqualification, either in a full blown decision or by
denying the petition for review of corresponding decision of the Securities and Exchange Commission
unfavorable to him. And, of course, as a matter of principle, it is to be expected that the matter of his
disqualification should be resolved expeditiously and within the shortest possible time, so as to avoid as
much juridical injury as possible, considering that the matter of the validity of the prohibition against
competitors embodied in the amended by-laws is already unquestionable among the parties herein and
to allow him to be in the board for sometime would create an obviously anomalous and legally
incongruous situation that should not be tolerated. Thus, all the parties concerned must act promptly and
expeditiously.
Additionally, my reservation to explain my vote on the validity of the amended by-laws still stands. LLpr
Castro, C.J., concurs in Justice Barredo's statement that the dismissal (for lack of necessary votes) of
the petition to the extent that "it assails the validity of the amended by-laws," is the law of the case at
bar, which means in effect that as far and only in so far as the parties and the Securities and Exchange
Commission are concerned, the Court has not found merit in the claim that the amended by-laws in
question are invalid.
Antonio and Santos, JJ., concur.
DE CASTRO, J., concurring:
1. CORPORATION; STOCKHOLDERS; DISQUALIFICATION TO BE ELECTED

DIRECTOR. — If a person becomes a stockholder of a corporation and gets himself elected as a
director, and while he is such a director, he forms his own corporation competitive or antagonistic to
the corporation of which he is a director, and becomes Chairman of the Board and President of his
own corporation, he may be removed from his position as director, admittedly one of trust and
confidence. If this is so, a person controlling, and also the Chairman of the Board and President of, a
corporation, may be barred from becoming a member of the Board of Directors of a competitive
corporation.
2. ID.; AGRICULTURE, CORPORATION ENGAGED IN. — The scope of the provision of

