Gokongwei vs. SEC

7/31/2019 SUPREME COURT REPORTS ANNOTATED VOLUME 089
336 SUPREME COURT REPORTS ANNOTATED

Gokongwei, Jr. vs. Securities and Exchange Commission
*
No. L-45911. April 11, 1979.
JOHN GOKONGWEI, JR., petitioner, vs. SECURITIES AND

EXCHANGE COMMISSION, ANDRES M. SORIANO, JOSE M.
SORIANO, ENRIQUE ZOBEL, ANTONIO ROXAS, EMETERIO
BUÑAO, WALTHRODE B. CONDE, MIGUEL ORTIGAS,
ANTONIO PRIETO, SAN MIGUEL CORPORATION, EMIGDIO
TANJUATCO, SR., and EDUARDO R. VISAYA, respondents.
Supreme Court; Judgments; Securities and Exchange Commission;

Corporation Law; Supreme Court always strives to settle a legal
controversy in a single proceeding.—xxx In the case at bar, there are facts
which cannot be denied, viz.: that the amended by-laws were adopted by the
Board of Directors of the San Miguel Corporation in the exercise of the
power delegated by the stockholders ostensibly pursuant to section 22 of the
Corporation Law; that in a special meeting on February 10, 1977 held
specially for that purpose, the amended by-laws were ratified by more than
80% of the stockholders of record; that the foreign investment in the
Hongkong Brewery and Distillery, a beer manufacturing company in
Hongkong, was made
________________
* EN BANC.
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VOL. 89, APRIL 11, 1979 337
by the San Miguel Corporation in 1948; and that in the stockholders’ annual
meeting held in 1972 and 1977, all foreign investments and operations of
San Miguel Corporation were ratified by the stockholders.
www.central.com.ph/sfsreader/session/0000016c45e5aefab4123900003600fb002c009e/t/?o=False 1/69
Corporation Law; While reasonableness of a by-law is a legal

question, where reasonableness of a by-law provision is one in which
reasonable minds may differ a court will not be justified in subsisting its
judgment for those authorized to make the by-laws.—The validity or
reasonableness of a by-law of a corporation is purely a question of law.
Whether the by-law is in conflict with the law of the land, or with the
charter of the corporation, or is in a legal sense unreasonable and therefore
unlawful is a question of law. This rule is subject, however, to the limitation
that where the reasonableness of a by-law is a mere matter of judgment, and
one upon which reasonable minds must necessarily differ, a court would not
be warranted in substituting its judgment instead of the judgment of those
who are authorized to make by-laws and who have exercised their authority.
Same; Under the Corporation Law a corporation is authorized to
prescribe the qualification of its directors.—In this jurisdiction, under
Section 21 of the Corporation Law, a corporation may prescribed in its by-
laws “the qualifications, duties and compensation of directors, officers and
employees ***.” This must necessarily refer to a qualification in addition to
that specified by section 30 of the Corporation Law, which provides that
“every director must own in his right at least one share of the capital stock
of the stock corporation of which he is a director * * *.”
Same; Stockholder has no vested right to be elected as stockholder.—
Any person “who buys stock in a corporation does so with the knowledge
that its affairs are dominated by a majority of the stockholders and that he
implied 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 or 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,
***.”
338
Same; A director stands in a fiduciary relation to the competition and

its stockholders. The disqualification of a competition from being elected to
the board of directors is a reasonable exercise of corporate authority.
Although in the strict and technical sense, directors of a private corporation
are not regarded as trustees, there cannot be any doubt that their character is
that of a fiduciary insofar as the corporation for the collective benefit of the
stockholders, “they occupy a fiduciary relation, and in these sense the

relation is one of trust.”
Same; Same.—It is obviously to prevent the creation of an opportunity
for an officer or director of San Miguel Corporation, who is also the officer
or owner of competing corporation, from taking advantage of the
information which he acquires as director to promote his individual or
corporate interests to the prejudice of San Miguel Corporation and its
stockholders, that the questioned amendment of the by-laws was made.
Certainly, where two corporations are competitive in a substantial sense, it
would seem improbable, if not impossible, for the director, if he were to
discharge effectively his duty, to satisfy his loyalty to both corporations and
place the performance of his corporate duties above his personal concerns.
Same; Same.—Sound principles of corporate management counsel
against sharing sensitive information with a director whose fiduciary duty to
loyalty may well require that he disclose this information to a competitive
rival. These dangers are enhanced considerably where the common director
such as the petitioner is a controlling stockholder of two of the competing
corporations. It would seem manifest that in such situations, the director has
an economic incentive to appropriate for the benefit of his own corporation
the corporate plans and policies of the corporation where he sits as director.
Same; Another reason for upholding a by-law provision that forbids a
competitor to be elected as corporate director are the laws prohibiting
cartels.—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: “That 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.”
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VOL. 89, APRIL 11, 1979 339
Same; Same.—Basically, these anti-trust laws or laws against

monopolies or combinations in restraint of trade are aimed at raising levels
of competition by improving the consumers’ effectiveness as the final
arbiter in free markets. These laws are designed to preserve free and
unfettered competition as the rule of trade. “It rests on the premise that the
unrestrained interaction of competitive forces will yield the best allocation
of our economic resources, the lowest prices and the highest quality ***.”
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.
Same; Election of petitioner as San Miguel Corporation Director may
run counter to the prohibition contained in Section 13(5) of Corporation
Law on investments in corporations engaged in agriculture.—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. ***.”
Same; The by-law amendment of SMC applies equally to all and does
not discriminate against petitioner only.—However, the by-law, by its terms,
applies to all stockholders. The equal protection clause of the Constitution
requires only that the by-laws operate equally upon all persons of a class.
Besides, before petitioner can be declared ineligible to run for director, there
must be hearing and evidence must be submitted to bring his case within the
ambit of the disqualification. Sound principles of public policy and
management, therefore, support the view that a by-law which disqualifies a
competitor from election to the Board of Directors of another corporation is
valid and reasonable.
Same; Petitioner is not ipso facto disqualified to run on SMC director.
He must be given full opportunity by the SEC to show that he is not covered
by the disqualification.—While We here sustain the
340
validity of the amended by-laws, it does not follow as a necessary

consequence that petitioner is ipso facto disqualified. Consonant with the
requirement of due process, there must be due hearing at which the
petitioner must be given the fullest opportunity to show that he is not
covered by the disqualification. As trustees of the corporation and of the
stockholders, it is the responsibility of directors to act with fairness to the
stockholders. Pursuant to this obligation and to remove any suspicion that
this power may be utilized by the incumbent members of the Board to
perpetuate themselves in power, any decision of the Board to disqualify a
candidate for the Board of Directors should be reviewed by the Securities
and Exchange Commission en banc and its decision shall be final unless
reversed by this Court on certiorari.
Same; Every stockholder has the right to inspect corporate books and
records.—The stockholder’s right of inspection of the corporation’s books
and records is based upon their ownership of the assets and property of the
corporation. It is, therefore, an incident of ownership of the corporate
property, whether this ownership or interest be termed an equitable
ownership, a beneficial ownership, or a quasi-ownership. This right is
predicated upon the necessity of selfprotection. 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 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.
Same; The right of stockholder to inspect corporate books extends to a
wholly-owned subsidiary.—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.
Same; Purely ultra vires corporate acts of corporate officers to invest
corporate funds in another business or corporation, i.e., acts not contrary to
law, morals, public order as public policy, may be ratified
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VOL. 89, APRIL 11, 1979 341
by the stockholders holding 2/3 of the voting power.—Assuming arguendo

that the Board of Directors of San Miguel Corporation had no authority to
make the assailed investment, there is no question that a corporation, like an
individual, may ratify and thereby render binding upon it the originally
unauthorized acts of its officers or other agents. This is true because the
questioned investment is neither contrary to law, morals, public order or
public policy. It is a corporate transaction or contract which is within the
corporate powers, but which is defective from a purported failure to observe
in its execution the requirement of the law that the investment must be
authorized by the affirmative vote of the stockholders holding twothirds of
the voting power. This requirement is for the benefit of the stockholders.
The stockholders for whose benefit the requirement was enacted may,
therefore, ratify the investment and its ratification by said stockholders
obliterates any defect which it may have had at the outset. “Mere ultra vires
acts”, said this Court in Pirovano, “or those which are not illegal and void
ab initio, but are not merely within the scope of the articles of incorporation,
are merely voidable and may become binding and enforceable when ratified
by the stockholders.”
Corporation Law; Judgment; The doctrine of the law of the case.—We
hold on our part that the doctrine of the law of the case invoked by Mr.
Justice Barredo has no applicability for the following reasons: a) Our
jurisprudence is quite clear that this doctrine may be invoked only where
there has been a final and conclusive determination of an issue in the first
case later invoked as the law of the case.
Same; Same; When doctrine of the law of the case not applicable.—
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 inconclusive with six against
four Justices and two other Justices (the Chief Justice and Mr. Justice
Fernando) expressly reserving their votes thereon, and Mr. Justice Aquino
while taking no part in effect likewise expressly reserved his vote thereon.
No final aad 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 con-
342
cerned, and the relief sought herein by petitioner that this Court bypass 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.
Same; Same; Constitutional Law; Due Process; When procedural due
process was not observed.—The entire Court, therefore, recognized that
petitioner had not been given procedural due process by the SMC board on
the matter of his disqualification and that he was entitled to a “new and
proper hearing”. It stands to reason that in such hearing, petitioner could
raise not only questions of fact but questions of law, particularly questions
of law affecting the investing public and their right to representation on the
board as provided by law—not to mention that as borne out by the fact that
no restriction whatsoever appears in the Court’s decision, it was never
contemplated that petitioner was to be limited questions of fact and could
not raise the fundamental question of law bearing on the invalidity of the
questioned amended by-laws at such hearing before the SMC board.
Furthermore, it was expressly provided unanimously in the Court’s decision
that the SMC board’s decision on the disqualification of petitioner

(“assuming the board of directors of San Miguel Corporation should, after
the proper hearing, disqualify him” as qualified in Mr. Justice Barredo’s
own separate opinion, at page 2) shall be appealable to respondent
Securities and Exchange Commission “deliberating and acting en banc” and
“ultimately to this Court.”
Same; Same; Reservation of the vote of the Chief Justice.—As
expressly stated in the Chief Justice’s reservation of his vote, the matter of
the question of the applicability of the said section 13(5) to petitioner would
be heard by this Court at the appropriate time after the proceedings below
(and necessarily the question of the validity of the amended by-laws would
be taken up anew and the Court would at that time be able to reach a final
and conclusive vote).
Same; Same; Validity of the amended by-laws.—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 Justice Aquino and
Melencio Herrera not
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VOL. 89, APRIL 11, 1979 343
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 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.
Same; Same; Where petitioner can no longer revive the issue validity of
the amended by-laws.—I reiterate, therefore, that as between the parties
herein, the issue of validity of the challenged bylaws 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
Exchange Commission, in this Court or in any other forum, unless he
proceeds on the basis of a factual milieu different from the setting of this
case. Not even the Securities and Exchange Commission may pass on such
question anymore at the instance of herein petitioner or anyone acting in his
stead or on his behalf. The vote of four justices to remand the case thereto
cannot alter the situation.
Same; Same; Where Court has not found merit in the claim that the
amended by-laws in question are valid.—I concur in Justice Barredo’s
statement that the dismissal (for lack of necessary votes) of the petition to
the extent that “it assails the validity of the amended by-laws,” is the law of
the case at bar, which means in effect that as far and only in so far as the
parties and the Securities and Exchange Commission are concerned, the
Court has not found merit in the claim that the amended by-laws in question
are valid.
Same; Same; Term and meaning of “farming.”—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 agriculture, but only as the word “agriculture”
refers to its more limited meaning as distinguish-
344
ed 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 acquisition of agricultural land such as by homestead, before the
patent may be issued.
Same; Same; Poultry raising or piggery is included in the term
“agriculture.”—It is my opinion that under the public land statute, the
development of a certain portion of the land applied for a specified in the
law as a condition precedent before the applicant may obtain a patent, is
cultivation, not let us say, poultry raising or piggery, which may be included
in the term “Agriculture” in its broad sense. For under Section 13(5) of the
Philippine Corporation Law, construed not in the strict way as I believe it
should because the provision is in derogation of property rights, the
petitioner in this case would be disqualified from becoming an officer of
either the San Miguel Corporation or his own supposedly agricultural
corporations.
ORIGINAL ACTION in the Supreme Court. Certiorari, mandamus

and injunction.
The facts are stated in the opinion of the Court.

