Title

Gokongwei, Jr. vs. Securities and Exchange Commission

Case Decision Date

G.R. No. L-45911 Apr 11, 1979

In Gokongwei, Jr. v. Securities and Exchange Commission, the Court grants

petitioner John Gokongwei, Jr. the right to inspect a subsidiary's records but
denies his petition regarding the validity of amended by-laws and a foreign
investment, emphasizing the power of corporations to adopt by-laws and the
need to protect legitimate corporate interests.

178 Phil. 266

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 BUNAO, WALTHRODE B. CONDE, MIGUEL ORTIGAS, ANTONIO PRIETO, SAN
MIGUEL CORPORATION, EMIGDIO TANJUATCO, SR., AND EDUARDO R. VISAYA,
RESPONDENTS.

DECISION

ANTONIO, J.:

The instant petition for certiorari, mandamus and injunction, with prayer for issuance of
writ of preliminary injunction, arose out of two cases !led 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, !led
with the Securities and Exchange Commission (SEC) a petition for "declaration of nullity of
:
 amended by-laws, cancellation of certi!cate of !ling 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 Bunao, Walthrode B. Conde, Miguel Ortigas, Antonio Prieto and
San Miguel Corporation," was docketed as SEC Case No. 1375.

As a !rst cause of action, petitioner alleged that on September 18, 1976, individual
respondents amended the by-laws 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 a"rmative 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 quali!cations 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 disquali!cation and deprived him of his vested rights as afore-mentioned, hence
:
 the amended by-laws are null and void.

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 (speci!cally a management contract) with
respondent corporation, which was allowed 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 !ve (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
certi!cate of !ling thereof be cancelled, and that individual respondents be made to pay
damages, in speci!ed amounts, to petitioner.

On October 28, 1976, in connection with the same case, petitioner !led 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 Jose M. Soriano from San Miguel International, Inc. 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 !led their answer to the petition, denying
the substantial allegations therein and stating, by way of a"rmative 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 nulli!ed 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 nulli!cation 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 opposed on various grounds.

Respondents Andres M. Soriano, Jr. and Jose M. Soriano !led their opposition to the
petition, denying the material averments thereof and stating, as part of their a"rmative
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 e#ort 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

litigation 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 !led 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 !led 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 petitioner-
movant entry in the principal o"ce 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, with drawing 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."

Dissatis!ed 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 "rati!cation
and con!rmation 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 !rst 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 !led 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 Commission 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
rati!ed. On February 14, 1977, petitioner !led a consolidated motion for contempt and for
nulli!cation of the special stockholders' meeting.

A motion for reconsideration of the order denying petitioner's motion for summary
judgment was !led by petitioner before respondent Commission on March 10, 1977.
Petitioner alleges that up to the time of the !ling 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 !led with respondent Commission a
Manifestation stating that he intended to run for the position of director of respondent
corporation. Thereafter, respondents !led 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 disquali!cations speci!ed in the
amendment to the by-laws, subject matter of SEC Case No. 1375. By reason thereof,
petitioner !led 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 ine#ectual the exercise of jurisdiction by the respondent Commission, to petitioner's
:
 irreparable damage and prejudice. Allegedly despite 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
!led 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 !led by private respondents, to which a

consolidated motion to strike and to declare individual respondents in default and an
opposition ad abundantiorem cautelam were !led by petitioner. Despite the fact that said
motions were !led 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 !le 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. Rea"rmation of the authorizations 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 rati!cation of the investments thereafter made pursuant thereto."

By reason of the foregoing, on April 28, 1977, petitioner !led 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 !led an
urgent manifestation on May 3, 1977, but this notwithstanding, no action has been taken up
to the date of the !ling 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 respondents 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 rati!cation or con!rmation or
from causing the rati!cation or con!rmation of Item 6 of the Agenda of the annual
stockholders' meeting on May 10, 1977, or from making e#ective 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 !led 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,
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' 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 Nos. 1375 and 1423 on the merits.

On May 17, 1977, respondent SEC, Andres M. Soriano, Jr. and Jose M. Soriano !led 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 the 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. !led 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, rati!ed and con!rmed. 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 !led 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 oppressively 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,
rati!cation and con!rmation 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 by-laws which
speci!cally bars petitioner from being a director is void since it deprives him of his vested
rights.