Section 13(5) of the Philippine Corporation Law should be limited to corporations engaged in
agriculture, only as the word "agriculture" refers to its more limited meaning as distinguished from
its general and broad connotation. The term would then mean "farming" or raising the natural
products of the soil, such as by cultivation, in the manner as is required by the Public Land Act in
the acquisition of agricultural land, such as by homestead, before the patent may be issued, but does
not extend to poultry raising or piggery which may be included in the term "agriculture" in its broad
sense.
3. JUDGMENT; LAW OF THE CASE. — Although only six votes are for upholding the
validity of the by-laws, their validity is deemed upheld as constituting the "law of the case." It could
not be otherwise, after the petition is dismissed with the relief sought do declare null and void the
said by-laws being denied in effect. A vicious circle would be created should petitioner come against
to the Court, raising the same question he raised in the present petition, unless the principle of the
"law of the case" is applied.
As stated in the decision penned by Justice Antonio, I voted to uphold the validity of the amendment to
the by-laws in question. What induced me to this view is the practical consideration easily perceived in
the following illustration: If a person becomes a stockholder of a corporation and gets himself elected as
a director, and while he is such a director, he forms his own corporation competitive or antagonistic to
the corporation of which he is a director, and becomes Chairman of the Board and President of his own
corporation, he may be removed from his position as director, admittedly one of trust and confidence. If
this is so, as seems undisputably to be the case, a person already controlling, and also the Chairman of
the Board and President of, a corporation, may be barred from becoming a member of the board of
directors of a competitive corporation. This is my view,. even as I am for a restrictive interpretation of
Section 13(5) of the Philippine Corporation Law, under which I would limit the scope of the provision
to corporations engaged in agricultural, but only as the word "agriculture" refers to its more limited
meaning as distinguished from its general and broad connotation. The term would then mean "farming"
or raising the natural products of the soil, such as by cultivation, in the manner as is required by the
Public Land Act in the acquisition of agricultural land, such as by homestead, before the patent may be
issued. It is my opinion that under the public land statute, the development of a certain portion of the
land applied for as specified in the law as a condition precedent before the applicant may obtain a
patent, is cultivation, not let us say, poultry raising or piggery, which may be included in the term
"agriculture" in its broad sense. For under Section 13(5) of the Philippine Corporation Law, construed
not in the strict way as I believe it should, because the provision is in derogation of property rights, the
petitioner in this case would be disqualified from becoming an officer of either the San Miguel
Corporation or his own supposedly agricultural corporations. It is thus beyond my comprehension why,
feeling as though I am the only member of the Court for a restricted interpretation of Section 13(5) of
Act 1459, doubt still seems to be in the minds of other members giving the cited provision an
unrestricted interpretation, as to the validity of the amended by-laws in question, or even holding them
null and void.
I concur with the observation of Justice Barredo that despite that less than six votes are for upholding
the validity of the by-laws, their validity is deemed upheld, as constituting the "law of the case." It could
not be otherwise, after the present petition is dismissed with the relief sought to declare null and void
the said by-laws being denied in effect. A vicious circle would be created if, should petitioner
Gokongwei be barred or disqualified from running by the Board of Directors of San Miguel
Corporation and the Securities and Exchange Commission sustain the Board, petitioner could come
again to Us, raising the same question he has raised in the present petition, unless the principle of the
"law of the case" is applied.
Clarifying therefore, my position, I am of the opinion that with the validity of the by-laws in question
standing unimpaired, it is now for petitioner to show that he does not come within the disqualification
as therein provided, both to the Board and later to the Securities and Exchange Commission, it being a
foregone conclusion that, unless petitioner disposes of his stockholdings in the so-called competitive
corporations, San Miguel Corporation would apply the by-laws against him. His right, therefore, to run
depends on what, on election day, May 8, 1979, the ruling of the Board and or the Securities and
Exchange Commission on his qualification to run would be, certainly, not the final ruling of this Court
in the event recourse thereto is made by the party feeling aggrieved, as intimated in the "Joint Separate
Opinion" of Justices Teehankee, Concepcion, Jr., Fernandez and Guerrero, that only after petitioner's
