COMMERCIAL LAW; CORPORATION CODE;BOARD OF
DIRECTORS; REQUIRED TO BE ELECTED; VIOLATION THEREOF FOR A
SECOND DIVISION
[G.R. No. 108905. October 23, 1997.]
GRACE CHRISTIAN HIGH SCHOOL, petitioner, vs. THE
COURT OF APPEALS, GRACE VILLAGE
ASSOCIATION, INC., ALEJANDRO G. BELTRAN, and
ERNESTO L. GO, respondents.
Padilla Law Office for petitioner.
Racela, Manguera & Fabie for private respondents.
SYNOPSIS
Petitioner Grace Christian High School is an educational institution at
the Grace Village in Quezon City while private respondent Grace Village
Association, Inc., is an organization of lot and/or building owners, lessees and
residents at Grace Village. On December 20, 1975, a committee of the board
of directors of the Association prepared a draft of an amendment to the 1968
by-laws of the Association providing, among others, that "GRACE CHRISTIAN
HIGH SCHOOL representative is a permanent Director of the ASSOCIATION,"
but the draft was never presented to the general membership for approval.
Nevertheless, from 1975 to 1990, petitioner was given a permanent seat in the
board of directors of the Association. However, on February 13, 1990, the
Association's committee on election informed the principal of the school that
all directors should be elected by members of the Association and that making
the School representative as a permanent director of the Association should
be reexamined. The School then brought suit to compel the board of directors
of the Association to recognize its right to a permanent seat in the board.
The Corporation Law requires members of the boards of directors of
corporations to be elected. The provision in question is contrary to law. The
fact that for several years it has not been questioned but, on the contrary,
appears to have been implemented by the members of the association, cannot
forestall a later challenge to its validity. Nor can petitioner claim a vested right
to sit in the board on the basis of "practice." DTEAHI
SYLLABUS
LONG PERIOD CONSIDERED MERE TOLERANCE, CANNOT BE
ACQUIESCED. — Sections 28 and 29 of the Corporation Law require
members of the boards of directors of corporations to be elected. The board
of directors of corporations must be elected from among the stockholders or
members. There may be corporations in which there are unelected members
in the board but it is clear that in the examples cited by petitioner the unelected
members sit as ex officio members, i.e., by virtue of and for as long as they
hold a particular office. But in the case of petitioner, there is no reason at all
for its representative to be given a seat in the board. Nor does petitioner claim
a right to such seat by virtue of an office held. In fact it was not given such seat
in the beginning. It was only in 1975 that the proposed amendment to the by-
laws sought to give it one. Since the provision in question is contrary to law,
the fact that for fifteen years it has not been questioned or challenged but, on
the contrary, appears to have been implemented by the members of the
association cannot forestall a later challenge to its validity. Neither can it attain
validity through acquiescence because, if it is contrary to law, it is beyond the
power of the members of the association to waive its invalidity. For that matter
the members of the association may have formally adopted the provision in
question, but their action would be of no avail because no provision of the by-
laws can be adopted if it is contrary to law. It is probable that, in allowing
petitioner's representative to sit on the board, the members of the association
were not aware that this was contrary to law. It should be noted that they did
not actually implement the provision in question except perhaps insofar as it
increased the number of directors from 11 to 15, but certainly not the allowance
of petitioner's representative as an unelected member of the board of directors.
It is more accurate to say that the members merely tolerated petitioner's
representative and tolerance cannot be considered ratification. Nor can
petitioner claim a vested right to sit in the board on the basis of "practice."
Practice, no matter how long continued, cannot give rise to any vested right if
it is contrary to law. Even less tenable is petitioner's claim that its right is
"coterminus with the existence of the association." SaIACT
DECISION
MENDOZA, J p:
The question for decision in this case is the right of petitioner's
representative to sit in the board of directors of respondent Grace Village
Association, Inc. as a permanent member thereof. For fifteen years — from
1975 until 1989 — petitioner's representative had been recognized as a
"permanent director" of the association. But on February 13, 1990, petitioner
received notice from the association's committee on election that the latter was
"reexamining" (actually, reconsidering) the right of petitioner's representative
to continue as an unelected member of the board. As the board denied
petitioner's request to be allowed representation without election, petitioner
brought an action for mandamus in the Home Insurance and Guaranty
Corporation. Its action was dismissed by the hearing officer whose decision
was subsequently affirmed by the appeals board. Petitioner appealed to the
Court of Appeals, which in turn upheld the decision of the HIGC's appeals
board. Hence this petition for review based on the following contentions:
1. The Petitioner herein has already acquired a vested right to a
permanent seat in the Board of Directors of Grace Village Association;
2. The amended By-laws of the Association drafted and promulgated
by a Committee on December 20, 1975 is valid and binding; and
3. The Practice of tolerating the automatic inclusion of petitioner as a
permanent member of the Board of Directors of the Association without the
benefit of election is allowed under the law. 1
Briefly stated, the facts are as follows:
Petitioner Grace Christian High School is an educational institution
offering preparatory, kindergarten and secondary courses at the Grace Village
in Quezon City. Private respondent Grace Village Association, Inc., on the
other hand, is an organization of lot and/or building owners, lessees and
residents at Grace Village, while private respondents Alejandro G. Beltran and
Ernesto L. Go were its president and chairman of the committee on election,
respectively, in 1990, when this suit was brought.
As adopted in 1968, the by-laws of the association provided in Article
IV, as follows:
The annual meeting of the members of the
Association shall be held on the first Sunday of January in
each calendar year at the principal office of the Association
at 2:00 P.M. where they shall elect by plurality vote and by
secret balloting, the Board of Directors, composed of eleven
(11) members to serve for one year until their successors
are duly elected and have qualified. 2
It appears, that on December 20, 1975, a committee of the board of
directors prepared a draft of an amendment to the by-laws, reading as
follows: 3
VI. ANNUAL MEETING
The Annual Meeting of the members of the
Association shall be held on the second Thursday of
January of each year. Each Charter or AssociateMember of
the Association is entitled to vote. He shall be entitled to as
many votes as he has acquired thru his monthly
membership fees only computed on a ratio of TEN (P10.00)
PESOS for one vote.
The Charter and Associate Members shall elect the
Directors of the Association. The candidates receiving
the first fourteen (14) highest number of votes shall be
declared and proclaimed elected until their successors are
elected and qualified. GRACE CHRISTIAN HIGH SCHOOL
representative is a permanent Director of the
ASSOCIATION.
This draft was never presented to the general membership for
approval. Nevertheless, from 1975, after it was presumably submitted to the
board, up to 1990, petitioner was given a permanent seat in the board of
directors of the association. On February 13, 1990, the association's
committee on election in a letter informed James Tan, principal of the school,
that "it was the sentiment that all directors should be elected by members of
the association" because "to make a person or entity a permanent Director
would deprive the right of voters to vote for fifteen (15) members of the Board,"
and "it is undemocratic for a person or entity to hold office in perpetuity." 4 For
this reason, Tan was told that "the proposal to make the Grace Christian High
School representative as a permanent director of the association, although
previously tolerated in the past elections should be reexamined." Following
this advice, notices were sent to the members of the association that the
provision on election of directors of the 1968 by-laws of the association would
be observed.
Petitioner requested the chairman of the election committee to change
the notice of election by following the procedure in previous elections, claiming
that the notice issued for the 1990 elections ran "counter to the practice in
previous years" and was "in violation of the by-laws (of 1975)" and "unlawfully
deprive[d] Grace Christian High School of its vested right [to] a permanent seat
in the board." 5
As the association denied its request, the school brought suit for
mandamus in the Home Insurance and Guaranty Corporation to compel the
board of directors of the association to recognize its right to a permanent seat
in the board. Petitioner based its claim on the following portion of the proposed
amendment which, it contended, had become part of the by-laws of the
association as Article VI, paragraph 2, thereof:
The Charter and Associate Members shall elect the
Directors of the Association. The candidates receiving
the first fourteen (14) highest number of votes shall be
declared and proclaimed elected until their successors are
elected and qualified. GRACE CHRISTIAN HIGH SCHOOL
 representative is a permanent Director of the
ASSOCIATION.
It appears that the opinion of the Securities and Exchange
Commission on the validity of this provision was sought by the association and
that in reply to the query, the SEC rendered an opinion to the effect that the
practice of allowing unelected members in the board was contrary to the
existing by-laws of the association and to §92 of the Corporation Code (B.P.
Blg. 68).
Private respondent association cited the SEC opinion in its answer.
Additionally, the association contended that the basis of the petition for
mandamus was merely "a proposed by-laws which has not yet been approved
by competent authority nor registered with the SEC or HIGC." It argued that
"the by-laws which was registered with the SEC on January 16, 1969 should
be the prevailing by-laws of the association and not the proposed amended
by-laws." 6
In reply, petitioner maintained that the "amended by-laws is valid and
binding" and that the association was estopped from questioning the by-
laws. 7
A preliminary conference was held on March 29, 1990 but nothing
substantial was agreed upon. The parties merely agreed that the board of
directors of the association should meet on April 17, 1990 and April 24, 1990
for the purpose of discussing the amendment of the by-laws and a possible
amicable settlement of the case. A meeting was held on April 17, 1990, but
the parties failed to reach an agreement. Instead, the board adopted a
resolution declaring the 1975 provision null and void for lack of approval by
members of the association and the 1968 by-laws to be effective. cdasia
On June 20, 1990, the hearing officer of the HIGC rendered a decision
dismissing petitioner's action. The hearing officer held that the amended by-
laws, upon which petitioner based its claim, "[was] merely a proposed by-laws
which, although implemented in the past, had not yet been ratified by the
members of the association nor approved by competent authority"; that, on the
contrary, in the meeting held on April 17, 1990, the directors of the association
declared 'the proposed by-law dated December 20, 1975 prepared by the
committee on by-laws . . . null and void" and the by-laws of December 17, 1968
as the "prevailing by-laws under which the association is to operate until such
time that the proposed amendments to the by-laws are approved and ratified
by a majority of the members of the association and duly filed and approved
by the pertinent government agency." The hearing officer rejected petitioner's
contention that it had acquired a vested right to a permanent seat in the board
of directors. He held that past practice in election of directors could not give
rise to a vested right and that departure from such practice was justified
because it deprived members of association of their right to elect or to be voted
in office, not to say that "allowing the automatic inclusion of a member
representative of petitioner as permanent director [was] contrary to law and
the registered by-laws of respondent association." 8
The appeals board of the HIGC affirmed the decision of the hearing
officer in its resolution dated September 13, 1990. It cited the opinion of the
SEC based on §92 of the Corporation Code which reads:
§92. Election and term of trustees. — Unless
otherwise provided in the articles of incorporation or the by-
laws, the board of trustees of non-stock corporations, which
may be more than fifteen (15) in number as may be fixed in
their articles of incorporation or by-laws, shall, as soon as
organized, so classify themselves that the term of office of
one-third (1/3) of the number shall expire every year; and
subsequent elections of trustees comprising one-third (1/3)
of the board of trustees shall be held annually and trustees
so elected shall have a term of three (3) years. Trustees
thereafter elected to fill vacancies occurring before the
expiration of a particular term shall hold office only for the
unexpired period.
The HIGC appeals board denied claims that the school "[was] being
deprived of its right to be a member of the Board of Directors of respondent
association," because the fact was that "it may nominate as many
representatives to the Association's Board as it may deem appropriate." It said
that "what is merely being upheld is the act of the incumbent directors of the
Board of correcting a long standing practice which is not anchored upon any
legal basis." 9
Petitioner appealed to the Court of Appeals but petitioner again lost
as the appellate court on February 9, 1993, affirmed the decision of the HIGC.
The Court of Appeals held that there was no valid amendment of the
association's by-laws because of failure to comply with the requirement of its
existing by-laws, prescribing the affirmative vote of the majority of the
members of the association at a regular or special meeting called for the
adoption of amendment to the by-laws. Article XIX of the by-laws provides: 10
The members of the Association by an affirmative
vote of the majority at any regular or special meeting called
for the purpose, may alter, amend, change or adopt any new
by-laws.
This provision of the by-laws actually implements §22 of the
Corporation Law (Act No. 1459) which provides:
§22. The owners of a majority of the subscribed
capital stock, or a majority of the members if there be no
capital stock, may, at a regular or special meeting duly
called for the purpose, amend or repeal any by-law or adopt
 new by-laws. The owners of two-thirds of the subscribed
capital stock, or two-thirds of the members if there be no
capital stock, may delegate to the board of directors the
power to amend or repeal any by-law or to adopt new by-
laws: Provided, however, That any power delegated to the
board of directors to amend or repeal any by-law or adopt
new by-laws shall be considered as revoked whenever a
majority of the stockholders or of the members of the
corporation shall so vote at a regular or special
meeting. And provided,further, That the Director of the
Bureau of Commerce and Industry shall not hereafter file an
amendment to the by-laws of any bank, banking institution
or building and loan association, unless accompanied by
certificate of the Bank Commissioner to the effect that such
amendments are in accordance with law.
The proposed amendment to the by-laws was never approved by the
majority of the members of the association as required by these provisions of
the law and by-laws. But petitioner contends that the members of the
committee which prepared the proposed amendment were duly authorized to
do so and that because the members of the association thereafter
implemented the provision for fifteen years, the proposed amendment for all
intents and purposes should be considered to have been ratified by them.
Petitioner contends: 11
Considering, therefore, that the "agents" or
committee were duly authorized to draft the amended by-
laws and the acts done by the "agents" were in accordance
with such authority, the acts of the "agents" from the very
beginning were lawful and binding on the homeowners (the
principals) per sewithout need of any ratification or
adoption. The more has the amended by-laws become
binding on the homeowners when the homeowners followed
and implemented the provisions of the amended by-laws.
This is not merely tantamount to tacit ratification of the acts
done by duly authorized "agents" but express approval and
confirmation of what the "agents" did pursuant to the
authority granted to them.
Corollarily, petitioner claims that it has acquired a vested right to a
permanent seat in the board. Says petitioner:
The right of the petitioner to an automatic
membership in the board of the Association was granted by
the members of the Association themselves and this grant
has been implemented by members of the board
themselves all through the years. Outside the present
membership of the board, not a single member of the
Association has registered any desire to remove the right of
herein petitioner to an automatic membership in the board.
If there is anybody who has the right to take away such right
of the petitioner, it would be the individual members of the
Association through a referendum and not the present
board some of the members of which are motivated by
personal interest.
Petitioner disputes the ruling that the provision in question, giving
petitioner's representative a permanent seat in the board of the association, is
contrary to law. Petitioner claims that that is not so because there is really no
provision of law prohibiting unelected members of boards of directors of
corporations. Referring to §92 of the present Corporation Code,petitioner
says:
It is clear that the above provision of
the Corporation Code only provides for the manner of
election of the members of the board of trustees of non-
stock corporations which may be more than fifteen in
number and which manner of election is even subject to
what is provided in the articles of incorporation or by-laws
of the association thus showing that the above provisions
[are] not even mandatory.
Even a careful perusal of the above provision of
the Corporation Code would not show that it prohibits a non-
stock corporation or association from granting one of its
members a permanent seat in its board of directors or
trustees. If there is no such legal prohibition then it is
allowable provided it is so provided in the Articles of
Incorporation or in the by-laws as in the instant case.
xxx xxx xxx
If fact, the truth is that this is allowed and is being
practiced by some corporations duly organized and existing
under the laws of the Philippines.
One example is the Pius XII Catholic Center, Inc.
Under the by-laws of this corporation, that whoever is the
Archbishop of Manila is considered a member of the board
of trustees without benefit of election. And not only that. He
also automatically sits as the Chairman of the Board of
Trustees, again without need of any election.
Another concrete example is the Cardinal Santos
Memorial Hospital, Inc. It is also provided in the by-laws of
this corporation that whoever is the Archbishop of Manila is
considered a member of the board of trustees year after
 year without benefit of any election and he also sits
automatically as the Chairman of the Board of Trustees.
It is actually §§28 and 29 of the Corporation Law — not §92 of the
present law or §29 of the former one — which require members of the boards
of directors of corporations to be elected. These provisions read:
§28. Unless otherwise provided in this Act, the
corporate powers of all corporations formed under this Act
shall be exercised, all business conducted and all property
of such corporations controlled and held by a board of not
less than five nor more than eleven directors to be elected
from among the holders of stock or, where there is no stock,
from the members of the corporation: Provided,
however, That in corporations, other than banks, in which
the United States has or may have a vested interest,
pursuant to the powers granted or delegated by the Trading
with the Enemy Act, as amended, and similar Acts of
Congress of the United States relating to the same subject,
or by Executive Order No. 9095 of the President of the
United States, as heretofore or hereafter amended, or both,
the directors need not be elected from among the holders
of the stock, or, where there is no stock from the members
of the corporation. (emphasis added)
§29. At the meeting for the adoption of the original
by-laws, or at such subsequent meeting as may be then
determined, directors shall be elected to hold their offices
for one year and until their successors are elected and
qualified. Thereafter the directors of the corporation shall be
elected annually by the stockholders if it be a stock
corporation or by the members if it be a nonstock
corporation, and if no provision is made in the by-laws for
the time of election the same shall be held on the first
Tuesday after the first Monday in January. Unless otherwise
provided in the by-laws, two weeks' notice of the election of
directors must be given by publication in some newspaper
of general circulation devoted to the publication of general
news at the place where the principal office of the
corporation is established or located, and by written notice
deposited in the post-office, postage pre-paid, addressed to
each stockholder, or, if there be no stockholders, then to
each member, at his last known place of residence. If there
be no newspaper published at the place where the principal
office of the corporation is established or located, a notice
of the election of directors shall be posted for a period of
three weeks immediately preceding the election in at least
three public places, in the place where the principal office of
the corporation is established or located. (Emphasis added)
The present Corporation Code (B.P. Blg. 68), which took effect on
May 1, 1980, 12 similarly provides:
§23. The Board of Directors or Trustees. — Unless
otherwise provided in this Code, the corporate powers of all
corporations formed under this Code shall be exercised, all
business conducted and all property of such corporations
controlled and held by the board of directors or trustees to
be elected from among the holders of stocks, or where there
is no stock, from among the members of the corporation,
who shall hold office for one (1) year and until their
successors are elected and qualified. (Emphasis added)
These provisions of the former and present corporation law leave no
room for doubt as to their meaning: the board of directors of corporations must
be elected from among the stockholders or members. There may be
corporations in which there are unelected members in the board but it is clear
that in the examples cited by petitioner the unelected members sit as ex
officio members, i.e., by virtue of and for as long as they hold a particular
office. But in the case of petitioner, there is no reason at all for its
representative to be given a seat in the board. Nor does petitioner claim a right
to such seat by virtue of an office held. In fact it was not given such seat in the
beginning. It was only in 1975 that a proposed amendment to the by-laws
sought to give it one.
Since the provision in question is contrary to law, the fact that for
fifteen years it has not been questioned or challenged but, on the contrary,
appears to have been implemented by the members of the association cannot
forestall a later challenge to its validity. Neither can it attain validity through
acquiescence because, if it is contrary to law, it is beyond the power of the
members of the association to waive its invalidity. For that matter the members
of the association may have formally adopted the provision in question, but
their action would be of no avail because no provision of the by-laws can be
adopted if it is contrary to law. 13
It is probable that, in allowing petitioner's representative to sit on the
board, the members of the association were not aware that this was contrary
to law. It should be noted that they did not actually implement the provision in
question except perhaps insofar as it increased the number of directors from
11 to 15, but certainly not the allowance of petitioner's representative as an
unelected member of the board of directors. It is more accurate to say that the
members merely tolerated petitioner's representative and tolerance cannot be
considered ratification. cdtai
Nor can petitioner claim a vested right to sit in the board on the basis
of "practice." Practice, no matter how long continued, cannot give rise to any
vested right if it is contrary to law. Even less tenable is petitioner's claim that
its right is "coterminus with the existence of the association." 14
Finally, petitioner questions the authority of the SEC to render an
opinion on the validity of the provision in question. It contends that jurisdiction
over this case is exclusively vested in the HIGC.
But this case was not decided by the SEC but by the HIGC. The HIGC
merely cited as authority for its ruling the opinion of the SEC chairman. The
HIGC could have cited any other authority for the view that under the law
members of the board of directors of a corporation must be elected and it
would be none the worse for doing so.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
Puno and Torres, Jr., JJ ., concur.
Regalado, J ., on leave.
||| (Grace Christian High School v. Court of Appeals, G.R. No. 108905,
[October 23, 1997], 346 PHIL 114-127)
EN BANC
[G.R. No. L-45911. April 11, 1979.]
JOHN GOKONGWEI, JR., petitioner, vs. SECURITIES AND
EXCHANGE COMMISSION, ANDRES M. SORIANO, JOSE M.
SORIANO, ENRIQUE ZOBEL, ANTONIO ROXAS, EMETERIO
BUÑAO, WALTHRODE B. CONDE, MIGUEL ORTIGAS,
ANTONIO PRIETO, SAN MIGUEL CORPORATION, EMIGDIO
TANJUATCO, SR.,and EDUARDO R. VISAYA, respondents.
De Santos, Balgos & Perez for petitioner.
Angara, Abello, Concepcion, Regala, Cruz Law Offices for
respondents Sorianos.
Sequion Reyna, Montecillo & Ongsiako for respondent San
Miguel Corporation.
R. T. Capulong for respondent Eduardo R. Visaya.
SYNOPSIS
Petitioner (a) seeks to declare null and void the amended by-laws
of respondent corporation which disqualifies any stockholder engaged in
any business that competes with or is antagonistic to that of the
corporation from being nominated or elected to the Board of Directors; (b)
assails the order of the Securities and Exchange Commission denying his
right to inspect the books of a wholly-owned subsidiary of respondent
corporation; (c) assails the act of the Securities and Exchange
Commission in allowing the stockholders of respondent corporation to
ratify the investment of corporate funds in a foreign corporation.
The Court voted unanimously to grant the petition insofar as it
prays that petitioner be allowed to examine the books and records of the
wholly-owned subsidiary of respondent corporation.
For lack of necessary votes the Court denied the petition insofar
as it assails the validity of the by-laws and ratification of the foreign
investment of respondent corporation.
On the validity of the amended By-laws, six justices (Barredo,
Makasiar, Antonio, Santos, Abad Santos and De Castro, JJ.) voted to
sustain the validity per seof the amended by-laws and to dismiss the
petition without prejudice to the question of petitioner's actual
disqualification from running if elected from sitting as director of
respondent corporation being decided, after a new and proper hearing by
the Board of Directors of said corporation, whose decision shall be
appealable to the respondent Securities and Exchange Commission and
ultimately to the Supreme Court.
The aforementioned six justices, together with Fernando, J.,voted
to declare the issue on the validity of the foreign investment of respondent
corporation as moot.
Fred Ruiz Castro, C.J.,reserved his vote on the validity of the
amended by-laws pending hearing by this Court on the applicability of
section 13(5) of the Corporation law to petitioner.
Fernando, J.,reserved his vote on the validity of subject
amendment to the by-laws but otherwise concurs in the result.
Four Justices (Teehankee, Conception Jr.,Fernandez and
Guerrero, JJ.) in a separate opinion voted against the validity of the
questioned amended by-laws and held that this question should properly
be resolved first by the SEC as the agency of primary jurisdiction. They
concur in the result that petitioner may be allowed to run for and sit as
director in the scheduled election and subsequent elections until
disqualified after proper hearing by the respondent's Board of Directors
and petitioner's disqualification shall have been sustained by respondent
SEC en banc and ultimately by final judgment of this Court.
SYLLABUS
1. APPEAL; SUPREME COURT MAY RESOLVED CASE ON
THE MERITS, INSTEAD OF REMANDING IT TO LOWER COURT. —
The Supreme Court always strives to settle the entire controversy in a
single proceeding, "leaving no root or branch to bear the seeds of future
litigation," and to decide a case on the merits instead of remanding it to
the trial court for further proceedings (a) where the ends of justice would
not be subserved by the remand of the case, or (b) where public interest
demands an early disposition of the case; or (c) while the trial court had
already received all the evidence presented by both parties and the
Supreme Court is in a position, based upon said evidence, to decide the
case on its merits.