Respondent Commission, thru the Solicitor General, !led 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 !led 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 a#ected." It was
alleged that the main petition has, therefore, become moot and academic.

On September 29, 1977, petitioner !led 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 !t." (Rollo, pp. 927-928.)

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

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 (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 Corporations; 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 rati!cation 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: !rst:
"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 !nal
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 !nally: "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 litigation," citing Gayos v.
:
 Gayos. To the same e#ect 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 e#ort 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 !nal 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. Thus, in Francisco v. City of Davao, 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., this Court, !nding 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, 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. It is settled that 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 be determined in the !rst instance by courts. 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
rati!ed by more than 80% of the stockholders of record; that the foreign investment in the
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 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
rati!ed 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.

Whether the by-law is in con$ict 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.
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 di#er, 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.

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 a legitimate corporate
purpose, considering that being a competitor, petitioner cannot devote an unsel!sh 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
con!dential 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 no 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, viz.: (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 Resolution dated April 28, 1978, thus:

PRODUCT LINE ESTIMATED 1977 MARKET SHARE TOTAL

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 Co#ee 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 a#ecting SMC
involved product sales of over P400 million or more than 20% of the P2 billion total product
sales of SMC. Signi!cantly, the combined market shares of SMC and CFC-Robina in layer
:
 pullets, dressed chicken, poultry and hog feeds, ice cream, instant co#ee and woven fabrics
would result in a position of such dominance as to a#ect 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 co#ee with Filipro, 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., another 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 con!rmed
and rati!ed 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
con!rmation and rati!cation. 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 496 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 a#airs.'" 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 speci!c 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."

In this jurisdiction, under section 21 of the Corporation Law, a corporation may prescribe in
its by-laws "the quali!cations, duties and compensation of directors, o"cers and employees
* * *." This must necessarily refer to a quali!cation in addition to that speci!ed 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, 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 quali!cations 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 a#airs 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, 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 * *
*."

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 modi!cation.

It being settled that the corporation has the power to provide for the quali!cations of its
directors, the next question that must be considered is whether the disquali!cation 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 !duciary
insofar as the corporation and the stockholders as a body are concerned. As agents
entrusted with the management of the corporation for the collective bene!t of the
stockholders, "they occupy a !duciary relation, and in this sense the relation is one of trust."
"The ordinary trust relationship of directors of a corporation and stockholders," according to
Ashman v. Miller "is not a matter of statutory or technical law. It springs from the fact that
:
 directors have the control and guidance of corporate a#airs 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 bene!ciaries thereof * * *."

Justice Douglas, in Pepper v. Litton, emphatically restated the standard of !duciary

obligation of the directors of corporations, thus:

"A director is a !duciary. * * * Their powers are powers in trust. * * * He who is in such
!duciary position cannot serve himself !rst and his cestuis second. * * * He cannot
manipulate the a#airs 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 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 !duciary to
the exclusion or detriment of the cestuis."

And in Cross v. West Virginia Cent. & P. R. R. Co., 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 !nd 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 a#airs, and his supposed in$uence over her. It is
perhaps true that such stockholders ought not to be condemned as sel!sh and dangerous to
the best interest of the corporation until tried and tested. So it is also true that we cannot
:
 condemn as sel!sh 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 a#ection. The only test that we
can apply is as to whether or not the action of the Board is authorized and sanctioned by law.
* * *."

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

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."
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 bene!t 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
quali!cation, and therefore the corporation was not empowered to add additional
quali!cations. 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 quali!cations of directors. Thus, it has been held that an o"cer 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 o"cer, under "the
established law that a director or o"cer of a corporation may not enter into a competing
enterprise which cripples or injures the business of the corporation of which he is an o"cer
or director."