"disqualification" has ultimately been passed upon by this Court should petitioner not be allowed to run,
Petitioner may be allowed to run, despite an adverse decision of both the Board and the Securities and
Exchange Commission, only if he comes to this Court and obtain an injunction against the enforcement
of the decision disqualifying him. Without such injunction being required, all that petitioner has to do is
to take his time in coming to this Court, and in so doing, he would in the meantime, be allowed to run,
and if he wins, to sit. This would, however, be contrary to the doctrine that gives binding, if not
conclusive, effect of findings of facts of administrative bodies exercising quasi-judicial functions upon
appellate courts, which should, accordingly, be enforced until reversed by this Tribunal.
Fernando, J., concurs.
Footnotes
1. The pertinent amendment reads as follows:
RESOLVED, That Section 2, Article III of the By-laws of San Miguel Corporation, which reads as follows:
SECTION 2. Any stockholder having at least five thousand shares registered in his name may be elected
director, but he shall not be qualified to hold office unless he pledges said five thousand shares to the
Corporation to answer for his conduct.'
e, and the same hereby is, amended, to read as follows;
SECTION 2. Any stockholder having at least five thousand shares registered in his name may be elected
Director, provided, however, that no person shall qualify or be eligible for nomination or election to the
Board of Directors if he is engaged in any business which competes with or is antagonistic to that of
the Corporation. Without limiting the generality of the foregoing, a person shall be deemed to be so
engaged:
a) if he is an officer, manager or controlling person of, or the owner (either of record or beneficially) of 10%
or more of any outstanding class of shares of, any corporation (other than one in which the corporation
owns at least 30% of the capital stock) engaged in a business which the Board, by at least three fourths
vote, determines to be competitive or antagonistic to that of the Corporation; or
b) If he is an officer, manager or controlling person of, or the owner (either of record or beneficially) of 10%
or more of any outstanding class of shares of, any other corporation or entity engaged in any time of
business of the Corporation, when in the judgment of the Board, by at least three-fourths vote, the laws
against combinations in restraint of trade shall be violated by such person's membership in the Board of
Directors.
c) If the Board, in the exercise of its judgment in good faith, determines by at least three-fourths vote that he is
the nominee of any person set forth in (a) or (b).
In determining whether or not a person is a controlling person, beneficial owner, or the nominee of another,
the Board may take into account such factors as business and family relationship.
For the proper implementation of this provision, all nominations for election of Directors by the stockholders
shall be submitted in writing to the Board of Directors at least five working days before the date of the
Annual Meeting.'" (Rollo, pp. 462-463.)
2. Annex "H", Petition, pp. 168-169, Rollo.
3. L-27812, September 26, 1975, 67 SCRA 146.
4. Gayos v. Gayos, ibid., citing Marquez v. Marquez, No. 47792, July 24, 1941, 73 Phil. 74, 78; Keramik
Industries, Inc. v. Guerrero, L-38866, November 29, 1974, 61 SCRA 2S5.
5. L-20654, December 24, 1964, 12 SCRA 628.
6. L-20583, January 23, 1967, 19 SCRA 58.
7. L-27802, October 26, 1968, 25 SCRA 641.
8. Samal v. Court of Appeals, L-8579, May 25, 1956, 99 Phil. 230.
8a. 2 Am. Jur. 2d 696, 697.
8b. Pan American P. Corp. v. Supreme Court of Delaware, 336 US 656, 6 L. ed. 2d 584.
9. leischer v. Botica Nolasco Co., Inc., No. 23241, March 14, 1925, 47 Phil. 583, 590.
10. 18 C.J.S. Corporations, Sec. 189, p. 603.
11. People ex rel. Wildi v. Ittner, 165 Ill. App. 360, 367 (1911), cited in Fletcher, Cyclopedia Corporations, Sec.
4191.
12. McKee & Company v. First National Bank of San Diego, 265 F. Supp. 1 (1967), citing Olincy v. Merle
Norman Cosmetics, Inc., 200 Cal. App. 20, 260, 19 Cal. Reptr. 387 (1962).
13. Fletcher, Cyclopedia Corporations, Sec. 4171, cited in McKee & Company, supra.
14. No. 26649, July 13, 1927, 50 Phil. 399, 441.
15. 6 Thompson 369, Sec. 4490.
16. Ibid.
17. Mobile Press Register, Inc. v. McGowin, 277 Ala. 414, 124 So. 2d 812; Brundage v. The New Jersey Zinc
Co., 226 A 2d 585.
18. Fletcher, Cyclopedia Corporations, 1975 Ed., Vol. 3, p. 144, Sec. 838.
19. 101 Fed. 2d 85, cited in Aleck, Modern Corporation Law, Vol. 2, Sec. 959.
20. 308 U.S. 309; 84 L. ed. 281, 289-291.
21. 16 S.E. 587, 18 L.R.A. 582.
22. 265 F. Supp., pp. 8-9.
23. Barreto v. Tuason, No. 23923, Mar. 23, 1926, 50 Phil. 888; Severino v. Severino, No. 18058, Jan. 16, 1923,
44 Phil. 343; Thomas v. Pineda, L-2411, June 28, 1951, 89 Phil. 312, 326.
24. 2 Fletcher Cyclopedia Corporations, Sec. 297 (1969), p. 87.
25. Costello v. Thomas Cusack Co., 125 A. 15, 94 N.J. Eq. 923, (923).
26. Hall v. Dekker, 115 P. 2d 15, July 9, 1941.
27. Thaver v. Gaebler, 232 NW 563.
28. Sialkot Importing Corporation v. Berlin, 68 NE 2d 501, 503.