2. ID.;ID.;QUESTION OF PRIMARY JURISDICTION HAS NO
APPLICATION WHERE ONLY QUESTION OF LAW IS INVOLVED. —
The doctrine of primary jurisdiction has no application where only a
question of law is involved. Because uniformity may be secured through
review by a single Supreme Court questions of law may appropriately de
determined in the first instance by courts.
3. ID.;VALIDITY OF BY-LAW OF CORPORATION IS A
QUESTION OF LAW. — The validity of reasonableness of a by-laws of a
corporation, whether the by-law is in conflict with the law of the land, or
with the charter of the corporation, or is in a legal sense unreasonable and
therefore unlawful is purely a question of law. This rule is subject, however,
to the limitation that where the reasonableness of a by-law is a mere matter
of judgment, and one upon which reasonable minds must necessarily
differ, a court would not be warranted in substituting its judgment instead
of the judgment of those who are authorized to make by-laws and who
have exercised their authority.
4. CORPORATIONS; POWER TO ADOPT BY-LAWS. — Every
corporation has the inherent power to adopt by-laws for its internal
government, and to regulate the conduct and prescribe the rights and
duties of its members towards itself and among themselves in reference
to the management of it affairs. In the absence of positive legislative
provisions limiting it, every private corporation has this inherent power as
one of its necessary and inseparable legal incidents, independent of any
specific enabling provision in its character or in general law, such power
of self-government being essential to enable the corporation to accomplish
the purposes of its creation.
5. ID.;ID.;QUALIFICATIONS OF OFFICERS AND EMPLOYEES.
— The term "qualifications" under section 21 of the Corporation Law which
expressly empowers a corporation to prescribed in its by-laws the
qualifications of directors must necessarily refer to qualifications in
addition to that specified by section 30 of the Corporation law, which
provides that "every director must own in his own right at least one share
of the capital stock of the stock corporation of which he is a director."
6. ID.;STOCKHOLDERS MUST ABIDE BY RULE OF THE
MAJORITY. — Any person "who buys stock in a corporation does so with
the knowledge that its affairs are dominated by a majority of the
stockholders and that he impliedly contracts that the will of the majority
shall govern in all matters within the limits of the act of incorporation and
lawfully enacted by-laws and not forbidden by law. To this extent the
stockholder may be considered to have parted with his personal right or
privilege to regulate the disposition of his property which he has invested
in the capital stock of the corporation, and surrendered it to the will of
majority of his fellow incorporators. It cannot, therefore, be justly said that
the contract, express or implied, between the corporation and the
stockholders is infringed by any act of the former which is authorized by a
majority.
7. ID.;ID.;AMENDMENT OF BY-LAWS; RIGHT OF DISSENTING
MINORITY STOCKHOLDER. — Where the articles of the incorporation or
the by-laws of a corporation has been amended by the required number
of votes as provided for in the Corporation Law, and the amendment
changes, diminishes or restricts the rights of the existing stockholders, the
dissenting minority has only one right, viz.;to object thereto in writing and
demand payment of his share.
8. ID.;STOCKHOLDER HAS NO VESTED RIGHT TO BE
ELECTED DIRECTOR. — A stockholder has no vested right to be elected
director, where the law at the time such right as stockholder was acquired
contained the prescription that the corporate charter and the by-law will be
subject to amendment, alteration and modification.
9. ID.;DIRECTOR STANDS IN A FIDUCIARY RELATION TO
CORPORATION AND STOCKHOLDER. — Although in the strict and
technical sense, directors of a private corporation are not regarded as
trustees, there cannot be any doubt that their character is that of a fiduciary
insofar as the corporation and the stockholders as a body are concerned.
As agents entrusted with the management of the corporation for the
collective benefit of the stockholders, "they occupy a fiduciary relation, and
in this sense the relation is one of trust." The ordinary trust relationship of
directors of a corporation and stockholders is not a matter of statutory or
technical law. It springs from the fact that directors have the control and
guidance of corporate affairs and property and hence of the property
interests of the stockholders. Equity recognizes that stockholders are the
proprietors of the corporate interests and are ultimately the only
beneficiaries thereof.
10. ID.;BY-LAWS; QUALIFICATION OF DIRECTORS. —
Corporations have the power to make by-laws declaring a person
employed in the service of a rival company to be ineligible for the
corporation's Board of Directors.
11. ID.;ID.;ID.;CONFLICT OF INTERESTS. — An amendment
which renders ineligible, or if elected, subjects to removal, a director if he
be also a director if he be also a director in a corporation whose business
is in competition with or is antagonistic to the other corporation is valid.
This is based upon the principle that were the director also employed in
the service of a rival company, he cannot serve both, but must betray one
or the other. Thus, an officer of a corporation cannot engage in a business
in direct competition with that of the corporation where he is a director by
utilizing information he has received as such officer, under "the
established law that a director or officer of a corporation may not enter into
a competing enterprise which cripples or injuries the business of the
corporation of which he is an officer or director."
12. ID.;ID.;DOCTRINE OF "CORPORATE OPPORTUNITY".—
Corporate officers are not permitted to the use their position of trust and
confidence to further their interests. The doctrine of "corporate
opportunity" is precisely a recognition by the courts that the fiduciary
standards could not be upheld where the fiduciary was acting for two
entities with competing interests. This doctrine rests fundamentally of the
unfairness, in particular circumstances, of an officer or director taking
advantage of an opportunity for his own personal profit when the interest
of the corporation justly calls for protection.
13. ID.;MONOPOLIES. — The Constitution and the law prohibit
combinations in restraint of trade and unfair competition. Thus, section 2
of article XIV of the Constitution provides: "The State shall regulate or
prohibit private monopolies when the public interest so requires. No
combination in restraint of trade or unfair competition shall be allowed."
These anti-trust laws or laws against monopolies or combinations in
restraint of trade are aimed at raising levels of competition by improving
the consumers' effectiveness as the final arbiter in free markets. They are
designed to preserve free and unfettered competition as the rule of trade,
and operate to forestall concentration of economic power.
14. ID.;ID.;NATURE AND DEFINITION OF MONOPOLY. — A
"monopoly" embraces any combination, the tendency of which is to
prevent competition in the broad and general sense, or to control prices to
the detriment of the public. It is the concentration of business in the hands
of a few. The material consideration in determining its existence is not that
prices are raised and competition actually excluded, but that power exists
to raise prices or exclude competition when desired. It includes a condition
produced by the mere act of individuals. Its dominant thought is the notion
of exclusiveness or unity, or the suppression of competition by the
unification of interest or management, or thru agreement and concert of
action. An express agreement is not necessary for the existence of a
combination or conspiracy in restraint of trade.
15. ID.;ID.;STOCK OWNERSHIP IN AGRICULTURAL
CORPORATIONS, LIMITATIONS. — The election of the president and
controlling shareholder of a corporation engaged in agriculture, to the
board of another corporation, also engaged in agriculture, may constitute
a violation of the prohibition contained in section 13 (5) of the Corporation
Law which provides in part that "any stockholder of more than one
corporation organized for the purpose of engaging in agriculture may hold
his stock in such corporations solely for investment and not for the purpose
of bringing about or attempting to bring about a combination to exercise
control of such corporations."
16. ID.;BY-LAW; QUALIFICATION IF MEMBERS OF THE
BOARD; EQUAL PROTECTION. — If the by-law were to be applied in the
case of one stockholder but waived in the case of another, then it could be
reasonably claimed that the by-law was being applied in a discriminatory
manner, but not if the by-law, by its terms, applies to all stockholders. The
equal protection clause of the Constitution requires only that the by-law
operate equally upon all persons of a class. Sound principles of public
policy and management support the view that a by-law which disqualifies
a competitor from election to the Board of Directors of another corporation
is valid and reasonable.
17. ID.;ID.;PROTECTION OF LEGITIMATE CORPORATE
INTERESTS. — In the absence of any legal prohibition or overriding public
policy, wide latitude may be accorded to the corporation in adopting
measures to protect legitimate corporate interests.
18. ID.;COMPETITION DEFINED. — "Competition" implies a
struggle for advantage between two or more forces, each possessing, in
substantially similar if not identical degree, certain characteristics essential
to the business sought. It means an independent endeavor of two or more
persons to obtain the business patronage of a third by offering more
advantageous terms as an inducement to secure trade. The test must be
whether the business does in fact compete, not whether it is capable of an
indirect and highly unsubstantial duplication of an isolated or non
characteristic activity.
19. ID.;ID.;EXERCISE OF POWER TO DISQUALIFY A
STOCKHOLDER FROM BEING MEMBER OF THE BOARD. — The
amended by-laws which grants the Board the power by 3/4 votes to bar a
stockholder from his right to be elected as director where such stockholder
is found to be engaged in a "competitive or antagonistic business" is valid.
However, consonant with the requirement of due process, there must be
due hearing at which the stockholder must be given the fullest opportunity
to show that he is not covered by the disqualification. As trustees of the
corporation and of the stockholders, it is the responsibility of directors to
act with fairness to the stockholders. Pursuant to this obligation and to
remove any suspicion that this power may be utilized by the incumbent
members of the Board to perpetuate themselves in power, any decision of
the Board to disqualify a candidate for the Board of Directors should be
reviewed by the Securities and Exchange Commission en banc and its
decision shall be final unless reversed by the Supreme Court on certiorari.
20. ID.;REVIEW OF ACTION OF THE BOARD OF DIRECTORS.
— Where the action of a Board of Directors is an abuse of discretion, or
forbidden by statute, or is against public policy, or is ultra vires,or is a fraud
upon minority stockholders or creditors, or will result in waste, dissipation
or misapplication of the corporate assets, a court of equity has the power
to grant appropriate relief.
21. ID.;STOCKHOLDER'S RIGHT; INSPECTION OF BOOKS. —
The stockholders' right of inspection of the corporation's books and
records is based upon their ownership of the assets and property of the
corporation. It is an incident of ownership of the corporate property,
whether this ownership or interest be termed an equitable ownership, a
beneficial ownership, or quasi-ownership. It is predicated upon the
necessity of self-protection.
22. ID.;ID.;RIGHT MUST BE EXERCISED IN GOOD FAITH. —
Where a right is granted by statute to the stockholder, it is given to him as
such and must be exercised by him with respect to his interest as
stockholder and for some purpose germane thereto or in the interest of the
corporation. In other words, the inspection has to be germane to the
petitioner's interest as a stockholder, and has to be proper and lawful in
character and not inimical to the interest of the corporation. It must be
exercised in good faith, for specific and honest purpose, and not to gratify
curiosity, or for speculative or vexatious purposes.
23. ID.;ID.;COURT MAY INQUIRE INTO MOTIVE OF
STOCKHOLDER. — On application for mandamus to enforce the right to
examine the books of a corporation, it is proper for the court to inquire into
and consider the stockholder's good faith and his purpose and motives in
seeking inspection. The right given by the statute is not absolute and may
be refused when the information is not sought in good faith or is used to
the detriment of the corporation.
24. ID.;ID.;RIGHT TO EXAMINE BOOKS OF A WHOLLY
OWNED SUBSIDIARY. — While the right of a stockholder to examine the
books and records of a corporation for a lawful purpose is a matter of law,
the right of such stockholder to examine the books and records of a wholly-
owned subsidiary of the corporation in which he is a stockholder is a
different thing. Where a foreign subsidiary is wholly owned by respondent
corporation and, therefore, under its control, it would be in accord with
equity, good faith and fair dealing to construe the statutory right of a
stockholder to inspect the books and records of the corporation as
extending to books and records of such wholly owned subsidiary which
are in respondent corporation's possession and control.
25. ID.;BOARD DIRECTORS; POWER TO INVEST FUNDS. —
Section 17-1/2 of the Corporation Law allows a corporation to "invest its
fund in any corporation or business or for any purpose other than the main
purpose for which it was organized" provided that its Board of Directors
has been so authorized by the affirmative vote of stockholders holding
shares entitling them to exercise at least two-thirds of the voting power. If
the investment is made in pursuance of the corporate purpose, it does not
need the approval of the stockholders. It is only when the purchase of
shares is done solely for investment and not to accomplish the purpose of
its incorporation that the vote of approval of the stockholders holding
shares entitling them to exercise at least two-thirds of the voting power is
necessary.
26. ID.;ID.;RATIFICATION OF ACT OF BOARD OF
DIRECTORS. — Where the Board of Directors had no authority to make
an investment, the corporation, like an individual, may ratify and thereby
render binding upon it the originally unauthorized acts of its officers or
other agents. Mere ultra vires acts or those which are not illegal and
void ab initio,but are not merely within the scope of the articles of
incorporation, are merely voidable and may become binding and
enforceable when ratified by the stockholders.
27. ID.;ID.;INVESTMENT IN AID OF CORPORATE PURPOSE.
— The purchase of beer manufacturing facilities by San Miguel
Corporation was an investment in the same business as its main purpose
in its Articles of Incorporation and is relevant to the corporate purpose.
28. ID.;ID.;SUBMISSION OF ASSAILED INVESTMENT FOR
RATIFICATION BY STOCKHOLDERS. — The mere fact that a
corporation submits the assailed investment to the stockholders for its
ratification at the annual meeting cannot be construed as an admission
that the corporation had committed an ultra vires act, considering the
common practices of corporations of periodically submitting for ratification
of their stockholders the acts of their directors, officers and managers.
BARREDO, J.,concurring:
1. JUDGMENTS; DISMISSAL FOR LACK OF NECESSARY
VOTES; LAW OF THE CASE. — Where petitioner and respondents
placed the issue of the validity of amended by-laws squarely before the
Court for resolution and six justices voted in favor, while four justices voted
against, its validity, thereby resulting in the dismissal, of the petition
"insofar as it assails the validity of the amended by-laws ...for lack of
necessary votes," such dismissal is the law of the case as far as the parties
are concerned albeit the majority of six against four justices is not doctrinal
in the sense that it cannot be cited as necessarily a precedent for
subsequent cases. This means that the petitioner and respondents are
bound by the foregoing result, namely that the Court en banc has not
found merit in the claim that the amended by-laws in question are invalid.
In other words, the issue of the challenged amended by-laws is already a
settled matter for the parties as the law of the case, and said amended by-
law already enforceable in so far as the parties are concerned. Petitioner
may not thereafter act on the assumption that he can revive the issue of
validity whether in the Securities and Exchange Commission, the Supreme
Court or in any other forum, unless, he proceeds on the basis of a different
factual milieu from the setting of the case. Only the actual implementation
of the impugned amended by-laws remained to be passed upon by the
Securities and Exchange Commission.
2. ID.;ID.;DECISION ON THE MERITS. — It is somewhat of a
misreading and misconstruction of Section 11 of Rule 56, contrary to the
well-known established norm observed by the Supreme Court, to state that
the dismissal of a petition for lack of necessary votes does not amount to
a decision on the merits. The Supreme Court is deemed to find no merit in
a petition in two ways, namely, (1) when eight or more members vote
expressly in that sense and (2) when the required number of justices
needed to sustain the same cannot be had.
DE CASTRO, J.,concurring:
1. CORPORATION; STOCKHOLDERS; DISQUALIFICATION TO
BE ELECTED DIRECTOR. — If a person became a stockholder of a
corporation and gets himself elected as a director, and while he is such a
director, he forms his own corporation competitive or antagonistic to the
corporation of which he is a director, and becomes Chairman of the Board
and President of his own corporation, he may be removed from his position
as director, admittedly one of trust and confidence. If this is so, a person
controlling, and also the Chairman of the Board and President of, a
corporation, may be barred form becoming a member of the Board of
Directors of a competitive corporation.
2. ID.;AGRICULTURE, CORPORATION ENGAGED IN. — The
scope of the provision of Section 13(5) of the Philippine Corporation Law
should be limited to corporations engaged in agriculture, only as the word
"agriculture" refers to its more limited meaning as distinguished from its
general and broad connotation. The term would then mean "farming" or
raising the natural products of the soil, such as by cultivation, in the
manner as is required by the Public Land Act in the acquisition of
agricultural land, such as by homestead, before the patent may be issued,
but does not extend to poultry raising or piggery which may be included in
the term "agriculture" in its broad sense.
3. JUDGMENTS; LAW OF THE CASE. — Although only six votes
are for upholding the validity of the by-laws, their validity is deemed upheld
as constituting the "law of the case." It could not be otherwise, after the
petition is dismissed with the relief sought do declare null and void the said
by-laws being denied in effect. A vicious circle would be created should
petitioner come against to the Court, raising the same question he raised
in the present petition, unless the principle of the "law of the case" is
applied.
TEEHANKEE, CONCEPCION JR.,FERNANDEZ and
GUERRERO, JJ.:Supplement to separate opinion.
1. JUDGMENTS; LAW OF THE CASE. — The doctrine of the law
of the case may be invoked only where there has been a final and
conclusive determination of an issue in the first case later invoked as the
law of the case. It has no application where the judgment in the first case
is inconclusive, as where no final and conclusive determination could be
reached on account of lack of necessary votes and the case was simply
dismissed pursuant to Rule 56, Section 11. It cannot be contended that
the Supreme Court in dismissing the petition for lack of necessary votes
had directly ruled on the issue presented when it itself could not reach a
final conclusive vote thereon.
DECISION
ANTONIO,J p:
The instant petition for certiorari, mandamus and injunction, with
prayer for issuance of writ of preliminary injunction, arose out of two cases
filed by petitioner with the Securities and Exchange Commission, as
follows:
SEC CASE NO. 1375
On October 22, 1976, petitioner, as stockholder of respondent
San Miguel Corporation, filed with the Securities and Exchange
Commission (SEC) a petition for "declaration of nullity of amended by-
laws, cancellation of certificate of filing of amended by-laws, injunction and
damages with prayer for a preliminary injunction" against the majority of
the members of the Board of Directors and San Miguel Corporation as an
unwilling petitioner. The petition, entitled "John Gokongwei, Jr.,vs. Andres
Soriano, Jr.,Jose M. Soriano, Enrique Zobel, Antonio Roxas, Emeterio
Buñao, Walthrode B. Conde, Miguel Ortigas, Antonio Prieto and San
Miguel Corporation",was docketed as SEC Case No. 1375.
 As a first cause of action, petitioner alleged that on September 18,
1976, individual respondents amended by bylaws of the corporation,
basing their authority to do so on a resolution of the stockholders adopted
on March 13, 1961, when the outstanding capital stock of respondent
corporation was only P70,139.740.00, divided into 5,513,974 common
shares at P10.00 per share and 150,000 preferred shares at P100.00 per
share. At the time of the amendment, the outstanding and paid up shares
totalled 30,127,043, with a total par value of P301,270,430.00. It was
contended that according to section 22 of the Corporation Law and Article
VIII of the by-laws of the corporation, the power to amend, modify, repeal
or adopt new by-laws may be delegated to the Board of Directors only by
the affirmative vote of stockholders representing not less than 2/3 of the
subscribed and paid up capital stock of the corporation, which 2/3 should
have been computed on the basis of the capitalization at the time of the
amendment. Since the amendment was based on the 1961 authorization,
petitioner contended that the Board acted without authority and in
usurpation of the power of the stockholders.
As a second cause of action, it was alleged that the authority
granted in 1961 had already been exercised in 1962 and 1963, after which
the authority of the Board ceased to exist.
As a third cause of action, petitioner averred that the membership
of the Board of Directors had changed since the authority was given in
1961, there being six (6) new directors.
As a fourth cause of action, it was claimed that prior to the
questioned amendment, petitioner had all the qualifications to be a director
of respondent corporation, being a substantial stockholder thereof; that as
a stockholder, petitioner had acquired rights inherent in stock ownership,
such as the rights to vote and to be voted upon in the election of directors;
and that in amending the by-laws, respondents purposely provided for
petitioner's disqualification and deprived him of his vested right as afore-
mentioned, hence the amended by-laws are null and void. 1
As additional causes of action, it was alleged that corporations
have no inherent power to disqualify a stockholder from being elected as
a director and, therefore, the questioned act is ultra vires and void; that
Andres M. Soriano, Jr. and/or Jose M. Soriano, while representing other
corporations, entered into contracts (specifically a management contract)
with respondent corporation, which was avowed because the questioned
amendment gave the Board itself the prerogative of determining whether
they or other persons are engaged in competitive or antagonistic business;
that the portion of the amended by-laws which states that in determining
whether or not a person is engaged in competitive business, the Board
may consider such factors as business and family relationship, is
unreasonable and oppressive and, therefore, void; and that the portion of
the amended by-laws which requires that "all nominations for election of
directors ...shall be submitted in writing to the Board of Directors at least
five (5) working days before the date of the Annual Meeting" is likewise
unreasonable and oppressive.
It was, therefore, prayed that the amended by-laws be declared
null and void and the certificate of filing thereof be cancelled, and that
individual respondents be made to pay damages, in specified amounts, to
petitioner.
On October 28, 1976, in connection with the same case, petitioner
filed with the Securities and Exchange Commission an "Urgent Motion for
Production and Inspection of Documents",alleging that the Secretary of
respondent corporation refused to allow him to inspect its records despite
request made by petitioner for production of certain documents
enumerated in the request, and that respondent corporation had been
attempting to suppress information from its stockholders despite a
negative reply by the SEC to its query regarding their authority to do so.
Among the documents requested to be copied were (a) minutes of the
stockholder's meeting held on March 13, 1961; (b) copy of the
management contract between San Miguel Corporation and A. Soriano
Corporation (ANSCOR);(c) latest balance sheet of San Miguel
International, Inc.;(d) authority of the stockholders to invest the funds of
respondent corporation in San Miguel International, Inc.;and (e) lists of
salaries, allowances, bonuses, and other compensation, if any, received
by Andres M. Soriano, Jr. and/or its successor-in-interest.
The "Urgent Motion for Production and Inspection of Documents"
was opposed by respondents, alleging, among others, that the motion has
no legal basis; that the demand is not based on good faith; that the motion
is premature since the materiality or relevance of the evidence sought
cannot be determined until the issues are joined; that it fails to show good
cause and constitutes continued harassment; and that some of the
information sought are not part of the records of the corporation and,
therefore, privileged.
During the pendency of the motion for production, respondents
San Miguel Corporation, Enrique Conde, Miguel Ortigas and Antonio
Prieto filed their answer to the petition, denying the substantial allegations
therein and stating, by way of affirmative defenses that "the action taken
by the Board of Directors on September 18, 1976 resulting in the
...amendments is valid and legal because the power to 'amend, modify,
repeal or adopt new By-laws' delegated to said Board on March 13, 1961
and long prior thereto has never been revoked, withdrawn or otherwise
nullified by the stockholders of SMC";that contrary to petitioner's claim,
"the vote requirement for a valid delegation of the power to amend, repeal
or adopt new by-laws is determined in relation to the total subscribed
capital stock at the time the delegation of said power is made, not when
the Board opts to exercise said delegated power";that petitioner has not
availed of his intra-corporate remedy for the nullification of the
amendment, which is to secure its repeal by vote of the stockholders
representing a majority of the subscribed capital stock at any regular or
special meeting, as provided in Article VIII, section 1 of the by-laws and
section 22 of the Corporation Law, hence the petition is premature; that
petitioner is estopped from questioning the amendments on the ground of
lack of authority of the Board, since he failed to object to other
amendments made on the basis of the same 1961 authorization; that the
power of the corporation to amend its by-laws is broad, subject only to the
condition that the by-laws adopted should not be inconsistent with any
existing law; that respondent corporation should not be precluded from
adopting protective measures to minimize or eliminate situations where its
directors might be tempted to put their personal interests over that of the
corporation; that the questioned amended by-laws is a matter of internal
policy and the judgment of the board should not be interfered with; that the
by-laws, as amended, are valid and binding and are intended to prevent
the possibility of violation of criminal and civil laws prohibiting
combinations in restraint of trade; and that the petition states no cause of
action. It was, therefore, prayed that the petition be dismissed and that
petitioner be ordered to pay damages and attorney's fees to respondents.