It is also well established that corporate o"cers "are not permitted to use their position of
trust and con!dence to further their private interests." In a case where directors of a
:
 corporation cancelled a contract of the corporation for exclusive sale of a foreign !rm's
products, and after establishing a rival business, the directors entered into a new contract
themselves with the foreign !rm for exclusive sale of its products, the court held that equity
would regard the new contract as an o#shoot of the old contract and, therefore, for the
bene!t of the corporation, as a "faultless !duciary may not reap the fruits of his misconduct
to the exclusion of his principal.

The doctrine of "corporate opportunity" is precisely a recognition by the courts that the
!duciary standards could not be upheld where the !duciary was acting for two entities with
competing interests. This doctrine rests fundamentally on the unfairness, in particular
circumstances, of an o"cer or director taking advantage of an opportunity for his own
personal pro!t when the interest of the corporation justly calls for protection.

It is not denied that a member of the Board of Directors of the San Miguel Corporation has
access to sensitive and highly con!dential information, such as: (a) marketing strategies and
pricing structure; (b) budget for expansion and diversi!cation; (c) research and
development; and (d) sources of funding, availability of personnel, proposals of mergers or
tie-ups with other !rms.

It is obviously to prevent the creation of an opportunity for an o"cer or director of San

Miguel Corporation, who is also the o"cer 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 e#ectively his duty, to satisfy his loyalty to both
corporations and place the performance of his corporate 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, o"cers, employees, agents, nominees or attorneys of any other banking
corporation, a"liate 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 disquali!cation to include any
director, o"cer, employee, agent, nominee, or attorney of any other bank in California. The
Ashkins case, supra, speci!cally 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
!rm which is attorney for another bank, in addition to the direct con$ict or potential con$ict
of interest, there is also the danger of inadvertent leakage of con!dential information
through casual o"ce discussions or accessibility of !les. Defendant's directors determined
that its welfare was best protected if this opportunity for con$icting loyalties and potential
misuse and leakage of con!dential information was foreclosed."

In McKee, the Court further listed quali!cational by-laws upheld by the courts, as follows:

"(1) A director shall not be directly or indirectly interested as a stockholder in any other !rm,
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 !rm, company,
or association which competes with the subject corporation. (3) A director shall not be an
o"cer, agent, employee, attorney, or trustee in any other !rm, company, or association
which competes with the subject corporation. (4) A director shall be of good moral character
as an essential quali!cation to holding o"ce. (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 o#er 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 con!dential 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 !delity to the corporation, for
the policy of the law is to encourage and enforce responsible corporate management. As
explained by Oleck: "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 de!nite 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 ful!lled their duty of fealty to the corporation."

Sound principles of corporate management counsel against sharing sensitive information

with a director whose !duciary 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 bene!t of his own corporation the corporate plans and
policies of the corporation where he sits as director.

Indeed, access by a competitor to con!dential 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.

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 combination's in restraint of trade. - The penalty of prision
correccional in its minimum period or a !ne 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 arti!cial 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 arti!ce 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, wholesaler 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. 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 e#ectiveness as the !nal 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 * * *." They operate to forestall
concentration of economic power. 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.

The terms "monopoly," "combination in restraint of trade" and "unfair competition" appear to
have a well de!ned 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. 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. 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
uni!cation of interest or management, or it may be thru agreement and concert of action. It
is, in brief, uni!ed tactics with regard to prices.

From the foregoing de!nitions, 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. It is enough that a concert
of action is contemplated and that the defendants conformed to the arrangements, 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. 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 con!dential 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 sti$ing 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 !rms
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
!rms really do compete -- in the sense of vying 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." (Italics 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."

Shared information on cost accounting may lead to price !xing. 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 !rms 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 pro!ts from every
market segment. CFC-Robina could determine the most pro!table 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 e#ect 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 disquali!cation. Sound principles of
public policy and management, therefore, support the view that a by-law which disquali!es
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 di#er, 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."

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 de!nition 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
o#ering 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. 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 disquali!ed. 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 disquali!cation. 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 !nal unless reversed by this Court on certiorari. 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
corporate assets, a court of equity has the power to grant appropriate relief.

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 petitioners claim that
he was denied inspection rights as stockholder of SMC "was made in the teeth of undisputed
facts that, over a speci!c 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 compensations or remunerations received by the directors and corporate o"cers 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 !rst 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 amounted 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 a"davit of the Corporate Secretary, enclosing
photocopies of the afore-mentioned documents.