De Santos, Balgos & Perez for petitioner.
Angara, Abello, Concepcion, Regala, Cruz Law Offices for

respondents Sorianos.
Sequion Reyna, Montecillo & Ongsiako for respondent San
Miguel Corporation.
R. T. Capulong for respondent Eduardo R. Visaya.
ANTONIO, J.:
The instant petition for certiorari, mandamus and injunction, with

prayer for issuance of writ of preliminary injunction, arose out of
two cases filed by petitioner with the Securities and Exchange
Commission, as follows:
SEC CASE NO. 1375
On October 22, 1976, petitioner, as stockholder of respondent San

Miguel Corporation, filed with the Securities and Exchange
Commission (SEC) a petition for “declaration of nullity
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VOL. 89, APRIL 11, 1979 345

of amended by-laws, cancellation of certificate of filing of amended

by-laws, injunction and damages with prayer for a preliminary
injunction” against the majority of the members of the Board of
Directors and San Miguel Corporation as an unwilling petitioner.
The petition, entitled “John Gokongwie, Jr. vs. Andres Soriano, Jr.,
Jose M. Soriano, Enrique Zobel, Antonio Roxas, Emeterio Buñao,
Walthrode B. Conde, Miguel Ortigas, Antonio Prieto and San
Miguel Corporation”, was docketed as SEC Case No. 1375.
As a first cause of action, petitioner alleged that on September
18, 1976, individual respondents amended by bylaws of the
corporation, basing their authority to do so on a resolution of the
stockholders adopted on March 13, 1961, when the outstanding
capital stock of respondent corporation was only P70,139,740.00,
divided into 5,513,974 common shares at P10.00 per share and
150,000 preferred shares at P100.00 per share. At the time of the
amendment, the outstanding and paid up shares totalled 30,127,043
with a total par value of P301,270,430.00. It was contended that
according to section 22 of the Corporation Law and Article VIII of
the by-laws of the corporation, the power to amend, modify, repeal
or adopt new by-laws may be delegated to the Board of Directors
only by the affirmative vote of stockholders representing not less
than 2/3 of the subscribed and paid up capital stock of the
corporation, which 2/3 should have been computed on the basis of
the capitalization at the time of the amendment. Since the
amendment was based on the 1961 authorization, petitioner

contended that the Board acted without authority and in usurpation
of the power of the stockholders.
As a second cause of action, it was alleged that the authority
granted in 1961 had already been exercised in 1962 and 1963, after
which the authority of the Board ceased to exist.
As a third cause of action, petitioner averred that the membership
of the Board of Directors had changed since the authority was given
in 1961, there being six (6) new directors.
As a fourth cause of action, it was claimed that prior to the
questioned amendment, petitioner had all the qualifications to
346

be a director of respondent corporation, being a substantial

stockholder thereof; that as a stockholder, petitioner had acquired
rights inherent in stock ownership, such as the rights to vote and to
be voted upon in the election of directors; and that in amending the
by-laws, respondents purposely provided for petitioner’s
disqualification and deprived him of his vested right1 as afore-
mentioned, hence the amended by-laws are null and void.
________________
1 The pertinent amendment reads as follows: “RESOLVED, That Section 2,

Article III of the By-laws of San Miguel Corporation, which reads as follows:
‘SECTION 2. Any stockholder having at least five thousand shares registered in his name may
be elected director, but he shall not be qualified to hold office unless he pledges said five
thousand shares to the Corporation to answer for his conduct.’ be, and the same hereby is,
amended, to read as follows;
‘SECTION 2. Any stockholder having at least five thousand shares registered in his name
may be elected Director, provided, however, that no person shall qualify or be eligible for
nomination or election to the Board of Directors if he is engaged in any business which
competes with or is antagonistic to that of the Corporation. Without limiting the generality of
the foregoing, a person shall be deemed to be so engaged:
(a) if he is an officer, manager or controlling person of, or the owner (either of record or beneficially) of
10% or more of any outstanding class of shares of, any corporation (other than one in which the
corporation owns at least 30% of the capital stock) engaged in a business which the Board, by at least
three-fourths vote, determines to be competitive or antagonistic to that of the Corporation; or
(b) If he is an officer, manager or controlling person of, or the owner (either of record or beneficially)
of 10% or more of any outstanding class of shares of, any other corporation or entity engaged in any 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).
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VOL. 89, APRIL 11, 1979 347

As additional causes of action, it was alleged that corporations have

no inherent power to disqualify a stockholder from being elected as
a director and, therefore, the questioned act is ultra vires and void;
that Andres M. Soriano, Jr., and/or Jose M. Soriano, while
representing other corporations, entered into contracts (specifically a
management contract) with respondent corporation, which was
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 bylaws which states that in determining whether or not
a person is engaged in competitive business, the Board may consider
such factors as business and family relationship, is unreasonable and
oppressive and, therefore, void; and that the portion of the amended
by-laws which requires that “all nominations for election of
directors * * * shall be submitted in writing to the Board of
Directors at least five (5) working days before the date of the Annual
Meeting” is likewise unreasonable and oppressive.
It was, therefore, prayed that the amended by-laws be declared
null and void and the certificate of filing thereof be cancelled, and
that individual respondents be made to pay damages, in specified
amounts, to petitioner.
On October 28, 1976, in connection with the same case,
petitioner filed with the Securities and Exchange Commission an
“Urgent Motion for Production and Inspection of Documents”,
alleging that the Secretary of respondent corportion 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
________________
In determining whether or not a person is a controlling person, beneficial owner,

or the nominee of another, the Board may take into account such factors as business
and family relationship. For the proper implementation of this provision, all
nominations for election of Directors by the stockholders shall be submitted in
writing to the Board of Directors at least five working days before the date of the
Annual Meeting.’ ” (Rollo, pp. 402-463.)
348

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 che stockholder’s meeting held on March 13,
1961; (b) copy of the management contract between San Miguel
Corporation and A. Soriano Corporation (ANSCOR); (c) latest
balance sheet of San Miguel International, Inc.; (d) authority of the
stockholders to invest the funds of respondent corporation in San
Miguel International, Inc.; and (e) lists of salaries, allowances,
bonuses, and other compensation, if any, received by Andres M.
Soriano, Jr. and/or its successor-in-interest.
The “Urgent Motion for Production and Inspection of
Documents” was opposed by respondents, alleging, among others,
that the motion has no legal basis; that the demand is not based on
good faith; that the motion is premature since the materiality or
relevance of the evidence sought cannot be determined until the
issues are joined; that it fails to show good cause and constitutes
continued harrasment; and that some of the information sought are
not part of the records of the corporation and, therefore, privileged.
During the pendency of the motion for production, respondents
San Miguel Corporation, Enrique Conde, Miguel Ortigas and
Antonio Prieto filed their answer to the petition denying the
substantial allegations therein and stating, by way of affirmative
defenses that “the action taken by the Board of Directors on
September 18, 1976 resulting in the * * * amendments is valid and
legal because the power to ‘amend, modify, repeal or adopt new By-
laws’ delegated to said Board on March 13, 1961 and long prior
thereto has never been revoked, withdrawn or otherwise nullified by
the stockholders of SMC”; that contrary to petitioner’s claim, “the
vote requirement for a valid delegation of the power to amend,
repeal or adopt new by-laws is determined in relation to the total
subscribed capital stock at the time the delegtion of said power is
made, not when the Board opts to exercise said delegated power”;
that petitioner has not availed of his intracorporate remedy for the
nullification of the amendment,
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VOL. 89, APRIL 11, 1970 349

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 bais of the same 1961 authorization;
that the power of the corporation to amend its by-laws is broad,
subject only to the condition that the by-laws adopted should not be
inconsistent with any existing law; that respondent corporation
should not be precluded from adopting protective measures to
minimize or eliminate situations where its directors might be
tempted to put their personal interests over that of the corporation;
that the questioned amended by-laws is a matter of internal policy
and the judgment of the board should not be interfered with; that the
by-laws, as amended, are valid and binding and are intended to
prevent the possibility of violation of criminal and civil laws
prohibiting combinations in restraint of trade; and that the petition
states no cause of action. It was, therefore, prayed that the petition
be dismissed and that petitioner be ordered to pay damages and
attorney’s fees to respondents. The application for writ of
preliminary injunction was likewise on various grounds.
Respondents Andres M. Soriano, Jr. and Jose M. Soriano filed
their opposition to the petition, denying the material averments
thereof and stating, as part of their affirmative defenses, that in
August 1972, the Universal Robina Corporation (Robina), a
corporation engaged in business competitive to that of respondent
corporation, began acquiring shares therein, until September 1976
when its total holding amounted to 622,987 shares; that in October
1972, the Consolidated Foods Corporation (CFC) likewise began
acquiring shares in respondent corporation, until its total holdings
amounted to P543,959.00 in September 1976; that on January 12,
1976, petitioner, who is president and controlling shareholder of
Robina and CFC (both closed corporations) purchased 5,000 shares
of stock of respondent corporation, and thereafter, in
350

behalf of himself, CFC and Robina, “conducted malevolent and

malicious publicity campaign against SMC” to generate support
from the stockholder “in his effort to secure for himself and in
representation of Robina and CFC interests, a seat in the Board of
Directors of SMC”, that in the stockholders’ meeting of March 18,
1976, petitioner was rejected by the stockholders in his bid to secure
a seat in the Board of Directors on the basic issue that petitioner was
engaged in a competitive business and his securing a seat would
have subjected respondent corporation to grave disadvantages; that
“petitioner nevertheless vowed to secure a seat in the Board of
Directors at the next annual meeting”; that thereafter the Board of

Directors amended the by-laws as afore-stated.
As counterclaims, actual damages, moral damages, exemplary
damages, expenses of 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 filed by all
the respondents. This was duly opposed by petitioner. At this
juncture, respondents Emigdio Tanjuatco, Sr. and Eduardo R. Visaya
were allowed to intervene as oppositors and they accordingly filed
their oppositions-inintervention 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 petitionr-movant entry in the principal office
of the respondent Cor
351
VOL. 89, APRIL 11, 1979 351

poration, San Miguel Corporation on January 14, 1977, at 9:30 o’clock in

the morning for purposes of enforcing the rights herein granted; it being
understood that the inspection, copying and photographing of the said
documents shall be undertaken under the direct and strict supervision of this
Commission. Provided, however, that other documents and/or papers not
heretofore included are not covered by this Order and any inspection thereof
shall require the prior permission of this Commission;
2. As to the Balance Sheet of San Miguel International, Inc. as well as
the list of salaries, allowances, bonuses, compensation and/or remuneration
received by respondent Jose M. Soriano, Jr. and Andres Soriano from San
Miguel International, Inc. and/or its successors-in-interest, the Petition to
produce and inspect the same is hereby DENIED, as petitioner-movant is
not a stockholder of San Miguel International, Inc. and has, therefore, no
inherent, right to inspect said documents;
3. In view of the Manifestation of petitioner-movant dated November 29,
1976, withdrawing his request to copy and inspect the management contract
between San Miguel Corporation and A. Soriano Corporation and the

renewal and amendments thereof for the reason that he had already obtained
the same, the Commission takes note thereof; and
4. Finally, the Commission holds in abeyance the resolution on the
matter of production and inspection of the authority of the stockholders of
San Miguel Corporation to invest the funds of respondent corporation in San
Miguel International, Inc., until after the hearing on the merits of the
principal issues in the above-entitled case. 2
This Order is immediately executory upon its approval.”
Dissatisfied with the foregoing Order, petitioner moved for its

reconsideration.
Meanwhile, on December 10, 1976, while the petition was yet to
be heard, respondent corporation issued a notice of special
stockholders’ meeting for the purpose of “ratification and
confirmation of the amendment to the By-laws”, setting such
meeting for February 10, 1977. This prompted petitioner to ask
respondent Commission for a summary judgment in-
________________
2 Annex “H”, Petition, pp. 168-169, Rollo.
352

sofar as the first cause of action is concerned, for the alleged reason
that by calling a special stockholders’ meeting for the aforesaid
purpose, private respondents admitted the invalidity of the
amendments of September 18, 1976. The motion for summary
judgment was opposed by private respondents. Pending action on
the motion, petitioner filed an “Urgent Motion for the Issuance of a
Temporary Restraining Order”, praying that pending the
determination of petitioner’s application for the issuance of a
preliminary injunction and/or petitioner’s motion for summary
judgment, a temporary restraining order be issued, restraining
respondents from holding the special stockholders’ meeting as
scheduled. This motion was duly opposed by respondents.
On February 10, 1977, respondent 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 ratified. On February 14, 1977, petitioner filed a
consolidated motion for contempt and for nullification the special
stockholders’ meeting.
A motion for reconsideration of the order denying petitioner’s

man for summary judgment was filed by petitioner before
respondent Commission on March 10, 1977. Petitioner alleges that
up to the time of the filing of the instant petition, the said motion
had not yet been scheduled for hearing. Likewise, the motion for
reconsideration of the order granting in part and denying in part
petitioner’s motion for production of records had not yet been
resolved.
In view of the die fact that the annual stockholders’ meeting of
respondent corporation had been scheduled for May 10, 1977,
petitioner filed with respondent Commission a Manifestation stating
that he intended to run for the position of director of respondent
corporation. Thereafter, respondents filed a Manifestation with
respondent Commission, submitting a Resolution of the Board of
Directors of respondent corporation disqualifying and precluding
petitioner from being a candidate for director unless he could submit
evidence on May 3, 1977 that he does not come within the
disqualifications specified in
353
VOL. 89, APRIL 11, 1979 353

the amendment to the by-laws, subject matter of SEC Case No.

1375. By reason thereof, petitioner filed a manifestation and motion
to resolve pending incidents in the case and to issue a writ of
injunction, alleging that private respondents were seeking to nullify
and render ineffectual the exercise of jurisdiction by the respondent
Commission, to petitioner’s irreparable damage and prejudice.
Allegedly despite a subsequent Manifestation to prod respondent
Commission to act, petitioner was not heard prior to the date of the
stockholders’ meeting.
Petitioner alleges that there appears a deliberate and concerted
inability on the part of the SEC to act, hence petitioner came to this
Court.
SEC CASE NO. 1423
Petitioner likewise alleges that, having discovered that respondent

corporation has been investing corporate funds in other corporations
and businesses outside of the primary purpose clause of the
corporation, in violation of section 17-1/2 of the Corporation Law,
he filed with respondent Commission, on January 20, 1977, a
petition seeking to have private respondents Andres M. Soriano, Jr.
and Jose M. Soriano, as well as the respondent corporation declared
guilty of such violation, and ordered to account for such investments

and to answer for damages.
On February 4, 1977, motions to dismiss were filed by private
respondents, to which a consolidated motion to strike and to declare
individual respondents in default and an opposition ad
abundantiorem cautelam were filed by petitioner. Despite the fact
that said motions were filed as early as February 4, 1977, the
Commission acted thereon only on April 25, 1977, when it denied
respondents’ motions to dismiss and gave them two (2) days within
which to file their answer, and set the case for hearing on April 29
and May 3, 1977.
Respondents issued notices of the annual stockholders’ meeting,
including in the Agenda thereof, the following:
354