The application for writ of preliminary injunction was likewise on various
grounds.
Respondents Andres M. Soriano, Jr. and Jose M. Soriano filed
their opposition to the petition, denying the material averments thereof and
stating, as part of their affirmative defenses, that in August 1972, the
Universal Robina Corporation (Robina),a corporation engaged in business
competitive to that of respondent corporation, began acquiring shares
therein, until September 1976 when its total holding amounted to 622,987
shares; that in October 1972, the Consolidated Foods Corporation (CFC)
likewise began acquiring shares in respondent corporation, until its total
holdings amounted to P543,959.00 in September 1976; that on January
12, 1976, petitioner, who is president and controlling shareholder of
Robina and CFC (both closed corporations) purchased 5,000 shares of
stock of respondent corporation, and thereafter, in behalf of himself, CFC
and Robina, "conducted malevolent and malicious publicity campaign
against SMC" to generate support from the stockholder "in his effort to
secure for himself and in representation of Robina and CFC interests, a
seat in the Board of Directors of SMC",that in the stockholders' meeting of
March 18, 1976, petitioner was rejected by the stockholders in his bid to
secure a seat in the Board of Directors on the basic issue that petitioner
was engaged in a competitive business and his securing a seat would
have subjected respondent corporation to grave disadvantages; that
"petitioner nevertheless vowed to secure a seat in the Board of Directors
at the next annual meeting";that thereafter the Board of Directors
amended the by-laws as afore-stated.
As counterclaims, actual damages, moral damages, exemplary
damages, expenses of obligation and attorney's fees were presented
against petitioner.
Subsequently, a Joint Omnibus Motion for the striking out of the
motion for production and inspection of documents was filed by all the
respondents. This was duly opposed by petitioner. At this juncture,
respondents Emigdio Tanjuatco, Sr. and Eduardo R. Visaya were allowed
to intervene as oppositors and they accordingly filed their oppositions-in-
intervention to the petition.
On December 29, 1976, the Securities and Exchange
Commission resolved the motion for production and inspection of
documents by issuing Order No. 26, Series of 1977, stating, in part as
follows:
"Considering the evidence submitted before the
Commission by the petitioner and respondents in the
above-entitled case, it is hereby ordered:
1. That respondents produce and permit the
inspection, copying and photographing, by or on behalf of
the petitioner-movant, John Gokongwei, Jr.,of the minutes
of the stockholders' meeting of the respondent San Miguel
Corporation held on March 13, 1961, which are in the
possession, custody and control of the said corporation, it
appearing that the same is material and relevant to the
issues involved in the main case. Accordingly, the
respondents should allow petition-movant entry in the
principal office of the respondent Corporation, San Miguel
Corporation on January 14, 1977, at 9:30 o'clock in the
morning for purposes of enforcing the rights herein granted;
it being understood that the inspection, copying and
photographing of the said documents shall be undertaken
under the direct and strict supervision of this Commission.
Provided, however, that other documents and/or papers not
heretofore included are not covered by this Order and any
inspection thereof shall require the prior permission of this
Commission;
2. As to the Balance Sheet of San Miguel
International, Inc. as well as the list of salaries, allowances,
bonuses, compensation and/or remuneration received by
respondent Jose M. Soriano, Jr. and Andres Soriano from
San Miguel International, Inc. and/or its successors-in-
interest, the Petition to produce and inspect the same is
hereby DENIED, as petitioner-movant is not a stockholder
of San Miguel International, Inc. and has, therefore, no
inherent right to inspect said documents;
 3. In view of the Manifestation of petitioner-movant
dated November 29, 1976, withdrawing his request to copy
and inspect the management contract between San Miguel
Corporation and A. Soriano Corporation and the renewal
and amendments thereof for the reason that he had already
obtained the same, the Commission takes note thereof; and
4. Finally, the Commission holds in abeyance the
resolution on the matter of production and inspection of the
authority of the stockholders of San Miguel Corporation to
invest the funds of respondent corporation in San Miguel
International, Inc.,until after the hearing on the merits of the
principal issues in the above-entitled case.
This Order is immediately executory upon its
approval." 2
Dissatisfied with the foregoing Order, petitioner moved for its
reconsideration.
Meanwhile, on December 10, 1976, while the petition was yet to
be heard, respondent corporation issued a notice of special stockholders'
meeting for the purpose of "ratification and confirmation of the amendment
to the By-laws",setting such meeting for February 10, 1977. This prompted
petitioner to ask respondent Commission for a summary judgment insofar
as the first cause of action is concerned, for the alleged reason that by
calling a special stockholders' meeting for the aforesaid purpose, private
respondents admitted the invalidity of the amendments of September 18,
1976. The motion for summary judgment was opposed by private
respondents. Pending action on the motion, petitioner filed an "Urgent
Motion for the Issuance of a Temporary Restraining Order",praying that
pending the determination of petitioner's application for the issuance of a
preliminary injunction and or petitioner's motion for summary judgment, a
temporary restraining order be issued, restraining respondents from
holding the special stockholders' meeting as scheduled. This motion was
duly opposed by respondents.
On February 10, 1977, respondent Cremation issued an order
denying the motion for issuance of temporary restraining order. After
receipt of the order of denial, respondents conducted the special
stockholders' meeting wherein the amendments to the by-laws were
ratified. On February 14, 1977, petitioner filed a consolidated motion for
contempt and for nullification of the special stockholders' meeting.
A motion for reconsideration of the order denying petitioner's
motion for summary judgment was filed by petitioner before respondent
Commission on March 10, 1977. Petitioner alleges that up to the time of
the filing of the instant petition, the said motion had not yet been scheduled
for hearing. Likewise, the motion for reconsideration of the order granting
in part and denying in part petitioner's motion for production of records had
not yet been resolved.
In view of the fact that the annual stockholders' meeting of
respondent corporation had been scheduled for May 10, 1977, petitioner
filed with respondent Commission a Manifestation stating that he intended
to run for the position of director of respondent corporation. Thereafter,
respondents filed a Manifestation with respondent Commission,
submitting a Resolution of the Board of Directors of respondent
corporation disqualifying and precluding petitioner from being a candidate
for director unless he could submit evidence on May 3, 1977 that he does
not come within the disqualifications specified in the amendment to the by-
laws, subject matter of SEC Case No. 1375. By reason thereof, petitioner
filed a manifestation and motion to resolve pending incidents in the case
and to issue a writ of injunction, alleging that private respondents were
seeking to nullify and render ineffectual the exercise of jurisdiction by the
respondent Commission, to petitioner's irreparable damage and prejudice.
Allegedly despite a subsequent Manifestation to prod respondent
Commission to act, petitioner was not heard prior to the date of the
stockholders' meeting.
Petitioner alleges that there appears a deliberate and concerted
inability on the part of the SEC to act, hence petitioner came to this Court.
SEC CASE NO. 1423
Petitioner likewise alleges that, having discovered that respondent
corporation has been investing corporate funds in other corporations and
businesses outside of the primary purpose clause of the corporation, in
violation of section 17-1/2 of the Corporation Law, he filed with respondent
Commission, on January 20, 1977, a petition seeking to have private
respondents Andres M. Soriano, Jr. and Jose M. Soriano, as well as the
respondent corporation declared guilty of such violation, and ordered to
account for such investments and to answer for damages.
On February 4, 1977, motions to dismiss were filed by private
respondents, to which a consolidated motion to strike and to declare
individual respondents in default and an opposition ad abundantiorem
cautelam were filed by petitioner. Despite the fact that said motions were
filed as early as February 4, 1977, the Commission acted thereon only on
April 25, 1977, when it denied respondents' motions to dismiss and gave
them two (2) days within which to file their answer, and set the case for
hearing on April 29 and May 3, 1977.
Respondents issued notices of the annual stockholders' meeting,
including in the Agenda thereof, the following:
"6. Reaffirmation of the authorization to the Board
of Directors by the stockholders at the meeting on March
20, 1972 to invest corporate funds in other companies or
 businesses or for purposes other than the main purpose for
which the Corporation has been organized, and ratification
of the investments thereafter made pursuant thereto."
By reason of the foregoing, on April 28, 1977, petitioner filed with
the SEC an urgent motion for the issuance of a writ of preliminary
injunction to restrain private respondents from taking up Item 6 of the
Agenda at the annual stockholders' meeting, requesting that the same be
set for hearing on May 3, 1977, the date set for the second hearing of the
case on the merits. Respondent Commission, however, cancelled the
dates of hearing originally scheduled and reset the same to May 16 and
17, 1977, or after the scheduled annual stockholders' meeting. For the
purpose of urging the Commission to act, petitioner filed an urgent
manifestation on May 3, 1977, but this notwithstanding, no action has been
taken up to the date of the filing of the instant petition.
With respect to the afore-mentioned SEC cases, it is petitioner's
contention before this Court that respondent Commission gravely abused
its discretion when it failed to act with deliberate dispatch on the motions
of petitioner seeking to prevent illegal and/or arbitrary impositions or
limitations upon his rights as stockholder of respondent corporation, and
that respondent are acting oppressively against petitioner, in gross
derogation of petitioner's rights to property and due process. He prayed
that this Court direct respondent SEC to act on collateral incidents pending
before it.
On May 6, 1977, this Court issued a temporary restraining order
restraining private respondents from disqualifying or preventing petitioner
from running or from being voted as director of respondent corporation and
from submitting for ratification or confirmation or from causing the
ratification or confirmation of Item 6 of the Agenda of the annual
stockholders' meeting on May 10, 1977, or from making effective the
amended by-laws of respondent corporation, until further orders from this
Court or until the Securities and Exchange Commission acts on the
matters complained of in the instant petition.
On May 14, 1977, petitioner filed a Supplemental Petition, alleging
that after a restraining order had been issued by this Court, or on May 9,
1977, the respondent Commission served upon petitioner copies of the
following orders:
(1) Order No. 449, Series of 1977 (SEC Case No. 1375);denying
petitioner's motion for reconsideration, with its supplement, of the order of
the Commission denying in part petitioner's motion for production of
documents, petitioner's motion for reconsideration of the order denying the
issuance of a temporary restraining order denying the issuance of a
temporary restraining order, and petitioner's consolidated motion to
declare respondents in contempt and to nullify the stockholders' meeting;
(2) Order No. 450, Series of 1977 (SEC Case No. 1375),allowing
petitioner to run as a director of respondent corporation but stating that he
should not sit as such if elected, until such time that the Commission has
decided the validity of the by-laws in dispute, and denying deferment of
Item 6 of the Agenda for the annual stockholders' meeting; and
(3) Order No. 451, Series of 1977 (SEC Case No. 1375),denying
petitioner's motion for reconsideration of the order of respondent
Commission denying petitioner's motion for summary judgment;
It is petitioner's assertions, anent the foregoing orders, (1) that
respondent Commission acted with indecent haste and without
circumspection in issuing the aforesaid orders to petitioner's irreparable
damage and injury; (2) that it acted without jurisdiction and in violation of
petitioner's right to due process when it decided en banc an issue not
raised before it and still pending before one of its Commissioners, and
without hearing petitioner thereon despite petitioner's request to have the
same calendared for hearing; and (3) that the respondents acted
oppressively against the petitioner in violation of his rights as a
stockholder, warranting immediate judicial intervention.
It is prayed in the supplemental petition that the SEC orders
complained of be declared null and void and that respondent Commission
be ordered to allow petitioner to undertake discovery proceedings relative
to San Miguel International, Inc. and thereafter to decide SEC Cases No.
1375 and 1423 on the merits.
On May 17, 1977, respondent SEC, Andres M. Soriano, Jr. and
Jose M. Soriano filed their comment, alleging that the petition is without
merit for the following reasons:
(1) that the petitioner and the interests he represents are engaged
in businesses competitive and antagonistic to that of respondent San
Miguel Corporation, it appearing that he owns and controls a greater
portion of his SMC stock thru the Universal Robina Corporation and the
Consolidated Foods Corporation, which corporations are engaged in
businesses directly and substantially competing with the allied businesses
of respondent SMC and of corporations in which SMC has substantial
investments. Further, when CFC and Robina had accumulated shares in
SMC, the Board of Directors of SMC realized the clear and present danger
that competitors or antagonistic parties may be elected directors and
thereby have easy and direct access to SMC's business and trade secrets
and plans;
(2) that the amended by-laws were adopted to preserve and
protect respondent SMC from the clear and present danger that business
competitors, if allowed to become directors, will illegally and unfairly utilize
their direct access to its business secrets and plans for their own private
gain to the irreparable prejudice of respondent SMC, and, ultimately, its
stockholders. Further, it is asserted that membership of a competitor in the Respondent Commission, thru the Solicitor General, filed a
Board of Directors is a blatant disregard of no less than the Constitution separate comment, alleging that after receiving a copy of the restraining
and pertinent laws against combinations in restraint of trade; 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,
(3) that by-laws are valid and binding since a corporation has the
450 and 451 in SEC Case No. 1375.
inherent right and duty to preserve and protect itself by excluding
competitors and antagonistic parties, under the law of self-preservation, In answer to the allegation in the supplemental petition, it states
and it should be allowed a wide latitude in the selection of means to that Order No. 450 which denied deferment of Item 6 of the Agenda of the
preserve itself; annual stockholders' meeting of respondent corporation, took into
consideration an urgent manifestation filed with the Commission by
(4) that the delay in the resolution and disposition of SEC Cases
petitioner on May 3, 1977 which prayed, among others, that the discussion
Nos. 1375 and 1423 was due to petitioner's own acts or omissions, since
of Item 6 of the Agenda be deferred. The reason given for denial of
he failed to have the petition to suspend, pendente lite, the amended by-
deferment was that "such action is within the authority of the corporation
laws calendared for hearing. It was emphasized that it was only on April
as well as falling within the sphere of stockholders' right to know, deliberate
29, 1977 that petitioner calendared the aforesaid petition for suspension
upon and/or to express their wishes regarding disposition of corporate
(preliminary injunction) for hearing on May 3, 1977. The instant petition
funds considering that their investments are the ones directly affected." It
being dated May 4, 1977, it is apparent that respondent Commission was
was alleged that the main petition has, therefore, become moot and
not given a chance to act "with deliberate dispatch";and
academic.
(5) that even assuming that the petition was meritorious, it has
On September 29, 1977, petitioner filed a second supplemental
become moot and academic because respondent Commission has acted
petition with prayer for preliminary injunction, alleging that the actuations
on the pending incidents complained of. It was, therefore, prayed that the
of respondent SEC tended to deprive him of his right to due process, and
petition be dismissed.
"that all possible questions on the facts now pending before the
On May 21, 1977, respondent Emigdio G. Tanjuatco, Sr. filed his respondent Commission are now before this Honorable Court which has
comment, alleging that the petition has become moot and academic for the authority and the competence to act on them as it may see fit." (Rollo,
the reason, among others, that the acts of private respondents sought to pp. 927-928.)
be enjoined have reference to the annual meeting of the stockholders of
Petitioner, in his memorandum, submits the following issues for
respondent San Miguel Corporation, which was held on May 10, 1977; that
resolution;
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 (1) Whether or not the provisions of the amended by-laws of
same meeting, Item 6 of the Agenda was discussed, voted upon, ratified respondent corporation, disqualifying a competitor from nomination or
and confirmed. Further, it was averred that the questions and issues raised election to the Board of Directors are valid and reasonable;
by petitioner are pending in the Securities and Exchange Commission
(2) whether or not respondent SEC gravely abused its discretion
which has acquired jurisdiction over the case, and no hearing on the merits
in denying petitioner's request for an examination of the records of San
has been had; hence the elevation of these issues before the Supreme
Miguel International, Inc.,a fully owned subsidiary of San Miguel
Court is premature.
Corporation; and
Petitioner filed a reply to the aforesaid comments, stating that the
(3) whether or not respondent SEC committed grave abuse of
petition presents justiciable questions for the determination of this Court
discretion in allowing discussion of Item 6 of the Agenda of the Annual
because (1) the respondent Commission acted without circumspection,
Stockholders' Meeting on May 10, 1977, and the ratification of the
unfairly and oppresively against petitioner, warranting the intervention of
investment in a foreign corporation of the corporate funds, allegedly in
this Court; (2) a derivative suit, such as the instant case, is not rendered
violation of section 17-1/2 of the Corporation Law.
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 I
stockholders' meeting of May 10, 1977 did not render the case moot; that
Whether or not amended by-laws are valid is purely a legal
the amendment to the bylaws which specifically bars petitioner from being
question, which public interest requires to be resolved —
a director is void since it deprives him of his vested rights.
 It is the position of the petitioner that "it is not necessary to remand
the case to respondent SEC for an appropriate ruling on the intrinsic
validity of the amended by-laws in compliance with the principle of
exhaustion of administrative remedies",considering that: first: "whether or
not the provisions of the amended by-laws are intrinsically valid ...is purely
a legal question. There is no factual dispute as to what the provisions are
and evidence is not necessary to determine whether such amended by-
laws are valid as framed and approved ...";second: "it is for the interest
and guidance of the public that an immediate and final ruling on the
question be made ...";third: "petitioner was denied due process by SEC"
when "Commissioner de Guzman had openly shown prejudice against
petitioner ...",and "Commissioner Sulit ...approved the amended by-
laws ex-parte and obviously found the same intrinsically valid";and finally:
"to remand the case to SEC would only entail delay rather than serve the
ends of justice."
Respondents Andres M. Soriano, Jr. and Jose M. Soriano
similarly pray that this Court resolve the legal issues raised by the parties
in keeping with the "cherished rules of procedure" that "a court should
always strive to settle the entire controversy in a single proceeding leaving
no root or branch to bear the seeds of future ligiation",citing Gayos v.
Gayos. 3 To the same effect is the prayer of San Miguel Corporation that
this Court resolve on the merits the validity of its amended by-laws and the
rights and obligations of the parties thereunder, otherwise "the time spent
and effort exerted by the parties concerned and, more importantly, by this
Honorable Court, would have been for naught because the main question
will come back to this Honorable Court for final resolution." Respondent
Eduardo R. Visaya submits a similar appeal.
It is only the Solicitor General who contends that the case should
be remanded to the SEC for hearing and decision of the issues involved,
invoking the latter's primary jurisdiction to hear and decide cases involving
intra-corporate controversies.
It is an accepted rule of procedure that the Supreme Court should
always strive to settle the entire controversy in a single proceeding, leaving
no root or branch to bear the seeds of future litigation. 4 Thus, in Francisco
v. City of Davao, 5 this Court resolved to decide the case on the merits
instead of remanding it to the trial court for further proceedings since the
ends of justice would not be subserved by the remand of the case.
In Republic v. Security Credit and Acceptance Corporation, et al., 6 this
Court, finding that the main issue is one of law, resolved to decide the case
on the merits "because public interest demands an early disposition of the
case",and in Republic v. Central Surety and Insurance Company, 7 this
Court denied remand of the third-party complaint to the trial court for
further proceedings, citing precedents where this Court, in similar
situations, resolved to decide the cases on the merits, instead of
remanding them to the trial court where (a) the ends of justice would not
be subserved by the remand of the case; or (b) where public interest
demands an early disposition of the case; or (c) where the trial court had
already received all the evidence presented by both parties and the
Supreme Court is now in a position, based upon said evidence, to decide
the case on its merits. 8 It is settled that the doctrine of primary jurisdiction
has no application where only a question of law is involved. 8 Because
uniformity may be secured through review by a single Supreme Court,
questions of law may appropriately be determined in the first instance by
courts. 8 In the case at bar, there are facts which cannot be
denied, viz: that the amended by-laws were adopted by the Board of
Directors of the San Miguel Corporation in the exercise of the power
delegated by the stockholders ostensibly pursuant to section 22 of the
Corporation Law; that in a special meeting on February 10, 1977 held
specially for that purpose, the amended by-laws were ratified by more than
80% of the stockholders of record; that the foreign investment in the
Hongkong Brewery and Distillery, a beer manufacturing company in
Hongkong, was made by the San Miguel Corporation in 1948; and that in
the stockholders' annual meeting held in 1972 and 1977, all foreign
investments and operations of San Miguel Corporation were ratified by the
stockholders.
II
Whether or not the amended by-laws of SMC disqualifying a
competitor from nomination or election to the Board of Directors of SMC
are valid and reasonable —
The validity or reasonableness of a by-law of a corporation is
purely a question of law. 9 Whether the by-law is in conflict with the law of
the land, or with the charter of the corporation, or is in a legal sense
unreasonable and therefore unlawful is a question of law. 10 This rule is
subject, however, to the limitation that where the reasonableness of a by-
law is a mere matter of judgment, and one upon which reasonable minds
must necessarily differ, a court would not be warranted in substituting its
judgment instead of the judgment of those who are authorized to make by-
laws and who have exercised their authority. 11
Petitioner claims that the amended by-laws are invalid and
unreasonable because they were tailored to suppress the minority and
prevent them from having representation in the Board",at the same time
depriving petitioner of his "vested right" to be voted for and to vote for a
person of his choice as director.
Upon the other hand, respondents Andres M. Soriano, Jr.,Jose M.
Soriano and San Miguel Corporation content that exclusion of a competitor
from the Board is legitimate corporate purpose, considering that being a
competitor, petitioner cannot devote an unselfish and undivided loyalty to
the corporation; that it is essentially a preventive measure to assure
stockholders of San Miguel Corporation of reasonable protection from the
 unrestrained self-interest of those charged with the promotion of the
corporate enterprise; that access to confidential information by a
competitor may result either in the promotion of the interest of the
competitor at the expense of the San Miguel Corporation, or the promotion
of both the interests of petitioner and respondent San Miguel Corporation,
which may, therefore, result in a combination or agreement in violation of
Article 186 of the Revised Penal Code by destroying free competition to
the detriment of the consuming public. It is further argued that there is not
vested right of any stockholder under Philippine Law to be voted as
director of a corporation. It is alleged that petitioner, as of May 6,1978, has
exercised, personally or thru two corporations owned or controlled by him,
control over the following shareholdings in San Miguel
Corporation, vis.: (a) John Gokongwei, Jr. — 6,325 shares; (b) Universal
Robina Corporation — 738,647 shares; (c) CFC Corporation — 658,313
shares, or a total of 1,403,285 shares. Since the outstanding capital stock
of San Miguel Corporation, as of the present date, is represented by
33,139,749 shares with a par value of P10.00, the total shares owned or
controlled by petitioner represents 4.2344% of the total outstanding capital
stock of San Miguel Corporation. It is also contended that petitioner is the
president and substantial stockholder of Universal Robina Corporation
and CFC Corporation, both of which are allegedly controlled by petitioner
and members of his family. It is also claimed that both the Universal
Robina Corporation and the CFC Corporation are engaged in businesses
directly and substantially competing with the allied businesses of San
Miguel Corporation, and of corporations in which SMC has substantial
investments.
ALLEGED AREAS OF COMPETITION BETWEEN PETITIONER'S
CORPORATIONS AND SAN MIGUEL CORPORATION
According to respondent San Miguel Corporation, the areas of,
competition are enumerated in its Board the areas of competition are
enumerated in its Board Resolution dated April 28, 1978, thus:
Product Line Estimated Market Share Total
1977 SMC Robina-CFC
more than 20% of the P2 billion total product sales of SMC. Significantly,
the combined market shares of SMC and CFC-Robina in layer pullets,
dressed chicken, poultry and hog feeds, ice cream, instant coffee and
woven fabrics would result in a position of such dominance as to affect the
prevailing market factors.
It is further asserted that in 1977, the CFC-Robina group was in
direct competition on product lines which, for SMC, represented sales
amounting to more than P478 million. In addition, CFC-Robina was directly
competing in the sale of coffee with Filipino, a subsidiary of SMC, which
product line represented sales for SMC amounting to more than P275
million. The CFC-Robina group (Robitex, excluding Litton Mills recently
acquired by petitioner) is purportedly also in direct competition with Ramie
Textile, Inc.,subsidiary of SMC, in product sales amounting to more than
P95 million. The areas of competition between SMC and CFC-Robina in
1977 represented, therefore, for SMC, product sales of more than P849
million.