29. Schildberg Rock Products Co. v. Brooks, 140 NW 2d 132, 137. Chief Justice Garfield quotes the doctrine
as follows:
"(5) The doctrine 'corporate opportunity' is not new to the law and is but one phase of the cardinal rule of
undivided loyalty on the part of the fiduciaries. 3 Fletcher Cyc. Corporations, Perm. Ed., 1965 Revised
Volume, section 861.1, page 227; 19 Am Jur. 2d, Corporations, section 1311, page 717. Our own
consideration of the quoted terms as such is mainly in Ontjes v. MacNider, supra, 232 Iowa 562, 579, 5
N.W., 2d 860, 869, which quotes at length with approval from Guth v. Loft, Inc., 23 Del. Ch. 255, 270,
5 A 2d 503, 511, a leading case in this area of the law. The quotation cites several precedents for this: '.
. . if there is presented to a corporate officer or director a business opportunity which the corporation is
financially able to undertake, is from its nature, in the line of the corporation's business and is of
practical advantage to it, is one in which the corporation has an interest or a reasonable expectancy, and
by embracing the opportunity, the self-interest of the officer or director will be brought into conflict
with that of his corporation, the law will not permit him to seize the opportunity for himself. And, if, in
such circumstances, the interests of the corporation are betrayed, the corporation may elect to claim all
of the benefits of the transaction for itself, and the law will impress a trust in favor of the corporation
upon the property, interests and profits so acquired."
30. Paulman v. Kritzer, 74 III. App. 2d 284, 291 NE 2d 541; Tower Recreation, Inc. v. Beard, 141 Ind. App.
649, 231 NE 2d 154.
31. Oleck, Modern Corporation Law, Vol. 2, Section 960.
32. "The CFC and Robina companies, which are reportedly worth more than P500 Million, are principally
owned and controlled by Mr. Gokongwei and are in substantial competition to San Miguel. As against
his almost 100% ownership in these basically family companies, Mr. Gokongwei's holding in San
Miguel are approximately 4% of the total shareholdings of your Company. As a consequence, One
Peso (P1.00) of profit resulting from a sale by CFC and Robina in the lines competing with San
Miguel, is earned almost completely by Mr. Gokongwei, his immediate family and close associates. On
the other hand, the loss of that sale to San Miguel, resulting in a One Peso (P1.00) loss of profit to San
Miguel, in the lines competing with CFC and Robina, would result in a loss in profit of only Four
Centavos (P0.04) to Mr. Gokongwei." (Letter to stockholders of SMC, dated April 3, 1978, Annex "R",
Memo for respondent San Miguel Corporation, rollo, p. 1867).
33. Article 28, Civil Code; Section 4, par. 5, of Rep. Act No. 5455: and Section 7 (g) of Rep. Act No. 6173. Cf.
Section 17, paragraph 2. of the Judiciary Act.
34. Standard Oil Co. v. United States, 55 L. Ed. 619.
35. Blake & Jones, Contracts in Antitrust Theory, 65 Columbia L. Rev. 377, 383 (1965).
36. Filipinas Compania de Seguros v. Mandanas, L-19638, June 20, 1966, 17 SCRA 391.
37. Love v. Kozy Theater Co., 236 SW 243, 245, 26 ALR 364.
38. Aldea-Rochelle, Inc. v. American Society of Composers, Authors and Publishers, D.D.N.Y., 80 F. Suppl.
888, 893: .
39. National Cotton Oil Co. v. State of Texas, 25 S.T. 379, 383, 49 L. Ed. 689.
40. Norfolk Monument Co. v. Woodlawn Memorial Gardens, Inc., 394 U.S. 700; U.S. v. General Motors Corp.,
384 U.S. 127.
41. U.S. v. Paramount Pictures, 334 U.S. 131.
42. Section 8, 15 U.S.C.A. 19.
43. Travers, Interlocks in Corporate Management and the Anti Trust Laws, 46 Texas L. Rev. 819, 840 (1968).
44. 51 Cong. Rec. 9091.
45. People ex rel. Wildi v. Ittner, supra, citing Thompson on Corporation, Section 1002 (2nd Ed.).
46. Schill v. Remington Putnam Book Co., 17 A 2d 175, 180, 179 Md. 83.
47. People ex rel. Broderick v. Goldfogle, 205 NYS 870, 877, 123 Misc. 399.
48. Swanson v. American Consumer Industries, Inc., 288 F. Supp. 60.
49. Sections 3 and 5 of Presidential Decree No. 902-A provides:.
"SEC. 3. The Commission shall have absolute jurisdiction, supervision and control over all corporations . . .
who are grantees of . . . license or permit issued by the government . . ."
"SEC. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission
over corporations, partnerships and other forms of associations registered with its as expressly granted
under existing laws and decrees, it shall have original and exclusive jurisdiction to hear and decide
cases involving:
a) Devices or schemes employed by or any acts, of the board of directors, business associates, its officers or
partners amounting to fraud and misrepresentation which may be detrimental to the interest of the
public and/or of the stockholders, partners, members of associations or organizations registered with
the Commission.
b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders,
members, or associates; between any or all of them and the corporation, partnership or association of
which they are stockholders, members or associates, respectively; and between such corporation,
partnership or association and the state insofar as it concerns their individual franchise or right to exist
as such entity;
c) Controversies in the election or appointments of directors, trustees, officers or managers of such