“6. Reaffirmation of the authorization to the Board of Directors by the

stockholders at the meeting on March 20, 1972 to invest corporate funds in
other companies or businesses or for purposes other than the main purpose
for which the Corporation has been organized, and ratification of the
investments thereafter made pursuant thereto.”
By reason of the foregoing, on April 28, 1977, petitioner filed with

the SEC an urgent motion for the issuance of a writ of preliminary
injunction to restrain private respondents from taking up Item 6 of
the Agenda at the annual stockholders’ meeting, requesting that the
same be set for hearing on May 3, 1977, the date set for the second
hearing of the case on the merits. Respondent Commission,
however, cancelled the dates of hearing originally scheduled and
reset the same to May 16 and 17, 1977, or after the scheduled annual
stockholders’ meeting. For the purpose of urging the Commission to
act, petitioner filed an urgent manifestation on May 3, 1977, but this
notwithstanding, no action has been taken up to the date of the filing
of the instant petition.
With respect to the afore-mentioned SEC cases, it is petitioner’s
contention before this Court that respondent Commission gravely
abused its discretion when it failed to act with deliberate dispatch on
the motions of petitioner seeking to prevent illegal and/or arbitrary
impositions or limitations upon his rights as stockholder of
respondent corporation, and that respondent are acting oppressively
against petitioner, in gross derogation of petitioner’s rights to
property and due process. He prayed that this Court direct
respondent SEC to act on collateral incidents pending before it.
On May 6, 1977, this Court issued a temporary restraining order
restraining private respondents from disqualifying or preventing
petitioner from running or from being voted as director of

respondent corporation and from submitting for ratification or
confirmation or from causing the ratification or confirmation of Item
6 of the Agenda of the annual stockholders’ meeting on May 10,
1977, or from making effective the amended by-laws of respondent
corporation, until further orders from this Court or until the
Securities and Ex-
355
VOL. 89, APRIL 11, 1979 355

change Commission acts on the matters complained of in the instant

petition.
On May 14, 1977, petitioner filed a Supplemental Petition,
alleging that after a restraining order had been issued by this Court,
or on May 9, 1977, the respondent Commission served upon
petitioner copies of the following orders:
(1) Order No. 449, Series of 1977 (SEC Case No. 1375);
denying petitioner’s motion for reconsideration, with its
supplement, of the order of the Commission denying in part
petitioner’s motion for production of documents,
petitioner’s motion for reconsideration of the order denying
the issuance of a temporary restraining order denying the
issuance of a temporary restraining order, and petitioner’s
consolidated motion to declare respondents in contempt and
to nullify the stockholders’ meeting;
(2) Order No. 450, Series of 1977 (SEC Case No. 1375),
allowing petitioner to run as a director of respondent
corporation but stating that he should not sit as such if
elected, until such time that the Commission has decided
the validity of the by-laws in dispute, and denying
deferment of Item 6 of the Agenda for the annual
stockholders’ meeting; and
(3) Order No. 451, Series of 1977 (SEC Case No. 1375),
denying petitioner’s motion for reconsideration of the order
of respondent Commission denying petitioner’s motion for
summary judgment;
It is petitioner’s assertions, anent the foregoing orders, (1) that

respondent Commission acted with indecent haste and without
circumspection in issuing the aforesaid orders to petitioner’s
irreparable damage and injury; (2) that it acted without jurisdiction
and in violation of petitioner’s right to due process when it decided
en banc an issue not raised before it and still pending before one of
its Commissioners, and without hearing petitioner thereon despite
petitioner’s request to have the same calendared for hearing; and (3)
that the respondents acted oppressively against the petitioner in
violation of his rights as a stockholder, warranting immediate
judicial intervention.
356

It is prayed in the supplemental petition that the SEC orders

complained of be declared null and void and that respondent
Commission be ordered to allow petitioner to undertake discovery
proceedings relative to San Miguel International, Inc. and thereafter
to decide SEC Cases No. 1375 and 1423 on the merits.
On May 17, 1977, respondent SEC, Andres M. Soriano, Jr. and
Jose M. Soriano filed their comment, alleging that the petition is
without merit for the following reasons:
(1) that the petitioner and the interests he represents are

engaged in businesses competitive and antagonistic to that
of respondent San Miguel Corporation, it appearing that he
owns and controls a greater portion of his SMC stock thru
the Universal Robina Corporation and the Consolidated
Foods Corporation, which corporations are engaged in
businesses directly and substantially competing with the
allied businesses of respondent SMC and of corporations in
which SMC has substantial investments. Further, when
CFC and Robina had accumulated shares in SMC, the
Board of Directors of SMC realized the clear and present
danger that competitors or antagonistic parties may be
elected directors and thereby have easy and direct access to
SMC’s business and trade secrets and plans;
(2) that the amended by-laws were adopted to preserve and
protect respondent SMC from the clear and present danger
that business competitors, if allowed to become directors,
will illegally and unfairly utilize their direct access to its
business secrets and plans for their own private gain to the
irreparable prejudice of respondent SMC, and, ultimately,
its stockholders. Further, it is asserted that membership of a
competitor in the Board of Directors is a blatant disregard
of no less than the Constitution and pertinent laws against
combinations in restraint of trade;
(3) that by-laws are valid and binding since a corporation has
the inherent right and duty to preserve and protect itself by
excluding competitors and antagonistic parties, under the
law of self-preservation, and it should be allowed a wide
latitude in the selection of means to preserve itself;
357
VOL. 89, APRIL 11, 1979 357

(4) that the delay in the resolution and disposition of SEC

Cases Nos. 1375 and 1423 was due to petitioner’s own acts
or omissions, since he failed to have the petition to suspend,
pendente lite, the amended by-laws calendared for hearing.
It was emphasized that it was only on April 29, 1977 that
petitioner calendared the aforesaid petition for suspension
(preliminary injunction) for hearing on May 3, 1977. The
instant petition being dated May 4, 1977, it is apparent that
respondent Commission was not given a chance to act
“with deliberate dispatch”, and
(5) that even assuming that the petition was meritorious, it has
become moot and academic because respondent
Commission has acted on the pending incidents complained
of. It was, therefore, prayed that the petition be dismissed.
On May 21, 1977, respondent Emigdio G. Tanjuatco, Sr. filed his

comment, alleging that the petition has become moot and academic
for the reason, among others, that the acts of private respondents
sought to be enjoined have reference to the annual meeting of the
stockholders of respondent San Miguel Corporation, which was held
on May 10, 1977; that in said meeting, in compliance with the order
of respondent Commission, petitioner was allowed to run and be
voted for as director; and that in the same meeting, Item 6 of the
Agenda was discussed, voted upon, ratified and confirmed. Further,
it was averred that the questions and issues raised by petitioner are
pending in the Securities and Exchange Commission which has
acquired jurisdiction over the case, and no hearing on the merits has
been had; hence the elevation of these issues before the Supreme
Court is premature.
Petitioner filed a reply to the aforesaid comments, stating that the
petition presents justiciable questions for the determination of this
Court because (1) the respondent Commission acted without
circumspection, unfairly and oppresively against petitioner,
warranting the intervention of this Court; (2) a derivative suit, such
as the instant case, is not rendered academic by the act of a majority
of stockholders, such that the discussion, ratification and
confirmation of Item 6 of the Agenda of the annual stockholders’
meeting of May 10, 1977
358

did not render the case moot; that the amendment to the bylaws
which specifically bars petitioner from being a director is void since
it deprives him of his vested rights.
Respondent Commission, thru the Solicitor General, filed a
separate comment, alleging that after receiving a copy of the
restraining order issued by this Court and noting that the restraining
order did not foreclose action by it, the Commission en banc issued
Orders Nos. 449, 450 and 451 in SEC Case No. 1375.
In answer to the allegation in the supplemental petition, it states
that Order No. 450 which denied deferment of Item 6 of the Agenda
of the annual stockholders’ meeting of respondent corporation, took
into consideration an urgent manifestation filed with the
Commission by petitioner on May 3, 1977 which prayed, among
others, that the discussion of Item 6 of the Agenda be deferred. The
reason given for denial of deferment was that “such action is within
the authority of the corporation as well as falling within the sphere
of stockholders’ right to know, deliberate upon and/or to express
their wishes regarding disposition of corporate funds considering
that their investments are the ones directly affected.” It was alleged
that the main petition has, therefore, become moot and academic.
On September 29, 1977, petitioner filed a second supplemental
petition with prayer for preliminary injunction, alleging that the
actuations of respondent SEC tended to deprive him of his right to
due process, and “that all possible questions on the facts now
pending before the respondent Commission are now before this
Honorable Court which has the authority and the competence to act
on them as it may see fit.” (Rollo, pp. 927-928.)
Petitioner, in his memorandum, submits the following issues for
resolution;
(1) whether or not the provisions of the amended by-laws of
respondent corporation, disqualifying a competitor from nomination
or election to the Board of Directors are valid and reasonable;
(2) whether or not respondent SEC gravely abused its discretion
in denying petitioner’s request for an examination
359
VOL. 89, APRIL 11, 1979 359

of the records of San Miguel International, Inc., a fully owned

subsidiary of San Miguel Corporation; and
(3) whether or not respondent SEC committed grave abuse of
discretion in allowing discussion of Item 6 of the Agenda of the
Annual Stockholders’ Meeting on May 10, 1977, and the ratification

of the investment in a foreign corporation of the corporate funds,
allegedly in violation of section 17-1/2 of the Corporation Law.
Whether or not amended by-laws are valid is purely a legal

question, which public interest requires to be resolved—
It is the position of the petitioner that “it is not necessary to
remand the case to respondent SEC for an appropriate ruling on the
intrinsic validity of the amended by-laws in compliance with the
principle of exhaustion of administrative remedies”, considering
that: first: “whether or not the provisions of the amended by-laws
are intrinsically valid * * * is purely a legal question. There is no
factual dispute as to what the provisions are and evidence is not
necessary to determine whether such amended by-laws are valid as
framed and approved * * *”; second: “it is for the interest and
guidance of the public that an immediate and final ruling on the
question be made * * *”; third: “petitioner was denied due process
by SEC” when “Commissioner de Guzman had openly shown
prejudice against petitioner * * *”, and “Commissioner Sulit * * *
approved the amended by-laws ex-parte and obviously found the
same intrinsically valid”; and finally: “to remand the case to SEC
would only entail delay rather than serve the ends of justice.”
Respondents Andres M. Soriano, Jr. and Jose M. Soriano
similarly pray that this Court resolve the legal issues raised by the
parties in keeping with the “cherished rules of procedure” that “a
court should always strive to settle the entire controversy in a single
proceeding leaving no root or branch
3
to bear the seeds of future
ligiation”, citing Gayos v. Gayos. To
________________
3 L-27812, September 26, 1975, 67 SCRA 146.
360

the same effect is the prayer of San Miguel Corporation that this
Court resolve on the merits the validity of its amended bylaws and
the rights and obligations of the parties thereunder, otherwise “the
time spent and effort exerted by the parties concerned and, more
importantly, by this Honorable Court, would have been for naught
because the main question will come back to this Honorable Court
for final resolution.” Respondent Eduardo R. Visaya submits a
similar appeal.
It is only the Solicitor General who contends that the case should
be remanded to the SEC for hearing and decision of the issues
involved, invoking the latter’s primary jurisdiction to hear and
decide cases involving intra-corporate controversies.
It is an accepted rule of procedure that the Supreme Court should
always strive to settle the entire controversy in a single proceeding,
4
leaving no root or branch to bear
5
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.6 In Republic v. Security Credit and Acceptance
Corporation, et al., this Court, finding that the main issue is one of
law, resolved to decide the case on the merits “because public
interest demands an early disposition of the7
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
________________
4 Gayos v. Gayos, ibid., citing Marquez v. Marquez, No. 47792, July 24, 1941, 73
Phil. 74, 78; Keramik Industries, Inc. v. Guerrero, L-38866, November 29, 1974, 61
SCRA 265.
5 L-20654, December 24, 1964, 12 SCRA 628.
6 L-20583, January 23, 1967, 19 SCRA 58.
7 L-27802, October 26, 1968, 25 SCRA 641.
361
VOL. 89, APRIL 11, 1979 361

all the evidence presented by both parties and the Supreme Court is
now in a position,
8
based upon said evidence, to decide the case on
its merits. It is settled that the doctrine of primary jurisdiction
8a
has
no application where only a question of law is involved. Because
uniformity may be secured through review by a single Supreme
Court, questions of8blaw may appropriately be determined in the first
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
ratified by more tna 80% of the stockholders of record; that the
foreign investment in the Hongkong Brewery and Distillery, a beer
manufacturing company in Hongkong, was made by the San Miguel
Corporation in 1948; and that in the stockholders’ annual meeting
held in 1972 and 1977, all foreign investments and operations of San
Miguel Corporation were ratified by the stockholders.
II
Whether or not the amended by-laws of SMC disqualifying a

competitor from nomination or election to the Board of Directors of
SMC are valid and reasonable—
The validity or reasonableness
9
of a by-law of a corporation is
purely a question of law. Whether the by-law is in conflict with the
law of the land, or with the charter of the corporation, or is in a legal10
sense unreasonable and therefore unlawful is a question of law.
This rule is subject, however, to the limita-
________________
8 Samal v. Court of Appeals, L-8579, May 25, 1956, 99 Phil. 230.