According to private respondents, at the Annual Stockholders'
Meeting of March 18, 1976, 9,894 stockholders, in person or by proxy,
owning 23,436,754 shares in SMC, or more than 90% of the total
outstanding shares of SMC, rejected petitioner's candidacy for the Board
of Directors because they "realized the grave dangers to the corporation
in the event a competitor gets a board seat in SMC." On September 18,
1978, the Board of Directors of SMC, by "virtue of powers delegated to it
by the stockholders," approved the amendment to the by-laws in question.
At the meeting of February 10, 1977, these amendments were confirmed
and ratified by 5,716 shareholders owning 24,283,945 shares, or more
than 80% of the total outstanding shares. Only 12 shareholders,
representing 7,005 shares, opposed the confirmation and ratification. At
the Annual Stockholders' Meeting of May 10, 1977, 11,349 shareholders,
owning 27,257.014 shares, or more than 90% of the outstanding shares,
rejected petitioner's candidacy, while 946 stockholders, representing
1,648,801 shares voted for him. On the May 9, 1978 Annual Stockholders'
Meeting, 12,480 shareholders, owning more than 30 million shares, or
more than 90% of the total outstanding shares, voted against petitioner.

Table Eggs 0.6% 10.0% 10.6% AUTHORITY OF CORPORATION TO PRESCRIBE QUALIFICATIONS

OF DIRECTORS EXPRESSLY CONFERRED BY LAW
Layer Pullets 33.0% 24.0% 57.0%
Dressed Chicken 35.0% 14.0% 49.0% Private respondents contend that the disputed amended by-laws
were adopted by the Board of Directors of San Miguel Corporation as a
Poultry & Hog Feeds 40.0% 12.0% 52.0% measure of self-defense to protect the corporation from the clear and
Ice Cream 70.0% 13.0% 83.0% present danger that the election of a business competitor to the Board may
Instant Coffee 45.0% 40.0% 85.0% cause upon the corporation and the other stockholders "irreparable
Woven Fabrics 17.5% 9.1% 26.6% prejudice." Submitted for resolution, therefore, is the issue — whether or
not respondent San Miguel Corporation could, as a measure of self-
Thus, according to respondent SMC, in 1976, the areas of
competition affecting SMC involved product sales of over P400 million or
protection, disqualify a competitor from nomination and election to its stockholders representing at least two-thirds of the subscribed capital
Board of Directors. stock of the corporation. If the amendment changes, diminishes or restricts
the rights of the existing shareholders, then the dissenting minority has
It is recognized by all authorities that 'every corporation has the
only one right, viz.: "to object thereto in writing and demand payment for
inherent power to adopt by-laws 'for its internal government, and to
his share." Under section 22 of the same law, the owners of the majority
regulate the conduct and prescribe the rights and duties of its members
of the subscribed capital stock may amend or repeal any by-law or adopt
towards itself and among themselves in reference to the management of
new by-laws. It cannot be said, therefore, that petitioner has a vested right
its affairs.'" 12 At common law, the rule was "that the power to make and
to be elected director, in the face of the fact that the law at the time such
adopt by-laws was inherent in every corporation as one of its necessary
right as stockholder was acquired contained the prescription that the
and inseparable legal incidents. And it is settled throughout the United
corporate charter and the by-law shall be subject to amendment, alteration
States that in the absence of positive legislative provisions limiting it, every
and modification. 17
private corporation has this inherent power as one of its necessary and
inseparable legal incidents, independent of any specific enabling provision It being settled that the corporation has the power to provide for
in its charter or in general law, such power of self-government being the qualifications of its directors, the next question that must be considered
essential to enable the corporation to accomplish the purposes of its is whether the disqualification of a competitor from being elected to the
creation." 13 Board of Directors is a reasonable exercise of corporate authority.
In this jurisdiction under section 21 of the Corporation Law, a A DIRECTOR STANDS IN A FIDUCIARY RELATION TO THE
corporation may prescribe in its by-laws "the qualifications, duties and CORPORATION AND ITS SHAREHOLDERS
compensation of directors, officers and employees ..." This must
Although in the strict and technical sense, directors of a private
necessarily refer to a qualification in addition to that specified by section
corporation are not regarded as trustees, there cannot be any doubt that
30 of the Corporation Law, which provides that "every director must own
their character is that of a fiduciary insofar as the corporation and the
in his right at least one share of the capital stock of the stock corporation
stockholders as a body are concerned. As agents entrusted with the
of which he is a director ..." In Government v. El Hogar, 14 the Court
management of the corporation for the collective benefit of the
sustained the validity of a provision in the corporate by-law requiring that
stockholders, "they occupy a fiduciary relation, and in this sense the
persons elected to the Board of Directors must be holders of shares of the
relation is one of trust." 18 "The ordinary trust relationship of directors of a
paid up value of P5,000.00, which shall be held as security for their action,
corporation and stockholders", according to Ashaman v. Miller, 19 "is not
on the ground that section 21 of the Corporation Law expressly gives the
a matter of statutory or technical law. It springs from the fact that directors
power to the corporation to provide in its by-laws for the qualifications of
have the control and guidance of corporate affairs and property and hence
directors and is "highly prudent and in conformity with good practice."
of the property interests of the stockholders. Equity recognizes that
NO VESTED RIGHT OF STOCKHOLDER TO BE stockholders are the proprietors of the corporate interests and are
ELECTED DIRECTOR ultimately the only beneficiaries thereof ..."
Any person "who buys stock in a corporation does so with the Justice Douglas, in Pepper v. Litton, 20 emphatically restated the
knowledge that its affairs are dominated by a majority of the stockholders standard of fiduciary obligation of the directors of corporations, thus:
and that he impliedly contracts that the will of the majority shall govern in
"A director is a fiduciary. ...Their powers are powers
all matters within the limits of the act of incorporation and lawfully enacted
in trust. ...He who is in such fiduciary position cannot serve
by-laws and not forbidden by law." 15 To this extent, therefore, the
himself first and his cestuis second. ...He cannot manipulate
stockholder may be considered to have "parted with his personal right or
the affairs of his corporation to their detriment and in
privilege to regulate the disposition of his property which he has invested
disregard of the standards of common decency. He cannot
in the capital stock of the corporation, and surrendered it to the will of the
by the intervention of a corporate entity violate the ancient
majority of his fellow incorporators. . . . It can not therefore be justly said
precept against serving two masters. ...He cannot utilize his
that the contract, express or implied, between the corporation and the
inside information and strategic position for his own
stockholders is infringed . . . by any act of the former which is authorized
preferment. He cannot violate rules of fair play by doing
by a majority . . ." 16
indirectly through the corporation what he could not do so
Pursuant to section 18 of the Corporation Law, any corporation directly. He cannot violate rules of fair play by doing
may amend its articles of incorporation by a vote or written assent of the indirectly through the corporation what he could not do so
 directly. He cannot use his power for his personal
advantage and to the detriment of the stockholders and
creditors no matter how absolute in terms that power may
be and no matter how meticulous he is to satisfy technical
requirements. For that power is at all times subject to the
equitable limitation that it may not be exercised for the
aggrandizement, preference, or advantage of the fiduciary
to the exclusion or detriment of the cestuis."
And in Cross v. West Virginia Cent, & P. R. R. Co., 21 it was said:
"...A person cannot serve two hostile and adverse
masters without detriment to one of them. A judge cannot
be impartial if personally interested in the cause. No more
can a director. Human nature is too weak for this. Take
whatever statute provision you please giving power to
stockholders to choose directors, and in none will you find
any express prohibition against a discretion to select
directors having the company's interest at heart, and it
would simply be going far to deny by mere implication the
existence of such a salutary power.
"...If the by-law is to be held reasonable in
disqualifying a stockholder in a competing company from
being a director, the same reasoning would apply to
disqualify the wife and immediate member of the family of
such stockholder, on account of the supposed interest of the
wife in her husband's affairs, and his supposed influence
over her. It is perhaps true that such stockholders ought not
to be condemned as selfish and dangerous to the best
interest of the corporation until tried and tested. So it is also
true that we cannot condemn as selfish and dangerous and
unreasonable the action of the board in passing the by-law.
The strife over the matter of control in this corporation as in
many others is perhaps carried on not altogether in the spirit
of brotherly love and affection. The only test that we can
apply is as to whether or not the action of the Board is
authorized and sanctioned by law. ..." 22
These principles have been applied by this Court in previous cases. 23
AN AMENDMENT TO THE CORPORATE BY-LAW WHICH RENDERS
A STOCKHOLDER INELIGIBLE TO BE DIRECTOR, IF HE BE ALSO
DIRECTOR IN A CORPORATION WHOSE BUSINESS IS IN
COMPETITION WITH THAT OF THE OTHER CORPORATION, HAS
BEEN SUSTAINED AS VALID
It is a settled state law in the United States, according to Fletcher,
that corporations have the power to make by-laws declaring a person
employed in the service of a rival company to be ineligible for the
corporation's Board of Directors. ". . . (A)n amendment which renders
ineligible, or if elected, subjects to removal, a director if he be also a
director in a corporation whose business is in competition with or is
antagonistic to the other corporation is valid." 24 This is based upon the
principle that where the director is so employed in the service of a rival
company, he cannot serve both, but must betray one or the other. Such
an amendment "advances the benefit of the corporation and is good." An
exception exists in New Jersey, where the Supreme Court held that the
Corporation Law in New Jersey prescribed the only qualification, and
therefore the corporation was not empowered to add additional
qualifications. 25 This is the exact opposite of the situation in the
Philippines because as stated heretofore, section 21 of the Corporation
Law expressly provides that a corporation may make by-laws for the
qualifications of directors. Thus, it has been held that an officer of a
corporation cannot engage in a business in direct competition with that of
the corporation where he is a director by utilizing information he has
received as such officer, under "the established law that a director or
officer of a corporation may not enter into a competing enterprise which
cripples or injures the business of the corporation of which he is an officer
or director." 26
It is also well established that corporate officers "are not permitted
to use their position of trust and confidence to further their private
interests." 27 In a case where directors of a corporation cancelled a
contract of the corporation for exclusive sale of a foreign firm's products,
and after establishing a rival business, the directors entered into a new
contract themselves with the foreign firm for exclusive sale of its products,
the court held that equity would regard the new contract as an offshoot of
the old contract and, therefore, for the benefit of the corporation, as a
"faultless fiduciary may not reap the fruits of his misconduct to the
exclusion of his principal. 28
The doctrine of "corporate opportunity" 29 is precisely a
recognition by the courts that the fiduciary standards could not be upheld
where the fiduciary was acting for two entities with competing interests.
This doctrine rests fundamentally on the unfairness, in particular
circumstances, of an officer or director taking advantage of an opportunity
for his own personal profit when the interest of the corporation justly calls
for protection. 30
It is not denied that a member of the Board of Directors of the San
Miguel Corporation has access to sensitive and highly confidential
information, such as: (a) marketing strategies and pricing structure; (b)
budget for expansion and diversification; (c) research and development;
and (d) sources of funding, availability of personnel, proposals of mergers
or tie-ups with other firms.
 It is obviously to prevent the creation of an opportunity for an
officer or director of San Miguel Corporation, who is also the officer or
owner of a competing corporation, from taking advantage of the
information which he acquires as director to promote his individual or
corporate interests to the prejudice of San Miguel Corporation and its
stockholders, that the questioned amendment of the by-laws was made.
Certainly, where two corporations are competitive in a substantial sense,
it would seem improbable, if not impossible, for the director, if he were to
discharge effectively his duty, to satisfy his loyalty to both corporations and
place the performance of his corporation duties above his personal
concerns.
Thus, in McKee & Co. v. First National Bank of San Diego,
supra, the court sustained as valid and reasonable an amendment to the
by-laws of a bank, requiring that its directors should not be directors,
officers, employees, agents, nominees or attorneys of any other banking
corporation, affiliate or subsidiary thereof. Chief Judge Parker,
in McKee, explained the reasons of the court, thus:
"...A bank director has access to a great deal of
information concerning the business and plans of a bank
which would likely be injurious to the bank if known to
another bank, and it was reasonable and prudent to enlarge
this minimum disqualification to include any director, officer,
employee, agent, nominee, or attorney of any other bank in
California. The Ashkins case, supra, specifically recognizes
protection against rivals and others who mightacquire
information which might be used against the interests of the
corporation as a legitimate object of by-law protection. With
respect to attorneys or persons associated with a firm which
is attorney for another bank, in addition to the direct conflict
or potential conflict of interest, there is also the danger of
inadvertent leakage of confidential information through
casual office discussions or accessibility of files.
Defendant's directors determined that its welfare was best
protected if this opportunity for conflicting loyalties and
potential misuse and leakage of confidential information
was foreclosed."
In McKee, the Court further listed qualificational by-laws upheld
by the courts, as follows:
"(1) A director shall not be directly or indirectly
interested as a stockholder in any other firm, company, or
association which competes with the subject corporation.
(2) A director shall not be the immediate member of
the family of any stockholder in any other firm, company, or
association which competes with the subject corporation.
(3) A director shall not be an officer, agent,
employee, attorney, or trustee in any other firm, company,
or association which compete with the subject corporation.
(4) A director shall be of good moral character as
an essential qualification to holding office.
(5) No person who is an attorney against the
corporation in a law suit is eligible for service on the board."
(At p. 7.)
These are not based on theorical abstractions but on human
experience — that a person cannot serve two hostile masters without
detriment to one of them.
The offer and assurance of petitioner that to avoid any possibility
of his taking unfair advantage of his position as director of San Miguel
Corporation, he would absent himself from meetings at which confidential
matters would be discussed, would not detract from the validity and
reasonableness of the by-laws here involved. Apart from the impractical
results that would ensue from such arrangement, it would be inconsistent
with petitioner's primary motive in running for board membership — which
is to protect his investments in San Miguel Corporation. More important,
such a proposed norm of conduct would be against all accepted principles
underlying a director's duty of fidelity to the corporation, for the policy of
the law is to encourage and enforce responsible corporate management.
As explained by Oleck: 31 "The law will not tolerate the passive attitude of
directors . . . without active and conscientious participation in the
managerial functions of the company. As directors, it is their duty to control
and supervise the day to day business activities of the company or to
promulgate definite policies and rules of guidance with a vigilant eye
toward seeing to it that these policies are carried out. It is only then that
directors may be said to have fulfilled their duty of fealty to the
corporation."
Sound principles of corporate management counsel against
sharing sensitive information with a director whose fiduciary duty of loyalty
may well require that he disclose this information to a competitive rival.
These dangers are enhanced considerably where the common director
such as the petitioner is a controlling stockholder of two of the competing
corporations. It would seem manifest that in such situations, the director
has an economic incentive to appropriate for the benefit of his own
corporation the corporate plans and policies of the corporation where he
sits as director.
Indeed, access by a competitor to confidential information
regarding marketing strategies and pricing policies of San Miguel
Corporation would subject the latter to a competitive disadvantage and
unjustly enrich the competitor, for advance knowledge by the competitor
of the strategies for the development of existing or new markets of existing
or new products could enable said competitor to utilize such knowledge to
his advantage. 32
There is another important consideration in determining whether
or not the amended by-laws are reasonable. The Constitution and the law
prohibit combinations in restraint of trade or unfair competition. Thus,
section 2 of Article XIV of the Constitution provides: "The State shall
regulate or prohibit private monopolies when the public interest so
requires. No combinations in restraint of trade or unfair competition shall
be allowed."
Article 186 of the Revised Penal Code also provides:
"Art. 186. Monopolies and combinations in restraint
of trade.— The penalty of prision correccional in its
minimum period or a fine ranging from two hundred to six
thousand pesos, or both, shall be imposed upon:
1. Any person who shall enter into any contract or
agreement or shall take part in any conspiracy or
combination in the form of a trust or otherwise, in restraint
of trade or commerce or to prevent by artificial means free
competition in the market.
2. Any person who shall monopolize any
merchandise or object of trade or commerce, or shall
combine with any other person or persons to monopolize
said merchandise or object in order to alter the price thereof
by spreading false rumors or making use of any other
artifice to restrain free competition in the market.
3. Any person who, being a manufacturer,
producer, or processor of any merchandise or object of
commerce or an importer of any merchandise or object of
commerce from any foreign country, either as principal or
agent, wholesale or retailer, shall combine, conspire or
agree in any manner with any person likewise engaged in
the manufacture, production, processing, assembling or
importation of such merchandise or object of commerce or
with any other persons not so similarly engaged for the
purpose of making transactions prejudicial to lawful
commerce, or of increasing the market price in any part of
the Philippines, or any such merchandise or object of
commerce manufactured, produced, processed, assembled
in or imported into the Philippines, or of any article in the
manufacture of which such manufactured, produced,
processed, or imported merchandise or object of commerce
is used."
There are other legislation in this jurisdiction, which prohibit
monopolies and combinations in restraint of trade. 33 Basically, these
anti-trust laws or laws against monopolies or combinations in restraint of
trade are aimed at raising levels of competition by improving the
consumers' effectiveness as the final arbiter in free markets. These laws
are designed to preserve free and unfettered competition as the rule of
trade. "It rests on the premise that the unrestrained interaction of
competitive forces will yield the best allocation of our economic resources,
the lowest prices and the highest quality . . ." 34 they operate to forestall
concentration of economic power. 35 The law against monopolies and
combinations in restraint of trade is aimed at contracts and combinations
that, by reason of the inherent nature of the contemplated acts, prejudice
the public interest by unduly restraining competition or unduly obstructing
the course of trade. 36
The terms "monopoly", "combination in restraint of trade" and
"unfair competition" appear to have a well defined meaning in other
jurisdictions. A "monopoly" embraces any combination the tendency of
which is to prevent competition in the broad and general sense, or to
control prices to the detriment of the public. 37 In short, it is the
concentration of business in the hands of a few. The material
consideration in determining its existence is not that prices are raised and
competition actually excluded, but that power exists to raise prices or
exclude competition when desired. 38 Further, it must be considered that
the idea of monopoly is now understood to include a condition produced
by the mere act of individuals. Its dominant thought is the notion of
exclusiveness or unity, or the suppression of competition by the unification
of interest or management, or it may be thru agreement and concert of
action. It is, in brief, unified tactics with regard to prices. 39
From the foregoing definitions, it is apparent that the contentions
of petitioner are not in accord with reality. The election of petitioner to the
Board of respondent Corporation can bring about an illegal situation. This
is because an express agreement is not necessary for the existence of a
combination or conspiracy in restraint of trade. 40 It is enough that a
concert of action is contemplated and that the defendants conformed to
the arrangements, 41 and what is to be considered is what the parties
actually did and not the words they used. For instance, the Clayton Act
prohibits a person from serving at the same time as a director in any two
or more corporations, if such corporations are, by virtue of their business
and location of operation, competitors so that the elimination of
competition between them would constitute violation of any provision of
the anti-trust laws. 42 There is here a statutory recognition of the anti-
competitive dangers which may arise when an individual simultaneously
acts as a director of two or more competing corporations. A common
director of two or more competing corporations would have access to
confidential sales, pricing and marketing information and would be in a
position to coordinate policies or to aid one corporation at the expense of
another, thereby stifling competition. This situation has been aptly
explained by Travers, thus:
"The argument for prohibiting competing
corporations from sharing even one director is that the
interlock permits the coordination of policies between
nominally independent firms to an extent that competition
between them may be completely eliminated. Indeed, if a
director, for example, is to be faithful to both corporations,
some accommodation must result. Suppose X is a director
of both Corporation A and Corporation B. X could hardly
vote for a policy by A that would injure B without violating
his duty of loyalty to B; at the same time he could hardly
abstain from voting without depriving A of his best judgment.
If the firms really do compete — in the sense of vying for
economic advantage at the expense of the other — there
can hardly be any reason for an interlock between
competitors other than the suppression of
competition." 43 (Emphasis supplied.)
According to the Report of the House Judiciary Committee of the
U. S. Congress on section 9 of the Clayton Act, it was established that:
"By means of the interlocking directorates one man or group of men have
been able to dominate and control a great number of corporations . . . to
the detriment of the small ones dependent upon them and to the injury of
the public." 44
Shared information on cost accounting may lead to price fixing.
Certainly, shared information on production, orders, shipments, capacity
and inventories may lead to control of production for the purpose of
controlling prices.
Obviously, if a competitor has access to the pricing policy and cost
conditions of the products of San Miguel Corporation, the essence of
competition in a free market for the purpose of serving the lowest priced
goods to the consuming public would be frustrated. The competitor could
so manipulate the prices of his products or vary its marketing strategies by
region or by brand in order to get the most out of the consumers. Where
the two competing firms control a substantial segment of the market this
could lead to collusion and combination in restraint of trade. Reason and
experience point to the inevitable conclusion that the inherent tendency of
interlocking directorates between companies that are related to each other
as competitors is to blunt the edge of rivalry between the corporations, to
seek out ways of compromising opposing interests, and thus eliminate
competition. As respondent SMC aptly observes, knowledge by CFC-
Robina of SMC's costs in various industries and regions in the country will
enable the former to practice price discrimination. CFC-Robina can
segment the entire consuming population by geographical areas or
income groups and change varying prices in order to maximize profits from
every market segment. CFC-Robina could determine the most profitable
volume at which it could produce for every product line in which it
competes with SMC. Access to SMC pricing policy by CFC-Robina would
in effect destroy free competition and deprive the consuming public of
opportunity to buy goods of the highest possible quality at the lowest
prices.
Finally, considering that both Robina and SMC are, to a certain
extent, engaged in agriculture, then the election of petitioner to the Board
of SMC may constitute a violation of the prohibition contained in section
13(5) of the Corporation Law. Said section provides in part that "any
stockholder of more than one corporation organized for the purpose of
engaging in agriculture may hold his stock in such corporations solely for
investment and not for the purpose of bringing about or attempting to bring
about a combination to exercise control of such corporations ...)."
Neither are We persuaded by the claim that the by-law was
intended to prevent the candidacy of petitioner for election to the Board. If
the by-law were to be applied in the case of one stockholder but waived in
the case of another, then it could be reasonably claimed that the by-law
was being applied in a discriminatory manner. However, the by-law, by its
terms, applies to all stockholders. The equal protection clause of the
Constitution requires only that the by-law operate equally upon all persons
of a class. Besides, before petitioner can be declared ineligible to run for
director, there must be hearing and evidence must be submitted to bring
his case within the ambit of the disqualification. Sound principles of public
policy and management, therefore, support the view that a by-law which
disqualifies a competition from election to the Board of Directors of another
corporation is valid and reasonable.