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 bene!cial ownership, or a quasi-ownership. This right is predicated
upon the necessity of self-protection. It is generally held by majority of the courts that where
the right is granted by statute to the stockholder, it is given to him as such and must be
exercised by him with respect to his interest as a stockholder and for some purpose
germane thereto or in the interest of the corporation. In other words, the inspection has to
be germane to the petitioner's interest as a stockholder, and has to be proper and lawful in
character and not inimical to the interest of the corporation. In Grey v. Insular Lumber, this
Court held that "the right to examine the books of the corporation must be exercised in good
faith, for speci!c 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. 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." But
the "impropriety of purpose such as will defeat enforcement must be set up by the
corporation defensively if the Court is to take cognizance of it as a quali!cation. In other
words, the speci!c 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." 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 bene!t of o"cers or directors or
certain of the stockholders to the exclusion of others."

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
di#erent 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 !ction 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, 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. Mandamus was likewise held proper to inspect both the subsidiary's
and the parent corporation's books upon proof of su"cient control or dominion by the
parent showing the relation of principal or agent or something similar thereto.

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. 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."

In the Nash case, 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 o"ce in New York."

In the Bailey case, stockholders of a corporation were held entitled to inspect the records of
a controlled subsidiary corporation which used the same o"ces and had identical o"cers
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." 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 !nancial condition of the
corporation, and generally take an account of the stewardship of the o"cers and directors.

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 17-1/2 of the Corporation Law, and alleges that respondent SEC should have
investigated the charge, being a statutory o#ense, instead of allowing rati!cation of the
investment by the stockholders.

Respondent SEC's position is that submission of the investment to the stockholders for
rati!cation 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 a"rmative
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.

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 a"rmative 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
a"rmed 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 its 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) (Italics 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 a"rmative
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 stockholder is not necessary."' (Id., p. 108.) (Italics 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 o"cers or other
agents. 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 a"rmative vote of
the stockholders holding two-thirds of the voting power. This requirement is for the bene!t
of the stockholders. The stockholders for whose bene!t the requirement was enacted may,
therefore, ratify the investment and its rati!cation by said stockholders obliterates any
defect which it may have had at the outset. "Mere ultra vires acts," said this Court in
Pirovano, "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 rati!ed 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 rati!cation 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 rati!cation of their stockholders the acts of
their directors, o"cers 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 speci!ed 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 disquali!cation 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
disquali!ed 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 !led
a separate opinion, wherein they voted against the validity of the questioned amended by-
laws and that this question should properly be resolved !rst 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 disquali!ed after proper hearing by the respondent's Board of Directors and
petitioner's disquali!cation shall have been sustained by respondent SEC en banc and
ultimately by !nal judgment of this Court.

In resume, subject to the quali!cations afore-stated, judgment is hereby rendered

GRANTING the petition by allowing petitioner to examine the books and records of San
Miguel International, Inc. as speci!ed in the petition. The petition, insofar as it assails the
validity of the amended by-laws and the rati!cation 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 !le a separate opinion.
Fernando, J., concurs in the result and reserves his right to !le a separate opinion.
Teehankee, J. with Concepcion, Jr., Fernandez, and Guerrero, JJ., !le a joint separate
opinion.
Barredo, J., concurs and reserves the !ling of a separate opinion.
Aquino and Melencio-Herrera, JJ., did not take part.
:
 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 !ve thousand shares registered in his
name may be elected director, but he shall not be quali!ed to hold o"ce unless he pledges
said !ve thousand shares to the Corporation to answer for his conduct.

be, and the same hereby is, amended, to read as follows:

'SECTION 2. Any stockholder having at least !ve 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 o"cer, manager or controlling person of, or the owner (either of

record or bene!cially) 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 o"cer, manager or controlling person of, or the owner (either of

record or bene!cially) of 10% or more of any outstanding class of shares of,
any other corporation or entity engaged in any line 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, bene!cial 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
!ve working days before the date of the Annual Meeting.'" (Rollo, pp. 462-463.)

Annex "H", Petition, pp. 168-169, Rollo.

L-27812, September 26, 1975, 67 SCRA 146.

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 265.

L-20654, December 24, 1964, 12 SCRA 628.

L-20583, January 23, 1967, 19 SCRA 58.

L-27802, October 26, 1968, 25 SCRA 641.

Samal v. Court at of Appeals, L-8579, May 25, 1956, 99 Phil. 230.

2 Am. Jur. 2d 696, 697.

Pan American P. Corp. v. Supreme Court Delaware, 336 US 656, 6 L. ed. 2d 584.

Fleisher v. Botica Nolasco Co., Inc., No. 23241, March 14, 1925, 47 Phil. 583, 590.

18 C.J.S. Corporations, Sec. 189, p. 603.

People ex rel. Wildi v. Ittner, 165 Ill. App. 360, 367 (1911), cited in Fletcher, Cyclopedia
Corporations, Sec. 4191.
:
 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).

Fletcher, Cyclopedia Corporations, Sec. 4171, cited in McKee & Company, supra.

No. 26649, July 13, 1927, 50 Phil. 399, 441.

6 Thompson 369, Sec. 4490.

Ibid.

Mobile Press Register, Inc. v. McGowin, 277 Ala, 414, 124 So. 2d 812; Brundage v. The New
Jersey Zinc Co., 226 A 2d 585.

Fletcher, Cyclopedia Corporations, 1975 Ed., Vol. 3, p. 144, Sec. 838.

101 Fed. 2d 85, cited in Aleck, Modern Corporation Law, Vol. 2, Sec. 959.

308 U.S. 309; 84 L. ed. 281, 289-291.

16 S.E. 587, 18 L.R.A. 582.

265 F. Supp., pp. 8-9.

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.

2 Fletcher Cyclopedia Corporations, Sec. 297 (1969), p. 87.

Costello v. Thomas Cusack Co., 125 A. 15, 94 N.J. Eq. 923, (1923).

Hall v. Dekker, 115 P. 2d 15, July 9, 1941.

Thauer v. Gaebler, 232 NW 563.

Sialkot Importing Corporation v. Berlin, 68 NE 2d 501, 503.

Schildberg Rock Products Co. v. Brooks, 140 NW 2d 132, 137. Chief Justice Gar!eld 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 !duciaries. 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 o"cer or director a business opportunity which the corporation is
!nancially 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 o"cer or director will
be brought into con$ict 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 bene!ts of the transaction for itself,
and the law will impress a trust in favor of the corporation upon the property, interests and
pro!ts so acquired."

Paulman v. Kritzer, 74 I11. App. 2d 284, 291 NE 2d 541; Tower Recreation, Inc. v. Beard, 141
Ind. App. 649, 231 NE 2d 154.

Oleck, Modern Corporation Law, Vol. 2, Section 960.

"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 holdings in San Miguel are approximately 4% of the total shareholdings of your
Company. As a consequence, One Peso (P1.00) of pro!t 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 pro!t to San Miguel, in the lines
competing with CFC and Robina, would result in a loss in pro!t 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).

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.

Standard Oil Co. v. United States, 55 L. Ed. 619.

Blake & Jones, Contracts in Antitrust Theory, 65 Columbia L. Rev. 377, 383 (1965).

Filipinas Compania de Seguros v. Mandanas, L-19638, June 20, 1966, 17 SCRA 391.

Love v. Kozy Theater Co., 236 SW 243, 245, 26 ALR 364.

Aldea-Rochelle, Inc. v. American Society of Composers, Authors and Publishers, D.D. N.Y.,
80 F. Suppl. 888, 893.

National Cotton Oil Co. v. State of Texas, 25 S.T. 379, 383, 49 L. Ed. 689.

Norfolk Monument Co. v. Woodlawn Memorial Gardens, Inc., 394 U.S. 700; U.S. v. General
Motors Corp., 384 U.S. 127.

U.S. v. Paramount Pictures, 334 U.S. 131.

Section 8, 15 U.S.C.A. 19.

Travers, Interlocks in Corporate Management and the Anti-Trust Laws, 46 Texas L. Rev. 819,
840 (1968).

51 Cong. Rec. 9091.

People ex rel. Wildi v. Ittner, supra, citing Thompson on Corporations, Section 1002 (2nd
Ed.).

Schill v. Remington Putnam Book Co., 17 A 2d 175, 180, 179 Md. 83.

People ex rel. Broderick v. Goldfogle, 205 NYS 870, 877, 123 Misc. 399.

Swanson v. American Consumer Industries, Inc., 288 F. Supp. 60.

:
 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 o"cers 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, o"cers

or managers of such corporations, partnerships or associations."

Moore v. Keystone Macaroni Mfg. Co., 29 ALR 2d 1256.

Annex "A' of SMC's Comment on Supplemental Petition, pp. 680-688, Rollo.

Fletcher Cyc. Private Corporations, Vol. 5, 1976 Rev. Ed. Section 2213, p. 693.

Fletcher, Ibid., Section 2218, p. 709.

Fletcher, Ibid., Section 2222, p. 725.

:
 40 O.G., 1st Suppl. 1, April 3, 1939, citing 14 C.J.S. 854, 855.

Fletcher, supra, p. 716.

State v. Monida & Yellowstone Stage Co., 110 Minn. 193, 124 NW 791, 125 NW 676; State v.
Cities Service Co., 114 A 463.

Fletcher, supra, Section 2220, p. 717.

Fletcher, supra, Section 2223, p. 728.

Martin v. D. B. Martin Co., 10 Del. Ch. 211, 88 A. 612, 102 A. 373.

Woodward v. Old Second National Bank, 154 Mich. 459, 117 NW 893, 118 NW 581.

Martin v. D.B. Martin Co., supra.

State. v. Sherman Oil Co., 1 W.W. Harr. (31 Del) 570, 117 A. 122.

Lisle v. Shipp, 96 Cal. App. 264, 273 P. 1103.

Nash v. Gay Apparel Corp., 193 NYS 2d 246.

Bailey v. Boxboard Products Co., 314 Pa. 45, 170 A, 127.

Rollo, pp. 50-51.

18 Am. Jur. 2d 718.

De la Rama v. Ma-ao Sugar Central Co., Inc., L-17504 and L-17506, February 28, 1969, 27
SCRA 247, 260.

Boyce v. Chemical Plastics, 175 F 2d 839, citing 13 Am. Jur., Section 972.

Pirovano v. De la Rama Steamship Co., L-53-7, 96 Phil. 335, December 29, 1954.

Includes the Supplemental Petitions !led by petitioner.

:
 ADVANCE SEPARATE OPINION

BARREDO, J.:

I reserved the !ling 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 !nished
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 disquali!cation of petitioner Gokongwei can be made e#ective,
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 II 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 !nd 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 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 di#erent 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 o#ered, if he should be elected, as director, not to take part when the
:
 board takes up matters a#ecting the corresponding areas of competition between his
corporations and San Miguel. Nonetheless, perhaps, it is best that such evidence be formally
o#ered at the hearing contemplated in Our decision.

As to whether or not petitioner may sit in the board, if he wins, de!nitely, 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 disquali!cation,
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 disquali!cation 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.

SUPPLEMENT TO JOINT SEPARATE OPINION

TEEHANKEE, CONCEPCION JR., FERNANDEZ and GUERRERO, JJ.:

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
disquali!cation of petitioner Gokongwei can be made e#ective."

1. Mr. Justice Barredo's advance separate opinion ''that as between the parties herein,
the issue of the validity of the challenged by-laws is already settled" has, of course,
no binding e#ect. 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 !led a separate opinion, wherein they voted
against the validity of the questioned amended by-laws and that this question should
properly be resolved !rst by the SEC as the agency of primary jurisdiction x x x."

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
e#ect 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 !nal and conclusive determination of an issue in the !rst case later
invoked as the law of the case.

Thus, in People vs. Olarte, we held that "'Law of the case' has been de!ned as the opinion
delivered on a former appeal. More speci!cally, 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. x x x - - - - - - "It need not be stated that the Supreme Court, being the court
of last resort, is the !nal 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 !nal it is binding on all inferior courts, and hence beyond their power and
authority to alter or modify (Kabigting vs. Acting Direct or 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 modi!ed.
Our recent interpretation of the law may be applied to new cases, but certainly not to an old
one !nally 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 e#ect likewise expressly reserved his vote thereon. No !nal 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 di#erent 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
disquali!cation 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 disquali!ed 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 disquali!cation 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 a#ecting 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
disquali!cation of petitioner ("assuming the board of directors of San Miguel Corporation
should, after the proper hearing, disqualify him" as quali!ed 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 "ultimately 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 !nal 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 (!rst 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 o# 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 a#ect or modify the judgment of this Court as set forth in the decision of
April 11, 1979 and discussed hereinabove. The same bears the unquali!ed
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
o"cially 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 Paci!co 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."

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 !nal 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 disquali!ed 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 disquali!ed in the manner herein provided, the prohibition in the
aforementioned amended by-laws shall not apply to petitioner."

At p. 60; emphasis supplied.

19 SCRA 494, 498; citing People vs. Pinuila, L-11374, May 30, 1958, cited in Lee vs. Aligaen, 76
SCRA 416 (1977) per Antonio, J.

Sorianos Memorandum at page 94.

SEPARATE OPINION

DE CASTRO, J.:

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
con!dence. 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 speci!ed 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 disquali!ed from becoming an o"cer 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 e#ect. A vicious circle
would be created if, should petitioner Gokongwei be barred or disquali!ed 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 disquali!cation 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
quali!cation to run would be, certainly, not the !nal 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
petitioners "disquali!cation" 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, e#ect of !ndings of facts of administrative bodies exercising quasi-judicial
functions upon appellate courts, which should, accordingly, be enforced until reversed by
this Tribunal.

JOINT SEPARATE OPINION

TEEHANKEE, CONCEPCION JR., FERNANDEZ and GUERRERO, JJ.:

As correctly stated in the main opinion of Mr. Justice Antonio, the Court is unanimous in its
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 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", 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 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 member of the board of directors, the Court, composed of 12 members (since
Mme. Justice Ameur!na 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
disquali!cation 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 disquali!cation 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 !nds that there (are) unresolved
and genuine issues of fact" 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 !rst be availed of and exhausted.

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
disquali!cation) which would bar petitioner from quali!cation, 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 speci!cally 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 speci!c 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
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 minority director once elected not to be removed from o"ce 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 disquali!ed by such a by-laws amendment under the guise of
providing for "quali!cations", these mandates of the Corporation Law would have no
meaning or purpose.

These vested and substantial rights granted stockholders under the Corporations 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 o"ce 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 !nally 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 properly 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 disquali!ed from sitting
in the board of directors by virtue of con$ict of interests or their being likewise engaged in
"competitive or antagonistic business" with the corporation such as investment and !nance,
coconut oil mills, cement, milk and hotels.
:
 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 a 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 !rst 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 o"ce 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 "disquali!ed 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 quali!cation or disquali!cation under the
questioned amended by-laws (assuming that the respondent Securities and Exchange
Commission ultimately upholds the validity of said by-laws), and such disquali!cation shall
have been sustained by respondent Securities and Exchange Commission and ultimately by
!nal judgment of this Court, petitioner is deemed eligible for all legal purposes and e#ects 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
!nally 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
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 subject to ambiguity, we state the following:

1. With the votes of the six Justices concurring unquali!edly 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
disquali!cations under the questioned amended by-laws (assuming that the
respondent Securities and Exchange Commission ultimately upholds the validity of
said by-laws), and such disquali!cation shall have been sustained by respondent
Securities and Exchange Commission and ultimately by !nal judgment of this Court,
petitioner is deemed eligible for all legal purposes and e#ects 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 e#ect, much less doctrinal
value.

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 x x x." The end result is that the Court has
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 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 herein-above 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.

Main opinion, p. 55.

Sec. 2, Art. III of respondent corporation's By-Laws, reproduced in footnote 1 of the main
opinion, pages 3 and 4.

Rollo, Vol. I, page 392-E.

SEC memo, pages 9 and 10.

Petitioner's memorandum in support of oral argument, pp. 18-20.

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