8a 2 Am. Jur. 2d 696, 697.
8b Pan American P. Corp. v. Supreme Court of Delaware, 330 US 656, 6 L. ed. 2d
584.
9 Fleischer v. Botica Nolasco Co., Inc., No. 23241, March 14, 1925, 47 Phil. 583,
590.
10 18 C.J.S. Corporations, Sec. 189, p. 603.
362

tion that where the reasonableness of a by-law is a mere matter of

judgment, and one upon which reasonable minds must necessarily
differ, a court would not be warranted in substituting its judgment
instead of the judgment of those who are 11authorized 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 legitimate corporate purpose,
considering that being a competitor, petitioner cannot devote an
unselfish and undivided loyalty to the corporation; that it is

essentially a preventive measure to assure stockholders of San
Miguel Corporation of reasonable protection from the unrestrained
self-interest of those charged with the promotion of the corporate
enterprise; that access to confidential information by a competitor
may result either in the promotion of the interest of the competitor at
the expense of the San Miguel Corporation, or the promotion of both
the interests of petitioner and respondent San Miguel Corporation,
which may, therefore, result in a combination or agreement in
violation of Article 186 of the Revised Penal Code by destroying
free competition to the detriment of the consuming public. It is
further argued that there is not vested right of any stockholder under
Philippine Law to be voted as director of a corporation. It is alleged
that petitioner, as of May 6, 1978, has exercised, personally or thru
two corporations owned or controlled by him, control over the
following shareholdings in San Miguel Corporation, vis.: (a) John
Gokongwei, Jr.—6,325 shares; (b) Universal Robina Corporation—
788,647 shares; (c) CFC Corporation—658,313 shares, or a total of
1,403,285
_________________
11 People ex rel. Wildi v. Ittner, 165 Ill. App. 360, 367 (1911), cited in Fletcher,
Cyclopedia Corporations, Sec. 4191.
363
VOL. 89, APRIL 11, 1979 363

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

1977 SMC Robina-CFC
Table Eggs 0.6% 10.0% 10.6%
Layer Pullets 33.0% 24.0% 57.0%
Dressed Chicken 35.0% 14.0% 49.0%
Poultry & Hog Feeds 40.0% 12.0% 52.0%
Ice Cream 70.0% 13.0% 83.0%
Instant Coffee 45.0% 40.0% 85.0%
Woven Fabrics 17.5% 9.1% 26.6%
Thus, according to respondent SMC, in 1976, the areas of

competition affecting SMC involved product sales of over P400
million or more than 20% of the P2 billion total product sales of
SMC. Significantly, the combined market shares of SMC and CFC-
Robina in layer pullets, dressed chicken, poultry and hog
364

feeds, ice cream, instant coffee and woven fabrics would result in a
position of such dominance as to affect the prevailing market
factors.
It is further asserted that in 1977, the CFC-Robina group was in
direct competition on product lines which, for SMC, represented
sales amounting to more than P478 million. In addition, CFC-
Robina was directly competing in the sale of coffee with 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.,
subsidiary of SMC, in product sales amounting to more than P95
million. The areas of competition between SMC and CFC-Robina in
1977 represented, therefore, for SMC, product sales of more than
P849 million.
According to private respondents, at the Annual Stockholders’
Meeting of March 18, 1976, 9,894 stockholders, in person or by
proxy, owning 23,436,754 shares in SMC, or more than 90% of the
total outstanding shares of SMC, rejected petitioner’s candidacy for
the Board of Directors because they “realized the grave dangers to
the corporation in the event a competitor gets a board seat in SMC.”
On September 18, 1978, the Board of Directors of SMC, by “virtue
of powers delegated to it by the stockholders,” approved the

amendment to the by-laws in question. At the meeting of February
10, 1977, these amendments were confirmed and ratified by 5,716
shareholders owning 24,283,945 shares, or more than 80% of the
total outstanding shares. Only 12 shareholders, representing 7,005
shares, opposed the confirmation and ratification. At the Annual
Stockholders’ Meeting of May 10, 1977, 11,349 shareholders,
owning 27,257.014 shares, or more than 90% of the outstanding
shares, rejected petitioner’s candidacy, while 946 stockholders,
representing 1,648,801 shares voted for him. On the May 9, 1978
Annual Stockholders’ Meeting, 12,480 shareholders, owning more
than 30 million shares, or more than 90% of the total outstanding
shares, voted against petitioner.
365
VOL. 89, APRIL 11, 1979 365

AUTHORITY OF CORPORATION TO PRESCRIBE

QUALIFICATIONS OF DIRECTORS EXPRESSLY CON FERRED
BY LAW
Private respondents contend that the disputed amended bylaws
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 and12among themselves in reference to the
management of its affairs.’ ” At common law, the rule was “that the
power to make and adopt by-laws was inherent in every corporation
as one of its necessary and inseparable legal incidents. And it is
settled throughout the United States that in the absence of positive
legislative provisions limiting it, every private corporation has this
inherent power as one of its necessary and inseparable legal
incidents, independent of any specific enabling provision in its
charter or in general law, such power of self-government being
essential to13
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 qualifications, duties
and compensation of directors, officers and
________________
12 McKee & Company v. First National Bank of San Diego, 265 F. Supp. 1 (1967),
citing Olincy v. Merle Norman Cosmetics, Inc., 200 Cal. App. 20, 260, 19 Cal. Reptr.
387 (1962).
13 Fletcher, Cyclopedia Corporations, Sec. 4171, cited in McKee & Company,
supra.
366

employees * * *.” This must necessarily refer to a qualification in

addition to that specified by section 30 of the Corporation Law,
which provides that “every director must own in his right at least
one share of the capital stock of the stock corporation
14
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 qualifications of directors and is “highly prudent and in
conformity with good practice.”
NO VESTED RIGHT OF STOCKHOLDER TO BE ELECTED
DIRECTOR
Any person “who buys stock in a corporation does so with the
knowledge that its affairs are dominated by a majority of the
stockholders and that he impliedly contracts that the will of the
majority shall govern in all matters within the limits of the act of
incorporation
15
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 * * *16 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 amend-
_________________
14 No. 26649, July 13, 1927, 50 Phil. 399, 441.
15 6 Thompson 369, Sec. 4490.

16 Ibid.
367
VOL. 89, APRIL 11, 1979 367

ment 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 17by-law shall be
subject to amendment, alteration and modification.
It being settled that the corporation has the power to provide for
the qualifications of its directors, the next question that must be
considered is whether the disqualification of a competitor from
being elected to the Board of Directors is a reasonable exercise of
corporate authority.
A DIRECTOR STANDS IN A FIDUCIARY RELATION TO THE
CORPORATION AND ITS SHAREHOLDERS
Although in the strict and technical sense, directors of a private
corporation are not regarded as trustees, there cannot be any doubt
that their character is that of a fiduciary insofar as the corporation
and the stockholders as a body are concerned. As agents entrusted
with the management of the corporation for the collective benefit of
the stockholders, “they occupy18 a fiduciary relation, and in this sense
the relation is one of trust.” “The ordinary trust relationship of
directors 19of a corporation and stockholders”, according to Ashaman
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 affairs and property and hence of the property in-
_________________
17 Mobile Press Register, Inc. v. McGowin, 277 Ala. 414, 124 So. 2d 812;
Brundage v. The New Jersey Zinc Co., 226 A 2d 585.
18 Fletcher, Cyclopedia Corporations, 1975 Ed., Vol. 3, p. 144, Sec. 838.
19 101 Fed. 2d 85, cited in Aleck, Modern Corporation Law, Vol. 2, Sec. 959.
368
terests of the stockholders. Equity recognizes that stockholders are

the proprietors of the corporate interests and are ultimately the only
beneficiaries thereof * * *.” 20
Justice Douglas, in Pepper v. Litton, emphatically restated the
standard of fiduciary obligation of the directors of corporations,
thus:
“A director is a fiduciary. * * * Their powers are powers in trust. * * * He

who is in such fiduciary position cannot serve himself first and his cestuis
second. * * * He cannot manipulate the affairs of his corporation to their
detriment and in disregard of the standards of common decency. He cannot
by the intervention of a corporate entity violate the ancient precept against
serving two masters. * * * He cannot utilize his inside information and
strategic position for his own preferment. He cannot violate rules of fair
play by doing indirectly through the corporation what he could not do so
directly. He cannot violate rules of fair play by doing indirectly through the
corporation what he could not do so directly. He cannot use his power for
his personal advantage and to the detriment of the stockholders and creditors
no matter how absolute in terms that power may be and no matter how
meticulous he is to satisfy technical requirements. For that power is at all
times subject to the equitable limitation that it may not be exercised for the
aggrandizement, preference, or advantage of the fiduciary to the exclusion
or detriment of the cestuis.”
21
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 find any express
prohibition against a discretion to select directors having the company’s
interest at heart, and it would simply be going far to deny by mere
implication the existence of such a salutary power.
________________
20 308 U.S. 309; 84 L. ed. 281, 289-291.

21 16 S.E. 587, 18 L.R.A. 582.
369
VOL. 89, APRIL 11, 1979 369

“* * * If the by-law is to be held reasonable in disqualifying a stockholder in

a competing company from being a director, the same reasoning would
apply to disqualify the wife and immediate member of the family of such
stockholder, on account of the supposed interest of the wife in her husband’s
affairs, and his supposed influence over her. It is perhaps true that such
stockholders ought not to be condemned as selfish and dangerous to the best
interest of the corporation until tried and tested. So it is also true that we
cannot condemn as selfish and dangerous and unreasonable the action of the
board in passing the by-law. The strife over the matter of control in this
corporation as in many others is perhaps carried on not altogether in the
spirit of brotherly love and affection. The only test that we can apply is as to
whether 22
or not the action of the Board is authorized and sanctioned by law.
* * *.”
23
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
24
with or is antagonistic to the other corporation is valid.” This is
based
_________________
22 265 F. Supp., pp. 8-9.

23 Barreto v. Tuason, No. 23923, Mar. 23, 1926, 50 Phil. 888; Severino v. Severino,
No. 18058, Jan. 16, 1923, 44 Phil. 343; Thomas v. Pineda, L-2411, June 28, 1951, 89
Phil. 312, 326.
24 2 Fletcher Cyclopedia Corporations, Sec. 297 (1969), p. 87.
370

upon the principle that where the director is so employed in the

service of a rival company, he cannot serve both, but must betray
one or the other. Such an amendment “advances the benefit of the
corporation and is good.” An exception exists in New Jersey, where
the Supreme Court held that the Corporation Law in New Jersey
prescribed the only qualification, and therefore the
25
corporation was
not empowered to add additional qualifications. This is the exact
opposite of the situation in the Philippines because as stated
heretofore, section 21 of the Corporation Law expressly provides

that a corporation may make by-laws for the qualifications of
directors. Thus, it has been held that an officer of a corporation
cannot engage in a business in direct competition with that of the
corporation where he is a director by utilizing information he has
received as such officer, under “the established law that a director or
officer of a corporation may not enter into a competing enterprise
which cripples or injures26the business of the corporation of which he
is an officer or director.”
It is also well established that corporate officers “are not
permitted to use their
27
position of trust and confidence 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
firm’s products, and after establishing a rival business, the directors
entered into a new contract themselves with the foreign firm for
exclusive sale of its products, the court held that equity would regard
the new contract as an offshoot of the old contract and, therefore, for
the benefit of the corporation, as a “faultless fiduciary may 28not reap
the fruits of his misconduct to the exclusion of his principal.
________________
25 Costello v. Thomas Cusack Co., 125 A. 15, 94 N.J. Eq. 923, (1923).
26 Hall v. Dekker, 115 P. 2d 15, July 9, 1941.
27 Thaver v. Gaebler, 232 NW 563.
28 Sialkot Importing Corporation v. Berlin, 68 NE 2d 501, 503.
371
VOL. 89, APRIL 11, 1979 371

29
The doctrine of “corporate opportunity” is precisely a recognition
by the courts that the fiduciary standards could not be upheld where
the fiduciary was acting for two entities with competing interests.
This doctrine rests fundamentally on the unfairness, in particular
circumstances, of an officer or director taking advantage of an
opportunity for his own personal profit 30
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
confidential information, such as: (a) marketing strategies and
pricing structure; (b) budget for expansion and diversification; (c)
research and development; and (d) sources of funding,
________________
29 Schildberg Rock Products Co. v. Brooks, 140 NW 2d 132, 137. Chief Justice
Garfield quotes the doctrine as follows:
“(5) The doctrine ‘corporate opportunity’ is not new to the law and is but one phase of the
cardinal rule of undivided loyalty on the part of the fiduciaries. 3 Fletcher Cyc. Corporations,
Perm. Ed., 1965 Revised Volume, section 861.1, page 227; 19 Am. Jur. 2d, Corporations,
section 1311, page 717. Our own consideration of the quoted terms as such is mainly in Ontjes
v. MacNider, supra, 232 Iowa 562, 579, 5 N.W., 2d 860, 869, which quotes at length with
approval from Guth v. Loft, Inc., 23 Del. Ch. 255, 270, 5 A 2d 503, 511, a leading case in this
area of the law. The quotation cites several precedents for this: ‘* * * if there is presented to a
corporate officer or director a business opportunity which the corporation is financially able to
undertake, is from its nature, in the line of the corporation’s business and is of practical
advantage to it, is one in which the corporation has an interest or a reasonable expectancy, and
by embracing the opportunity, the self-interest of the officer or director will be brought into
conflict with that of his corporation, the law will not permit him to seize the opportunity for
himself. And, if, in such circumstances, the interests of the corporation are betrayed, the
corporation may elect to claim all of the benefits of the transaction for itself, and the law will
impress a trust in favor of the corporation upon the property, interests and profits so acquired.”
30 Paulman v. Kritzer, 74 III. App. 2d 284, 291 NE 2d 541; Tower Recreation, Inc.
v. Beard, 141 Ind. App. 649, 231 NE 2d 154.
372

availability of personnel, proposals of mergers or tie-ups with other

firms.
It is obviously to prevent the creation of an opportunity for an
officer or director of San Miguel Corporation, who is also the officer
or owner of a competing corporation, from taking advantage of the
information which he acquires as director to promote his individual
or corporate interests to the prejudice of San Miguel Corporation
and its stockholders, that the questioned amendment of the by-laws
was made. Certainly, where two corporations are competitive in a
substantial sense, it would seem improbable, if not impossible, for
the director, if he were to discharge effectively his duty, to satisfy his
loyalty to both corporations and place the performance of his
corporation duties above his personal concerns.
Thus, in McKee & Co. v. First National Bank of San Diego,
supra, the court sustained as valid and reasonable an amendment to
the by-laws of a bank, requiring that its directors should not be
directors, officers, employees, agents, nominees or attorneys of any
other banking corporation, affiliate or subsidiary thereof. Chief
Judge Parker, in McKee, explained the reasons of the court, thus:
“* * * A bank director has access to a great deal of information concerning

the business and plans of a bank which would likely be injurious to the bank
if known to another bank, and it was reasonable and prudent to enlarge this
minimum disqualification to include any director, officer, employee, agent,
nominee, or attorney of any other bank in California. The Ashkins case,
supra, specifically recognizes protection against rivals and others who might
acquire information which might be used against the interests of the
corporation as a legitimate object of by-law protection. With respect to
attorneys or persons associated with a firm which is attorney for another
bank, in addition to the direct conflict or potential conflict of interest, there
is also the danger of inadvertent leakage of confidential information through
casual office discussions or accessibility of files. Defendant’s directors
determined that its welfare was best protected if this opportunity for
conflicting loyalties and potential misuse and leakage of confidential
information was foreclosed.”
In McKee, the Court further listed qualificational by-laws upheld by

the courts, as follows:
373
VOL. 89, APRIL 11, 1979 373

“(1) A director shall not be directly or indirectly interested as a

stockholder in any other firm, company, or association
which competes with the subject corporation.
(2) A director shall not be the immediate member of the family
of any stockholder in any other firm, company, or
association which competes with the subject corporation.
(3) A director shall not be an officer, agent, employee, attorney,
or trustee in any other firm, company, or association which
compete with the subject corporation.
(4) A director shall be of good moral character as an essential
qualification to holding office.
(5) No person who is an attorney against the corporation in a
law suit is eligible for service on the board.” (At p. 7.)
These are not based on theorical abstractions but on human