In the absence of any legal prohibition or overriding public policy,
wide latitude may be accorded to the corporation in adopting measures to
protect legitimate corporate interests. Thus, "where the reasonableness of
a by-law is a mere matter of judgment, and upon which reasonable minds
must necessarily differ, a court would not be warranted in substituting its
judgment instead of the judgment of those who are authorized to make by-
laws and who have expressed their authority." 45
Although it is asserted that the amended by-laws confer on the
present Board powers to perpetuate themselves in power, such fears
appear to be misplaced. This power, by its very nature, is subject to certain
well established limitations. One of these is inherent in the very concept
and definition of the terms "competition" and "competitor". "Competition"
implies a struggle for advantage between two or more forces, each
possessing, in substantially similar if not identical degree, certain
characteristics essential to the business sought. It means an independent
endeavor of two or more persons to obtain the business patronage of a
third by offering more advantageous terms as an inducement to secure
trade. 46 The test must be whether the business does in fact compete, not
whether it is capable of an indirect and highly unsubstantial duplication of
an isolated or non-characteristic activity. 47 It is, therefore, obvious that
not every person or entity engaged in business of the same kind is a
competitor. Such factors as quantum and place of business, identity of
products and area of competition should be taken into consideration. It is,
therefore, necessary to show that petitioner's business covers a
substantial portion of the same markets for similar products to the extent
of not less than 10% of respondent corporation's market for competing
products. While We here sustain the validity of the amended by-laws, it
does not follow as a necessary consequence that petitioner is ipso
facto disqualified. Consonant with the requirement of due process, there
must be due hearing at which the petitioner must be given the fullest
opportunity to show that he is not covered by the disqualification. As
trustees of the corporation and of the stockholders, it is the responsibility
of directors to act with fairness to the stockholders. 48 Pursuant to this
obligation and to remove any suspicion that this power may be utilized by
the incumbent members of the Board to perpetuate themselves in power,
any decision of the Board to disqualify a candidate for the Board of
Directors should be reviewed by the Securities and Exchange
Commission en banc and its decision shall be final unless reversed by this
Court on certiorari. 49 Indeed, it is a settled principle that where the action
of a Board of Directors is an abuse of discretion, or forbidden by statute,
or is against public policy, or is ultra vires, or is a fraud upon minority
stockholders or creditors, or will result in waste, dissipation or
misapplication of the corporation assets, a court of equity has the power
to grant appropriate relief. 50
III
Whether or not respondent SEC gravely abused its discretion in
denying petitioner's request for an examination of the records of San
Miguel International, Inc.,a fully owned subsidiary of San Miguel
Corporation —
Respondent San Miguel Corporation stated in its memorandum
that petitioner's claim that he was denied inspection rights as stockholder
of SMC "was made in the teeth of undisputed facts that, over a specific
period, petitioner had been furnished numerous documents and
information," to wit: (1) a complete list of stockholders and their
stockholdings; (2) a complete list of proxies given by the stockholders for
use at the annual stockholders' meeting of May 18, 1975; (3) a copy of the
minutes of the stockholders' meeting of March 18, 1976; (4) a breakdown
of SMC's P186.6 million investment in associated companies and other
companies as of December 31, 1975; (5) a listing of the salaries,
allowances, bonuses and other compensation or remunerations received
by the directors and corporate officers of SMC; (6) a copy of the US$100
million Euro-Dollar Loan Agreement of SMC; and (7) copies of the minutes
of all meetings of the Board of Directors from January 1975 to May 1976,
with deletions of sensitive data, which deletions were not objected to by
petitioner.
Further, it was averred that upon request, petitioner was informed
in writing on September 18, 1976; (1) that SMC's foreign investments are
handled by San Miguel International, Inc.,incorporated in Bermuda and
wholly owned by SMC; this was SMC's first venture abroad, having started
in 1948 with an initial outlay of P500,000.00, augmented by a loan of
Hongkong $6 million from a foreign bank under the personal guaranty of
SMC's former President, the late Col. Andres Soriano; (2) that as of
December 31, 1975, the estimated value of SMI would amount to almost
P400 million; (3) that the total cash dividends received by SMC from SMI
since 1953 has amount to US$9.4 million; and (4) that from 1972-1975,
SMI did not declare cash or stock dividends, all earnings having been used
in line with a program for the setting up of breweries by SMI.
These averments are supported by the affidavit of the Corporate
Secretary, enclosing photocopies of the afore-mentioned documents. 51
Pursuant to the second paragraph of section 51 of the Corporation
Law, "(t)he record of all business transactions of the corporation and
minutes of any meeting shall be open to the inspection of any director,
member or stockholder of the corporation at reasonable hours."
The stockholder's right of inspection of the corporation's books
and records is based upon their ownership of the assets and property of
the corporation. It is, therefore, an incident of ownership of the corporate
property, whether this ownership or interest be termed an equitable
ownership, a beneficial ownership, or a quasi-ownership. 52 This right is
predicated upon the necessity of self-protection. It is generally held by
majority of the courts that where the right is granted by statute to the
stockholder, it is given to him as such and must be exercised by him with
respect to his interest as a stockholder and for some purpose germane
thereto or in the interest of the corporation. 53 In other words, the
inspection has to be germane to the petitioner's interest as a stockholder,
and has to be proper and lawful in character and not inimical to the interest
of the corporation. 54 In Grey v. Insular Lumber, 55 this Court held that
"the right to examine the books of the corporation must be exercised in
good faith, for specific and honest purpose, and not to gratify curiosity, or
for speculative or vexatious purposes." The weight of judicial opinion
appears to be, that on application for mandamus to enforce the right, it is
proper for the court to inquire into and consider the stockholder's good
faith and his purpose and motives in seeking inspection. 56 Thus, it was
held that "the right given by statute is not absolute and may be refused
when the information is not sought in good faith or is used to the detriment
of the corporation." 57 But the "impropriety of purpose such as will defeat
enforcement must be set up the corporation defensively if the Court is to
take cognizance of it as a qualification. In other words, the specific
provisions take from the stockholder the burden of showing propriety of
purpose and place upon the corporation the burden of showing impropriety
of purpose or motive." 58 It appears to be the "general rule that
stockholders are entitled to full information as to the management of the
corporation and the manner of expenditure of its funds, and to inspection
to obtain such information, especially where it appears that the company
is being mismanaged or that it is being managed for the personal benefit
of officers or directors or certain of the stockholders to the exclusion of
others." 59
While the right of a stockholder to examine the books and records
of a corporation for a lawful purpose is a matter of law, the right of such
stockholder to examine the books and records of a wholly-owned
subsidiary of the corporation in which he is a stockholder is a different
thing.
Some state courts recognize the right under certain conditions,
while others do not. Thus, it has been held that where a corporation owns
approximately no property except the shares of stock of subsidiary
corporations which are merely agents or instrumentalities of the holding
company, the legal fiction of distinct corporate entities may be disregarded
and the books, papers and documents of all the corporations may be
required to be produced for examination, 60and that a writ of mandamus
may be granted, as the records of the subsidiary were, to all intents and
purposes, the records of the parent even though the subsidiary was not
named as a party. 61 Mandamus was likewise held proper to inspect both
the subsidiary's and the parent corporation's books upon proof of sufficient
control or dominion by the parent showing the relation of principal or agent
or something similar thereto. 62
On the other hand, mandamus at the suit of a stockholder was
refused where the subsidiary corporation is a separate and distinct
corporation domiciled and with its books and records in another
jurisdiction, and is not legally subject to the control of the parent company,
although it owned a vast majority of the stock of the
subsidiary. 63 Likewise, inspection of the books of an allied corporation by
a stockholder of the parent company which owns all the stock of the
subsidiary has been refused on the ground that the stockholder was not
within the class of "persons having an interest." 64
In the Nash case, 65 The Supreme Court of New York held that
the contractual right of former stockholders to inspect books and records
of the corporation "included the right to inspect corporation's subsidiaries'
books and records which were in corporation's possession and control in
its office in New York."
In the Bailey case, 66 stockholders of a corporation were held
entitled to inspect the records of a controlled subsidiary corporation which
used the same offices and had identical officers and directors.
In his "Urgent Motion for Production and Inspection of Documents"
before respondent SEC, petitioner contended that respondent corporation
"had been attempting to suppress information from the stockholders" and
that petitioner, "as stockholder of respondent corporation, is entitled to
copies of some documents which for some reason or another, respondent
corporation is very reluctant in revealing to the petitioner notwithstanding
the fact that no harm would be caused thereby to the
corporation." 67 There is no question that stockholders are entitled to
inspect the books and records of a corporation in order to investigate the
conduct of the management, determine the financial condition of the
corporation, and generally take an account of the stewardship of the
officers and directors. 68
In the case at bar, considering that the foreign subsidiary is wholly
owned by respondent San Miguel Corporation and, therefore, under Its
control, it would be more in accord with equity, good faith and fair dealing
to construe the statutory right of petitioner as stockholder to inspect the
books and records of the corporation as extending to books and records
of such wholly owned subsidiary which are in respondent corporation's
possession and control.
IV
Whether or not respondent SEC gravely abused its discretion in
allowing the stockholders of respondent corporation to ratify the
investment of corporate funds in a foreign corporation
Petitioner reiterates his contention in SEC Case No. 1423 that
respondent corporation invested corporate funds in SMI without prior
authority of the stockholders, thus violating section 17-112 of the
Corporation Law, and alleges that respondent SEC should have
investigated the charge, being a statutory offense, instead of allowing
ratification of the investment by the stockholders.
Respondent SEC's position is that submission of the investment
to the stockholders for ratification is a sound corporate practice and should
not be thwarted but encouraged.
Section 17-1/2 of the Corporation Law allows a corporation to
"invest its funds in any other corporation or business or for any purpose
other than the main purpose for which it was organized" provided that its
Board of Directors has been so authorized by the affirmative vote of
stockholders holding shares entitling them to exercise at least two-thirds
of the voting power. If the investment is made in pursuance of the
corporate purpose, it does not need the approval of the stockholders. It is
only when the purchase of shares is done solely for investment and not to
accomplish the purpose of its incorporation that the vote of approval of the
stockholders holding shares entitling them to exercise at least two-thirds
of the voting power is necessary. 69
As stated by respondent corporation, the purchase of beer
manufacturing facilities by SMC was an investment in the same business
stated as its main purpose in its Articles of Incorporation, which is to
manufacture and market beer. It appears that the original investment was
made in 1947-1948, when SMC, then San Miguel Brewery, Inc.,purchased
a beer brewery in Hongkong (Hongkong Brewery & Distillery, Ltd.) for the
manufacture and marketing of San Miguel beer thereat. Restructuring of
the investment was made in 1970-1971 thru the organization of SMI in
Bermuda as a tax free reorganization.
Under these circumstances, the ruling in De la Rama v. Ma-ao
Sugar Central Co.,Inc.,supra, appears relevant. In said case, one of the
issues was the legality of an investment made by Ma-ao Sugar Central
Co.,Inc.,without prior resolution approved by the affirmative vote of 2/3 of
the stockholders' voting power, in the Philippine Fiber Processing
Co.,Inc.,a company engaged in the manufacture of sugar bags. The lower
court said that "there is more logic in the stand that if the investment is
made in a corporation whose business is important to the investing
corporation and would aid it in its purpose, to require authority of the
stockholders would be to unduly curtail the power of the Board of
Directors." This Court affirmed the ruling of the court a quo on the matter
and, quoting Prof. Sulpicio S. Guevara, said:
"'j. Power to acquire or dispose of shares or
securities. — A private corporation, in order to accomplish
is purpose as stated in its articles of incorporation, and
subject to the limitations imposed by the Corporation Law,
has the power to acquire, hold, mortgage, pledge or dispose
of shares, bonds, securities, and other evidences of
indebtedness of any domestic or foreign corporation. Such
an act, if done in pursuance of the corporate purpose, does
not need the approval of stockholders; but when the
purchase of shares of another corporation is done solely for
investment and not to accomplish the purpose of its
incorporation, the vote of approval of the stockholders is
necessary. In any case, the purchase of such shares or
securities must be subject to the limitations established by
the Corporation law; namely, (a) that no agricultural or
mining corporation shall in anywise be interested in any
other agricultural or mining corporation; or (b) that a non-
agricultural or non-mining corporation shall be restricted to
own not more than 15% of the voting stock of any
agricultural or mining corporation; and (c) that such holdings
shall be solely for investment and not for the purpose of
bringing about a monopoly in any line of commerce or
combination in restraint of trade.' (The Philippine
Corporation Law by Sulpicio S. Guevara, 1967 Ed.,p. 89)
(Emphasis ours.)
"'40. Power to invest corporate funds. — A private
corporation has the power to invest its corporate funds "in
any other corporation or business, or for any purpose other
than the main purpose for which it was organized, provided
that 'its board of directors has been so authorized in a
resolution by the affirmative vote of stockholders holding
shares in the corporation entitling them to exercise at least
two-thirds of the voting power on such a proposal at a
stockholders' meeting called for that purpose,' and provided
further, that no agricultural or mining corporation shall in
anywise be interested in any other agricultural or mining
corporation. When the investment is necessary to
accomplish its purpose or purposes as stated in its articles
of incorporation, the approval of the stockholders is not
necessary."" (Id.,p. 108.) (Emphasis ours.)" (pp. 258-259.)
Assuming arguendo that the Board of Directors of SMC had no
authority to make the assailed investment, there is no question that a
corporation, like an individual, may ratify and thereby render binding upon
it the originally unauthorized acts of its officers or other agents. 70 This is
true because the questioned investment is neither contrary to law, morals,
public order or public policy. It is a corporate transaction or contract which
is within the corporate powers, but which is defective from a purported
failure to observe in its execution the requirement of the law that the
investment must be authorized by the affirmative vote of the stockholders
holding two-thirds of the voting power. This requirement is for the benefit
of the stockholders. The stockholders for whose benefit the requirement
was enacted may, therefore, ratify the investment and its ratification by
said stockholders obliterates any defect which it may have had at the
outset. "Mere ultra vires acts",said this Court in Pirovano, 71 "or those
which are not illegal and void ab initio, but are not merely within the scope
of the articles of incorporation, are merely voidable and may become
binding and enforceable when ratified by the stockholders."
Besides, the investment was for the purchase of beer
manufacturing and marketing facilities which is apparently relevant to the
corporate purpose. The mere fact that respondent corporation submitted
the assailed investment to the stockholders for ratification at the annual
meeting of May 10, 1977 cannot be construed as an admission that
respondent corporation had committed an ultra vires act, considering the
common practice of corporations of periodically submitting for the
ratification of their stockholders the acts of their directors, officers and
managers.
 WHEREFORE, judgment is hereby rendered as follows:
The Court voted unanimously to grant the petition insofar as it
prays that petitioner be allowed to examine the books and records of San
Miguel International, Inc.,as specified by him.
On the matter of the validity of the amended by-laws of respondent
San Miguel Corporation, six (6) Justices, namely, Justices Barredo,
Makasiar, Antonio, Santos, Abad Santos and De Castro, voted to sustain
the validity per se of the amended by-laws in question and to dismiss the
petition without prejudice to the question of the actual disqualification of
petitioner John Gokongwei, Jr. to run and if elected to sit as director of
respondent San Miguel Corporation being decided, after a new and proper
hearing by the Board of Directors of said corporation, whose decision shall
be appealable to the respondent Securities and Exchange Commission
deliberating and acting en banc, and ultimately to this Court. Unless
disqualified in the manner herein provided, the prohibition in the afore-
mentioned amended by-laws shall not apply to petitioner.
The afore-mentioned six (6) Justices, together with Justice
Fernando, voted to declare the issue on the validity of the foreign
investment of respondent corporation as moot.
Chief Justice Fred Ruiz Castro reserved his vote on the validity of
the amended by-laws, pending hearing by this Court on the applicability of
section 13(5) of the Corporation Law to petitioner.
Justice Fernando reserved his vote on the validity of subject
amendment to the by-laws but otherwise concurs in the result.
Four (4) Justices, namely, Justices Teehankee, Concepcion
Jr.,Fernandez and Guerrero filed a separate opinion, wherein they voted
against the validity of the questioned amended by-laws and that this
question should properly be resolved first by the SEC as the agency of
primary jurisdiction. They concur in the result that petitioner may be
allowed to run for and sit as director of respondent SMC in the scheduled
May 6, 1979 election and subsequent elections until disqualified after
proper hearing by the respondent's Board of Directors and petitioner's
disqualification shall have been sustained by respondent SEC en bancand
ultimately by final judgment of this Court.
In resume, subject to the qualifications afore-stated, judgment is
hereby rendered GRANTING the petition by allowing petitioner to examine
the books and records of San Miguel International, Inc. as specified in the
petition. The petition, * insofar as it assails the validity of the amended by-
laws and the ratification of the foreign investment of respondent
corporation, for lack of necessary votes, is hereby DISMISSED. No costs.
Makasiar, Santos, Abad Santos and De Castro, JJ., concur.
Castro, C J., reserves his right to file a separate opinion.
Fernando, J., concurs in the result and reserves his right to file a
separate opinion.
Aquino, and Melencio Herrera, JJ., took no part.
CERTIFICATION
The undersigned hereby certifies that Justice VICENTE ABAD
SANTOS concurred in the opinion of Justice FELIX Q. ANTONIO.
Separate Opinions
TEEHANKEE, CONCEPCION JR.,
FERNANDEZ and GUERRERO, JJ., concurring:
I
As correctly stated in the main opinion of Mr. Justice Antonio, the
Court is unanimous in its judgment granting the petitioner as stockholder
of respondent San Miguel Corporation the right to inspect, examine and
secure copies of the records of San Miguel International, Inc. (SMI),a
wholly owned foreign subsidiary corporation of respondent San Miguel
Corporation. Respondent commission's en banc Order No. 449, Series of
1977, denying petitioner's right of inspection for "not being a stockholder
of San Miguel International, Inc." has been accordingly set aside. It need
be only pointed out that:
a) The commission's reasoning grossly disregards the fact that
the stockholders of San Miguel Corporation are likewise the owners of San
Miguel International, Inc. as the corporation's wholly owned foreign
subsidiary and therefore have every right to have access to its books and
records otherwise, the directors and management of any Philippine
corporation by the simple device of organizing with the corporation's funds
foreign subsidiaries would be granted complete immunity from the
stockholders' scrutiny of its foreign operations and would have a conduit
for dissipating, if not misappropriating, the corporate funds and assets by
merely channeling them into foreign subsidiaries' operations; and
b) Petitioner's right of examination herein recognized refers to all
books and records of the foreign subsidiary SMI which are "in respondent
corporation's possession and control" 1 ,meaning to say regardless of
whether or not such books and records are physically within the
Philippines. All such books and records of SMI are legally within
respondent corporation's "possession and control" and if any books or
records are kept abroad, (e.g. in the foreign subsidiary's state of domicile,
as is to be expected),then the respondent corporation's board and
management are obliged under the Court's judgment to bring and make
them (or true copies thereof) available within the Philippines for petitioner's
examination and inspection.
II
On the other main issue of the validity of respondent San Miguel
Corporation's amendment of its by-laws 2 whereby respondent
corporation's board of directors under its resolution dated April 29, 1977
declared petitioner ineligible to be nominated or to be voted or to be
elected as of the board of directors, the Court, composed of 12 members
(since Mme. Justice Ameurfina Melencio Herrera inhibited herself from
taking part herein, while Mr. Justice Ramon C. Aquino upon submittal of
the main opinion of Mr. Justice Antonio decided not to take part),failed to
reach a conclusive vote or the required majority of 8 votes to settle the
issue one way or the other.
Six members of the Court, namely, Justices Barredo, Makasiar,
Antonio, Santos, Abad Santos and De Castro, considered the issue purely
legal and voted to sustain the validity per se of the questioned amended
by-laws but nevertheless voted that the prohibition and disqualification
therein provided shall not apply to petitioner Gokongwei until and after he
shall have been given "a new and proper hearing" by the corporation's
board of directors and the board's decision of disqualification shall have
been sustained on appeal by respondent Securities and Exchange
Commission and ultimately by this Court.
The undersigned Justices do not consider the issue as purely
legal in the light of respondent commission's Order No. 451, Series of
1977, denying petitioner's "Motion for Summary Judgment" on the ground
that "the Commission en banc finds that there (are) unresolved and
genuine issues of fact" 3 as well as its position in this case thru the
Solicitor General that the case at bar is "premature" and that the
administrative remedies before the commission should first be availed of
and exhausted. 4
We are of the opinion that the questioned amended by-laws, as
they are, (adopted after almost a century of respondent corporation's
existence as a public corporation with its shares freely purchased and
traded in the open market without restriction and disqualification) which
would bar petitioner from qualification, nomination and election as director
and worse, grant the board by 3/4 vote the arbitrary power to bar any
stockholder from his right to be elected as director by the simple expedient
of declaring him to be engaged in a "competitive or antagonistic business"
or declaring him as a "nominee" of the "competitive or antagonistic"
stockholder are illegal, oppressive, arbitrary and unreasonable.
We consider the questioned amended by-laws as being
specifically tailored to discriminate against petitioner and depriving him in
violation of substantive due process of his vested substantial rights as
stockholder of respondent corporation. We further consider said amended
by-laws as violating specific provisions of the Corporation Law which grant
and recognize the right of a minority stockholder like petitioner to be
elected director by the process of cumulative voting ordained by the Law
(secs. 21 and 30) and the right of a minority director once elected not to
be removed from office of director except for cause by vote of the
stockholders holding 2/3 of the subscribed capital stock (sec. 31).If a
minority stockholder could be disqualified by such a by-laws amendment
under the guise of providing for "qualifications," these mandates of the
Corporation Law would have no meaning or purpose.
These vested and substantial rights granted stockholders under
the Corporation Law may not be diluted or defeated by the general
authority granted by the Corporation Law itself to corporations to adopt
their by-laws (in section 21) which deal principally with the procedures
governing their internal business. The by-laws of any corporation must be
always within the charter limits. What the Corporation Law has granted
stockholders may not be taken away by the corporation's by-laws. The
amendment is further an instrument of oppressiveness and arbitrariness
in that the incumbent directors are thereby enabled to perpetuate
themselves in office by the simple expedient of disqualifying any
unwelcome candidate, no matter how many votes he may have.
However, in view of the inconclusiveness of the vote, we sustain
respondent commission's stand as expressed in its Orders Nos. 450 and
451, Series of 1977 that there are "unresolved and genuine issues of fact"
and that it has yet to rule on and finally decide the validity of the disputed
by-law provision",subject to appeal by either party to this Court.
In view of prematurity of the proceedings here (as likewise
expressed by Mr. Justice Fernando),the case should as a consequence
be remanded to the Securities and Exchange Commission as the agency
of primary jurisdiction for a full hearing and reception of evidence of all
relevant facts (which should property be submitted to the commission
instead of the piecemeal documents submitted as annexes to this Court
which is not a trier of facts) concerning not only the petitioner but the
members of the board of directors of respondent corporation as well, so
that it may determine on the basis thereof the issue of the legality of the
questioned amended by-laws, and assuming that it holds the same to be
valid whether the same are arbitrarily and unreasonably applied to
petitioner vis a vis other directors, who, petitioner claims, should in such
event be likewise disqualified from sitting in the board of directors by virtue
of conflict of interests or their being likewise engaged in "competitive or
antagonistic business" with the corporation such as investment and
finance, coconut oil mills, cement, milk and hotels. 5
It should be noted that while the petition may be dismissed in view
of the inconclusiveness of the vote and the Court's failure to attain the
required 8-vote majority to resolve the issue, such as dismissal (for lack of
necessary votes) is of no doctrinal value and does not in any manner
resolve the issue of the validity of the questioned amended by-laws nor
foreclose the same. The same should properly be determined in a proper
case in the first instance by the Securities and Exchange Commission as
the agency of primary jurisdiction, as above indicated.
The Court is unanimous, therefore, in its judgment that petitioner
Gokongwei may run for the office of, and if elected, sit as, member of the
board of directors of respondent San Miguel Corporation as stated in the
dispositive portion of the main opinion of Mr. Justice Antonio, to wit: Until
and after petitioner has been given a "new and proper hearing by the
board of directors of said corporation, whose decision shall be appealable
to the respondent Securities and Exchange Commission deliberating and
acting en banc and ultimately to this Court" and until "disqualified in the
manner herein provided, the prohibition in the aforementioned amended
by-laws shall not apply to petitioner." In other words, until and
after petitioner shall have been given due process and proper hearing by
the respondent board of directors as to the question of his qualification or
disqualification under the questioned amended by-laws (assuming that the
respondent Securities and Exchange Commission ultimately upholds the
validity of said by-laws),and such disqualification shall have been
sustained by respondent Securities and Exchange Commission and
ultimately by final judgment of this Court, petitioner is deemed eligible for
all legal purposes and effects to be nominated and voted and if elected to
sit as a member of the board of directors of respondent San Miguel
Corporation.
In view of the Court's unanimous judgment on this point, the
portion of respondent commission's Order No. 450, Series of 1977 which
imposed "the condition that he [petitioner] cannot sit as board member if
elected until after the Commission shall have finally decided the validity of
the disputed by-law provision" has been likewise accordingly set aside.