corporations, partnership or associations."
50. Moore v. Keystone Macaroni Mfg. Co., 29 ALR 2d 1256.
51. Annex "A" of SMC's Comment on Supplemental Petition pp. 680-688, Rollo.
52. Fletcher Cyc, Private Corporations, Vol. 5, 1976 Rev. Ed. Section 2213, p. 693.
53. Fletcher, Ibid., Section 2218, p. 709.
54. Fletcher, Ibid., Section 2222, p. 725.
55. 40 O.G., 1st Suppl. 1. April 3, 1939, citing 14 C.J.S. 854, 855.
56. Fletcher, supra, p. 716.
57. State v. Monida & Yellowstone Stage Co., 110 Minn. 193, 124 NW 791, 125 NW 676; State v. Cities
Service Co., 114 A 463.
58. Fletcher, supra, Section 2220, p. 717.
59. Fletcher, supra, Section 2223, p. 728.
60. Martin v. D. B. Martin Co., 10 Del. Ch. 211, 88 A. 612, 102 A. 373.
61. Woodward v. Old Second National Bank, 154 Mich. 459, 117 NW 893, 118 NW 581.
62. Martin v. D. B. Martin Co., supra.
63. State v. Sherman Oil Co., 1 W.W. Harr. (31 Del) 570, 117 A. 122.
64. Lisle v. Shipp, 96 Cal. App. 264, 273 P. 1103.
65. Nash v. Gay Apparel Corp., 193 NYS 2d 246.
66. Bailey v. Boxboard Products Co., 314 Pa. 45, 170 A. 127.
67. Rollo, pp. 50-51.
68. 18 Am. Jur. 2d 718.
69. De la Rama v. Ma-ao Sugar Central Co., Inc., L-17504 and 17506, February 28, 1969, 27 SCRA 247, 260.
70. Boyce v. Chemical Plastics, 175 F 2d 839, citing 13 Am. Jur., Section 972.
71. Pirovano v. De la Rama Steamship Co., L-53-7, 96 Phil. 335, December 29, 1954.
* Includes the Supplemental petitions filed by petitioner.
TEEHANKEE, CONCEPCION, JR., FERNANDEZ and
GUERRERO, JJ., concurring:
1. Main opinion, p. 55.
2. Sec. 2, Art. III of respondent corporation's By-Laws, reproduced in footnote 1 of the main opinion pages 3
and 4.
3. Rollo, Vol. I, page 392-E.
4. SEC memo, pages 9 and 10.
5. Petitioner's memorandum in support of oral argument, pp. 18-20.
TEEHANKEE, CONCEPCION, JR., FERNANDEZ and
GUERRERO, JJ., concurring:
1. At p. 60; emphasis supplied.
2. 19 SCRA 494; citing People vs. Pinnila, L-11374, May 30, 1958, cited in Lee vs. Aligaen, 76 SCRA 416
(1977) per Antonio, J.
3. Soriano's Memorandum at page 94.