experience—that a person cannot serve two hostile masters without
detriment to one of them.
The offer and assurance of petitioner that to avoid any possibility
of his taking unfair advantage of his position as director of San
Miguel Corporation, he would absent himself from meetings at
which confidential matters would be discussed, would not detract
from the validity and reasonableness of the by-laws here involved.
Apart from the impractical results that would ensue from such
arrangement, it would be inconsistent with petitioner’s primary
motive in running for board memberhsip—which is to protect his
investments in San Miguel Corporation. More important, such a

proposed norm of conduct would be against all accepted principles
underlying a director’s duty of fidelity to the corporation, for the
policy of the law is to encourage and31 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 definite policies
and rules of guidance with a
________________
31 Oleck, Modern Corporation Law, Vol. 2, Section 960.
374

vigilant eye toward seeing to it that these policies are carried out. It
is only then that directors may be said to have fulfilled their duty of
fealty to the corporation.”
Sound principles of corporate management counsel against
sharing sensitive information with a director whose fiduciary duty of
loyalty may well require that he disclose this information to a
competitive rival. These dangers are enhanced considerably where
the common director such as the petitioner is a controlling
stockholder of two of the competing corporations. It would seem
manifest that in such situations, the director has an economic
incentive to appropriate for the benefit of his own corporation the
corporate plans and policies of the corporation where he sits as
director.
Indeed, access by a competitor to confidential information
regarding marketing strategies and pricing policies of San Miguel
Corporation would subject the latter to a competitive disadvantage
and unjustly enrich the competitor, for advance knowledge by the
competitor of the strategies for the development of existing or new
markets of existing or new products could 32
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 Con-
________________
32 “The CFC and Robina companies, which are reportedly worth more than P500
Million, are principally owned and controlled by Mr. Gokongwei and are in
substantial competition to San Miguel. As against his almost 100% ownership in
these basically family companies, Mr. Gokongwei’s holding in San Miguel are
approximately 4% of the total shareholdings of your Company. As a consequence,
One Peso (P1.00) of profit resulting from a sale by CFC and Robina in the lines
competing with San Miguel, is earned almost completely by Mr. Gokongwei, his
immediate family and close associates. On the other hand, the loss of that sale to San
Miguel, resulting in a One Peso (P1.00) loss of profit to San Miguel, in the limes
competing with CFC and Robina, would result in a loss in profit of only Four
Centavos (P0.04) to Mr. Gokongwei.” (Letter to stockholders of SMC, dated April 3,
1978, Annex “R”, Memo for respondent San Miguel Corporation, rollo, p. 1867).
375
VOL. 89, APRIL 11, 1979 375

stitution and the law prohibit combinations in restraint of trade or

unfair competition. Thus, section 2 of Article XIV of the
Constitution provides: “The State shall regulate or prohibit private
monopolies when the public interest so requires. No combinations in
restraint of trade or unfair competition shall be allowed.”
Article 186 of the Revised Penal Code also provides:
“Art. 186. Monopolies and combinations in restraint of trade.—The penalty

of prision correccional in its minimum period or a fine ranging from two
hundred to six thousand pesos, or both, shall be imposed upon:
1. Any person who shall enter into any contract or agreement or shall
take part in any conspiracy or combination in the form of a trust or
otherwise, in restraint of trade or commerce or to prevent by artificial means
free competition in the market.
2. Any person who shall monopolize any merchandise or object of trade
or commerce, or shall combine with any other person or persons to
monopolize said merchandise or object in order to alter the price thereof by
spreading false rumors or making use of any other artifice to restrain free
competition in the market.
3. Any person who, being a manufacturer, producer, or processor of any
merchandise or object of commerce or an importer of any merchandise or
object of commerce from any foreign country, either as principal or agent,
wholesale or retailer, shall combine, conspire or agree in any manner with
any person likewise engaged in the manufacture, production, processing,
assembling or importation of such merchandise or object of commerce or
with any other persons not so similarly engaged for the purpose of making
transactions prejudicial to lawful commerce, or of increasing the market
price in any part of the Philippines, or any such merchandise or object of
commerce manufactured, produced, processed, assembled in or imported
into the Philippines, or of any article in the manufacture of which such
manufactured, produced, processed, or imported merchandise or object of
commerce is used.”
There are other legislation in this jurisdiction, 33

which prohibit
monopolies and combinations in restraint of trade.
________________
33 Article 28, Civil Code; Section 4, par. 5, of Rep. Act No. 5455; and Section 7
(g) of Rep. Act No. 6173. Cf. Section 17, paragraph 2. of the Judiciary Act.
376

Basically, these anti-trust laws or laws against monopolies or

combinations in restraint of trade are aimed at raising levels of
competition by improving the consumers’ effectiveness as the final
arbiter in free markets. These laws are designed to preserve free and
unfettered competition as the rule of trade. “It rests on the premise
that the unrestrained interaction of competitive forces will yield the
best allocation of our economic
34
resources, the lowest prices and the
highest quality *35 * *.” 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 36restraining competition or unduly
obstructing the course of trade.
The terms “monopoly”, “combination in restraint of trade” and
“unfair competition” appear to have a well defined meaning in other
jurisdictions. A “monopoly” embraces any combination the
tendency of which is to prevent competition in the broad37and 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 38power 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 unification of interest or
_________________
34 Standard Oil Co. v. United States, 55 L. Ed. 619.

35 Blake & Jones, Contracts in Antitrust Theory, 65 Columbia L. Rev. 377, 383
(1965).
36 Filipinas Compania de Seguros v. Mandanas, L-19638, June 20, 1966, 17
SCRA 391.
37 Love v. Kozy Theater Co., 236 SW 243, 245, 26 ALR 364.
38 Aldea-Rochelle, Inc. v. American Society of Composers, Authors and

Publishers, D.D.N.Y., 80 F. Suppl. 888, 893:
377
VOL. 89, APRIL 11, 1979 377

management, or it may be thru agreement and39concert of action. It

is, in brief, unified tactics with regard to prices.
From the foregoing definitions, it is apparent that the contentions
of petitioner are not in accord with reality. The election of petitioner
to the Board of respondent Corporation can bring about an illegal
situation. This is because an express agreement is not necessary 40for
the existence of a combination or conspiracy in restraint of trade. It
is enough that a concert of action is contemplated41
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 42would 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 confidential sales, pricing and
marketing information and would be in a position to coordinate
policies or to aid one corporation at the expense of another, thereby
stifling competition. This situation has been aptly explained by
Travers, thus:
“The argument for prohibiting competing corporations from sharing even

one director is that the interlock permits the coordination of policies
between nominally independent firms to an extent that competition between
them may be completely eliminated. Indeed, if a director, for example, is to
be faithful to both corporations, some accommodation must result. Suppose
X is a director of both
_________________
39 National Cotton Oil Co. v. State of Texas, 25 S.T. 379, 383, 49 L. Ed. 689.
40 Norfolk Monument Co. v. Woodlawn Memorial Gardens, Inc., 394 U.S. 700;
U.S. v. General Motors Corp., 384 U.S. 127.
41 U.S. v. Paramount Pictures, 334 U.S. 131.
42 Section 8, 15 U.S.C.A. 19.
378

Corporation A and Corporation B. X could hardly vote for a policy by A

that would injure B without violating his duty of loyalty to B; at the same
time he could hardly abstain from voting without depriving A of his best
judgment. If the firms really do compete—in the sense of vying for
economic advantage at the expense of the other—there can hardly be any
reason for an43interlock 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 of44the small ones dependent upon
them and to the injury of the public.”
Shared information on cost accounting may lead to price fixing.
Certainly, shared information on production, orders, shipments,
capacity and inventories may lead to control of production for the
purpose of controlling prices.
Obviously, if a competitor has access to the pricing policy and
cost conditions of the products of San Miguel Corporation, the
essence of competition in a free market for the purpose of serving
the lowest priced goods to the consuming public would be
frustrated. The competitor could so manipulate the prices of his
products or vary its marketing strategies by region or by brand in
order to get the most out of the consumers. Where the two
competing firms control a substantial segment of the market this
could lead to collusion and combination in restraint of trade. Reason
and experience point to the inevitable conclusion that the inherent
tendency of interlocking directorates between companies that are
related to each other as competitors is to blunt the edge of rivalry
between the corporations, to seek out ways of compromising
opposing interests, and thus eliminate competition. As respondent
SMC aptly observes, knowledge by CFC-Robina of SMC’s costs in
_________________
43 Travers, Interlocks in Corporate Management and the Anti Trust Laws, 46

Texas L. Rev. 819, 840 (1968).
44 51 Cong. Rec. 9091.
379
VOL. 89, APRIL 11, 1979 379

various industries and regions in the country will enable the former
to practice price discrimination. CF-Robina can segment the entire
consuming population by geographical areas or income groups and
change varying prices in order to maximize profits from every
market segment. CFC-Robina could determine the most profitable
volume at which it could produce for every product line in which it
competes with SMC. Access to SMC pricing policy by CFC-Robina
would in effect destroy free competition and deprive the consuming
public of opportunity to buy goods of the highest possible quality at
the lowest prices.
Finally, considering that both Robina and SMC are, to a certain
extent, engaged in agriculture, then the election of petitioner to the
Board of SMC may constitute a violation of the prohibition
contained in section 13(5) of the Corporation Law. Said section
provides in part that “any stockholder of more than one corporation
organized for the purpose of engaging in agriculture may hold his
stock in such corporations solely for investment and not for the
purpose of bringing about or attempting to bring about a
combination to exercise control of such corporations * *).”
Neither are We persuaded by the claim that the by-law was
intended to prevent the candidacy of petitioner for election to the
Board. If the by-law were to be applied in the case of one
stockholder but waived in the case of another, then it could be
reasonably claimed that the by-law was being applied in a
discriminatory manner. However, the by-law, by its terms, applies to
all stockholders. The equal protection clause of the Constitution
requires only that the by-law operate equally upon all persons of a
class. Besides, before petitioner can be declared ineligible to run for
director, there must be hearing and evidence must be submitted to
bring his case within the ambit of the disqualification. Sound
principles of public policy and management, therefore, support the
view that a by-law which disqualifies a competition from election to
the Board of Directors of another corporation is valid and
reasonable.
In the absence of any legal prohibition or overriding public
policy, wide latitude may be accorded to the corporation in
380

adopting measures to protect legitimate corporate interests. Thus,

“where the reasonableness of a by-law is a mere matter of judgment,
and upon which reasonable minds must necessarily differ, a court
would not be warranted in substituting its judgment instead of the

judgment of those who are authorized
45
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 definition of the terms “competition” and
“competitor”. “Competition” implies a struggle for advantage
between two or more forces, each possessing, in substantially
similar if not identical degree, certain characteristics essential to the
business sought. It means an independent endeavor of two or more
persons to obtain the business patronage of a third by46 offering more
advantageous terms as an inducement to secure trade. The test must
be whether the business does in fact compete, not whether it is
capable of an indirect and highly unsubstantial
47
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 dis-
_________________
45 People ex rel. Wildi v. Ittner, supra, citing Thompson on Corporation, Section

1002 (2nd Ed.).
46 Schill v. Remington Putnam Book Co., 17 A 2d 175, 180, 179 Md. 83.
47 People ex rel. Broderick v. Goldfogle, 205 NYS 870, 877, 123 Misc. 399.
381
VOL. 89, APRIL 11, 1979 381

qualified. Consonant with the requirement of due process, there

must be due hearing at which the petitioner must be given the fullest
opportunity to show that he is not covered by the disqualification.
As trustees of the corporation and of the stockholders, it is the48
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 its49

decision shall be final unless reversed by this Court on certiorari.
Indeed, it is a settled principle that where the action of a Board of
Directors
_________________
48 Swanson v. American Consumer Industries, Inc., 288 F. Supp. 60.

49 Sections 3 and 5 of Presidential Decree No. 902-A provides:
“SEC. 3. The Commission shall have absolute jurisdiction, supervision and control
over all corporations * * * who are grantees of * * * license or permit issued by the
government * * *.”
“SEC. 5. In addition to the regulatory and adjudicative functions of the Securities
and Exchange Commission over corporations, partnerships and other forms of
associations registered with its as expressly granted under existing laws and decrees,
it shall have original and exclusive jurisdiction to hear and decide cases involving:
a) Devices or schemes employed by or any acts, of the board of directors, business associates,
its officers or partners amounting to fraud and misrepresentation which may be detrimental to
the interest of the public and/or of the stockholders, partners, members of associations or
organizations registered with the Commission.
b) Controversies arising out of intra-corporate or partnership relations, between and among
stockholders, members, or associates; between any or all of them and the corporation,
partnership or association of which they are stockholders, members or associates, respectively;
and between such corporation, partnership or association and the state insofar as it concerns
their individual franchise or right to exist as such entity;
c) Controversies in the election or appointments of directors, trustees, officers or managers
of such corporations, partnership or associations.”
382

is an abuse of discretion, or forbidden by statute, or is against public

policy, or is ultra vires, or is a fraud upon minority stockholders or
creditors, or will result in waste, dissipation or misapplication of the
corporation assets, 50
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 petitioner’s claim that he was denied inspection rights as
stockholder of SMC “was made in the teeth of undisputed facts that,

over a specific period, petitioner had been furnished numerous
documents and information,” to wit: (1) a complete list of
stockholders and their stockholdings; (2) a complete list of proxies
given by the stockholders for use at the annual stockholders’
meeting of May 18, 1975; (3) a copy of the minutes of the
stockholders’ meeting of March 18, 1976; (4) a breakdown of
SMC’s P186.6 million investment in associated companies and other
companies as of December 31, 1975; (5) a listing of the salaries,
allowances, bonuses and other compensation or remunerations
received by the directors and corporate officers of SMC; (6) a copy
of the US$100 million EuroDollar Loan Agreement of SMC; and (7)
copies of the minutes of all meetings of the Board of Directors from
January 1975 to May 1976, with deletions of sensitive data, which
deletions were not objected to by petitioner.
Further, it was averred that upon request, petitioner was informed
in writing on September 18, 1976; (1) that SMC’s foreign
investments are handled by San Miguel International, Inc.,
incorporated in Bermuda and wholly owned by SMC; this was
SMC’s first venture abroad, having started in 1948 with
________________
50 Moore v. Keystone Macaroni Mfg. Co., 29 ALR 2d 1256.
383
VOL. 89, APRIL 11, 1979 383

an initial outlay of P500,000.00, augmented by a loan of Hongkong

$6 million from a foreign bank under the personal guaranty of
SMC’s former President, the late Col. Andres Soriano; (2) that as of
December 31, 1975, the estimated value of SMI would amount to
almost P400 million; (3) that the total cash dividends received by
SMC from SMI since 1953 has amount to US$9.4 million; and (4)
that from 1972-1975, SMI did not declare cash or stock dividends,
all earnings having been used in line with a program for the setting
up of breweries by SMI.
These averments are supported by the affidavit of the Corporate
Secretary, 51 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 52
equitable ownership, a beneficial ownership, or a quasi-ownership.
This right is predicated upon the necessity of self-protection. It is
generally held by majority of the courts that where the right is
granted by statute to the stockholder, it is given to him as such and
must be exercised by him with respect to his interest as a
stockholder and for53 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
________________
51 Annex “A” of SMC’s Comment on Supplemental Petition pp. 680-688, Rollo.

52 Fletcher Cyc, Private Corporations, Vol. 5, 1976 Rev. Ed. Section 2213, p. 693.
53 Fletcher, Ibid., Section 2218, p. 709.
384

has to be proper and lawful 54

in character and not inimical
55
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 specific and honest purpose, and not to
gratify curiosity, or for speculative or vexatious purposes.” The
weight of judicial opinion appears to be, that on application for
mandamus to enforce the right, it is proper for the court to inquire
into and consider the stockholder’s 56
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 not57sought in good faith or is used to the detriment of
the corporation.” But the “impropriety of purpose such as will
defeat enforcement must be set up the corporation defensively if the
Court is to take cognizance of it as a qualification. In other words,
the specific provisions take from the stockholder the burden of
showing propriety of purpose and place upon the corporation 58
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 benefit of
officers 59or 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 different thing.
________________
54 Fletcher, Ibid., Section 2222, p. 725.

55 40 O.G., 1st Suppl. 1. April 3, 1939, citing 14 C.J.S. 854, 855.
56 Fletcher, supra, p. 716.
57 State v. Monida & Yellowstone Stage Co., 110 Minn. 193, 124 NW 791, 125
NW 676; State v. Cities Service Co., 114 A 463.
58 Fletcher, supra, Section 2220, p. 717.
59 Fletcher, supra, Section 2223, p. 728.
385
VOL. 89, APRIL 11, 1979 385

Some state courts recognize the right under certain conditions, while
others do not. Thus, it has been held that, where a corporation owns
approximately no property except the shares of stock of subsidiary
corporations which are merely agents or instrumentalities of the
holding company, the legal fiction of distinct corporate entities may
be disregarded and the books, papers and documents of all60 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 parposes, the records61of 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 sufficient control or
dominion by the parent showing
62
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, 63although 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
64
was not within the class of “persons having an
interest.” 65
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 in-
_________________
60 Martin v. D. B. Martin Co., 10 Del. Ch. 211, 88 A. 612, 102 A. 373.

61 Woodward v. Old Second National Bank, 154 Mich. 459, 117 NW 893, 118 NW
581.
62 Martin v. D. B. Martin Co., supra.
63 State v. Sherman Oil Co., 1 W.W. Harr. (31 Del) 570, 117 A. 122.
64 Lisle v. Shipp, 96 Cal. App. 264, 273 P. 1103.
65 Nash v. Gay Apparel Corp., 193 NYS 2d 246.
386

spect corporation’s subsidiaries’ books and records which were in

corporation’s possession66 and control in its office 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 offices and had identical officers and directors.
In his “Urgent Motion for Production and Inspection of
Documents” before respondent SEC, petitioner contended that
respondent corporation “had been attempting to suppress
information from the stockholders” and that petitioner, “as
stockholder of respondent corporation, is entitled to copies of some
documents which for some reason or another, respondent
corporation is very reluctant in revealing to the petitioner
notwithstanding 67the 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 financial
condition of the corporation, and generally 68
take an account of the
stewardship of the officers 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
________________
66 Bailey v. Boxboard Products Co., 314 Pa. 45, 170 A. 127.

67 Rollo, pp. 50-51.
68 18 Am. Jur. 2d 718.
387
VOL. 89, APRIL 11, 1979 387

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 offense, instead of
allowing ratification of the investment by the stockholders.
Respondent SEC’s position is that submission of the investment
to the stockholders for ratification is a sound corporate practice and
should not be thwarted but encouraged.
Section 17-1/2 of the Corporation Law allows a corporation to
“invest its funds in any other corporation or business or for any
purpose other than the main purpose for which it was organized”
provided that its Board of Directors has been so authorized by the
affirmative vote of stockholders holding shares entitling them to
exercise at least two-thirds of the voting power. If the investment is
made in pursuance of the corporate purpose, it does not need the
approval of the stockholders. It is only when the purchase of shares
is done solely for investment and not to accomplish the purpose of
its incorporation that the vote of approval of the stockholders
holding shares entitling them
69
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
________________
69 De la Rama v. Ma-ao Sugar Central Co., Inc., L-17504 and L17506, February
28, 1969, 27 SCRA 247, 260.
388

the organization of SMI in Bermuda as a tax free reorganization.

Under these circumstances, the ruling in De la Rama v. Maao
Sugar Central Co., Inc., supra, appears relevant. In said case, one of
the issues was the legality of an investment made by Ma-ao Sugar
Central Co., Inc., without prior resolution approved by the
affirmative vote of 2/3 of the stockholders’ voting power, in the
Philippine Fiber Processing Co., Inc., a company engaged in the
manufacture of sugar bags. The lower court said that “there is more
logic in the stand that if the investment is made in a corporation
whose business is important to the investing corporation and would
aid it in its purpose, to require authority of the stockholders would
be to unduly curtail the power of the Board of Directors.” This Court
affirmed the ruling of the court a quo on the matter and, quoting
Prof. Sulpicio S. Guevara, said:
“ ‘j. Power to acquire or dispose of shares or securities.—A private

corporation, in order to accomplish is purpose as stated in its articles of
incorporation, and subject to the limitations imposed by the Corporation
Law, has the power to acquire, hold, mortgage, pledge or dispose of shares,
bonds, securities, and other evidences of indebtedness of any domestic or
foreign corporation. Such an act, if done in pursuance of the corporate
purpose, does not need the approval of stockholders; but when the purchase
of shares of another corporation is done solely for investment and not to
accomplish the purpose of its incorporation, the vote of approval of the
stockholders is necessary. In any case, the purchase of such shares or
securities must be subject to the limitations established by the Corporation
law; namely, (a) that no agricultural or raining 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
389
VOL. 89, APRIL 11, 1979 389

or business, or for any purpose other than the main purpose for which it was
organized, provided that ‘its board of directors has been so authorized in a
resolution by the affirmative vote of stockholders holding shares in the

corporation entitling them to exercise at least two-thirds of the voting power
on such a proposal at a stockholders’ meeting called for that purpose,’ and
provided further, that no agricultural or mining corporation shall in anywise
be interested in any other agricultural or mining corporation. When the
investment is necessary to accomplish its purpose or purposes as stated in
its articles of incorporation, the approval of the stockholders is not
necessary.” “(Id., p. 108.) (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 upon70 it the originally unauthorized acts of its officers 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 affirmative vote of the stockholders holding two-
thirds of the voting power. This requirement is for the benefit of the
stockholders. The stockholders for whose benefit the requirement
was enacted may, therefore, ratify the investment and its ratification
by said stockholders obliterates any defect which it may have had71
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 ratified by the
stockholders.”
Besides, the investment was for the purchase of beer
manufacturing and marketing facilities which is apparently
_________________
70 Boyce v. Chemical Plastics, 175 F 2d 839, citing 13 Am. Jur., Section 972.
71 Pirovano v. De la Rama Steamship Co., L-53-7, 96 Phil. 335, December 29,
1954.
390

relevant to the corporate purpose. The mere fact that respondent

corporation submitted the assailed investment to the stockholders for
ratification at the annual meeting of May 10, 1977 cannot be
construed as an admission that respondent corporation had
committed an ultra vires act, considering the common practice of
corporations of periodically submitting for the ratification of their

stockholders the acts of their directors, officers and managers.
WHEREFORE, judgment is hereby rendered as follows:
The Court voted unanimously to grant the petition insofar as it
prays that petitioner be allowed to examine the books and records of
San Miguel International, Inc., as specified by him.
On the matter of the validity of the amended by-laws of
respondent San Miguel Corporation, six (6) Justices, namely,
Justices Barredo, Makasiar, Antonio, Santos, Abad Santos and De
Castro, voted to sustain the validity per se of the amended by-laws
in question and to dismiss the petition without prejudice to the
question of the actual disqualification of petitioner John Gokongwei,
Jr. to run and if elected to sit as director of respondent San Miguel
Corporation being decided, after a new and proper hearing by the
Board of Directors of said corporation, whose decision shall be
appealable to the respondent Securities and Exchange Commission
deliberating and acting en banc, and ultimately to this Court. Unless
disqualified in the manner herein provided, the prohibition in the
afore-mentioned amended by-laws shall not apply to petitioner.
The afore-mentioned six (6) Justices, together with Justice
Fernando, voted to declare the issue on the validity of the foreign
investment of respondent corporation as moot.
Chief Justice Fred Ruiz Castro reserved his vote on the validity
of the amended by-laws, pending hearing by this Court on the
applicability of section 13(5) of the Corporation Law to petitioner.
Justice Fernando reserved his vote on the validity of subject
amendment to the by-laws but otherwise concurs in the result.
391
VOL. 89, APRIL 11, 1979 391

Four (4) Justices, namely, Justices Teehankee, Concepcion Jr.,

Fernandez and Guerrero filed a separate opinion, wherein they voted
against the validity of the questioned amended bylaws and that this
question should properly be resolved first by the SEC as the agency
of primary jurisdiction. They concur in the result that petitioner may
be allowed to run for and sit as director of respondent SMC in the
scheduled May 6, 1979 election and subsequent elections until
disqualified after proper hearing by the respondent’s Board of
Directors and petitioner’s disqualification shall have been sustained
by respondent SEC en banc and ultimately by final judgment of this
Court.
In resumé, subject to the qualifications afore-stated, judgment is
hereby rendered GRANTING the petition by allowing petitioner to
examine the books and records of San Miguel
*
International, Inc. as
specified in the petition. The petition, insofar as it assails the
validity of the amended by-laws and the ratification of the foreign

investment of respondent corporation, for lack of necessary votes, is
hereby DISMISSED. No costs.
Makasiar, Santos, Abad Santos and De Castro, JJ., concur.

Castro, C.J., reserves his right to file a separate opinion.
Fernando, J., concurs in the result and reserves his right to
file a separate opinion.
Teehankee, Concepcion Jr., Fernandez, and Guerrero, JJ.,
file a joint separate opinion.
Barredo, J., concurs and reserves the filing of a separate
opinion.
Aquino, and Melencio Herrera, JJ., did not take part.
Fernandez, J., concurs in the opinion of Justice Teehankee.
Guerrero, J., concurs and dissents in a separate opinion.
________________
* Includes the Supplemental petitions filed by petitioner.
392

CERTIFICATION
The undersigned hereby certifies that Justice VICENTE ABAD

SANTOS concurred in the opinion of Justice FELIX Q. ANTONIO.
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 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
393
VOL. 89, APRIL 11, 1979 393

1
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

2
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 of the board of directors, the Court, composed of 12
members (since Mme. Justice Ameurfina Melencio Herrera inhibited
herself from taking part herein, while Mr. Justice Ramon C. Aquino
upon submittal of the main opinion of Mr. Justice Antonio decided
not to take part), failed to reach a conclusive vote or the required
majority of 8 votes to settle the issue one way or the other.
Six members of the Court, namely, Justices Barredo, Makasiar,
Antonio, Santos, Abad Santos and De Castro, considered the issue
purely legal and voted to sustain the validity per se of the questioned
amended by-laws but nevertheless voted that the prohibition and
disqualification therein provided shall not apply to petitioner
Gokongwei until and after he shall have been given “a new and
proper hearing” by the corporation’s board of directors and the
board’s decision of disqualification shall have been sustained on
appeal by respon-
________________
1 Main opinion, p. 55.

2 Sec. 2, Art. III of respondent corporation’s By-Laws, reproduced in footnote 1 of
the main opinion, pages 3 and 4.
394

dent 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 3
finds 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
4
before the commission should
first 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
disqualification) which would bar petitioner from qualification,
nomination and election as director and worse, grant the board by
3/4 vote the arbitrary power to bar any stockholder from his right to
be elected as director by the simple expedient of declaring him to be
engaged in a “competitive or antagonistic business” or declaring him
as a “nominee” of the “competitive or antagonistic” stockholder are
illegal, oppressive, arbitrary and unreasonable.
We consider the questioned amended by-laws as being
specifically tailored to discriminate against petitioner and depriving
him in violation of substantive due process of his vested substantial
rights as stockholder of respondent corporation. We further consider
said amended by-laws as violating specific provisions of the
Corporation Law which grant and recognize the right of a minority
stockholder like petitioner to be elected director by the process of
cumulative voting ordained by the Law (secs. 21 and 30) and the
right of a minority director once elected not to be removed from

office of director except for cause by vote of the stockholders
holding 2/3 of the subscribed capital stock (sec. 31). If a minority
_________________
3 Rollo, Vol. I, page 392-E.

4 SEC memo, pages 9 and 10.
395
VOL. 89, APRIL 11, 1979 395

stockholder could be disqualified by such a by-laws amendment

under the guise of providing for “qualifications,” these mandates of
the Corporation Law would have no meaning or purpose.
These vested and substantial rights granted stockholders under
the Corporation Law may not be diluted or defeated by the general
authority granted by the Corporation Law itself to corporations to
adopt their by-laws (in section 21) which deal principally with the
procedures governing their internal business. The by-laws of any
corporation must be always within the charter limits. What the
Corporation Law has granted stockholders may not be taken away
by the corporation’s by-laws. The amendment is further an
instrument of oppressiveness and arbitrariness in that the incumbent
directors are thereby enabled to perpetuate themselves in office by
the simple expedient of disqualifying any unwelcome candidate, no
matter how many votes he may have.
However, in view of the inconclusiveness of the vote, we sustain
respondent commission’s stand as expressed in its Orders Nos. 450
and 451, Series of 1977 that there are “unresolved and genuine
issues of fact” and that it has yet to rule on and finally decide the
validity of the disputed by-law provision”, subject to appeal by
either party to this Court.
In view of prematurity of the proceedings here (as likewise
expressed by Mr. Justice Fernando), the case should as a
consequence be remanded to the Securities and Exchange
Commission as the agency of primary jurisdiction for a full hearing
and reception of evidence of all relevant facts (which should
property be submitted to the commission instead of the piecemeal
documents submitted as annexes to this Court which is not a trier of
facts) concerning not only the petitioner but the members of the
board of directors of respondent corporation as well, so that it may
determine on the basis thereof the issue of the legality of the
questioned amended by-laws, and assuming that it holds the same to
be valid whether the same are arbitrarily and unreasonably applied
to petitioner vis a vis other directors, who, petitioner claims, should
in such event be likewise disqualified from sitting in the board of

directors by
396

virtue of conflict of interests or their being likewise engaged in

“competitive or antagonistic business” with the corporation such as 5
investment and finance, 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 as
dismissal (for lack of necessary votes) is of no doctrinal value and
does not in any manner resolve the issue of the validity of the
questioned amended by-laws nor foreclose the same. The same
should properly be determined in a proper case in the first instance
by the Securities and Exchange Commission as the agency of
primary jurisdiction, as above indicated.
The Court is unanimous, therefore, in its judgment that petitioner
Gokongwei may run for the office of, and if elected, sit as, member
of the board of directors of respondent San Miguel Corporation as
stated in the dispositive portion of the main opinion of Mr. Justice
Antonio, to wit: Until and after petitioner has been given a “new and
proper hearing by the board of directors of said corporation, whose
decision shall be appealable to the respondent Securities and
Exchange Commission deliberating and acting en banc and
ultimately to this Court” and until “disqualified in the manner herein
provided, the prohibition in the aforementioned amended by-laws
shall not apply to petitioner.” In other words, until and after
petitioner shall have been given due process and proper hearing by
the respondent board of directors as to the question of his
qualification or disqualification under the questioned amended by-
laws (assuming that the respondent Securities and Exchange
Commission ultimately upholds the validity of said bylaws), and
such disqualification shall have been sustained by respondent
Securities and Exchange Commission and ultimately by final
judgment of this Court, petitioner is deemed eligible for all legal
purposes and effects to be nominated
________________
5 Petitioner’s memorandum in support of oral argument, pp. 1820.
397
VOL. 89, APRIL 11, 1979 397

and voted and if elected to sit as a member of the board of directors

of respondent San Miguel Corporation.
In view of the Court’s unanimous judgment on this point, the
portion of respondent commission’s Order No. 450, Series of 1977
which imposed “the condition that he [petitioner] cannot sit as board
member if elected until after the Commission shall have finally
decided the validity of the disputed by-law provision” has been
likewise accordingly set aside.
III
By way of recapitulation, so that the Court’s decision and judgment

may be clear and not subject to ambiguity, we state the following:
1. With the votes of the six Justices concurring unqualifiedly in
the main opinion added to our four votes, plus the Chief Justice’s
vote and that of Mr. Justice Fernando, the Court has by twelve (12)
votes unanimously rendered judgment granting petitioner’s right to
examine and secure copies of the books and records of San Miguel
International, Inc. as a foreign subsidiary of respondent corporation
and respondent commission’s Order No. 449, Series of 1977, to the
contrary is set aside:
2. With the same twelve (12) votes, the Court has also
unanimously rendered judgment declaring that until and after
petitioner shall have been given due process and proper hearing by
the respondent board of directors as to the question of his
disqualification under the questioned amended by-laws (assuming
that the respondent Securities and Exchange Commission ultimately
upholds the validity of said by-laws), and such disqualification shall
have been sustained by respondent Securities and Exchange
Commission and ultimately by final judgment of this Court
petitioner is deemed eligible for all legal purposes and effect to be
nominated and voted and if elected to sit as a member of the board
of directors of respondent San Miguel Corporation. Accordingly,
respondent commission’s Order No. 450, Series of 1977 to the
contrary has likewise been set aside; and
398

3. The Court’s voting on the validity of respondent corporation’s

amendment of the by-laws (sec. 2, Art. III) is inconclusive without
the required majority of eight votes to settle the issue one way or the
other having been reached. No judgment is rendered by the Court
thereon and the statements of the six Justices who have signed the
main opinion on the legality thereof have no binding effect, much
less doctrinal value.
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 thereby dismissed the petition which
prayed that the Court bypass the commission and directly resolved
the issue and therefore the respondent commission may now
proceed, as announced in its Order No. 450, Series of 1977, to hear
the case before it and receive all relevant evidence bearing on the
issue as hereinabove indicated, and resolve the “unresolved and
genuine issues of fact” (as per Order No. 451, Series of 1977) and
the issues of legality of the disputed by-laws amendment.
Teehankee, Concepcion Jr., and Fernandez, JJ., concur.

Guerrero, J., concurred.
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
399
VOL. 89, APRIL 11, 1979 399

in this case” which might be produced by our joint separate opinion

of April 11, 1979 and “urgent(ly) to clarify (his) position in respect
to the rights of the parties resulting from the dismissal of the petition
herein and the outline of the procedure by which the disqualification
of petitioner Gokongwei can be made effective.”
1. Mr. Justice Barredo’s advances separate opinion “that as
between the parties herein, the issue of the validity of the challenged
by-laws is already settled” had, of course, no binding effect. The
judgment of the Court is found on pages 59-61 of the decision of

April 11, 1979, penned by Mr. Justice Antonio, wherein on the
question of the validity of the amended by-laws the Court’s
inconclusive voting is set forth as follows:
“Chief Justice Fred Ruiz Castro reserved his vote on the validity of the
amended by-laws, pending hearing by this Court on the applicability of
section 13(5) of the Corporation Law to petitioner.
“Justice Fernando reserved his vote on the validity of subject
amendment to the by-laws but otherwise concurs in the result.
“Four (4) Justices, namely, Justices Teehankee, Concepcion Jr.,
Fernandez and Guerrero filed a separate opinion, wherein they voted
against the validity of the questioned amended by-laws and that this
question should properly be 1
resolved first 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 effect of the
dismissal of the petition on the question of validity of the amended
by-laws for lack of the necessary votes simply means that “the Court
has thereby dismissed the petition which prayed that the Court by-
pass the commission and directly resolve the issue and therefore the
respondent commission may now proceed, as announced in its Order
No. 450, Series of
_________________
1 At p. 60; emphasis supplied.
400

1977, to hear the case before it and receive all relevant evidence
bearing on the issue as hereinabove indicated, and resolve the
‘unresolved and genuine issues of fact’ (as per Order No. 451, Series
of 1977) and the issue of legality of the disputed by-laws
amendment,” that such dismissal “has no other legal consequence
than that it is the law of the case as far as the parties are concerned,
albeit the majority of the opinion of six against four Justices is not
doctrinal in the sense that it cannot be cited as necessarily a
precedent for subsequent cases.”
We hold on our part that the doctrine of the law of the case
invoked by Mr. Justice Barredo has no applicability for the
following reasons:
a) Our jurisprudence is quite clear that this doctrine may be
invoked only where there has been a final and conclusive
determination of an issue in the first case later invoked as the law of
the case. 2
Thus, in People vs. Olarte , we held that
“ ‘Law of the case’ has been defined as the opinion delivered on a former
appeal. More specifically, it means that whatever is once irrevocably
established as the controlling legal rule of decision between the same parties
in the same case continues to be the law of the case, whether correct on
general principles or not, so long as the facts on which such decision was
predicated continue to be the facts of the case before the court. x x x
- - - - -
“It need not be stated that the Supreme Court, being the court of last
resort, is the final arbiter of all legal questions properly brought before it
and that its decision in any given case constitutes the law of that particular
case. Once its judgment becomes final it is binding on all inferior courts,
and hence beyond their power and authority to alter or modify (Kabigting
vs. Acting Director of Prisons, G. R. No. L-15548, October 30, 1962).
“ ‘The decision of this Court on that appeal by the government from the
order of dismissal, holding that said appeal did not place the
________________
2 19 SCRA 494; citing People vs. Pinnila, L-11374, May 30, 1958, cited in Lee vs.
Aligaen, 76 SCRA 416 (1977) per Antonio, J.
401
VOL. 89, APRIL 11, 1979 401

appellants, including Absalon Bignay, in double jeopardy, signed and

concurred in by six Justices as against three dissenters headed by the Chief
Justice, promulgated way back in the year 1952, has long become the law of
the case. It may be erroneous, judged by the law on double jeopardy as
recently interpreted by this same Tribunal Even so, it may not be disturbed
and modified. Our recent interpretation of the law may be applied to new
cases, but certainly not to an old one finally and conclusively determined.
As already stated, the majority opinion in that appeal is now the law of the
case.’ ” (People vs. Pinuila)
The doctrine of the law of the case, therefore, has no applicability

whatsoever herein insofar as the question of the validity or invalidity
of the amended by-laws is concerned. The Court’s judgment of April

11, 1979 clearly shows that the voting on this question was
inconclusive with six against four Justices and two other Justices
(the Chief Justice and Mr. Justice Fernando) expressly reserving
their votes thereon, and Mr. Justice Aquino while taking no part in
effect likewise expressly reserved his vote thereon. No final and
conclusive determination could be reached on the issue and pursuant
to the provisions of Rule 56, section 11, since this special civil
action originally commenced in this Court, the action was simply
dismissed with the result that no law of the case was laid down
insofar as the issue of the validity or invalidity of the questioned by-
laws is concerned, and the relief sought herein by petitioner that this
Court by-pass the SEC which has yet to hear and determine the same
issue pending before it below and that this Court itself directly
resolve the said issue stands denied.
b) The contention of Mr. Justice Barredo that the result of the
dismissal of the case was that “petitioner Gokongwei may not
hereafter act on the assumption that he can revive the issue of the
validity whether in the Securities and Exchange Commission, in this
Court or in any other forum, unless he proceeds on the basis of a
factual milieu different from the setting of this case. Not even the
Securities and Exchange Commission may pass on such question
anymore at the instance of herein petitioner or anyone acting in his
stead or on his behalf,” appears to us to be untenable.
402

The Court through the decision of April 11, 1979, by the unanimous
votes of the twelve participating Justices headed by the Chief
Justice, ruled that petitioner Gokongwei was entitled to a “new and
proper hearing” by the SMC board of directors on the matter of his
disqualification under the questioned by-laws and that the board’s
“decision shall be appealable to the respondent Securities and
ultimately to this Court (and) unless disqualified in the manner
herein provided, the prohibition in the aforementioned amended by-
laws shall not apply to petitioner.”
The entire Court, therefore, recognized that petitioner had not
been given procedural due process by the SMC board on the matter
of his disqualification and that he was entitled to a “new and proper
hearing”. It stands to reason that in such hearing, petitioner could
raise not only questions of fact but questions of law, particularly
questions of law affecting the investing public and their right to
representation on the board as provided by law—not to mention that
as borne out by the fact that no restriction whatsoever appears in the
Court’s decision, it was never contemplated that petitioner was to be

limited to questions of fact and could not raise the fundamental
questions of law bearing on the invalidity of the questioned amended
by-laws at such hearing before the SMC board. Farthermore, it was
expressly provided unanimously in the Court’s decision that the
SMC board’s decision on the disqualification of petitioner
(“assuming the board of directors of San Miguel Corporation should,
after the proper hearing, disqualify him” as qualified in Mr. Justice
Barredo’s own separate opinion, at page 2) shall be appealable to
respondent Securities and Exchange Commission “deliberating and
acting en banc” and “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
403
VOL. 89, APRIL 11, 1979 403

Securities and Exchange Commission and directly ruled itself on the

invalidity of the questioned by-laws when it itself could not reach a
final and conclusive vote (a minimum of eight votes) on the issue
and three other Justices (the Chief Justice and Messrs. Justices
Fernando and Aquino) had expressly reserved their vote until after
further hearings (first before the Securities and Exchange
Commission and ultimately in this Court).
Such a view espoused by Mr. Justice Barredo could conceivably
result in an incongruous situation where supposedly under the law of
this case the questioned by-laws would be held valid as against
petitioner Gokongwei and yet the same may be stricken off as
invalid as to all other SMC shareholders in a proper case.
3. It need only be pointed out that Mr. Justice Barredo’s advance
separate opinion can in no way affect or modify the judgment of this
Court as set forth in the decision of April 11, 1979 and discussed
hereinabove. The same bears the unqualified concurrence of only
three Justices out of the six Justices who originally voted for the
validity per se of the questioned by-laws, namely, Messrs. Justices
Antonio, Santos and De Castro. Messrs. Justices Fernando and
Makasiar did not concur therein but they instead concurred with the
limited concurrence of the Chief Justice touching on the law of the
case which guardedly held that the Court has not found merit in the
claim that the amended by-laws in question are invalid but without
in any manner foreclosing the issue and as a matter of fact and law,
without in any manner changing or modifying the above-quoted vote
of the Chief Justice as officially rendered in the decision of April 11,

1979, wherein he precisely “reserved (his) vote on the validity of the
amended by-laws.”
4. A word on the separate opinion of Mr. Justice Pacifico de
Castro attached to the advance separate opinion of Mr. Justice
Barredo, Mr. Justice De Castro advances his interpretation as to a
restrictive construction of section 13(5) of the Philippine
Corporation Law, ignoring or disregarding the fact that during the
Court’s deliberations it was brought out that this prohibitory
provision was and is not raised in issue in this
404

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 3
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 final and
conclusive vote).
Mr. Justice De Castro’s personal interpretation of the decision of
April 11, 1979 that petitioner may be allowed to ran for election
despite adverse decision of both the SMC board and the Securities
and Exchange Commission “only if he comes to this Court and
obtains an injunction against the enforcement of the decision
disqualifying him” is patently contradictory of his vote on the matter
as expressly given in the judgment in the Court’s decision of April
11, 1979 (at page 59) that petitioner could run and if elected, sit as
director of the respondent SMC and could be disqualified only after

a “new and proper hearing by the board of directors of said
corporation, whose
________________
3 Soriano’s Memorandum at page 94.
405
VOL. 89, APRIL 11, 1979 405

decision shall be appealable to the respondent Securities and

ultimately to this Court. Unless disqualified in the manner herein
provided, the prohibition in the aforementioned amended by-laws
shall not apply to petitioner.”
Teehankee, Concepcion Jr., Fernandez and Guerrero, JJ.,

concur.
ADVANCESEPARATEOPINION
BARREDO, J.:
I reserved the filing of a separate opinion in order to state my own

reasons for voting in favor of the validity of the amended by-laws in
question. Regrettably, I have not yet finished preparing the same. In
view, however, of the joint separate opinion of Justices Teehankee,
Concepcion Jr., Fernandez and Guerrero, the full text of which has
just come to my attention, and which I am afraid might produce
certain misimpressions as to the import of the decision in this case, I
consider it urgent to clarify my position in respect to the rights of the
parties resulting from the dismissal of the petition herein and the
outlining of the procedure by which the disqualification of petitioner
Gokongwei can be made effective, hence this advance separate
opinion.
To start with, inasmuch as petitioner Gokongwei himself placed
the issue of the validity of said amended by-laws squarely before the
Court for resolution, because he feels, rightly or wrongly, he can no
longer have due process or justice from the Securities and Exchange
Commission, and the private respondents have joined with him in
that respect, the six votes cast by Justices Makasiar, Antonio, Santos,
Abad Santos, de Castro and this writer in favor of validity of the
amended by-laws in question, with only four members of this Court,
namely, Justices Teehankee, Concepcion Jr., Fernandez and

Guerrero opining otherwise, and with Chief Justice Castro and
Justice Fernando reserving their votes thereon, and
406

Justices Aquino and Melencio Herrera not voting, thereby resulting

in the dismissal of the petition “insofar as it assails the validity of
the amended by-laws . . . for lack of necessary votes”, has no other
legal consequence than that it is the law of the case as far as the
parties herein are concerned, albeit the majority opinion of six
against four Justices is not doctrinal in the sense that it cannot be
cited as necessarily a precedent for subsequent cases. This means
that petitioner Gokongwei and the respondents, including the
Securities and Exchange Commission, are bound by the foregoing
result, namely, that the Court en banc has not found merit in the
claim that the amended by-laws in question are invalid, Indeed, it is
one thing to say that dismissal of the case is not doctrinal and
entirely another thing to maintain that such dismissal leaves the
issue unsettled. It is somewhat of a misreading and misconstruction
of Section 11 of Rule 56, contrary to the well-known established
norm observed by this Court, to state that the dismissal of a petition
for lack of the necessary votes does not amount to a decision on the
merits. Unquestionably, the Court is deemed to find no merit in a
petition in two ways, namely, (1) when eight or more members vote
expressly in that sense and (2) when the required number of justices
needed to sustain the same cannot be had.
I reiterate, therefore, that as between the parties herein, the issue
of validity of the challenged by-laws is already settled. From which
it follows that the same are already enforceable insofar as they are
concerned. Petitioner Gokongwei may not hereafter act on the
assumption that he can revive the issue of validity whether in the
Securities and Exchange Commission, in this Court or in any other
forum, unless he proceeds on the basis of a factual milieu different
from the setting of this case. Not even the Securities and Exchange
Commission may pass on such question anymore at the instance of
herein petitioner or anyone acting in his stead or on his behalf. The
vote of four justices to remand the case thereto cannot alter the
situation.
It is very clear that under the decision herein, the issue of validity
is a settled matter for the parties herein as the law of the case, and it
is only the actual implementation of the im-
407
VOL. 89, APRIL 11, 1979 407

pugned amended by-laws in the particular case of petitioner that

remains to be passed upon by the Securities and Exchange
Commission, and on appeal therefrom to Us, assuming the board of
directors of San Miguel Corporation should, after the proper
hearing, disqualify him.
To be sure, the record is replete with substantial indications, nay
admissions of petitioner himself, that he is a controlling stockholder
of corporations which are competitors of San Miguel Corporation.
The very substantial areas of such competition involving hundreds
of millions of pesos worth of businesses stand uncontroverted in the
records hereof. In fact, petitioner has even offered, if he should be
elected, as director, not to take part when the board takes up matters
affecting the corresponding areas of competition between his
corporation and San Miguel Nonetheless, perhaps, it is best that such
evidence be formally offered at the hearing contemplated in Our
decision.
As to whether or not petitioner may sit in the board, if he wins,
definitely, under the decision in this case, even if petitioner should
win, he will have to immediately leave his position or should be
ousted, the moment this Court settles the issue of his actual
disqualification, either in a full blown decision or by denying the
petition for review of corresponding decision of the Securities and
Exchange Commission unfavorable to him. And, of course, as a
matter of principle, it is to be expected that the matter of his
disqualification should be resolved expeditiously and within the
shortest possible time, so as to avoid as much juridical injury as
possible, considering that the matter of the validity of the prohibition
against competitors embodied in the amended by-laws is already
unquestionable among the parties herein and to allow him to be in
the board for sometime would create an obviously anomalous and
legally incongruous situation that should not be tolerated. Thus, all
the parties concerned must act promptly and expeditiously.
Additionally, my reservation to explain my vote on the validity of
the amended by-laws still stands.
408

Castro, C.J., concurs in Justice Barredo’s statement that the

dismissal (for lack of necessary votes) of the petition to the extent
that “it assails the validity of the amended by-laws,” is the law of the
case at bar, which means in effect that as far and only in so far as the
parties and the Securities and Exchange Commission are concerned,

the Court has not found merit in the claim that the amended by-laws
in question are invalid.
Fernando, J., concurs withe the opinion of Chief Justice

Castro.
Makasiar, J., concurs with the above opinion of the Chief
Justice.
Antonio and Santos, JJ., concur.
De Castro, J., with separate opinion.
SEPARATEOPINION
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 confidence. If this is so, as seems
undisputably to be the case, a person already controlling, and also
the Chairman of the Board and President of, a corporation, may be
barred from becoming a member of the board of directors of a
competitive corporation. This is my view, even as I am for a
restrictive interpretation of Section 13(5) of the Philippine
Corporation Law, under which I would limit the scope of the
provision to corporations engaged In agriculture, but only as the
word “agriculture” refers to its more limited meaning as
distinguished from its general and broad connotation The
409
VOL. 89, APRIL 11, 1979 409

term would then mean “farming” or raising the natural products of

the soil, such as by cultivation, in the manner as is required by the
Public Land Act in the acquisition of agricultural land, such as by
homestead, before the patent may be issued. It is my opinion that
under the public land statute, the development of a certain portion of
the land applied for as specified in the law as a condition precedent
before the applicant may obtain a patent, is cultivation, not let us

say, poultry raising or piggery, which may be included In the term
“agriculture” in its broad sense. For under Section 13(5) of the
Philippine Corporation Law, construed not in the strict way as I
believe it should, because the provision is in derogation of property
rights, the petitioner in this case would be disqualified from
becoming an officer of either the San Miguel Corporation or his own
supposedly agricultural corporations. It is thus beyond my
comprehension why, feeling as though I am the only member of the
Court for a restricted interpretation of Section 13(5) of Act 1459,
doubt still seems to be in the minds of other members giving the
cited provision an unrestricted interpretation, as to the validity of the
amended by-laws in question, or even holding them null and void.
I concur with the observation of Justice Barredo that despite that
less than six votes are for upholding the validity of the by-laws, their
validity is deemed upheld, as constituting the “law of the case.” It
could not be otherwise, after the present petition is dismissed with
the relief sought to declare null and void the said by-laws being
denied in effect. A vicious circle would be created if, should
petitioner Gokongwei be barred or disqualified from running by the
Board of Directors of San Miguel Corporation and the Securities and
Exchange Commission sustain the Board, petitioner could come
again to Us, raising the same question he has raised in the present
petition, unless the principle of the “law of the case” is applied.
Clarifying therefore, my position, I am of the opinion thai with
the validity of the by-laws in question standing unimpaired, it is now
for petitioner to show that he does not come within the
disqualification as therein provided, both to the Board and later to
the Securities and Exchange Commission, it
410

being a foregone conclusion that, unless petitioner disposes of his

stockholdings in the so-called competitive corporations, San Miguel
Corporation would apply the by-laws against him. His right,
therefore, to run depends on what, on election day, May 8, 1979, the
ruling of the Board and/or the Securities and Exchange Commission
on his qualification to run would be, certainly, not the final ruling of
this Court in the event recourse thereto is made by the party feeling
aggrieved, as intimated in the “Joint Separate Opinion” of Justices
Teehankee, Concepcion, Jr., Fernandez and Guerrero, that only after
petitioner’s “disqualification” has ultimately been passed upon by
this Court should petitioner not be allowed to run. Petitioner may be
allowed to run, despite an adverse decision of both the Board and
the Securities and Exchange Commission, only if he comes to this
Court and obtain an injunction against the enforcement of the

decision disqualifying him. Without such injunction being required,
all that petitioner has to do is to take his time in coming to this
Court, and in so doing, he would in the meantime, be allowed to run,
and if he wins, to sit. This would, however, be contrary to the
doctrine that gives binding, if not conclusive, effect of findings of
facts of administrative bodies exercising quasi-judicial functions
upon appellate courts, which should, accordingly, be enforced until
reversed by this Tribunal.
Notes.—Where the government enters into commercial business

it abandon its sovereign capacity and is to be treated like any other
corporation. (PNR vs. Union de Maquinistas, Fugoneros y
Motormen, 84 SCRA 223).
A corporation authorize under its articles of incorporation to
operate and otherwise deal in automobiles and accessories and to
engage in the transportation of persons by water may not engage in
the business of land transportation because such would have no
necessary connection with the corporation’s legitimate business.
(Luneta Motor Co. vs. A.D. Santos, Inc., 5 SCRA 809).
A derivative suit by a stockholder for the purpose of annulling
the appointment of a defendant as Chairman of the Board
411
VOL. 89, APRIL 11, 1979 411

of Directors is not a quo warranto proceeding. A stockholder has a

cause of action to annul certain actions of the Board of Directors of
a bank, which actions were considered anomalous and a breach of
trust prejudicial to the bank. (Republic Bank vs. Cuaderno, 19
SCRA 671).
The test to be applied is whether the act of the corporation is in
direct and immediate furtherance of its business, fairly incident to
the express powers and reasonably necessary to their exercise. If so,
the corporation has the power to do it; otherwise, not. (Montelibano
vs. Bacolod-Murcia Milling Co., Inc., 5 SCRA 36.)
A stockholder has a cause of action to annul certain action of the
Board of Directors of a bank, which actions were considered
anomalous and a breach of trust prejudicial to the bank. (Republic
Bank vs. Cuaderno, 19 SCRA 671.)
When a corporation was formed to evade subsidiary civil
liability, fiction of corporate entity will be disregarded. (Palacio vs.
Fely Transportation Company, 5 SCRA 1011 . )
——o0o——
412
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7/31/2019 SUPREME COURT REPORTS ANNOTATED VOLUME 089

336 SUPREME COURT REPORTS ANNOTATED

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

Supreme Court; Judgments; Securities and Exchange Commission;

VOL. 89, APRIL 11, 1979 337

Gokongwei, Jr. vs. Securities and Exchange Commission

Corporation Law; While reasonableness of a by-law is a legal

338 SUPREME COURT REPORTS ANNOTATED

Gokongwei, Jr. vs. Securities and Exchange Commission

Same; A director stands in a fiduciary relation to the competition and

stockholders, “they occupy a fiduciary relation, and in these sense the

VOL. 89, APRIL 11, 1979 339

Gokongwei, Jr. vs. Securities and Exchange Commission

Same; Same.—Basically, these anti-trust laws or laws against

prejudice the public interest by unduly restraining competition or unduly

340 SUPREME COURT REPORTS ANNOTATED

Gokongwei, Jr. vs. Securities and Exchange Commission

validity of the amended by-laws, it does not follow as a necessary

VOL. 89, APRIL 11, 1979 341

Gokongwei, Jr. vs. Securities and Exchange Commission

by the stockholders holding 2/3 of the voting power.—Assuming arguendo

342 SUPREME COURT REPORTS ANNOTATED

Gokongwei, Jr. vs. Securities and Exchange Commission

that the SMC board’s decision on the disqualification of petitioner

VOL. 89, APRIL 11, 1979 343

Gokongwei, Jr. vs. Securities and Exchange Commission

voting, thereby resulting in the dismissal of the petition “insofar as it assails

344 SUPREME COURT REPORTS ANNOTATED

Gokongwei, Jr. vs. Securities and Exchange Commission

ORIGINAL ACTION in the Supreme Court. Certiorari, mandamus

The facts are stated in the opinion of the Court.

Angara, Abello, Concepcion, Regala, Cruz Law Offices for

The instant petition for certiorari, mandamus and injunction, with

SEC CASE NO. 1375

On October 22, 1976, petitioner, as stockholder of respondent San

VOL. 89, APRIL 11, 1979 345

of amended by-laws, cancellation of certificate of filing of amended

amendment was based on the 1961 authorization, petitioner

346 SUPREME COURT REPORTS ANNOTATED

be a director of respondent corporation, being a substantial

1 The pertinent amendment reads as follows: “RESOLVED, That Section 2,

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As additional causes of action, it was alleged that corporations have

In determining whether or not a person is a controlling person, beneficial owner,

348 SUPREME COURT REPORTS ANNOTATED

had been attempting to suppress information from its stockholders

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which is to secure its repeal by vote of the stockholders representing

section 22 of the Corporation Law, hence the petition is premature;

350 SUPREME COURT REPORTS ANNOTATED

behalf of himself, CFC and Robina, “conducted malevolent and

Directors at the next annual meeting”; that thereafter the Board of

“Considering the evidence submitted before the Commission by the

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poration, San Miguel Corporation on January 14, 1977, at 9:30 o’clock in

between San Miguel Corporation and A. Soriano Corporation and the

Dissatisfied with the foregoing Order, petitioner moved for its

2 Annex “H”, Petition, pp. 168-169, Rollo.

352 SUPREME COURT REPORTS ANNOTATED

A motion for reconsideration of the order denying petitioner’s

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the amendment to the by-laws, subject matter of SEC Case No.

SEC CASE NO. 1423

Petitioner likewise alleges that, having discovered that respondent