III
By way of recapitulation, so that the Court's decision and judgment
may be clear and not subject to ambiguity, we state the following:
1. With the votes of the six Justices concurring unqualifiedly in the
main opinion added to our four votes, plus the Chief Justice's vote and that
TEEHANKEE,
of Mr. Justice Fernando, the Court has by twelve (12) votes unanimously
FERNANDEZ and GUERRERO, JJ.,concurring:
rendered judgment granting petitioner's right to examine and secure
copies of the books and records of San Miguel International, Inc. as a
Supplement to separate opinion.
foreign subsidiary of respondent corporation and respondent
commission's Order No. 449, Series of 1977, to the contrary is set aside:
2. With the same twelve (12) votes, the Court has also
unanimously rendered judgment declaring that until and after petitioner
shall have been given due process and proper hearing by the respondent
board of directors as to the question of his disqualification under the
questioned amended by-laws (assuming that the respondent Securities
and Exchange Commission ultimately upholds the validity of said by-
laws),and such disqualification shall have been sustained by respondent
Securities and Exchange Commission and ultimately by final judgment of
this Court petitioner is deemed eligible for all legal purposes and effect to
be nominated and voted and if elected to sit as a member of the board of
directors of respondent San Miguel Corporation. Accordingly, respondent
commission's Order No. 450, Series of 1977 to the contrary has likewise
been set aside; and
3. The Court's voting on the validity of respondent corporation's
amendment of the by-laws (sec. 2, Art. III) is inconclusive without the
required majority of eight votes to settle the issue one way or the other
having been reached. No judgment is rendered by the Court thereon and
the statements of the six Justices who have signed the main opinion on
the legality thereof have no binding effect, much less doctrinal
value. LLphil
The dismissal of the petition insofar as the question of the validity
of the disputed by-laws amendment is concerned is not by any judgment
with the required eight votes but simply by force of Rule 56, section 11 of
the Rules of Court, the pertinent portion of which provides that "where the
court en banc is equally divided in opinion, or the necessary majority
cannot be had, the case shall be reheard, and if on re-hearing no decision
is reached, the action shall be dismissed if originally commenced in the
court ..." The end result is that the Court has thereby dismissed the petition
which prayed that the Court bypass the commission and directly resolved
the issue and therefore the respondent commission may now proceed, as
announced in its Order No. 450, Series of 1977, to hear the case before it
and receive all relevant evidence bearing on the issue as hereinabove
indicated, and resolve the "unresolved and genuine issues of fact" (as per
Order No. 451, Series of 1977) and the issues of legality of the disputed
by-laws amendment.
Guerrero, J., concurred.
Fernandez, J., concurs.
CONCEPCION JR.,
JUDGMENT; LAW OF THE CASE. — The doctrine of the law of
the case may be invoked only where there has been a final and conclusive
determination of an issue in the first case later invoked as the law of the
case. It has no application where the judgment in the first case is
inconclusive, as where no final and conclusive determination could be
reached on account of lack of necessary votes and the case was simply
dismissed pursuant to Rule 56, Section 11. It cannot be contended that
the Supreme Court is dismissing the petition for lack of necessary votes
had directly ruled on the issue presented when it itself could not reach a
final and conclusive vote thereon.
This supplemental opinion is issued with reference to the advance
separate opinion of Mr. Justice Barredo issued by him as to "certain
misimpressions as to the import of the decision in this case" which might
be produced by our joint separate opinion of April 11, 1979 and "urgent(ly)
to clarify (his) position in respect to the rights of the parties resulting from
the dismissal of the petition herein and the outline of the procedure by
which the disqualification of petitioner Gokongwei can be made effective."
1. Mr. Justice Barredo's advances separate opinion "that as
between the parties herein, the issue of the validity of the challenged by-
laws is already settled" had, of course, no binding effect. The judgment of
the Court is found on pages 59-61 of the decision of April 11, 1979, penned
by Mr. Justice Antonio, wherein on the question of the validity of the
amended by-laws the Court's inconclusive voting is set forth as follows:
"Chief Justice Fred Ruiz Castro reserved his vote
on the validity of the amended by-laws, pending hearing by
this Court on the applicability of section 13(5) of the
Corporation Law to petitioner.
"Justice Fernando reserved his vote on the validity
of subject amendment to the by-laws but otherwise concurs
in the result.
"Four (4) Justices, namely, Justices Teehankee,
Concepcion Jr., Fernandez and Guerrero filed a separate
opinion, wherein they voted against the validity of the
questioned amended by-laws and that this question should
properly be resolved first by the SEC as the agency of
primary jurisdiction . . ." 1
As stated in said judgment itself, for lack of the necessary votes,
the petition, insofar as it assails the validity of the questioned by-laws, was
dismissed.
2. Mr. Justice Barredo now contends contrary to the
undersigned's understanding, as stated on pages 8 and 9 of our joint
separate opinion of April 11, 1979 that the legal effect of the dismissal of
the petition on the question of validity of the amended by-laws for lack of
the necessary votes simply means that "the Court has thereby dismissed
the petition which prayed that the Court by-pass the commission and
directly resolve the issue and therefore the respondent commission may
now proceed, as announced in its Order No. 450, Series of 1977, to hear
the case before it and receive all relevant evidence bearing on the issue
as hereinabove indicated, and resolve the 'unresolved and genuine issues
of fact' (as per Order No. 451, Series of 1977) and the issue of legality of
the disputed by-laws amendment," that such dismissal "has no other legal
consequence than that it is the law of the case as far as the parties are
concerned, albeit the majority of the opinion of six against four Justices is
not doctrinal in the sense that it cannot be cited as necessarily a precedent
for subsequent cases."
We hold on our part that the doctrine of the law of the case invoked
by Mr. Justice Barredo has no applicability for the following reasons:
a) Our jurisprudence is quite clear that this doctrine may be
invoked only where there has been a final and conclusive determination of
an issue in the first case later invoked as the law of the case.
Thus, in People vs. Olarte 2 ,we held that
"'Law of the case' has been defined as the opinion
delivered on a former appeal. More specifically, it means
that whatever is once irrevocably established as
the controlling legal rule of decision between the same
parties in the same case continues to be the law of the
case, whether correct on general principles or not, so long
as the facts on which such decision was predicated
continue to be the facts of the case before the court. ...
"It need not be stated that the Supreme Court,
being the court of last resort, is the final arbiter of all legal
questions properly brought before it and that its decision in
any given case constitutes the law of that particular
case. Once its judgment becomes final it is binding on all
inferior courts, and hence beyond their power and authority
to alter or modify (Kabigting vs. Acting Director of Prisons,
G. R. No. L-15548, October 30, 1962).
"'The decision of this Court on that appeal by the
government from the order of dismissal, holding that said
appeal did not place the appellants, including Absalon
Bignay, in double jeopardy, signed and concurred in by six
Justices as against three dissenters headed by the Chief
Justice, promulgated way back in the year 1952, has long
become the law of the case. It may be erroneous, judged by
the law on double jeopardy as recently interpreted by this
same Tribunal. Even so, it may not be disturbed and
modified. Our recent interpretation of the law may be
applied to new cases, but certainly not to anold one finally
 and conclusively determined. As already stated, the
majority opinion in that appeal is now the law of the case.'"
(People vs. Pinuila)
The doctrine of the law of the case, therefore, has no applicability
whatsoever herein insofar as the question of the validity or invalidity of the
amended by-laws is concerned. The Court's judgment of April 11, 1979
clearly shows that the voting on this question was inconclusive with six
against four Justices and two other Justices (the Chief Justice and Mr.
Justice Fernando) expressly reserving their votes thereon, and Mr. Justice
Aquino while taking no part in effect likewise expressly reserved his vote
thereon. No final and conclusive determination could be reached on the
issue and pursuant to the provisions of Rule 56, section 11, since this
special civil action originally commenced in this Court, the action was
simply dismissed with the result that no law of the case was laid down
insofar as the issue of the validity or invalidity of the questioned by-laws is
concerned, and the relief sought herein by petitioner that this Court by-
pass the SEC which has yet to hear and determine the same issue
pending before it below and that this Court itself directly resolve the said
issue stands denied.
b) The contention of Mr. Justice Barredo that the result of the
dismissal of the case was that "petitioner Gokongwei may not hereafter
act on the assumption that he can revive the issue of the validity whether
in the Securities and Exchange Commission, in this Court or in any other
forum, unless he proceeds on the basis of a factual milieu different from
the setting of this case. Not even the Securities and Exchange
Commission may pass on such question anymore at the instance of herein
petitioner or anyone acting in his stead or on his behalf," appears to us to
be untenable.
The Court through the decision of April 11, 1979, by the
unanimous votes of the twelve participating Justices headed by the Chief
Justice, ruled that petitioner Gokongwei was entitled to a "new and proper
hearing" by the SMC board of directors on the matter of his disqualification
under the questioned by-laws and that the board's "decision shall be
appealable to the respondent Securities and Exchange Commission
deliberating and acting en banc and ultimately to this Court (and) unless
disqualified in the manner herein provided, the prohibition in the
aforementioned amended by-laws shall not apply to petitioner."
The entire Court, therefore, recognized that petitioner had not
been given procedural due process by the SMC board on the matter of his
disqualification and that he was entitled to a "new and proper hearing".It
stands to reason that in such hearing, petitioner could raise not only
questions of fact but questions oflaw,particularly questions of law affecting
the investing public and their right to representation on the board as
provided by law — not to mention that as borne out by the fact that no
restriction whatsoever appears in the Court's decision, it was never
contemplated that petitioner was to be limited to questions of fact and
could not raise the fundamental questions of law bearing on the invalidity
of the questioned amended by-laws at such hearing before the SMC
board. Furthermore, it was expressly provided unanimously in the Court's
decision that the SMC board's decision on the disqualification of petitioner
("assuming the board of directors of San Miguel Corporation should, after
the proper hearing, disqualify him" as qualified in Mr. Justice Barredo's
own separate opinion, at page 2) shall be appealable to respondent
Securities and Exchange Commission "deliberating and acting en banc"
and "untimately to this Court." Again, the Court's judgment as set forth in
its decision of April 11, 1979 contains nothing that would warrant the
opinion now expressed that respondent Securities and Exchange
Commission may not pass anymore on the question of the invalidity of the
amended by-laws. Certainly, it cannot be contended that the Court in
dismissing the petition for lack of necessary votes actually by-passed the
Securities and Exchange Commission and directly ruled itself on the
invalidity of the questioned by-laws when it itself could not reach a final
and conclusive vote (a minimum of eight votes) on the issue and three
other Justices (the Chief Justice and Messrs. Justices Fernando and
Aquino) had expressly reserved their vote until after further hearings (first
before the Securities and Exchange Commission and ultimately in this
Court).
Such a view espoused by Mr. Justice Barredo could conceivably
result in an incongruous situation where supposedly under the law of this
case the questioned by-laws would be held valid as against petitioner
Gokongwei and yet the same may be stricken off as invalid as to all other
SMC shareholders in a proper case.
3. It need only be pointed out that Mr. Justice Barredo's advance
separate opinion can in no way affect or modify the judgment of this Court
as set forth in the decision of April 11, 1979 and discussed hereinabove.
The same bears the unqualified concurrence of only three Justices out of
the six Justices who originally voted for the validity per se of the
questioned by-laws, namely, Messrs. Justices Antonio, Santos and De
Castro. Messrs. Justices Fernando and Makasiar did not concur therein
but they instead concurred with the limited concurrence of the Chief
Justice touching on the law of the case which guardedly held that the Court
has not found merit in the claim that the amended by-laws in question are
invalid but without in any manner foreclosing the issue and as a matter of
fact and law, without in any manner changing or modifying the above-
quoted vote of the Chief Justice as officially rendered in the decision of
April 11, 1979, wherein he precisely "reserved (his) vote on the validity of
the amended by-laws."
4. A word on the separate opinion of Mr. Justice Pacifico de
Castro attached to the advance separate opinion of Mr. Justice Barredo.
 Mr. Justice De Castro advances his interpretation as to a restrictive
construction of section 13(5) of the Philippine Corporation Law, ignoring
or disregarding the fact that during the Court's deliberations it was brought
out that this prohibitory provision was and is not raised in issue in this case
whether here or in the Securities and Exchange Commission below
(outside of a passing argument by Messrs. Angara, Abello, Concepcion,
Regala & Cruz, as counsels for respondent Sorianos in their Memorandum
of June 26, 1978 that "(T)he disputed By-Laws does not prohibit petitioner
from holding onto, or even increasing his SMC investment; it only restricts
any shifting on the part of petitioner from passive investor to a director of
the company." 3
As a consequence, the Court abandoned the idea of calling for
another hearing wherein the parties could properly raise and discuss this
question as a new issue and instead rendered the decision in question,
under which the question of section 13(5) could be raised at a new and
proper hearing before the SMC board and in the Securities and Exchange
Commission and in due course before this Court (but with the clear
understanding that since both corporations, the Robina and SMC are
engaged in agriculture as submitted by the Sorianos' counsel in their said
memorandum, the issue could be raised likewise against SMC and its
other shareholders, directors, if not against SMC itself. As expressly stated
in the Chief Justice's reservation of his vote, the matter of the question of
the applicability of the said section 13(5) to petitioner would be heard by
this Court at the appropriate time after the proceedings below (and
necessarily the question of the validity of the amended by-laws would be
taken up anew and the Court would at that time be able to reach a final
and conclusive vote).
Mr. Justice De Castro's personal interpretation of the decision of
April 11, 1979 that petitioner may be allowed to run for election despite
adverse decision of both the SMC board and the Securities and Exchange
Commission "only if he comes to this Court and obtains an injunction
against the enforcement of the decision disqualifying him" is patently
contradictory of his vote on the matter as expressly given in the judgment
in the Court's decision of April 11, 1979 (at page 59) that petitioner could
run and if elected, sit as director of the respondent SMC and could be
disqualified only after a "new and proper hearing by the board of directors
of said corporation, whose decision shall be appealable to the respondent
Securities and Exchange Commission deliberating and acting en
banc and ultimately to this Court. Unless-disqualified in the manner herein
provided, the prohibition in the aforementioned amended by-laws shall not
apply to petitioner."
BARREDO, J.,concurring:
1. JUDGMENTS; DISMISSAL FOR LACK OF NECESSARY
VOTES; LAW OF THE CASE. — Where petitioner and respondents
placed the issue of the validity of amended by-laws squarely before the
Court for resolution and six justices vote in favor, while four justices voted
against, its validity, thereby resulting in the dismissal of the petition "insofar
as it assails the validity of the amended by-laws ...for lack of necessary
votes," such dismissal is the law of the case as far as the parties are
concerned, albeit the majority of six against four justices is not doctrinal in
the sense that it cannot be cited as necessarily a precedent for subsequent
cases. This means that the petitioner and respondents are bound by the
forgoing result, namely, that the Court en banc has not found merit in the
claims that the amended by-laws in question are invalid. In other words,
the issue of the challenged amended by-laws is already a settled matter
for the parties as the law of the case, and said amended by-laws already
enforceable in so far as the parties are concerned. Petitioner may not
thereafter act on the assumption that he can revive the issue of validity
whether in the Securities and Exchange Commission, the Supreme Court
or in any other forum, unless, he proceeds on the basis of a different
factual milieu from the setting of the case. Only the actual implementation
of the impugned amended by-laws remained to be passed upon by the
Securities and Exchange Commission.
2. ID.;ID.;DECISION ON THE MERITS. — It is somewhat of a
misreading and misconstruction of Section 11 of Rule 56, contrary to the
well-known established norm observed by the Supreme Court, to estate
that the dismissal of a petition for lack of necessary votes does not amount
to a decision on the merits. The Supreme Court is deemed to find no merit
in a petition in two ways, namely, (1) when eight or more members vote
expressly in that sense and (2) when the required number of justices
needed to sustain the same cannot be had.
I reserved the filing of a separate opinion in order to state my own
reasons for voting in favor of the validity of the amended by-laws in
question. Regrettably, I have not yet finished preparing the same. In view,
however, of the joint separate opinion of Justices Teehankee, Concepcion
Jr.,Fernandez and Guerrero, the full text of which has just come to my
attention, and which I am afraid might produce certain misimpressions as
to the import of the decision in this case, I consider it urgent to clarify my
position in respect to the rights of the parties resulting from the dismissal
of the petition herein and the outlining of the procedure by which the
disqualification of petitioner Gokongwei can be made effective, hence this
advance separate opinion.
To start with, inasmuch as petitioner Gokongwei himself placed
the issue of the validity of said amended by-laws squarely before the Court
for resolution, because he feels, rightly or wrongly, he can no longer have
due process or justice from the Securities and Exchange Commission, and
the private respondents have joined with him in that respect, the six votes
cast by Justices Makasiar, Antonio, Santos, Abad Santos, de Castro and
this writer in favor of validity of the amended by-laws in question, with only
four members of this Court, namely, Justices Teehankee, Concepcion
Jr.,Fernandez and Guerrero opining otherwise, and with Chief Justice
Castro and Justice Fernando reserving their votes thereon, and Justices
Aquino and Melencio Herrera not voting, thereby resulting in the dismissal
of the petition "insofar as it assails the validity of the amended by-laws
...for lack of necessary votes",has no other legal consequence than that it
is the law of the case as far as the parties herein are concerned, albeit the
majority opinion of six against four Justices is not doctrinal in the sense
that it cannot be cited as necessarily a precedent for subsequent cases.
This means that petitioner Gokongwei and the respondents, including the
Securities and Exchange Commission, are bound by the foregoing result,
namely, that the Court en banc has not found merit in the claim that the
amended by-laws in question are invalid. Indeed, it is one thing to say that
dismissal of the case is not doctrinal and entirely another thing to maintain
that such dismissal leaves the issue unsettled. It is somewhat of a
misreading and misconstruction of Section 11 of Rule 56, contrary to the
well-known established norm observed by this Court, to state that the
dismissal of a petition for lack of the necessary votes does not amount to
a decision on the merits. Unquestionably, the Court is deemed to find no
merit in a petition in two ways, namely, (1) when eight or more members
vote expressly in that sense and (2) when the required number of justices
needed to sustain the same cannot be had. cdphil
I reiterate, therefore, that as between the parties herein, the issue
of validity of the challenged by-laws is already settled. From which it
follows that the same are already enforceable insofar as they are
concerned. Petitioner Gokongwei may not hereafter act on the assumption
that he can revive the issue of validity whether in the Securities and
Exchange Commission, in this Court or in any other forum, unless he
proceeds on the basis of a factual milieu different from the setting of this
case. Not even the Securities and Exchange Commission may pass on
such question anymore at the instance of herein petitioner or anyone
acting in his stead or on his behalf. The vote of four justices to remand the
case thereto cannot alter the situation.
It is very clear that under the decision herein, the issue of validity
is a settled matter for the parties herein as the law of the case, and it is
only the actual implementation of the impugned amended by-laws in the
particular case of petitioner that remains to be passed upon by the
Securities and Exchange Commission, and on appeal therefrom to Us,
assuming the board of directors of San Miguel Corporation should, after
the proper hearing, disqualify him.
To be sure, the record is replete with substantial indications, nay
admissions of petitioner himself, that he is a controlling stockholder of
corporations which are competitors of San Miguel Corporation. The very
substantial areas of such competition involving hundreds of millions of
pesos worth of businesses stand uncontroverted in the records hereof. In
fact, petitioner has even offered, if he should be elected, as director, not
to take part when the board takes up matters affecting the corresponding
areas of competition between his corporation and San Miguel.
Nonetheless, perhaps, it is best that such evidence be formally offered at
the hearing contemplated in Our decision.
As to whether or not petitioner may sit in the board, if he win,
definitely, under the decision in this case, even if petitioner should win, he
will have to immediately leave his position or should be ousted, the
moment this Court settles the issue of his actual disqualification, either in
a full blown decision or by denying the petition for review of corresponding
decision of the Securities and Exchange Commission unfavorable to him.
And, of course, as a matter of principle, it is to be expected that the matter
of his disqualification should be resolved expeditiously and within the
shortest possible time, so as to avoid as much juridical injury as possible,
considering that the matter of the validity of the prohibition against
competitors embodied in the amended by-laws is already unquestionable
among the parties herein and to allow him to be in the board for sometime
would create an obviously anomalous and legally incongruous situation
that should not be tolerated. Thus, all the parties concerned must act
promptly and expeditiously.
Additionally, my reservation to explain my vote on the validity of
the amended by-laws still stands. LLpr
Castro, C.J., concurs in Justice Barredo's statement that the
dismissal (for lack of necessary votes) of the petition to the extent that "it
assails the validity of the amended by-laws," is the law of the case at bar,
which means in effect that as far and only in so far as the parties and the
Securities and Exchange Commission are concerned, the Court has not
found merit in the claim that the amended by-laws in question are invalid.
Antonio and Santos, JJ., concur.
DE CASTRO, J.,concurring:
1. CORPORATION; STOCKHOLDERS; DISQUALIFICATION
TO BE ELECTED DIRECTOR. — If a person becomes a stockholder of a
corporation and gets himself elected as a director, and while he is such a
director, he forms his own corporation competitive or antagonistic to the
corporation of which he is a director, and becomes Chairman of the Board
and President of his own corporation, he may be removed from his position
as director, admittedly one of trust and confidence. If this is so, a person
controlling, and also the Chairman of the Board and President of, a
corporation, may be barred from becoming a member of the Board of
Directors of a competitive corporation.
 2. ID.;AGRICULTURE, CORPORATION ENGAGED IN. — The petitioner in this case would be disqualified from becoming an officer of
scope of the provision of Section 13(5) of the Philippine Corporation Law either the San Miguel Corporation or his own supposedly agricultural
should be limited to corporations engaged in agriculture, only as the word corporations. It is thus beyond my comprehension why, feeling as though
"agriculture" refers to its more limited meaning as distinguished from its I am the only member of the Court for a restricted interpretation of Section
general and broad connotation. The term would then mean "farming" or 13(5) of Act 1459, doubt still seems to be in the minds of other members
raising the natural products of the soil, such as by cultivation, in the giving the cited provision an unrestricted interpretation, as to the validity
manner as is required by the Public Land Act in the acquisition of of the amended by-laws in question, or even holding them null and void.
agricultural land, such as by homestead, before the patent may be issued,
I concur with the observation of Justice Barredo that despite that
but does not extend to poultry raising or piggery which may be included in
less than six votes are for upholding the validity of the by-laws, their validity
the term "agriculture" in its broad sense.
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
3. JUDGMENT; LAW OF THE CASE. — Although only six votes
declare null and void the said by-laws being denied in effect. A vicious
are for upholding the validity of the by-laws, their validity is deemed upheld
circle would be created if, should petitioner Gokongwei be barred or
as constituting the "law of the case." It could not be otherwise, after the
disqualified from running by the Board of Directors of San Miguel
petition is dismissed with the relief sought do declare null and void the said
Corporation and the Securities and Exchange Commission sustain the
by-laws being denied in effect. A vicious circle would be created should
Board, petitioner could come again to Us, raising the same question he
petitioner come against to the Court, raising the same question he raised
has raised in the present petition, unless the principle of the "law of the
in the present petition, unless the principle of the "law of the case" is
case" is applied.
applied.
Clarifying therefore, my position, I am of the opinion that with the
As stated in the decision penned by Justice Antonio, I voted to
validity of the by-laws in question standing unimpaired, it is now for
uphold the validity of the amendment to the by-laws in question. What
petitioner to show that he does not come within the disqualification as
induced me to this view is the practical consideration easily perceived in
therein provided, both to the Board and later to the Securities and
the following illustration: If a person becomes a stockholder of a
Exchange Commission, it being a foregone conclusion that, unless
corporation and gets himself elected as a director, and while he is such a
petitioner disposes of his stockholdings in the so-called competitive
director, he forms his own corporation competitive or antagonistic to the
corporations, San Miguel Corporation would apply the by-laws against
corporation of which he is a director, and becomes Chairman of the Board
him. His right, therefore, to run depends on what, on election day, May 8,
and President of his own corporation, he may be removed from his position
1979, the ruling of the Board and or the Securities and Exchange
as director, admittedly one of trust and confidence. If this is so, as seems
Commission on his qualification to run would be, certainly, not the final
undisputably to be the case, a person already controlling, and also the
ruling of this Court in the event recourse thereto is made by the party
Chairman of the Board and President of, a corporation, may be barred
feeling aggrieved, as intimated in the "Joint Separate Opinion" of Justices
from becoming a member of the board of directors of a competitive
Teehankee, Concepcion, Jr.,Fernandez and Guerrero, that only after
corporation. This is my view,.even as I am for a restrictive interpretation of
petitioner's "disqualification" has ultimately been passed upon by this
Section 13(5) of the Philippine Corporation Law, under which I would limit
Court should petitioner not be allowed to run, Petitioner may be allowed to
the scope of the provision to corporations engaged in agricultural, but only
run, despite an adverse decision of both the Board and the Securities and
as the word "agriculture" refers to its more limited meaning as
Exchange Commission, only if he comes to this Court and obtain an
distinguished from its general and broad connotation. The term would then
injunction against the enforcement of the decision disqualifying him.
mean "farming" or raising the natural products of the soil, such as by
Without such injunction being required, all that petitioner has to do is to
cultivation, in the manner as is required by the Public Land Act in the
take his time in coming to this Court, and in so doing, he would in the
acquisition of agricultural land, such as by homestead, before the patent
meantime, be allowed to run, and if he wins, to sit. This would, however,
may be issued. It is my opinion that under the public land statute, the
be contrary to the doctrine that gives binding, if not conclusive, effect of
development of a certain portion of the land applied for as specified in the
findings of facts of administrative bodies exercising quasi-judicial functions
law as a condition precedent before the applicant may obtain a patent, is
upon appellate courts, which should, accordingly, be enforced until
cultivation, not let us say, poultry raising or piggery, which may be included
reversed by this Tribunal.
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 Fernando, J.,concurs.
should, because the provision is in derogation of property rights, the
||| (Gokongwei, Jr. v. Securities and Exchange Commission, G.R. No. L-
45911, [April 11, 1979], 178 PHIL 266-341)
THIRD DIVISION
[G.R. No. 125778. June 10, 2003.]
INTER-ASIA INVESTMENTS INDUSTRIES,
INC., petitioner, vs. COURT OF APPEALS and ASIA
INDUSTRIES, INC., respondents.
People's Law Office for petitioner.
Castillo Laman Tan Pantaleon & San Jose for private respondent.
SYNOPSIS
Petitioner corporation assailed the decision of the CA and the lower
court, holding it liable to pay a sum of money plus interest to private respondent
corporation, as a consequence of a Letter-Proposal dated January 24, 1980
signed by its president, with regard to the sale of petitioner's shares of stock
of FARMACOR, INC., to the private respondent corporation. Petitioner argued
that the letter-proposal of its president has no legal force and effect against it
as it was not authorized by its board of directors.
On appeal, the Supreme Court held petitioner liable to pay a sum of
money plus interest to the private respondent because the January 24, 1980
letter signed by petitioner's president is valid and binding. An officer of a
corporation authorized to purchase the stock of another corporation has the
implied power to perform all other obligations arising therefrom, such as
payment of the shares of stock. By allowing its president to sign the Agreement
on its behalf, petitioner clothed him with apparent capacity to perform all acts
which are expressly, impliedly and inherently stated therein. The Court,
however, deleted the award of attorney's fees because it was bereft of factual,
legal and equitable basis.
SYLLABUS
1.CORPORATION LAW; CORPORATION CODE; CORPORATE
OFFICERS; ULTRA VIRES ACT; CORPORATE OFFICER AUTHORIZED TO
PURCHASE STOCK HAD IMPLIED POWER TO PERFORM ALL ACTS
ARISING THEREFROM; CASE AT BAR. — An officer of a corporation who is
authorized to purchase the stock of another corporation has the implied power
to perform all other obligations arising therefrom, such as payment of the
shares of stock. By allowing its president to sign the Agreement on its behalf,
petitioner clothed him with apparent capacity to perform all acts which are
expressly, impliedly and inherently stated therein.
2.CIVIL LAW; DAMAGES; AWARD OF ATTORNEY'S FEES MUST
HAVE FACTUAL, LEGAL AND EQUITABLE BASIS; CASE AT BAR. — The
Court finds well-taken the petitioner's assigned error on the award of attorney's
fees which, it argues, is bereft of factual, legal and equitable
justification. cSDIHT
DECISION
CARPIO MORALES, J p:
The present petition for review on certiorari assails the Court of
Appeals Decision 1 of January 25, 1996 and Resolution 2 of July 11,
1996. STcHEI
The material facts of the case are as follows:
On September 1, 1978, Inter-Asia Industries, Inc. (petitioner), by a
Stock Purchase Agreement 3 (the Agreement), sold to Asia Industries, Inc.
(private respondent) for and in consideration of the sum of P19,500,000.00 all
its right, title and interest in and to all the outstanding shares of stock of
FARMACOR, INC. (FARMACOR). 4 The Agreement was signed by Leonides
P. Gonzales and Jesus J. Vergara, presidents of petitioner and private
respondent, respectively. 5
Under paragraph 7 of the Agreement, petitioner as seller made
warranties and representations among which were "(iv.) [t]he audited financial
statements of FARMACOR at and for the year ended December 31, 1977 . . .
and the audited financial statements of FARMACOR as of September 30, 1978
being prepared by S[ycip,] G[orres,] V[elayo and Co.] . . . fairly present or will
present the financial position of FARMACOR and the results of its operations
as of said respective dates; said financial statements show or will show all
liabilities and commitments of FARMACOR, direct or contingent, as of said
respective dates . . ."; and "(v.) [t]he Minimum Guaranteed Net Worth of
FARMACOR as of September 30, 1978 shall be Twelve Million Pesos
(P12,000,000.00)." 6
The Agreement was later amended with respect to the "Closing Date,"
originally set up at 10:00 a.m. of September 30, 1978, which was moved to
October 31, 1978, and to the mode of payment of the purchase price. 7
The Agreement, as amended, provided that pending submission by
SGV of FARMACOR's audited financial statements as of October 31, 1978,
private respondent may retain the sum of P7,500,000.00 out of the stipulated
purchase price of P19,500,000.00; that from this retained amount of
P7,500,000.00, private respondent may deduct any shortfall on the Minimum
Guaranteed Net Worth of P12,000,000.00; 8 and that if the amount retained is
not sufficient to make up for the deficiency in the Minimum Guaranteed Net
Worth, petitioner shall pay the difference within 5 days from date of receipt of
the audited financial statements. 9
Respondent paid petitioner a total amount of P12,000,000.00:
P5,000,000.00 upon the signing of the Agreement, and P7,000,000.00 on
November 2, 1978.10
From the STATEMENT OF INCOME AND DEFICIT attached to the
financial report 11 dated November 28, 1978 submitted by SGV, it appears
that FARMACOR had, for the ten months ended October 31, 1978, a deficit of
P11,244,225.00. 12 Since the stockholder's equity amounted to
P10,000,000.00, FARMACOR had a net worth deficiency of P1,244,225.00.
The guaranteed net worth shortfall thus amounted to P13,244,225.00 after
adding the net worth deficiency of P1,244,225.00 to the Minimum Guaranteed
Net Worth of P12,000,000.00.
The adjusted contract price, therefore, amounted to P6,225,775.00
which is the difference between the contract price of P19,500,000.00 and the
shortfall in the guaranteed net worth of P13,224,225.00. Private respondent
having already paid petitioner P12,000,000.00, it was entitled to a refund of
P5,744,225.00.
Petitioner thereafter proposed, by letter 13 of January 24, 1980,
signed by its president, that private respondent's claim for refund be reduced
to P4,093,993.00, it promising to pay the cost of the Northern Cotabato
Industries, Inc. (NOCOSII) superstructures in the amount of P759,570.00. To
the proposal respondent agreed. Petitioner, however, welched on its promise.
Petitioner's total liability thus stood at P4,853,503.00 (P4,093,993.00 plus
P759,570.00) 14exclusive of interest. 15
On April 5, 1983, private respondent filed a complaint 16 against
petitioner with the Regional Trial Court of Makati, one of two causes of action
of which was for the recovery of above-said amount of P4,853,503.00 17 plus
interest.
Denying private respondent's claim, petitioner countered that private
respondent failed to pay the balance of the purchase price and accordingly set
up a counterclaim.
Finding for private respondent, the trial court rendered on November
27, 1991 a Decision, 18 the dispositive portion of which reads:
WHEREFORE, judgment is rendered in favor of
plaintiff and against defendant (a) ordering the latter to pay
to the former the sum of P4,853,503.0019 plus interest
thereon at the legal rate from the filing of the complaint until
fully paid, the sum of P30,000.00 as attorney's fees and the
costs of suit; and (b) dismissing the counterclaim.
SO ORDERED.
On appeal to the Court of Appeals, petitioner raised the following
errors:
THE TRIAL COURT ERRED IN HOLDING THE
DEFENDANT LIABLE UNDER THE FIRST CAUSE OF
ACTION PLEADED BY THE PLAINTIFF.
THE TRIAL COURT ERRED IN AWARDING ATTORNEY'S
FEES AND IN DISMISSING THE COUNTERCLAIM.
THE TRIAL COURT ERRED IN RENDERING JUDGMENT
IN FAVOR OF THE PLAINTIFF, THE ALLEGED BREACH
OF WARRANTIES AND REPRESENTATION NOT
HAVING BEEN SHOWN, MUCH LESS ESTABLISHED BY
THE PLAINTIFF. 20
By Decision of January 25, 1996, the Court of Appeals affirmed the
trial court's decision. Petitioner's motion for reconsideration of the decision
having been denied by the Court of Appeals by Resolution of July 11, 1996,
the present petition for review on certiorari was filed, assigning the following
errors:
I
THE RESPONDENT COURT ERRED IN NOT HOLDING
THAT THE LETTER OF THE PRESIDENT OF THE
PETITIONER IS NOT BINDING ON THE PETITIONER
BEINGULTRA VIRES.
II
THE LETTER CAN NOT BE AN ADMISSION AND
WAIVER OF THE PETITIONER AS A CORPORATION.
III
 THE RESPONDENT COURT ERRED IN NOT
DECLARING THAT THERE IS NO BREACH OF
WARRANTIES AND REPRESENTATION AS ALLEGED
BY THE PRIVATE RESPONDENT.
IV
THE RESPONDENT COURT ERRED IN ORDERING THE
PETITIONER TO PAY ATTORNEY'S FEES AND IN
SUSTAINING THE DISMISSAL OF THE
COUNTERCLAIM. 18(Italics in the original) SITCcE
Petitioner argues that the January 24, 1980 letter-proposal (for the
reduction of private respondent's claim for refund upon petitioner's promise to
pay the cost of NOCOSII superstructures in the amount of P759,570.00) which
was signed by its president has no legal force and effect against it as it was
not authorized by its board of directors, it citing the Corporation Law which
provides that unless the act of the president is authorized by the board of
directors, the same is not binding on it.
This Court is not persuaded.
The January 24, 1980 letter signed by petitioner's president is valid
and binding. The case of People's Aircargo and Warehousing Co.,
Inc. v. Court of Appeals19 instructs:
The general rule is that, in the absence of authority from the board of
directors, no person, not even its officers, can validly bind a corporation. A
corporation is a juridical person, separate and distinct from its stockholders
and members, "having . . . powers, attributes and properties expressly
authorized by law or incident to its existence."
Being a juridical entity, a corporation may act
through its board of directors, which exercises almost all
corporate powers, lays down all corporate business policies
and is responsible for the efficiency of management, as
provided in Section 23 of the Corporation Code of the
Philippines:
SEC. 23.The Board of Directors or Trustees. —
Unless otherwise provided in this Code, the corporate
powers of all corporations formed under this Code shall be
exercised, all business conducted and all property of such
corporations controlled and held by the board of directors or
trustees . . ..
Under this provision, the power and responsibility to
decide whether the corporation should enter into a contract
that will bind the corporation is lodged in the board, subject
to the articles of incorporation, bylaws, or relevant
provisions of law. However, just as a natural person may
authorize another to do certain acts for and on his behalf,
the board of directors may validly delegate some of its
functions and powers to officers, committees or agents. The
authority of such individuals to bind the corporation is
generally derived from law, corporate bylaws
or authorization from the board, either expressly or impliedly
by habit, custom or acquiescence in the general course of
business, viz:
A corporate officer or agent may represent and bind
the corporation in transactions with third persons to the
extent that [the] authority to do so has been conferred upon
him, and this includes powers as, in the usual course of the
particular business, are incidental to, or may be implied
from, the powers intentionally conferred, powers added by
custom and usage, as usually pertaining to the particular
officer or agent, and such apparent powers as the
corporation has caused person dealing with the officer or
agent to believe that it has conferred.
xxx xxx xxx
[A]pparent authority is derived not merely from
practice. Its existence may be ascertained through (1) the
general manner in which the corporation holds out an officer
or agent as having the power to act or, in other words the
apparent authority to act in general, with which it clothes
him; or (2) the acquiescence in his acts of a particular
nature, with actual or constructive knowledge thereof, within
or beyond the scope of his ordinary powers. It requires
presentation of evidence of similar acts executed either in
its favor or in favor of other parties. It is not the quantity of
similar acts which establishes apparent authority, but the
vesting of a corporate officer with the power to bind the
corporation.
. . . (Italics and underscoring supplied)
As correctly argued by private respondent, an officer of a corporation
who is authorized to purchase the stock of another corporation has the implied
power to perform all other obligations arising therefrom, such as payment of
the shares of stock. By allowing its president to sign the Agreement on its
behalf, petitioner clothed him with apparent capacity to perform all acts which
are expressly, impliedly and inherently stated therein. 21
Petitioner further argues that when the Agreement was executed on
September 1, 1978, its financial statements were extensively examined and
accepted as correct by private respondent, hence, it cannot later be disproved
"by resorting to some scheme such as future financial auditing;" 22 and that it
should not be bound by the SGV Report because it is self-serving and biased,
SGV having been hired solely by private respondent, and the alleged shortfall
of FARMACOR occurred only after the execution of the Agreement. IaDcTC
This Court is not persuaded either.
The pertinent provisions of the Agreement read:
7.Warranties and Representations — (a) SELLER
warrants and represents as follows:
xxx xxx xxx
(iv)The audited financial statements of FARMACOR as at
and for the year ended December 31, 1977 and
the audited financial statements of FARMACOR as
at September 30, 1978 being prepared by SGV
pursuant to paragraph 6(b) fairly present or will
present the financial position of FARMACOR and
the results of its operations as of said respective
dates; said financial statements show or will show
all liabilities and commitments of FARMACOR,
direct or contingent, as of said respective dates;
and the receivables set forth in said financial
statements are fully due and collectible, free and
clear of any set-offs, defenses, claims and other
impediments to their collectibility.
(v)The Minimum Guaranteed Net Worth of FARMACOR as
of September 30, 1978 shall be Twelve Million
Pesos (P12,000,000.00), Philippine Currency.
. . . (Underscoring in the original; italics supplied) 23
True, private respondent accepted as correct the financial statements
submitted to it when the Agreement was executed on September 1, 1978. But
petitioner expressly warranted that the SGV Reports "fairly present or will
present the financial position of FARMACOR." By such warranty, petitioner is
estopped from claiming that the SGV Reports are self-serving and biased.
As to the claim that the shortfall occurred after the execution of the
Agreement, the declaration of Emmanuel de Asis, supervisor in the Accounting
Division of SGV and head of the team which conducted the auditing of
FARMACOR, that the period covered by the audit was from January to
October 1978 shows that the period before the Agreement was entered into
(on September 1, 1978) was covered. 24
As to petitioner's assigned error on the award of attorney's fees which,
it argues, is bereft of factual, legal and equitable justification, this Court finds
the same well-taken.
On the matter of attorney's fees, it is an accepted
doctrine that the award thereof as an item of damages is the
exception rather than the rule, and counsel's fees are not to
be awarded every time a party wins a suit. The power of the
court to award attorney's fees under Article 2208 of the Civil
Code demands factual, legal and equitable justification,
without which the award is a conclusion without a premise,
its basis being improperly left to speculation and
conjecture. In all events, the court must explicitly state in the
text of the decision, and not only in the decretal portion
thereof, the legal reason for the award of attorney's fees. 25
. . . (Underscoring and italics supplied; citations
omitted)
WHEREFORE, the instant petition is PARTLY GRANTED. The
assailed decision of the Court of Appeals affirming that of the trial court is
modified in that the award of attorney's fees in favor of private respondent is
deleted. The decision is affirmed in other respects.
SO ORDERED.
Puno, Panganiban, Sandoval-Gutierrez and Corona, JJ., concur.
||| (Inter-Asia Investments Industries Inc. v. Court of Appeals, G.R. No.
125778, [June 10, 2003], 451 PHIL 554-563)
FIRST DIVISION
[G.R. No. 144767. March 21, 2002.]
DILY DANY NACPIL, petitioner, vs. INTERNATIONAL
BROADCASTING CORPORATION, respondent.
Cruz Enverga & Lucero for petitioner.
The Government Corporate Counsel for respondent.
SYNOPSIS
 Petitioner was the Assistant General Manager for
Finance/Administration and Comptroller of private respondent Intercontinental
Broadcasting Corporation (IBC). Upon his assumption of the IBC Presidency,
Emiliano Templo allegedly harassed and pressured petitioner into resigning
until the latter was forced to retire. However, Templo refused to pay him his
retirement benefits and refused to recognize petitioner's employment. Hence,
petitioner filed with the Labor Arbiter a complaint for illegal dismissal and non-
payment of benefits. The Labor Arbiter ruled in favor of petitioner. IBC
appealed to the NLRC, but the same was dismissed. IBC then filed with the
Court of Appeals a petition for certiorari under Rule 65, which petition was
granted by the appellate court and the decisions of the Labor Arbiter and the
NLRC were reversed and set aside. Petitioner then filed this instant petition.
In affirming the decision of the Court of Appeals, the Supreme Court
ruled that the Labor Arbiter had no jurisdiction over the case for illegal
dismissal and non-payment of benefits filed by petitioner. As petitioner's
appointment as comptroller required the approval and formal action of the
IBC's Board of Directors to become valid, it is clear, therefore, that petitioner
is a corporate officer whose dismissal may be the subject of a controversy
cognizable by the SEC under Section 5(c) of P.D. 902-A which includes
controversies involving both election and appointment of corporate directors,
trustees, officers, and managers. Had petitioner been an ordinary employee,
such board action would not have been required. The Court has consistently
held that where there is a finding that any decision was rendered without
jurisdiction, the action shall be dismissed. Such defense can be interposed at
any time, during appeal or even after final judgment.
It must be noted that under Section 5.2 of the Securities Regulation
Code (Republic Act No. 8799) which was signed into law on July 19, 2002, the
SEC's jurisdiction over all cases enumerated in Section 5 of P.D. 902-A has
been transferred to the Regional Trial Courts.
SYLLABUS
1. COMMERCIAL LAW; CORPORATION LAW; SECURITIES AND
EXCHANGE COMMISSION; JURISDICTION; HOW DETERMINED. — The
Court has consistently held that there are two elements to be considered in
determining whether the SEC has jurisdiction over the controversy, to wit: (1)
the status or relationship of the parties; and (2) the nature of the question that
is the subject of their controversy. CHcETA
2. ID.; ID.; PRIVATE CORPORATIONS; BY-LAWS; MAY
AUTHORIZE THE BOARD OF DIRECTORS TO APPOINT SUCH OTHER
OFFICERS AS MAY BE NECESSARY. — The Court has held that in most
cases the "by-laws may and usually do provide for such other officers," and
that where a corporate office is not specifically indicated in the roster of
corporate offices in the by-laws of a corporation, the board of directors may
also be empowered under the by-laws to create additional officers as may be
necessary.
3. ID.; ID.; SECURITIES AND EXCHANGE COMMISSION; HAS
JURISDICTION OVER CONTROVERSIES INVOLVING BOTH THE
ELECTION AND APPOINTMENT OF CORPORATE DIRECTORS,
TRUSTEES, OFFICERS, AND MANAGERS; CASE AT BAR. — As
petitioner's appointment as comptroller required the approval and formal action
of the IBC's Board of Directors to become valid, it is clear therefore holds that
petitioner is a corporate officer whose dismissal may be the subject of a
controversy cognizable by the SEC under Section 5(c) of P.D. 902-A which
includes controversies involving both election and appointment of corporate
directors, trustees, officers, and managers. Had petitioner been an ordinary
employee, such board action would not have been required.
4. REMEDIAL LAW; COURTS; JURISDICTION; CONFERRED ONLY
BY THE CONSTITUTION OR BY LAW. — The Court has consistently held
that where there is a finding that any decision was rendered without
jurisdiction, the action shall be dismissed. Such defense can be interposed at
any time, during appeal or even after final judgment. It is a well-settled rule
that jurisdiction is conferred only by the Constitution or by law. It cannot be
fixed by the will of the parties; it cannot be acquired through, enlarged or
diminished by, any act or omission of the parties.
DECISION
KAPUNAN, J p:
This is a petition for review on certiorari under Rule 45, assailing the
Decision of the Court of Appeals dated November 23, 1999 in CA-G.R. SP No.
52755 1and the Resolution dated August 31, 2000 denying petitioner Dily
Dany Nacpil's motion for reconsideration. The Court of Appeals reversed the
decisions promulgated by the Labor Arbiter and the National Labor Relations
Commission (NLRC), which consistently ruled in favor of petitioner.
Petitioner states that he was Assistant General Manager for
Finance/Administration and Comptroller of private respondent Intercontinental
Broadcasting Corporation (IBC) from 1996 until April 1997. According to
petitioner, when Emiliano Templo was appointed to replace IBC President
Tomas Gomez III sometime in March 1997, the former told the Board of
Directors that as soon as he assumes the IBC presidency, he would terminate
the services of petitioner. Apparently, Templo blamed petitioner, along with a
certain Mr. Basilio and Mr. Gomez, for the prior mismanagement of IBC. Upon
his assumption of the IBC presidency, Templo allegedly harassed, insulted, c) Ten (10%) percent thereof as and for attorney's
humiliated and pressured petitioner into resigning until the latter was forced to fees.
retire. However, Templo refused to pay him his retirement benefits, allegedly
because he had not yet secured the clearances from the Presidential SO ORDERED. 3
Commission on Good Government and the Commission on Audit. IBC appealed to the NLRC, but the same was dismissed in a
Furthermore, Templo allegedly refused to recognize petitioner's employment, Resolution dated March 2, 1999, for its failure to file the required appeal bond
claiming that petitioner was not the Assistant General Manager/Comptroller of in accordance withArticle 223 of the Labor Code. 4 IBC then filed a motion for
IBC but merely usurped the powers of the Comptroller. Hence, in 1997, reconsideration that was likewise denied in a Resolution dated April 26,
petitioner filed with the Labor Arbiter a complaint for illegal dismissal and non- 1999. 5
payment of benefits.
IBC then filed with the Court of Appeals a petition
Instead of filing its position paper, IBC filed a motion to dismiss for certiorari under Rule 65, which petition was granted by the appellate court
alleging that the Labor Arbiter had no jurisdiction over the case. IBC contended in its Decision dated November 23, 1999. The dispositive portion of said
that petitioner was a corporate officer who was duly elected by the Board of decision states:
Directors of IBC; hence, the case qualities as an intra-corporate dispute falling
within the jurisdiction of the Securities and Exchange Commission (SEC). WHEREFORE, premises considered, the petition
However, the motion was denied by the Labor Arbiter in an Order dated April for Certiorari is GRANTED. The assailed decisions of the
22, 1998. 2 Labor Arbiter and the NLRC are REVERSED and SET
ASIDE and the complaint is DISMISSED without prejudice.
On August 21, 1998, the Labor Arbiter rendered a Decision stating
that petitioner had been illegally dismissed. The dispositive portion thereof SO ORDERED. 6
reads:
Petitioner then filed a motion for reconsideration, which was denied by
WHEREFORE, in view of all the foregoing, the appellate court in a Resolution dated August 31, 2000.
judgment is hereby rendered in favor of the complainant and
against all the respondents, jointly and severally, ordering Hence, this petition.
the latter: Petitioner Nacpil submits that:
1. To reinstate complainant to his former position without I.
diminution of salary or loss of seniority rights, and
with full backwages computed from the time of his THE COURT OF APPEALS ERRED IN FINDING
illegal dismissal on May 16, 1997 up to the time of THAT PETITIONER WAS APPOINTED BY
his actual reinstatement which is tentatively RESPONDENT'S BOARD OF DIRECTORS AS
computed as of the date of this decision on August COMPTROLLER. THIS FINDING IS CONTRARY TO THE
21, 1998 in the amount of P1,231,750.00 COMMON, CONSISTENT POSITION AND ADMISSION
(i.e., P75,000.00 a month x 15.16 months = OF BOTH PARTIES. FURTHER, RESPONDENT'S BY-
P1,137,000.00 plus 13th month pay equivalent to LAWS DOES NOT INCLUDE COMPTROLLER AS ONE
1/12 of P1,137,000.00 = P94,750.00 or the total OF ITS CORPORATE OFFICERS.
amount of P1,231,750.00). Should complainant be II.
not reinstated within ten (10) days from receipt of
this decision, he shall be entitled to additional THE COURT OF APPEALS WENT BEYOND THE
backwages until actually reinstated. ISSUE OF THE CASE WHEN IT SUBSTITUTED THE
NATIONAL LABOR RELATIONS COMMISSION'S
2. Likewise, to pay complainant the following: DECISION TO APPLY THE APPEAL BOND
REQUIREMENT STRICTLY IN THE INSTANT CASE. THE
a) P2 Million as and for moral damages;
ONLY ISSUE FOR ITS DETERMINATION IS WHETHER
b) P500,000.00 as and for exemplary damages; NLRC COMMITTED GRAVE ABUSE OF DISCRETION IN
plus and (sic) DOING THE SAME. 7
 The issue to be resolved is whether the Labor Arbiter had jurisdiction
over the case for illegal dismissal and non-payment of benefits filed by
petitioner. The Court finds that the Labor Arbiter had no jurisdiction over the
same.
Under Presidential Decree No. 902-A (the Revised Securities Act), the
law in force when the complaint for illegal dismissal was instituted by petitioner
in 1997, the following cases fall under the exclusive of the SEC:
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 appointment of directors,
trustees, officers, or managers of such
corporations, partnerships or associations;
d) Petitions of corporations, partnerships, or associations to
be declared in the state of suspension of payments
in cases where the corporation, partnership or
association possesses property to cover all of its
debts but foresees the impossibility of meeting
them when they respectively fall due or in cases
where the corporation, partnership or association
has no sufficient assets to cover its liabilities, but is
under the Management Committee created
pursuant to this decree. (Emphasis supplied.)
The Court has consistently held that there are two elements to be
considered in determining whether the SEC has jurisdiction over the
controversy, to wit: (1) the status or relationship of the parties; and (2) the
nature of the question that is the subject of their controversy. 8
Petitioner argues that he is not a corporate officer of the IBC but an
employee thereof since he had not been elected nor appointed as Comptroller
and Assistant Manager by the IBC's Board of Directors. He points out that he
had actually been appointed as such on January 11, 1995 by the IBC's
General Manager, Ceferino Basilio. In support of his argument, petitioner
underscores the fact that the IBC's By-Laws does not even include the position
of comptroller in its roster of corporate officers. 9 He therefore contends that
his dismissal is a controversy falling within the jurisdiction of the labor
courts. 10
Petitioner's argument is untenable. Even assuming that he was in fact
appointed by the General Manager, such appointment was subsequently
approved by the Board of Directors of the IBC. 11 That the position of
Comptroller is not expressly mentioned among the officers of the IBC in the
By-Laws is of no moment, because the IBC's Board of Directors is empowered
under Section 25 of the Corporation Code 12 and under the corporation's By-
Laws to appoint such other officers as it may deem necessary. The By-Laws
of the IBC categorically provides:
XII. OFFICERS
The officers of the corporation shall consist of a
President, a Vice-President, a Secretary-Treasurer, a
General Manager, and such other officers as the Board of
Directors may from time to time does fit to provide for. Said
officers shall be elected by majority vote of the Board of
Directors and shall have such powers and duties as shall
hereinafter provide (Emphasis supplied). 13
The Court has held that in most cases the "by-laws may and usually
do provide for such other officers," 14 and that where a corporate office is not
specifically indicated in the roster of corporate offices in the by-laws of a
corporation, the board of directors may also be empowered under the by-laws
to create additional officers as may be necessary. 15
An "office" has been defined as a creation of the charter of a
corporation, while an "officer" as a person elected by the directors or
stockholders. On the other hand, an "employee" occupies no office and is
generally employed not by action of the directors and stockholders but by the
managing officer of the corporation who also determines the compensation to
be paid to such employee. 16
As petitioner's appointment as comptroller required the approval and
formal action of the IBC's Board of Directors to become valid, 17 it is clear
therefore holds that petitioner is a corporate officer whose dismissal may be
the subject of a controversy cognizable by the SEC under Section 5(c) of P.D.
902-A which includes controversies involving both election
and appointment of corporate directors, trustees, officers, and
managers. 18 Had petitioner been an ordinary employee, such board action
would not have been required.
 Thus, the Court of Appeals correctly held that:
Since complainant's appointment was approved
unanimously by the Board of Directors of the corporation,
he is therefore considered a corporate officer and his claim
of illegal dismissal is a controversy that falls under the
jurisdiction of the SEC as contemplated by Section 5 of P.D.
902-A. The rule is that dismissal or non-appointment of a
corporate officer is clearly an intra-corporate matter and
jurisdiction over the case properly belongs to the SEC, not
to the NLRC. 19
As to petitioner's argument that the nature of his functions is
recommendatory thereby making him a mere managerial officer, the Court has
previously held that the relationship of a person to a corporation, whether as
officer or agent or employee is not determined by the nature of the services
performed, but instead by the incidents of the relationship as they actually
exist. 20
It is likewise of no consequence that petitioner's complaint for illegal
dismissal includes money claims, for such claims are actually part of the
perquisites of his position in, and therefore linked with his relations with, the
corporation. The inclusion of such money claims does not convert the issue
into a simple labor problem. Clearly, the issues raised by petitioner against the
IBC are matters that come within the area of corporate affairs and
management, and constitute a corporate controversy in contemplation of
the Corporation Code. 21
Petitioner further argues that the IBC failed to perfect its appeal from
the Labor Arbiter's Decision for its non-payment of the appeal bond as required
under Article 223 of the Labor Code, since compliance with the requirement of
posting of a cash or surety bond in an amount equivalent to the monetary
award in the judgment appealed from has been held to be both mandatory and
jurisdictional. 22 Hence, the Decision of the Labor Arbiter had long become
final and executory and thus, the Court of Appeals acted with grave abuse of
discretion amounting to lack or excess of jurisdiction in giving due course to
the IBC's petition for certiorari, and in deciding the case on the merits.
The IBC's failure to post an appeal bond within the period mandated
under Article 223 of the Labor Code has been rendered immaterial by the fact
that the Labor Arbiter did not have jurisdiction over the case since as stated
earlier, the same is in the nature of an intra-corporate controversy. The Court
has consistently held that where there is a finding that any decision was
rendered without jurisdiction, the action shall be dismissed. Such defense can
be interposed at any time, during appeal or even after final judgment. 23 It is
a well-settled rule that jurisdiction is conferred only by the Constitution or by
law. It cannot be fixed by the will of the parties; it cannot be acquired through,
enlarged or diminished by, any act or omission of the parties. 24
Considering the foregoing, the Court holds that no error was
committed by the Court of Appeals in dismissing the case filed before the
Labor Arbiter, without prejudice to the filing of an appropriate action in the
proper court.
It must be noted that under Section 5.2 of the Securities Regulation
Code (Republic Act No. 8799) which was signed into law by then President
Joseph Ejercito Estrada on July 19, 2000, the SEC's jurisdiction over all cases
enumerated in Section 5 of P.D. 902-A has been transferred to the Regional
Trial Courts. 25
WHEREFORE, the petition is hereby DISMISSED and the Decision of
the Court of Appeals in CA-G.R. SP No. 52755 is AFFIRMED.
SO ORDERED.
Davide, Jr., C.J. and Ynares-Santiago, JJ., concur.
Puno, J., is on official leave.
||| (Nacpil v. International Broadcasting Corp., G.R. No. 144767, [March 21,
2002], 429 PHIL 410-420)
FIRST DIVISION
[G.R. No. 144767. March 21, 2002.]
DILY DANY NACPIL, petitioner, vs. INTERNATIONAL
BROADCASTING CORPORATION, respondent.
Cruz Enverga & Lucero for petitioner.
The Government Corporate Counsel for respondent.
SYNOPSIS
Petitioner was the Assistant General Manager for
Finance/Administration and Comptroller of private respondent Intercontinental
Broadcasting Corporation (IBC). Upon his assumption of the IBC Presidency,
Emiliano Templo allegedly harassed and pressured petitioner into resigning
until the latter was forced to retire. However, Templo refused to pay him his
retirement benefits and refused to recognize petitioner's employment. Hence,
petitioner filed with the Labor Arbiter a complaint for illegal dismissal and non-
payment of benefits. The Labor Arbiter ruled in favor of petitioner. IBC
appealed to the NLRC, but the same was dismissed. IBC then filed with the
Court of Appeals a petition for certiorari under Rule 65, which petition was
granted by the appellate court and the decisions of the Labor Arbiter and the
NLRC were reversed and set aside. Petitioner then filed this instant petition.
In affirming the decision of the Court of Appeals, the Supreme Court
ruled that the Labor Arbiter had no jurisdiction over the case for illegal
dismissal and non-payment of benefits filed by petitioner. As petitioner's
appointment as comptroller required the approval and formal action of the
IBC's Board of Directors to become valid, it is clear, therefore, that petitioner
is a corporate officer whose dismissal may be the subject of a controversy
cognizable by the SEC under Section 5(c) of P.D. 902-A which includes
controversies involving both election and appointment of corporate directors,
trustees, officers, and managers. Had petitioner been an ordinary employee,
such board action would not have been required. The Court has consistently
held that where there is a finding that any decision was rendered without
jurisdiction, the action shall be dismissed. Such defense can be interposed at
any time, during appeal or even after final judgment.
It must be noted that under Section 5.2 of the Securities Regulation
Code (Republic Act No. 8799) which was signed into law on July 19, 2002, the
SEC's jurisdiction over all cases enumerated in Section 5 of P.D. 902-A has
been transferred to the Regional Trial Courts.
SYLLABUS
1. COMMERCIAL LAW; CORPORATION LAW; SECURITIES AND
EXCHANGE COMMISSION; JURISDICTION; HOW DETERMINED. — The
Court has consistently held that there are two elements to be considered in
determining whether the SEC has jurisdiction over the controversy, to wit: (1)
the status or relationship of the parties; and (2) the nature of the question that
is the subject of their controversy. CHcETA
2. ID.; ID.; PRIVATE CORPORATIONS; BY-LAWS; MAY
AUTHORIZE THE BOARD OF DIRECTORS TO APPOINT SUCH OTHER
OFFICERS AS MAY BE NECESSARY. — The Court has held that in most
cases the "by-laws may and usually do provide for such other officers," and
that where a corporate office is not specifically indicated in the roster of
corporate offices in the by-laws of a corporation, the board of directors may
also be empowered under the by-laws to create additional officers as may be
necessary.
3. ID.; ID.; SECURITIES AND EXCHANGE COMMISSION; HAS
JURISDICTION OVER CONTROVERSIES INVOLVING BOTH THE
ELECTION AND APPOINTMENT OF CORPORATE DIRECTORS,
TRUSTEES, OFFICERS, AND MANAGERS; CASE AT BAR. — As
petitioner's appointment as comptroller required the approval and formal action
of the IBC's Board of Directors to become valid, it is clear therefore holds that
petitioner is a corporate officer whose dismissal may be the subject of a
controversy cognizable by the SEC under Section 5(c) of P.D. 902-A which
includes controversies involving both election and appointment of corporate
directors, trustees, officers, and managers. Had petitioner been an ordinary
employee, such board action would not have been required.
4. REMEDIAL LAW; COURTS; JURISDICTION; CONFERRED ONLY
BY THE CONSTITUTION OR BY LAW. — The Court has consistently held
that where there is a finding that any decision was rendered without
jurisdiction, the action shall be dismissed. Such defense can be interposed at
any time, during appeal or even after final judgment. It is a well-settled rule
that jurisdiction is conferred only by the Constitution or by law. It cannot be
fixed by the will of the parties; it cannot be acquired through, enlarged or
diminished by, any act or omission of the parties.
DECISION
KAPUNAN, J p:
This is a petition for review on certiorari under Rule 45, assailing the
Decision of the Court of Appeals dated November 23, 1999 in CA-G.R. SP No.
52755 1and the Resolution dated August 31, 2000 denying petitioner Dily
Dany Nacpil's motion for reconsideration. The Court of Appeals reversed the
decisions promulgated by the Labor Arbiter and the National Labor Relations
Commission (NLRC), which consistently ruled in favor of petitioner.
Petitioner states that he was Assistant General Manager for
Finance/Administration and Comptroller of private respondent Intercontinental
Broadcasting Corporation (IBC) from 1996 until April 1997. According to
petitioner, when Emiliano Templo was appointed to replace IBC President
Tomas Gomez III sometime in March 1997, the former told the Board of
Directors that as soon as he assumes the IBC presidency, he would terminate
the services of petitioner. Apparently, Templo blamed petitioner, along with a
certain Mr. Basilio and Mr. Gomez, for the prior mismanagement of IBC. Upon
his assumption of the IBC presidency, Templo allegedly harassed, insulted,
humiliated and pressured petitioner into resigning until the latter was forced to
retire. However, Templo refused to pay him his retirement benefits, allegedly
because he had not yet secured the clearances from the Presidential
Commission on Good Government and the Commission on Audit.
Furthermore, Templo allegedly refused to recognize petitioner's employment,
claiming that petitioner was not the Assistant General Manager/Comptroller of IBC appealed to the NLRC, but the same was dismissed in a
IBC but merely usurped the powers of the Comptroller. Hence, in 1997, Resolution dated March 2, 1999, for its failure to file the required appeal bond
petitioner filed with the Labor Arbiter a complaint for illegal dismissal and non- in accordance withArticle 223 of the Labor Code. 4 IBC then filed a motion for
payment of benefits. reconsideration that was likewise denied in a Resolution dated April 26,
1999. 5
Instead of filing its position paper, IBC filed a motion to dismiss
alleging that the Labor Arbiter had no jurisdiction over the case. IBC contended IBC then filed with the Court of Appeals a petition
that petitioner was a corporate officer who was duly elected by the Board of for certiorari under Rule 65, which petition was granted by the appellate court
Directors of IBC; hence, the case qualities as an intra-corporate dispute falling in its Decision dated November 23, 1999. The dispositive portion of said
within the jurisdiction of the Securities and Exchange Commission (SEC). decision states:
However, the motion was denied by the Labor Arbiter in an Order dated April
22, 1998. 2 WHEREFORE, premises considered, the petition
for Certiorari is GRANTED. The assailed decisions of the
On August 21, 1998, the Labor Arbiter rendered a Decision stating Labor Arbiter and the NLRC are REVERSED and SET
that petitioner had been illegally dismissed. The dispositive portion thereof ASIDE and the complaint is DISMISSED without prejudice.
reads:
SO ORDERED. 6
WHEREFORE, in view of all the foregoing,
judgment is hereby rendered in favor of the complainant and Petitioner then filed a motion for reconsideration, which was denied by
against all the respondents, jointly and severally, ordering the appellate court in a Resolution dated August 31, 2000.
the latter: Hence, this petition.
1. To reinstate complainant to his former position without Petitioner Nacpil submits that:
diminution of salary or loss of seniority rights, and
with full backwages computed from the time of his I.
illegal dismissal on May 16, 1997 up to the time of THE COURT OF APPEALS ERRED IN FINDING
his actual reinstatement which is tentatively THAT PETITIONER WAS APPOINTED BY
computed as of the date of this decision on August RESPONDENT'S BOARD OF DIRECTORS AS
21, 1998 in the amount of P1,231,750.00 COMPTROLLER. THIS FINDING IS CONTRARY TO THE
(i.e., P75,000.00 a month x 15.16 months = COMMON, CONSISTENT POSITION AND ADMISSION
P1,137,000.00 plus 13th month pay equivalent to OF BOTH PARTIES. FURTHER, RESPONDENT'S BY-
1/12 of P1,137,000.00 = P94,750.00 or the total LAWS DOES NOT INCLUDE COMPTROLLER AS ONE
amount of P1,231,750.00). Should complainant be OF ITS CORPORATE OFFICERS.
not reinstated within ten (10) days from receipt of
this decision, he shall be entitled to additional II.
backwages until actually reinstated.
THE COURT OF APPEALS WENT BEYOND THE
2. Likewise, to pay complainant the following: ISSUE OF THE CASE WHEN IT SUBSTITUTED THE
NATIONAL LABOR RELATIONS COMMISSION'S
a) P2 Million as and for moral damages; DECISION TO APPLY THE APPEAL BOND
REQUIREMENT STRICTLY IN THE INSTANT CASE. THE
b) P500,000.00 as and for exemplary damages;
ONLY ISSUE FOR ITS DETERMINATION IS WHETHER
plus and (sic)
NLRC COMMITTED GRAVE ABUSE OF DISCRETION IN
c) Ten (10%) percent thereof as and for attorney's DOING THE SAME. 7
fees.
The issue to be resolved is whether the Labor Arbiter had jurisdiction
SO ORDERED. 3 over the case for illegal dismissal and non-payment of benefits filed by
petitioner. The Court finds that the Labor Arbiter had no jurisdiction over the
same.
 Under Presidential Decree No. 902-A (the Revised Securities Act), the
law in force when the complaint for illegal dismissal was instituted by petitioner
in 1997, the following cases fall under the exclusive of the SEC:
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 appointment of directors,
trustees, officers, or managers of such
corporations, partnerships or associations;
d) Petitions of corporations, partnerships, or associations to
be declared in the state of suspension of payments
in cases where the corporation, partnership or
association possesses property to cover all of its
debts but foresees the impossibility of meeting
them when they respectively fall due or in cases
where the corporation, partnership or association
has no sufficient assets to cover its liabilities, but is
under the Management Committee created
pursuant to this decree. (Emphasis supplied.)
The Court has consistently held that there are two elements to be
considered in determining whether the SEC has jurisdiction over the
controversy, to wit: (1) the status or relationship of the parties; and (2) the
nature of the question that is the subject of their controversy. 8
Petitioner argues that he is not a corporate officer of the IBC but an
employee thereof since he had not been elected nor appointed as Comptroller
and Assistant Manager by the IBC's Board of Directors. He points out that he
had actually been appointed as such on January 11, 1995 by the IBC's
General Manager, Ceferino Basilio. In support of his argument, petitioner
underscores the fact that the IBC's By-Laws does not even include the position
of comptroller in its roster of corporate officers. 9 He therefore contends that
his dismissal is a controversy falling within the jurisdiction of the labor
courts. 10
Petitioner's argument is untenable. Even assuming that he was in fact
appointed by the General Manager, such appointment was subsequently
approved by the Board of Directors of the IBC. 11 That the position of
Comptroller is not expressly mentioned among the officers of the IBC in the
By-Laws is of no moment, because the IBC's Board of Directors is empowered
under Section 25 of the Corporation Code 12 and under the corporation's By-
Laws to appoint such other officers as it may deem necessary. The By-Laws
of the IBC categorically provides:
XII. OFFICERS
The officers of the corporation shall consist of a
President, a Vice-President, a Secretary-Treasurer, a
General Manager, and such other officers as the Board of
Directors may from time to time does fit to provide for. Said
officers shall be elected by majority vote of the Board of
Directors and shall have such powers and duties as shall
hereinafter provide (Emphasis supplied). 13
The Court has held that in most cases the "by-laws may and usually
do provide for such other officers," 14 and that where a corporate office is not
specifically indicated in the roster of corporate offices in the by-laws of a
corporation, the board of directors may also be empowered under the by-laws
to create additional officers as may be necessary. 15
An "office" has been defined as a creation of the charter of a
corporation, while an "officer" as a person elected by the directors or
stockholders. On the other hand, an "employee" occupies no office and is
generally employed not by action of the directors and stockholders but by the
managing officer of the corporation who also determines the compensation to
be paid to such employee. 16
As petitioner's appointment as comptroller required the approval and
formal action of the IBC's Board of Directors to become valid, 17 it is clear
therefore holds that petitioner is a corporate officer whose dismissal may be
the subject of a controversy cognizable by the SEC under Section 5(c) of P.D.
902-A which includes controversies involving both election
and appointment of corporate directors, trustees, officers, and
managers. 18 Had petitioner been an ordinary employee, such board action
would not have been required.
Thus, the Court of Appeals correctly held that:
Since complainant's appointment was approved
unanimously by the Board of Directors of the corporation,
he is therefore considered a corporate officer and his claim
 of illegal dismissal is a controversy that falls under the It must be noted that under Section 5.2 of the Securities Regulation
jurisdiction of the SEC as contemplated by Section 5 of P.D. Code (Republic Act No. 8799) which was signed into law by then President
902-A. The rule is that dismissal or non-appointment of a Joseph Ejercito Estrada on July 19, 2000, the SEC's jurisdiction over all cases
corporate officer is clearly an intra-corporate matter and enumerated in Section 5 of P.D. 902-A has been transferred to the Regional
jurisdiction over the case properly belongs to the SEC, not Trial Courts. 25
to the NLRC. 19
WHEREFORE, the petition is hereby DISMISSED and the Decision of
As to petitioner's argument that the nature of his functions is the Court of Appeals in CA-G.R. SP No. 52755 is AFFIRMED.
recommendatory thereby making him a mere managerial officer, the Court has
previously held that the relationship of a person to a corporation, whether as SO ORDERED.
officer or agent or employee is not determined by the nature of the services Davide, Jr., C.J. and Ynares-Santiago, JJ., concur.
performed, but instead by the incidents of the relationship as they actually
exist. 20 Puno, J., is on official leave.
It is likewise of no consequence that petitioner's complaint for illegal ||| (Nacpil v. International Broadcasting Corp., G.R. No. 144767, [March 21,
dismissal includes money claims, for such claims are actually part of the 2002], 429 PHIL 410-420)
perquisites of his position in, and therefore linked with his relations with, the
corporation. The inclusion of such money claims does not convert the issue
into a simple labor problem. Clearly, the issues raised by petitioner against the
IBC are matters that come within the area of corporate affairs and
management, and constitute a corporate controversy in contemplation of
the Corporation Code. 21
Petitioner further argues that the IBC failed to perfect its appeal from
the Labor Arbiter's Decision for its non-payment of the appeal bond as required
under Article 223 of the Labor Code, since compliance with the requirement of
posting of a cash or surety bond in an amount equivalent to the monetary
award in the judgment appealed from has been held to be both mandatory and
jurisdictional. 22 Hence, the Decision of the Labor Arbiter had long become
final and executory and thus, the Court of Appeals acted with grave abuse of
discretion amounting to lack or excess of jurisdiction in giving due course to
the IBC's petition for certiorari, and in deciding the case on the merits.
The IBC's failure to post an appeal bond within the period mandated
under Article 223 of the Labor Code has been rendered immaterial by the fact
that the Labor Arbiter did not have jurisdiction over the case since as stated
earlier, the same is in the nature of an intra-corporate controversy. The Court
has consistently held that where there is a finding that any decision was
rendered without jurisdiction, the action shall be dismissed. Such defense can
be interposed at any time, during appeal or even after final judgment. 23 It is
a well-settled rule that jurisdiction is conferred only by the Constitution or by
law. It cannot be fixed by the will of the parties; it cannot be acquired through,
enlarged or diminished by, any act or omission of the parties. 24
Considering the foregoing, the Court holds that no error was
committed by the Court of Appeals in dismissing the case filed before the
Labor Arbiter, without prejudice to the filing of an appropriate action in the
proper court.