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12/27/2018 G.R. No. L-45911 | Gokongwei, Jr. v.

Securities and Exchange

[G.R. No. L-45911. April 11, 1979.]

JOHN GOKONGWEI, JR., petitioner, vs. SECURITIES AND EXCHANGE

De Santos, Balgos & Perez for petitioner.

R. T. Capulong for respondent Eduardo R. Visaya.

1. APPEAL; SUPREME COURT MAY RESOLVED CASE ON THE MERITS, INSTEAD OF

2. ID.; ID.; QUESTION OF PRIMARY JURISDICTION HAS NO APPLICATION WHERE ONLY

3. ID.; VALIDITY OF BY-LAW OF CORPORATION IS A QUESTION OF LAW. — The validity of

5. ID.; ID.; QUALIFICATIONS OF OFFICERS AND EMPLOYEES. — The term "qualifications"

7. ID.; ID.; AMENDMENT OF BY-LAWS; RIGHT OF DISSENTING MINORITY STOCKHOLDER.

8. ID.; STOCKHOLDER HAS NO VESTED RIGHT TO BE ELECTED DIRECTOR. — A

9. ID.; DIRECTOR STANDS IN A FIDUCIARY RELATION TO CORPORATION AND

15. ID.; ID.; STOCK OWNERSHIP IN AGRICULTURAL CORPORATIONS, LIMITATIONS. — The

16. ID.; BY-LAW; QUALIFICATION IF MEMBERS OF THE BOARD; EQUAL PROTECTION. —

19. ID.; ID.; EXERCISE OF POWER TO DISQUALIFY A STOCKHOLDER FROM BEING

21. ID.; STOCKHOLDER'S RIGHT; INSPECTION OF BOOKS. — The stockholders' right of

28. ID.; ID.; SUBMISSION OF ASSAILED INVESTMENT FOR RATIFICATION BY

BARREDO, J., concurring:

1. JUDGMENTS; DISMISSAL FOR LACK OF NECESSARY VOTES; LAW OF THE CASE. —

2. ID.; ID.; DECISION ON THE MERITS. — It is somewhat of a misreading and misconstruction of

DE CASTRO, J., concurring:

1. CORPORATION; STOCKHOLDERS; DISQUALIFICATION TO BE ELECTED DIRECTOR. — If

TEEHANKEE, CONCEPCION JR., FERNANDEZ and GUERRERO, JJ.: Supplement to separate

SEC CASE NO. 1375

This Order is immediately executory upon its approval." 2

SEC CASE NO. 1423

of the following orders:

it should be allowed a wide latitude in the selection of means to preserve itself;

Petitioner, in his memorandum, submits the following issues for resolution;

ALLEGED AREAS OF COMPETITION BETWEEN PETITIONER'S CORPORATIONS AND SAN

Product Line Estimated Market Share Total

AUTHORITY OF CORPORATION TO PRESCRIBE QUALIFICATIONS OF DIRECTORS

NO VESTED RIGHT OF STOCKHOLDER TO BE

A DIRECTOR STANDS IN A FIDUCIARY RELATION TO THE CORPORATION AND ITS

And in Cross v. West Virginia Cent, & P. R. R. Co., 21 it was said:

". . . If the by-law is to be held reasonable in disqualifying a stockholder in a competing

These principles have been applied by this Court in previous cases. 23

Article 186 of the Revised Penal Code also provides:

"'j. Power to acquire or dispose of shares or securities. — A private corporation, in order to

WHEREFORE, judgment is hereby rendered as follows:

Makasiar, Santos, Abad Santos and De Castro, JJ., concur.

Castro, C J., reserves his right to file a separate opinion.

Aquino, and Melencio Herrera, JJ., took no part.

Guerrero, J., concurred.

Fernandez, J., concurs.

TEEHANKEE, CONCEPCION JR.,

Supplement to separate opinion.

Thus, in People vs. Olarte 2 , we held that

BARREDO, J., concurring:

1. JUDGMENTS; DISMISSAL FOR LACK OF NECESSARY VOTES; LAW OF THE CASE. —

2. ID.; ID.; DECISION ON THE MERITS. — It is somewhat of a misreading and misconstruction of

Antonio and Santos, JJ., concur.

DE CASTRO, J., concurring:

1. CORPORATION; STOCKHOLDERS; DISQUALIFICATION TO BE ELECTED

2. ID.; AGRICULTURE, CORPORATION ENGAGED IN. — The scope of the provision of

Fernando, J., concurs.

1. The pertinent amendment reads as follows: