11. gocongwei vs ca

8/9/2019 11. Gocongwei vs CA

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

JOHN GOKONGWEI, JR., petitioner,vs.SECURITIES AND ECHANGE CO!!ISSION, ANDRES !. SORIANO, JOSE !. SORIANO,

ENRI"UE #O$EL, ANTONIO ROAS, E!ETERIO $UNAO, WALTHRODE $. CONDE, !IGUELORTIGAS, ANTONIO %RIETO, SAN !IGUEL COR%ORATION, E!IGDIO TANJUATCO, SR., &'(EDUARDO R. )ISA*A, respondents.

De Santos, Balgos & Perez for petitioner.

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

Siguion Rena, !ontecillo & Ongsia"o for respondent San !iguel Corporation.

R. # Capulong for respondent $duardo R. %isaa.

ANTONIO, J.:

The instant petition for certiorari, mandamus and injunction, with prayer for issuance of writ ofpreliminary injunction, arose out of two cases filed by petitioner with the Securities and ExchangeCommission, as follows:

S$C CAS$ O '()*

n ctober !!, "#$%, p+iio'+r, & o/0ol(+r o r+po'(+' S&' !i23+l Corpor&io', il+(i0 0+ S+3rii+ &'( E0&'2+ Co66iio' SEC8 & p+iio' or (+l&r&io' o '3lli: o&6+'(+( ;:-l&, &'+ll&io' o +rii&+ o ili'2 o &6+'(+( ;:- l&, i'


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*s a second cause of action, it was alleged that the authority granted in "#%" had already beenexercised in "#%! and "#%3, after which the authority of the /oard ceased to exist.

*s a third cause of action, petitioner averred that the membership of the /oard of


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allegations therein and stating, by way of affirmative defenses that &the action ta)en by the /oard of


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n


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pending the determination of petitionerBs application for the issuance of a preliminary injunctionand=or petitionerBs motion for summary judgment, a temporary restraining order be issued,restraining respondents from holding the special stoc)holderBs meeting as scheduled. This motionwas duly opposed by respondents.

n Debruary "6, "#$$, respondent Commission issued an order denying the motion for issuance of

temporary restraining order. *fter receipt of the order of denial, respondents conducted the specialstoc)holdersB meeting wherein the amendments to the by;laws were ratified. n Debruary "7, "#$$,petitioner filed a consolidated motion for contempt and for nullification of the special stoc)holdersBmeeting.

* motion for reconsideration of the order denying petitionerBs motion for summary judgment was filedby petitioner before respondent Commission on +arch "6, "#$$. 1etitioner alleges that up to thetime of the filing of the instant petition, the said motion had not yet been scheduled for hearing.9i)ewise, the motion for reconsideration of the order granting in part and denying in part petitionerBsmotion for production of record had not yet been resolved.

8n view of the fact that the annul stoc)holdersB meeting of respondent corporation had been

scheduled for +ay "6, "#$$, petitioner filed with respondent Commission a +anifestation stating thathe intended to run for the position of director of respondent corporation. Thereafter, respondentsfiled a +anifestation with respondent Commission, submitting a esolution of the /oard of


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%. e;affirmation of the authori>ation to the /oard of


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damage and injuryA ?!@ that it acted without jurisdiction and in violation of petitionerBs right to dueprocess when it decided en banc an issue not raised before it and still pending before one of itsCommissioners, and without hearing petitioner thereon despite petitionerBs reuest to have the samecalendared for hearing , and ?3@ that the respondents acted oppressively against the petitioner inviolation of his rights as a stoc)holder, warranting immediate judicial intervention.

8t is prayed in the supplemental petition that the SEC orders complained of be declared null and voidand that respondent Commission be ordered to allow petitioner to underta)e discovery proceedingsrelative to San +iguel 8nternational. 8nc. and thereafter to decide SEC Cases 2o. "3$4 and "7!3 onthe merits.

n +ay "$, "#$$, respondent SEC, *ndres +. Soriano, 'r. and 'ose +. Soriano filed their comment,alleging that the petition is without merit for the following reasons:

?"@ that the petitioner the interest he represents are engaged in business competitive andantagonistic to that of respondent San +iguel Corporation, it appearing that the owns and controls agreater portion of his S+C stoc) thru the niversal obina Corporation and the Consolidated DoodsCorporation, which corporations are engaged in business directly and substantially competing with

the allied businesses of respondent S+C and of corporations in which S+C has substantialinvestments. Durther, when CDC and obina had accumulated investments. Durther, when CDC andobina had accumulated shares in S+C, the /oard of ed the clear andpresent danger that competitors or antagonistic parties may be elected directors and thereby haveeasy and direct access to S+CBs business and trade secrets and plansA

?!@ that the amended by law were adopted to preserve and protect respondent S+C from the clearand present danger that business competitors, if allowed to become directors, will illegally andunfairly utili>e their direct access to its business secrets and plans for their own private gain to theirreparable prejudice of respondent S+C, and, ultimately, its stoc)holders. Durther, it is asserted thatmembership of a competitor in the /oard of ed that it was only on *pril !#, "#$$ thatpetitioner calendared the aforesaid petition for suspension ?preliminary injunction@ for hearing on+ay 3, "#$$. The instant petition being dated +ay 7, "#$$, it is apparent that respondentCommission was not given a chance to act &with deliberate dispatch&, and

?4@ that, even assuming that the petition was meritorious was, it has become moot and academic

because respondent Commission has acted on the pending incidents, complained of. 8t was,therefore, prayed that the petition be dismissed.

n +ay !", "#$$, respondent Emigdio (, Tanjuatco, Sr. filed his comment, alleging that the petitionhas become moot and academic for the reason, among others that the acts of private respondentsought to be enjoined have reference to the annual meeting of the stoc)holders of respondent San+iguel Corporation, which was held on may "6, "#$$A that in said meeting, in compliance with theorder of respondent Commission, petitioner was allowed to run and be voted for as directorA and thatin the same meeting, 8tem % of the *genda was discussed, voted upon, ratified and confirmed.


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Durther it was averred that the uestions and issues raised by petitioner are pending in theSecurities and Exchange Commission which has acuired jurisdiction over the case, and no hearingon the merits has been hadA hence the elevation of these issues before the Supreme Court ispremature.

1etitioner filed a reply to the aforesaid comments, stating that the petition presents justiciable

uestions for the determination of this Court because ?"@ the respondent Commission acted withoutcircumspection, unfairly and oppresively against petitioner, warranting the intervention of this CourtA?!@ a derivative suit, such as the instant case, is not rendered academic by the act of a majority ofstoc)holders, such that the discussion, ratification and confirmation of 8tem % of the *genda of theannual stoc)holdersB meeting of +ay "6, "#$$ did not render the case mootA that the amendment tothe bylaws which specifically bars petitioner from being a director is void since it deprives him of hisvested rights.

espondent Commission, thru the Solicitor (eneral, filed a separate comment, alleging that afterreceiving a copy of the restraining order issued by this Court and noting that the restraining order didnot foreclose action by it, the Commission en banc issued rders 2os. 77#, 746 and 74" in SECCase 2o. "3$4.

8n answer to the allegation in the supplemental petition, it states that rder 2o. 746 which denieddeferment of 8tem % of the *genda of the annual stoc)holdersB meeting of respondent corporation,too) into consideration an urgent manifestation filed with the Commission by petitioner on +ay 3,"#$$ which prayed, among others, that the discussion of 8tem % of the *genda be deferred. Thereason given for denial of deferment was that &such action is within the authority of the corporationas well as falling within the sphere of stoc)holdersB right to )now, deliberate upon and=or to expresstheir wishes regarding disposition of corporate funds considering that their investments are the onesdirectly affected.& 8t was alleged that the main petition has, therefore, become moot and academic.

n September !#,"#$$, petitioner filed a second supplemental petition with prayer for preliminaryinjunction, alleging that the actuations of respondent SEC tended to deprive him of his right to dueprocess, and &that all possible uestions on the facts now pending before the respondent

Commission are now before this onorable Court which has the authority and the competence to acton them as it may see fit.& ?eno, pp. #!$;#!5.@

1etitioner, in his memorandum, submits the following issues for resolutionA

?"@ whether or not the provisions of the amended by;laws of respondent corporation, disualifying acompetitor from nomination or election to the /oard of


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/0et0er or not aended b1laws are +alid is purel a legal 2uestion w0ic0 public interest re2uires tobe resol+ed 3

8t is the position of the petitioner that &it is not necessary to remand the case to respondent SEC foran appropriate ruling on the intrinsic validity of the amended by;laws in compliance with the principleof exhaustion of administrative remedies&, considering that: first: &whether or not the provisions of

the amended by;laws are intrinsically valid ... is purely a legal uestion. There is no factual disputeas to what the provisions are and evidence is not necessary to determine whether such amendedby;laws are valid as framed and approved ... &A second: &it is for the interest and guidance of thepublic that an immediate and final ruling on the uestion be made ... &A third: &petitioner was denieddue process by SEC& when &Commissioner de (u>man had openly shown prejudice againstpetitioner ... &, and &Commissioner Sulit ... approved the amended by;laws e41parte and obviouslyfound the same intrinsically validA and finally: &to remand the case to SEC would only entail delayrather than serve the ends of justice.&

espondents *ndres +. Soriano, 'r. and 'ose +. Soriano similarly pray that this Court resolve thelegal issues raised by the parties in )eeping with the &cherished rules of procedure& that &a courtshould always strive to settle the entire controversy in a single proceeding leaving no root or branch

to bear the seeds of future ligiation&, citing5aong +. 5aos.

> To the same effect is the prayer of San+iguel Corporation that this Court resolve on the merits the validity of its amended by laws and the rightsand obligations of the parties thereunder, otherwise &the time spent and effort exerted by the partiesconcerned and, more importantly, by this onorable Court, would have been for naught because the mainuestion will come bac) to this onorable Court for final resolution.& espondent Eduardo . isayasubmits a similar appeal.

8t is only the Solicitor (eneral who contends that the case should be remanded to the SEC forhearing and decision of the issues involved, invo)ing the latterBs primary jurisdiction to hear anddecide case involving intra;corporate controversies.

8t is an accepted rule of procedure that the Supreme Court should always strive to settle the entirecontroversy in a single proceeding, leaving nor root or branch to bear the seeds of future

litigation. 4 Thus, in 6rancisco +. Cit of Da+ao, 5 this Court resolved to decide the case on the meritsinstead of remanding it to the trial court for further proceedings since the ends of justice would not besubserved by the remand of the case. 8n Republic +. Securit Credit and Acceptance Corporation, etal., ? 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 +. Central Suret and7nsurance Copan, 7 this Court denied remand of the third;party complaint to the trial court for furtherproceedings, citing precedent where this Court, in similar situations resolved to decide the cases on themerits, instead of remanding them to the trial court where ?a@ the ends of justice would not be subservedby the remand of the caseA or ?b@ where public interest demand an early disposition of the caseA or ?c@where the trial court had already received all the evidence presented by both parties and the SupremeCourt is now in a position, based upon said evidence, to decide the case on its merits. @ 8t is settled thatthe doctrine of primary jurisdiction has no application where only a uestion of law is involved. @& /ecauseuniformity may be secured through review by a single Supreme Court, uestions of law may appropriately

be determined in the first instance by courts.@

; 8n the case at bar, there are facts which cannot be denied,vi>.: that the amended by;laws were adopted by the /oard of


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88

/0et0er or not t0e aended b1laws of S!C of dis2ualifing a copetitor fro noination orelection to t0e Board of Directors of S!C are +alid and reasonable 3

The validity or reasonableness of a by;law of a corporation in purely a uestion of law. 9 0hether the

by;law is in conflict with the law of the land, or with the charter of the corporation, or is in a legal senseunreasonable and therefore unlawful is a uestion of law. 1 This rule is subject, however, to the limitationthat where the reasonableness of a by;law is a mere matter of judgment, and one upon which reasonableminds must necessarily differ, a court would not be warranted in substituting its judgment instead of the

judgment of those who are authori>ed to ma)e by;laws and who have exercised their authority. 11

1etitioner claims that the amended by;laws are invalid and unreasonable because they were tailoredto suppress the minority and prevent them from having representation in the /oard&, at the sametime depriving petitioner of his &vested right& to be voted for and to vote for a person of his choice asdirector.

pon the other hand, respondents *ndres +. Soriano, 'r., 'ose +. Soriano and San +iguel

Corporation content that ex. conclusion of a competitor from the /oard is legitimate corporatepurpose, considering that being a competitor, petitioner cannot devote an unselfish and undivided9oyalty to the corporationA that it is essentially a preventive measure to assure stoc)holders of San+iguel Corporation of reasonable protective from the unrestrained self;interest of those charged withthe promotion of the corporate enterpriseA that access to confidential information by a competitormay result either in the promotion of the interest of the competitor at the expense of the San +iguelCorporation, or the promotion of both the interests of petitioner and respondent San +iguelCorporation, which may, therefore, result in a combination or agreement in violation of *rticle "5% ofthe evised 1enal Code by destroying free competition to the detriment of the consuming public. 8t isfurther argued that there is not vested right of any stoc)holder under 1hilippine 9aw to be voted asdirector of a corporation. 8t is alleged that petitioner, as of +ay %, "#$5, has exercised, personally orthru two corporations owned or controlled by him, control over the following shareholdings in San+iguel Corporation, +is.: ?a@ 'ohn (o)ongwei, 'r. G %,3!4 sharesA ?b@ niversal obina Corporation

G $35,%7$ sharesA ?c@ CDC Corporation G %45,3"3 shares, or a total of ",763,!54 shares. Since theoutstanding capital stoc) of San +iguel Corporation, as of the present date, is represented by33,"3#,$7# shares with a par value of 1"6.66, the total shares owned or controlled by petitionerrepresents 7.!377F of the total outstanding capital stoc) of San +iguel Corporation. 8t is alsocontended that petitioner is the president and substantial stoc)holder of niversal obinaCorporation and CDC Corporation, both of which are allegedly controlled by petitioner and membersof his family. 8t is also claimed that both the niversal obina Corporation and the CDC Corporationare engaged in businesses directly and substantially competing with the alleged businesses of San+iguel Corporation, and of corporations in which S+C has substantial investments.

ALL$5$D AR$AS O6 CO!P$#7#7O B$#/$$ P$#7#7O$R8S CORPORA#7OS AD SA!759$L CORPORA#7O

*ccording to respondent San +iguel Corporation, the areas of, competition are enumerated in its/oard the areas of competition are enumerated in its /oard esolution dated *pril !5, "#$5, thus:

1roduct 9ine Estimated +ar)et Share Total"#$$ S+C obina;CDC

Table Eggs 6.%F "6.6F "6.%F9ayer 1ullets 33.6F !7.6F 4$.6F


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power as one of its necessary and inseparable legal incidents, independent of any specific enablingprovision in its charter or in general law, such power of self;government being essential to enable thecorporation to accomplish the purposes of its creation. 1>

8n this jurisdiction, under section !" of the Corporation 9aw, a corporation may prescribe in its by;laws &the ualifications, duties and compensation of directors, officers and employees ... & This must

necessarily refer to a ualification in addition to that specified by section 36 of the Corporation 9aw,which provides that &every director must own in his right at least one share of the capital stoc) of thestoc) corporation of which he is a director ... & 8n5o+ernent +. $l :ogar, 14 the Court sustained thevalidity of a provision in the corporate by;law reuiring that persons elected to the /oard of


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and hence of the property interests of the stoc)holders. Euity recogni>es that stoc)holders are theproprietors of the corporate interests and are ultimately the only beneficiaries thereof J J J.

'ustice e his insideinformation and strategic position for his own preferment. e cannot violate rules offair play by doing indirectly through the corporation what he could not do so directly.e cannot violate rules of fair play by doing indirectly though the corporation what hecould not do so directly. e cannot use his power for his personal advantage and tothe detriment of the stoc)holders and creditors no matter how absolute in terms thatpower may be and no matter how meticulous he is to satisfy technical reuirements.Dor that power is at all times subject to the euitable limitation that it may not beexercised for the aggrandi>ement, preference or advantage of the fiduciary to theexclusion or detriment of the cestuis.

*nd in Cross +. /est %irginia Cent, & P. R. R. Co., =1 it was said:

... * person cannot serve two hostile and adverse master, without detriment to one ofthem. * judge cannot be impartial if personally interested in the cause. 2o more cana director. uman nature is too wea) ;for this. Ta)e whatever statute provision youplease giving power to stoc)holders to choose directors, and in none will you find anyexpress prohibition against a discretion to select directors having the companyBsinterest at heart, and it would simply be going far to deny by mere implication theexistence of such a salutary power

... 8f the by;law is to be held reasonable in disualifying a stoc)holder in a competing company frombeing a director, the same reasoning would apply to disualify the wife and immediate member ofthe family of such stoc)holder, on account of the supposed interest of the wife in her husbandBsaffairs, and his suppose influence over her. 8t is perhaps true that such stoc)holders ought not to becondemned as selfish and dangerous to the best interest of the corporation until tried and tested. Soit is also true that we cannot condemn as selfish and dangerous and unreasonable the action of theboard in passing the by;law. The strife over the matter of control in this corporation as in manyothers is perhaps carried on not altogether in the spirit of brotherly love and affection. The only testthat we can apply is as to whether or not the action of the /oard is authori>ed and sanctioned bylaw. ... . ==

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

A A!$D!$# #O #:$ CORPORA#7O B;1LA/ /:7C: R$D$RS A S#OC>:OLD$R7$L757BL$ #O B$ D7R$C#OR, 76 :$ B$ ALSO D7R$C#OR 7 A CORPORA#7O /:OS$B9S7$SS 7S 7 CO!P$#7#7O /7#: #:A# O6 #:$ O#:$R CORPORA#7O, :AS B$$S9S#A7$D AS %AL7D

8t is a settled state law in the nited States, according to Dletcher, that corporations have the powerto ma)e by;laws declaring a person employed in the service of a rival company to be ineligible forthe corporationBs /oard of


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subjects to removal, a director if he be also a director in a corporation whose business is incompetition with or is antagonistic to the other corporation is valid.&=4 This is based upon the principlethat where the director is so employed in the service of a rival company, he cannot serve both, but mustbetray one or the other. Such an amendment &advances the benefit of the corporation and is good.& *nexception exists in 2ew 'ersey, where the Supreme Court held that the Corporation 9aw in 2ew 'erseyprescribed the only ualification, and therefore the corporation was not empowered to add additional

ualifications.

=5

This is the exact opposite of the situation in the 1hilippines because as stated heretofore,section !" of the Corporation 9aw expressly provides that a corporation may ma)e by;laws for theualifications of directors. Thus, it has been held that an officer of a corporation cannot engage in abusiness in direct competition with that of the corporation where he is a director by utili>ing information hehas received as such officer, under &the established law that a director or officer of a corporation may notenter into a competing enterprise which cripples or injures the business of the corporation of which he isan officer or director. =?

8t is also well established that corporate officers &are not permitted to use their position of trust andconfidence to further their private interests.& =7 8n a case where directors of a corporation cancelled acontract of the corporation for exclusive sale of a foreign firmBs products, and after establishing a rivalbusiness, the directors entered into a new contract themselves with the foreign firm for exclusive sale ofits products, the court held that euity 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 hismisconduct to the exclusion of his principal. =@

The doctrine of &corporate opportunity& =9 is precisely a recognition by the courts that the fiduciarystandards 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 directorta)ing advantage of an opportunity for his own personal profit when the interest of the corporation justlycalls for protection. >

8t is not denied that a member of the /oard of ee & Co. +. 6irst ational Ban" of San Diego, supra the court sustained as valid andreasonable an amendment to the by;laws of a ban), reuiring that its directors should not be

directors, officers, employees, agents, nominees or attorneys of any other ban)ing corporation,affiliate or subsidiary thereof. Chief 'udge 1ar)er, in !c>ee, explained the reasons of the court,thus:

... * ban) director has access to a great deal of information concerning the businessand plans of a ban) which would li)ely be injurious to the ban) if )nown to anotherban), and it was reasonable and prudent to enlarge this minimum disualification toinclude any director, officer, employee, agent, nominee, or attorney of any other ban)in California. The As0"ins case, supra, specifically recogni>es protection against


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rivals and others who might acuire information which ig0t be used against theinterests of the corporation as a legitimate object of by;law protection. 0ith respect toattorneys or persons associated with a firm which is attorney for another ban), inaddition to the direct conflict or potential conflict of interest, there is also the dangerof inadvertent lea)age of confidential information through casual office discussions or accessibility of files. ee the Court further listed ualificational by;laws upheld by the courts, as follows:

?"@ * director shall not be directly or indirectly interested as a stoc)holder in any other firm, company, or association which competes with the subject corporation.

?!@ * director shall not be the immediate member of the family of any stoc)holder inany other firm, company, or association which competes with the subject corporation,

?3@ * director shall not be an officer, agent, employee, attorney, or trustee in any

other firm, company, or association which compete with the subject corporation.

?7@ * director shall be of good moral character as an essential ualification to holdingoffice.

?4@ 2o person who is an attorney against the corporation in a law suit is eligible forservice on the board. ?*t p. $.@

These are not based on theorical abstractions but on human experience G that a person cannotserve two hostile masters without detriment to one of them.

The offer and assurance of petitioner that to avoid any possibility of his ta)ing unfair advantage of

his position as director of San +iguel Corporation, he would absent himself from meetings at whichconfidential matters would be discussed, would not detract from the validity and reasonableness ofthe by;laws here involved. *part from the impractical results that would ensue from sucharrangement, it would be inconsistent with petitionerBs primary motive in running for boardmembership G which is to protect his investments in San +iguel Corporation. +ore important, sucha proposed norm of conduct would be against all accepted principles underlying a directorBs duty offidelity to the corporation, for the policy of the law is to encourage and enforce responsible corporatemanagement. *s explained by lec): >1 &The law win not tolerate the passive attitude of directors ...without active and conscientious participation in the managerial functions of the company. *s directors, itis their duty to control and supervise the day to day business activities of the company or to promulgatedefinite policies and rules of guidance with a vigilant eye toward seeing to it that these policies are carriedout. 8t 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 adirector whose fiduciary duty of loyalty may well reuire that he disclose this information to acompetitive arrival. These dangers are enhanced considerably where the common director such asthe petitioner is a controlling stoc)holder of two of the competing corporations. 8t would seemmanifest that in such situations, the director has an economic incentive to appropriate for the benefitof his own corporation the corporate plans and policies of the corporation where he sits as director.

8ndeed, access by a competitor to confidential information regarding mar)eting strategies and pricingpolicies of San +iguel Corporation would subject the latter to a competitive disadvantage and


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unjustly enrich the competitor, for advance )nowledge by the competitor of the strategies for thedevelopment of existing or new mar)ets of existing or new products could enable said competitor toutili>e such )nowledge to his advantage. >=

There is another important consideration in determining whether or not the amended by;laws arereasonable. The Constitution and the law prohibit combinations in restraint of trade or unfair

competition. Thus, section ! of *rticle K8 of the Constitution provides: &The State shall regulate orprohibit private monopolies when the public interest so reuires. 2o combinations in restraint oftrade or unfair competition shall be snowed.&

*rticle "5% of the evised 1enal Code also provides:

*rt. "5%. !onopolies and cobinations in restraint of trade. GThe penalty of prisioncorreccional in its minimum period or a fine ranging from two hundred to six thousandpesos, or both, shall be imposed upon:

". *ny person who shall enter into any contract or agreement or shall ta)e part in anyconspiracy 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 mar)et.

!. *ny person who shag monopoli>e any merchandise or object of trade orcommerce, or shall combine with any other person or persons to monopoli>e saidmerchandise or object in order to alter the price thereof by spreading false rumors orma)ing use of any other artifice to restrain free competition in the mar)et.

3. *ny person who, being a manufacturer, producer, or processor of anymerchandise or object of commerce or an importer of any merchandise or object ofcommerce from any foreign country, either as principal or agent, wholesale orretailer, shall combine, conspire or agree in any manner with any person li)ewiseengaged in the manufacture, production, processing, assembling or importation of

such merchandise or object of commerce or with any other persons not so similarlyengaged for the purpose of ma)ing transactions prejudicial to lawful commerce, or ofincreasing the mar)et price in any part of the 1hilippines, or any such merchandiseor object of commerce manufactured, produced, processed, assembled in orimported into the 1hilippines, or of any article in the manufacture of which suchmanufactured, produced, processed, or imported merchandise or object ofcommerce is used.

There are other legislation in this jurisdiction, which prohibit monopolies and combinations inrestraint of trade. >>

/asically, these anti;trust laws or laws against monopolies or combinations in restraint of trade areaimed at raising levels of competition by improving the consumersB effectiveness as the final arbiter

in free mar)ets. These laws are designed to preserve free and unfettered competition as the rule oftrade. &8t rests on the premise that the unrestrained interaction of competitive forces will yield thebest allocation of our economic resources, the lowest prices and the highest uality ... .& >4 theyoperate to forestall concentration of economic power. >5 The law against monopolies and combinations inrestraint of trade is aimed at contracts and combinations that, by reason of the inherent nature of thecontemplated acts, prejudice the public interest by unduly restraining competition or unduly obstructingthe course of trade. >?


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The terms &monopoly&, &combination in restraint of trade& and &unfair competition& appear to have awell defined meaning in other jurisdictions. * &monopoly& embraces any combination the tendency of which is to prevent competition in the broad and general sense, or to control prices to the detrimentof the public. >7 8n short, it is the concentration of business in the hands of a few. The materialconsideration 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. >@Durther, it must be considered

that the 8dea of monopoly is now understood to include a condition produced by the mere act ofindividuals. 8ts dominant thought is the notion of exclusiveness or unity, or the suppression of competitionby the ualification of interest or management, or it may be thru agreement and concert of action. 8t is, inbrief, unified tactics with regard to prices. >9

Drom the foregoing definitions, it is apparent that the contentions of petitioner are not in accord withreality. The election of petitioner to the /oard of respondent Corporation can bring about an illegalsituation. This is because an express agreement is not necessary for the existence of a combinationor conspiracy in restraint of trade. 4 8t is enough that a concert of action is contemplated and that thedefendants conformed to the arrangements, 41 and what is to be considered is what the parties actuallydid and not the words they used. Dor instance, the Clayton *ct prohibits a person from serving at thesame time as a director in any two or more corporations, if such corporations are, by virtue of theirbusiness and location of operation, copetitors so that the elimination of competition between them

would constitute violation of any provision of the anti;trust laws.4=

There is here a statutory recognition ofthe anti;competitive dangers which may arise when an individual simultaneously acts as a director of twoor more competing corporations. * common director of two or more competing corporations would haveaccess to confidential sales, pricing and mar)eting information and would be in a position to coordinatepolicies or to aid one corporation at the expense of another, thereby stifling competition. This situation hasbeen aptly explained by Travers, thus:

The argument for prohibiting competing corporations from sharing even one directoris that theinterloc" perits t0e coordination of policies between noinallindependent firs to an e4tent t0at copetition between t0e a be copleteleliinated . 8ndeed, if a director, for example, is to be faithful to both corporations,some accommodation must result. Suppose K is a director of both Corporation * andCorporation /. K could hardly vote for a policy by * that would injure / without

violating his duty of loyalty to / at the same time he could hardly abstain from votingwithout depriving * of his best judgment. 7f t0e firs reall do copete G in thesense of vying for economic advantage at the expense of the other G t0ere can0ardl be an reason for an interloc) between competitors other than thesuppression of competition. 4> ?Emphasis supplied.@

*ccording to the eport of the ouse 'udiciary Committee of the . S. Congress on section # of theClayton *ct, it was established that: &/y means of the interloc)ing directorates one man or group ofmen have been able to dominate and control a great number of corporations ... to the detriment ofthe 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 thepurpose of controlling prices.

bviously, if a competitor has access to the pricing policy and cost conditions of the products of San+iguel Corporation, the essence of competition in a free mar)et for the purpose of serving the lowestpriced goods to the consuming public would be frustrated, The competitor could so manipulate theprices of his products or vary its mar)eting strategies by region or by brand in order to get the mostout of the consumers. 0here the two competing firms control a substantial segment of the mar)etthis could lead to collusion and combination in restraint of trade. eason and experience point to the


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inevitable conclusion that the inherent tendency of interloc)ing directorates between companies thatare related to each other as competitors is to blunt the edge of rivalry between the corporations, tosee) out ways of compromising opposing interests, and thus eliminate competition. *s respondentS+C aptly observes, )nowledge by CDC;obina of S+CBs costs in various industries and regions inthe country win enable the former to practice price discrimination. CDC;obina can segment theentire consuming population by geographical areas or income groups and change varying prices in

order to maximi>e profits from every mar)et segment. CDC;obina could determine the mostprofitable volume at which it could produce for every product line in which it competes with S+C.

*ccess to S+C pricing policy by CDC;obina would in effect destroy free competition and deprivethe consuming public of opportunity to buy goods of the highest possible uality at the lowest prices.

Dinally, considering that both obina and S+C are, to a certain extent, engaged in agriculture, thenthe election of petitioner to the /oard of S+C may constitute a violation of the prohibition containedin section "3?4@ of the Corporation 9aw. Said section provides in part that &any stoc)holder of morethan one corporation organi>ed for the purpose of engaging in agriculture may hold his stoc) in suchcorporations solel for in+estent and not for the purpose of bringing about or attempting to bringabout a combination to exercise control of incorporations ... .&

2either are 0e persuaded by the claim that the by;law was 8ntended to prevent the candidacy ofpetitioner for election to the /oard. 8f the by;law were to be applied in the case of one stoc)holderbut waived in the case of another, then it could be reasonably claimed that the by;law was beingapplied in a discriminatory manner. owever, the by law, by its terms, applies to all stoc)holders. Theeual protection clause of the Constitution reuires only that the by;law operate eually upon allpersons of a class. /esides, before petitioner can be declared ineligible to run for director, theremust be hearing and evidence must be submitted to bring his case within the ambit of thedisualification. Sound principles of public policy and management, therefore, support the view thata by;law which disualifies a competition from election to the /oard of ed to ma)e by;laws and who have expressed their authority. 45

*lthough it is asserted that the amended by;laws confer on the present /oard powers to perpetuathemselves in power such fears appear to be misplaced. This power, but is very nature, is subject tocertain well established limitations. ne of these is inherent in the very convert and definition of theterms &competition& and &competitor&. &Competition& implies a struggle for advantage between two or more forces, each possessing, in substantially similar if not 8dentical degree, certain characteristicsessential to the business sought. 8t means an independent endeavor of two or more persons toobtain the business patronage of a third by offering more advantageous terms as an inducement tosecure trade. 4? 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;characteristics activity.

47

8t is,therefore, obvious that not every person or entity engaged in business of the same )ind is a competitor.Such factors as uantum and place of business, 8dentity of products and area of competition should beta)en into consideration. 8t is, therefore, necessary to show that petitionerBs business covers a substantialportion of the same mar)ets for similar products to the extent of not less than "6F of respondentcorporationBs mar)et for competing products. 0hile 0e here sustain the validity of the amended by;laws,it does not follow as a necessary conseuence that petitioner is ipso facto disualified. Consonant withthe reuirement of due process, there must be due hearing at which the petitioner must be given thefullest opportunity to show that he is not covered by the disualification. *s trustees of the corporation andof the stoc)holders, it is the responsibility of directors to act with fairness to the stoc)holders. 4@ 1ursuant


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to this obligation and to remove any suspicion that this power may be utili>ed by the incumbent membersof the /oard to perpetuate themselves in power, any decision of the /oard to disualify a candidate forthe /oard of


20/53

right to examine the boo)s of the corporation must be exercised in good faith, for specific and honestpurpose, and not to gratify curiosity, or for specific and honest purpose, and not to gratify curiosity, or forspeculative or vexatious purposes. The weight of judicial opinion appears to be, that on application formandamus to enforce the right, it is proper for the court to inuire into and consider the stoc)holderBsgood faith and his purpose and motives in see)ing inspection. 5? Thus, it was held that &the right given bystatute is not absolute and may be refused when the information is not sought in good faith or is used tothe detriment of the corporation.& 57 /ut the &impropriety of purpose such as will defeat enforcement mustbe set up the corporation defensively if the Court is to ta)e cogni>ance of it as a ualification. 8n otherwords, the specific provisions ta)e from the stoc)holder the burden of showing propriety of purpose andplace upon the corporation the burden of showing impropriety of purpose or motive. 5@ 8t appears to be thegeneral rule that stoc)holders are entitled to full information as to the management of the corporation andthe manner of expenditure of its funds, and to inspection to obtain such information, especially where itappears that the company is being mismanaged or that it is being managed for the personal benefit ofofficers or directors or certain of the stoc)holders to the exclusion of others.& 59

0hile the right of a stoc)holder to examine the boo)s and records of a corporation for a lawfulpurpose is a matter of law, the right of such stoc)holder to examine the boo)s and records of awholly;owned subsidiary of the corporation in which he is a stoc)holder is a different thing.

Some state courts recogni>e the right under certain conditions, while others do not. Thus, it hasbeen held that where a corporation owns approximately no property except the shares of stoc) ofsubsidiary corporations which are merely agents or instrumentalities of the holding company, thelegal fiction of distinct corporate entities may be disregarded and the boo)s, papers and documentsof all the corporations may be reuired to be produced for examination, ? and that a writ ofmandamus, may be granted, as the records of the subsidiary were, to all incontents and purposes, therecords of the parent even though subsidiary was not named as a party. ?1 mandamus was li)ewise heldproper to inspect both the subsidiaryBs and the parent corporationBs boo)s upon proof of sufficient controlor dominion by the parent showing the relation of principal or agent or something similar thereto. ?=

n the other hand, mandamus at the suit of a stoc)holder was refused where the subsidiarycorporation is a separate and distinct corporation domiciled and with its boo)s and records inanother jurisdiction, and is not legally subject to the control of the parent company, although it owned

a vast majority of the stoc) of the subsidiary. ?>9i)ewise, inspection of the boo)s of an allied corporationby stoc)holder of the parent company which owns all the stoc) of the subsidiary has been refused on theground that the stoc)holder was not within the class of &persons having an interest.&?4

8n the as0 case, ?5 The Supreme Court of 2ew Mor) held that the contractual right of formerstoc)holders to inspect boo)s and records of the corporation included the right to inspect corporationBssubsidiariesB boo)s and records which were in corporationBs possession and control in its office in 2ewMor).&

8n the Baile case, ?? stoc)holders of a corporation were held entitled to inspect the records of acontrolled subsidiary corporation which used the same offices and had 8dentical officers and directors.

8n his &rgent +otion for 1roduction and 8nspection of


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8n the case at bar, considering that the foreign subsidiary is wholly owned by respondent San +iguelCorporation and, therefore, under its control, it would be more in accord with euity, good faith andfair dealing to construe the statutory right of petitioner as stoc)holder to inspect the boo)s andrecords of the corporation as extending to boo)s and records of such wholly subsidiary which are inrespondent corporationBs possession and control.

8

/0et0er or not respondent S$C gra+el abused its discretion in allowing t0e stoc"0olders ofrespondent corporation to ratif t0e in+estent of corporate funds in a foreign corporation

1etitioner reiterates his contention in SEC Case 2o. "7!3 that respondent corporation investedcorporate funds in S+8 without prior authority of the stoc)holders, thus violating section "$;"=! of theCorporation 9aw, and alleges that respondent SEC should have investigated the charge, being astatutory offense, instead of allowing ratification of the investment by the stoc)holders.

espondent SECBs position is that submission of the investment to the stoc)holders for ratification isa sound corporate practice and should not be thwarted but encouraged.

Section "$;"=! of the Corporation 9aw allows a corporation to &invest its funds in any othercorporation or business or for any purpose other than the main purpose for which it was organi>ed&provided that its /oard of ed by the affirmative vote of stoc)holdersholding shares entitling them to exercise at least two;thirds of the voting power. 8f the investment ismade in pursuance of the corporate purpose, it does not need the approval of the stoc)holders. 8t isonly 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 stoc)holders holding shares entitling them toexercise at least two;thirds of the voting power is necessary. ?9

*s stated by respondent corporation, the purchase of beer manufacturing facilities by S+C was aninvestment in the same business stated as its main purpose in its *rticles of 8ncorporation, which is

to manufacture and mar)et beer. 8t appears that the original investment was made in "#7$;"#75,when S+C, then San +iguel /rewery, 8nc., purchased a beer brewery in ong)ong ?ong)ong/rewery H


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w0en t0e purc0ase of s0ares of anot0er corporation is done solel for in+estentand not to accoplis0 t0e purpose of its incorporation, t0e +ote of appro+al of t0estoc"0olders is necessar . 8n any case, the purchase of such shares or securitiesmust be subject to the limitations established by the Corporations lawA namely, ?a@that no agricultural or mining corporation shall be restricted to own not more than"4F of the voting stoc) of nay agricultural or mining corporationA and ?c@ that such

holdings shall be solely for investment and not for the purpose of bringing about amonopoly in any line of commerce of combination in restraint of trade.& The1hilippine Corporation 9aw by Sulpicio S. (uevara, "#%$ Ed., p. 5#@ ?Emphasissupplied.@

76. Power to in+est corporate funds. G * private corporation has the power to investits corporate funds &in any other corporation or business, or for any purpose otherthan the main purpose for which it was organi>ed, provide that Bits board of directorshas been so authori>ed in a resolution by the affirmative vote of stoc)holders holdingshares in the corporation entitling them to exercise at least two;thirds of the votingpower on such a propose at a stoc)holdersB meeting called for that purpose,B andprovided further, that no agricultural or mining corporation shall in anywise beinterested in any other agricultural or mining corporation. /0en t0e in+estent isnecessar to accoplis0 its purpose or purposes as stated in its articles ofincorporation t0e appro+al of t0e stoc"0olders is not necessar .&& ?7d ., p. "65@?Emphasis ours.@ ?pp. !45;!4#@.

*ssuming arguendo that the /oard of ed acts of its officers or other agents. 7 This is true becausethe uestioned investment is neither contrary to law, morals, public order or public policy. 8t is a corporatetransaction or contract which is within the corporate powers, but which is defective from a supportedfailure to observe in its execution the. reuirement of the law that the investment must be authori>ed bythe affirmative vote of the stoc)holders holding two;thirds of the voting power. This reuirement is for thebenefit of the stoc)holders. The stoc)holders for whose benefit the reuirement was enacted may,

therefore, ratify the investment and its ratification by said stoc)holders obliterates any defect which it mayhave had at the outset. &+ere ultra +ires acts&, said this Court in 1irovano, 71 &or those which are notillegal and void ab initio, but are not merely within the scope of the articles of incorporation, are merelyvoidable and may become binding and enforceable when ratified by the stoc)holders.

/esides, the investment was for the purchase of beer manufacturing and mar)eting facilities which isapparently relevant to the corporate purpose. The mere fact that respondent corporation submittedthe assailed investment to the stoc)holders for ratification at the annual meeting of +ay "6, "#$$cannot be construed as an admission that respondent corporation had committed an ultra +ires act,considering the common practice of corporations of periodically submitting for the gratification oftheir stoc)holders the acts of their directors, officers and managers.

0EEDE, judgment is hereby rendered as follows:

The Court voted unanimously to grant the petition insofar as it prays that petitioner be allowed toexamine the boo)s and records of San +iguel 8nternational, 8nc., as specified by him.

n the matter of the validity of the amended by;laws of respondent San +iguel Corporation, six ?%@'ustices, namely, 'ustices /arredo, +a)asiar, *ntonio, Santos, *bad Santos and


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proper hearing by the /oard of


24/53

a@ The commissionBs reasoning grossly disregards the fact that the stoc)holders ofSan +iguel Corporation are li)ewise the owners of San +iguel 8nternational, 8nc. asthe corporationBs wholly owned foreign subsidiary and therefore have every right tohave access to its boo)s and records. otherwise, the directors and management ofany 1hilippine corporation by the simple device of organi>ing with the corporationBsfunds foreign subsidiaries would be granted complete immunity from the

stoc)holdersB scrutiny of its foreign operations and would have a conduit fordissipating, if not misappropriating, the corporation funds and assets by merelychanneling them into foreign subsidiariesB operationsA and

b@ 1etitionerBs right of examination herein recogni>ed refers to all boo)s and recordsof the foreign subsidiary S+8 which are which are & in respondent corporationBspossession and control& 1, meaning to say regardless of whether or not such boo)s andrecords are physically within the 1hilippines. all such boo)s and records of S+8 arelegally within respondent corporationBs &possession and control& and if nay boo)s orrecords are )ept abroad, ?e.g. in the foreign subsidiaryBs state of domicile, as is to beexpected@, then the respondent corporationBs board and management are obliged underthe CourtBs judgment to bring and ma)e them ?or true copies thereof available within the1hilippines for petitionerBs examination and inspection.

88

n the other main issue of the alidity of respondent San +iguel CorporationBs amendment of its by;laws =whereby respondent corporationBs board of directors under its resolution dated *pril !#, "#$$declared petitioner ineligible to be nominated or to be voted or to be elected as of the board of directors,the Court, composed of "! members ?since +me. 'ustice *meurfina +elencio errera inhibited herselffrom ta)ing part herein, while +r. 'ustice amon C. *uino upon submittal of the main opinion of +r.'ustice *ntonio decided not to ta)e part@, failed to reach a conclusive vote or, the reuired majority of 5votes to settle the issue one way or the other.

Six members of the Court, namely, 'ustices /arredo, +a)asiar, *ntonio, Santos, *bad Santos and

as well as its position in this case to the Solicitor (eneral that the case at bar is &premature& andthat the administrative remedies before the commission should first be availed of and exhausted. 4

0e are of the opinion that the uestioned amended by;laws, as they are, ?adopted after almost acentury of respondent corporationBs existence as a public corporation with its shares freelypurchased and traded in the open mar)et without restriction and disualification@ which would barpetitioner from ualification, nomination and election as director and worse, grant the board by 3=7vote the arbitrary power to bar any stoc)holder from his right to be elected as director by the simpleexpedient of declaring him to be engaged in a &competitive or antagonistic business& or declaringhim as a &nominee& of the competitive or antagonistic& stoc)holder are illegal, oppressive, arbitraryand unreasonable.


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0e consider the uestioned amended by;laws as being specifically tailored to discriminate againstpetitioner and depriving him in violation of substantive due process of his vested substantial rights asstoc)holder of respondent corporation. 0e further consider said amended by;laws as violatingspecific provisions of the Corporation 9aw which grant and recogni>e the right of a minoritystoc)holder li)e petitioner to be elected director by the process of cumulative voting ordained by the9aw ?secs !" and 36@ and the right of a minority director once elected not to be removed from office

of director except for cause by vote of the stoc)holders holding !=3 of the subscribed capital stoc)?sec. 3"@. 8f a minority stoc)holder could be dis2ualified by such a by;laws amendment under theguise of providing for &ualifications,& these mandates of the Corporation 9aw would have nomeaning or purpose.

These vested and substantial rights granted stoc)holders under the Corporation 9aw may not bediluted or defeated by the general authority granted by the Corporation 9aw itself to corporations toadopt their by;laws ?in section !"@ which deal principally with the procedures governing their internalbusiness. The by;laws of any corporation must, be always within the character limits. 0hat theCorporation 9aw has granted stoc)holders maynot be ta)en away by the corporationBs by;laws. Theamendment is further an instrument of oppressiveness and arbitrariness in that the incumbentdirectors are thereby enabled to perpetuate themselves in office by the simple expedient ofdisualifying any unwelcome candidate, no matter how many votes he may have.

owever, in view of the inconclusiveness of the vote, we sustain respondent commissionBs stand asexpressed in its rders 2os. 746 and 74", Series of "#$$ that there are unresolved and genuineissues of fact& and that it has yet to rule on and finally decide the validity of the disputed by;lawprovision&, subject to appeal by either party to this Court.

8n view of prematurity of the proceedings here ?as li)ewise expressed by +r. 'ustice Dernando@, thecase should as a conseuence be remanded to the Securities and Exchange Commission as theagency of primary jurisdiction for a full hearing and reception of evidence of all relevant facts ?whichshould property be submitted to the commission instead of the piecemeal documents submitted asannexes to this Court which is not a trier of facts@ concerning not only the petitioner but the membersof 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 uestioned amended by;laws, and assuming Chat it holds thesame to be valid whether the same are arbitrarily and unreasonably applied to petitioner vis a visother directors, who, petitioner claims, should in such event be li)ewise disualified from sitting inthe board of directors by virtue of conflict of interests or their being li)ewise engaged in competitiveor antagonistic business& with the corporation such as investment and finance, coconut oil millscement, mil) and hotels. 5

8t should be noted that while the petition may be dismissed in view of the inconclusiveness of thevote and the CourtBs failure to affair, the reuired 5;vote majority to resolve the issue, such asdismissal ?for lac) of necessary votes@ is of no doctrine value and does not in any manner resolvethe issue of the validity of the uestioned amended by;laws nor foreclose the same. The sameshould 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 (o)ongwei may run for the officeof, and if elected, sit as, member of the board of directors of respondent San +iguel Corporation asstated in the dispositive portion of the main opinion of +r. 'ustice *ntonio, to wit: 9ntil andafter petitioner has been given a &new and proper hearing by the board of directors of saidcorporation, whose decision shall be appealable 9o the respondent Securities and ExchangeCommission deliverating and acting en banc and ultimately to this Court& and until B disualified inthe manner herein provided, the prohibition in the aforementioned amended by;laws shall not apply


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to petitioner,& 8n other words, until and after petitioner shall have been given due process and properhearing by the respondent board of directors as to the uestion of his ualification or disualificationunder the uestioned amended by;laws ?assuming that the respondent Securities and Exchange Ccommission ultimately upholds the validity of said by laws@, and such disualification shall have beensustained by respondent Securities and Exchange Commission and ultimately by final judgment ofthis 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 hoard of directors of respondent San +iguel Corporation.

8n view of the CourtBs unanimous judgment on this point the portion of respondent commissionBsrder 2o. 746, Series of #$$ which imposed &the condition that he NpetitionerO cannot sit as boardmember if elected until after the Commission shall have finally decided the validity of the disputedby;law provision& has been li)ewise accordingly set aside.

888

/y way of recapitulation, so that the CourtBs decision and judgment may be clear and not subject toambiguity, we state the following.

". 0ith the votes of the six 'ustices concurring unualifiedly in the main opinion added to our fourvotes, plus the Chief 'usticeBs vote and that of +r. 'ustice Dernando, the Court has by twelve ?"!@votes unanimously rendered judgment granting petitionerBs right to examine and secure copies of theboo)s and records of San +iguel 8nternational, 8nc. as a foreign subsidiary of respondent corporationand respondent commissionBs rder 2o. 77#, Series of "#$$, to the contrary is set aside:

!. 0ith the same twelve ?"!@ votes, the Court has also unanimously rendered judgment declaringthat until and after petitioner shall have been given due process and proper hearing by therespondent board of directors as to the uestion of his disualification under the uestionedamended by; laws ?assuming that the respondent Securities and Exchange Commission ultimatelyupholds the validity of said by laws@, and such disualification shall have been sustained byrespondent Securities and Exchange Commission and ultimately by final judgment of this Courtpetitioner is deemed eligible for all legal purposes and effect to be nominated and voted and ifelected to sit as a member of the board of directors of respondent San +iguel Corporation.

*ccordingly, respondent commissionBs rder 2o. 746, Series of "#$$ to the contrary has li)ewisebeen set asideA and

3. The CourtBs voting on the validity of respondent corporationBs amendment of the by;laws ?sec. !, *rt. """@ is inconclusive without the reuired majority of eight votes to settle the issue one way or theother having been reached. 2o judgment is rendered by the Court thereon and the statements of thesix 'ustices who have signed the main opinion on the legality thereof have no binding effect, muchless doctrinal value.

The dismissal of the petition insofar as the uestion of the validity of the disputed by;lawsamendment is concerned is not by an judgment with the reuired eight votes but simply by force of

ule 4%, section 88 of the ules of Court, the pertinent portion of which provides that &where thecourt en banc is eually divided in opinion, or the necessary majority cannot be had, the case shallbe reheard, and if on re;hearing no decision is reached, the action shall be dismissed if originallycommenced in the court ....& The end result is that the Court has thereby dismissed the petitionwhich prayed that the Court bypass the commission and directly resolved the issue and therefore therespondent commission may now proceed, as announced in its rder 2o. 746, Series of "#$$, tohear the case before it and receive all relevant evidence bearing on the issue as hereinaboveindicated, and resolve the &unresolved and genuine issues of fact& ?as per rder 2o. 74", Series of"#$$@ and the issues of legality of the disputed by;laws amendment.


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#ee0an"ee, Concepcion, r., and 6ernandez, ., concur.

5uerrero, ., concurred.

TEEHANKEE, CONCE%CION JR.,

BERNANDE# &'( GUERRERO, JJ., concurring:

This supplemental opinion is issued with reference to the advance separate opinion of +r. 'ustice/arredo 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 *pril "", "#$# and &urgent?ly@ to clarify ?his@position in respect to the rights of the parties resulting from the dismissal of the petition herein andthe outline of the procedure by which the disualification of petitioner (o)ongwei can be madeeffective.&

". +r. 'ustice /arredoBs advances separate opinion &that as between the parties herein, the issue ofthe validity of the challenged by;laws is already settled& had, of course, no binding effect. The

judgment of the Court is found on pages 4#;%" of the decision of *pril "", "#$#, penned by +r.

'ustice *ntonio, wherein on the uestion of the validity of the amended by;laws the CourtBsinconclusive voting is set forth as follows:

C0ief ustice 6red Ruiz Castro reser+ed 0is +ote on t0e +alidit of t0e aended b1laws, pending hearing by this Court on the applicability of section "3?4@ of theCorporation 9aw to petitioner.

ustice 6ernando reser+ed 0is +ote on t0e +alidit of sub?ect aendent to the by;laws but otherwise concurs in the result.

6our E ustices, nael, ustices #ee0an"ee, Concepcion r., 6ernandez and5uerrero filed a separate opinion, wherein they +oted against t0e +alidit of t0e

2uestioned aended b1laws and that this uestion should properly be resolved firstby the SEC as the agency of primary jurisdiction ... 1

*s stated in said judgment itself, for lac) of the necessary votes, the petition, insofar as it assails thevalidity of the uestioned by;laws, was dismissed.

!. +r. 'ustice /arredo now contends contrary to the undersignedBs understanding, as stated onpages 5 and # of our joint separate opinion of *pril "", "#$# that the legal effect of the dismissal ofthe petition on the uestion of validity of the amended by;laws for lac) of the necessary votes simplymeans that &the Court has thereby dismissed the petition which prayed that the Court by;pass thecommission and directly resolve the issue and therefore the respondent commission may nowproceed, as announced in its rder 2o. 746, Series of "#$$, to hear the case before it and

receive all rele+ant e+idence bearing on the issue as hereinabove indicated, and resolvethe 8unresol+ed and genuine issues of fact8 ?as per rder 2o. 74", Series of "#$$@ and the issue oflegalit of the disputed by;laws amendment,& that such dismissal &has no other legal conseuencethan that it is the law of the case as far as the parties are concerned, albeit the majority of theopinion of six against four 'ustices is not doctrinal in the sense that it cannot be cited as necessarilya precedent for subseuent cases.&

0e hold on our part that the doctrine of the law of the case invo)ed by +r. 'ustice /arredo has noapplicability for the following reasons:


28/53

a@ ur jurisprudence is uite clear that this doctrine may be invo)ed only where there has beena final andconclusi+e determination of an issue in the first case later invo)ed as the law of the case.

Thus, in People +s. Olarte, = we held that

&9aw of the case& has been defined as the opinion delivered on a forer

appeal +ore specifically, it means that whatever is once irrevocably established asthe controlling legal rule of decision between the same parties in the same casecontinues to he the law of t0e case, whether correct on general principles or not, solong as the facts on which such decision was predicated continue to be the facts ofthe case before the court. ...

8t need not be stated that the Supreme Court, being the court of last resort, is thefinal arbiter of all legal uestions properly brought before it and that its decision inany given case constitutes t0e law of t0at particular case. nce its judgmentbecomes final it is binding on all inferior courts, and hence beyond their power andauthority to alter or modify Pabigting vs. *cting


29/53

uestioned by;laws and that the boardBs &decision shall be appealable to the respondent Securitiesand Exchange Commission deliberating and acting en banc and ultimately to this Court ?and@ unlessdisualified in the manner herein provided, the prohibition in the aforementioned amended by;lawsshall not appl to petitioner.&

The entire Court, therefore, recogni>ed that petitioner had not been given procedural due process by

the S+C board on the matter of his disualification and that he was entitled to a &new and properhearing&. 8t stands to reason that in such hearing, petitioner could raise not only uestions of fact butuestions of law, particularly uestions of law affecting the investing public and their right torepresentation on the board as provided by law G not to mention that as borne out by the fact thatno restriction whatsoever appears in the courtBs decision, it was never contemplated that petitionerwas to be limited to uestions of fact and could not raise the fundamental uestions of law bearingon the invalidity of the uestioned amended by;laws at such hearing before the S+C board.Durthermore, it was expressly provided unanimously in the CourtBs decision that the S+C boardBsdecision on the disualification of petitioner ?&assuming the board of directors of San +iguelCorporation should, after the proper hearing, disualify him& as ualified in +r. 'ustice /arredoBs ownseparate opinion, at page !@ shall be appealable to respondent Securities and ExchangeCommission &deliberating and acting en banc and &untimately to this Court.& *gain, the CourtBs

judgment as set forth in its decision of *pril "", "#$# contains nothing that would warrant the opinionnow expressed that respondent Securities and Exchange Commission may not pass anymore on theuestion of the invalidity of the amended by;laws. Certainly, it cannot be contended that the Court indismissing the petition for lac) of necessary votes actually by;passed the Securities and ExchangeCommission and directly ruled itself on the invalidity of the uestioned by;laws when it itself couldnot reach a final and conclusive vote ?a minimum of eight votes@ on the issue and three other'ustices ?the Chief 'ustice and +essrs. 'ustices Dernando and *uino@ had expressly reserved theirvote until after further hearings ?first before the Securities and Exchange Commission and ultimatelyin this Court@.

Such a view espoused by +r. 'ustice /arredo could conceivably result in an incongruous situationwhere supposedly under the law of this case the uestioned by;laws would be held valid as againstpetitioner (o)ongwei and yet the same may be stric)en off as invalid as to all other S+C

shareholders in a proper case.

3. 8t need only be pointed out that +r. 'ustice /arredoBs advance separate opinion can in no wayaffect or modify the judgment of this Court as set forth in the decision of *pril "", "#$# and discussedhereinabove. The same bears the unualified concurrence of only three 'ustices out of the six'ustices who originally voted for the validity per se of the uestioned by;laws, namely, +essrs.'ustices *ntonio, Santos and


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not prohibit petitioner from holding onto, or even increasing his S+C investmentA it only restricts anyshifting on the part of petitioner from passive investor to a director of the company.& >

*s a conseuence, the Court abandoned the 8dea of calling for another hearing wherein the partiescould properly raise and discuss this uestion as a new issue and instead rendered the decision inuestion, under which the uestion of section "3?4@ could be raised at a new and proper hearing

before the S+C board and in the Securities and Exchange Commission and in due course beforethis Court ?but with the clear understanding that since both corporations, the obina and S+C areengaged in agriculture as submitted by the SorianosB counsel in their said memorandum, the issuecould be raised li)ewise against S+C and its other shareholders, directors, if not against S+C itself.

*s expressly stated in the Chief 'ustices reservation of his vote, the matter of the uestion of theapplicability of the said section "3?4@ to petitioner would be heard by this Court at the appropriatetime after the proceedings below ?and necessarily the uestion of the validity of the amended by;laws would be ta)en up anew and the Court would at that time be able to reach a final andconclusive vote@.

+r. 'ustice


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means that petitioner (o)ongwei and the respondents, including the Securities and ExchangeCommission, are bound by the foregoing result, namely, that the Court en banc has not found meritin the claim that the amended by;laws in uestion are invalid. 8ndeed, it is one thing to say thatdismissal of the case is not doctrinal and entirely another thing to maintain that such dismissalleaves the issue unsettled. 8t is somewhat of a misreading and misconstruction of Section "" of ule4%, contrary to the well;)nown established norm observed by this Court, to state that the dismissal of

a petition for lac) of the necessary votes does not amount to a decision on the merits.nuestionably, the Court is deemed to find no merit in a petition in two ways, namely, ?"@ wheneight or more members vote expressly in that sense and ?!@ when the reuired number of justicesneeded to sustain the same cannot be had.

8 reiterate, therefore, that as between the parties herein, the issue of validity of the challenged by;laws is already settled. Drom which it follows that the same are already enforceable;insofar as theyare concerned. 1etitioner (o)ongwei may not hereafter act on the assumption that he can revive theissue of validity whether in the Securities and Exchange Commission, in this Court or in any otherforum, unless he proceeds on the basis of a factual milieu different from the setting of this case. 2oteven the Securities and Exchange Commission may pass on such uestion anymore at the instanceof herein petitioner or anyone acting in his stead or on his behalf. The vote of four justices to remandthe case thereto cannot alter the situation.

8t is very clear that under the decision herein, the issue of validity is a settled matter for the partiesherein 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 andExchange Commission, and on appeal therefrom to s, assuming the board of directors of San+iguel Corporation should, after the proper hearing, disualify him.

To be sure, the record is replete with substantial indications, nay admissions of petitioner himself,that he is a controlling stoc)holder of corporations which are competitors of San +iguel Corporation.The very substantial areas of such competition involving hundreds of millions of pesos worth ofbusinesses stand uncontroverted in the records hereof. 8n fact, petitioner has even offered, if heshould be elected, as director, not to ta)e part when the board ta)es up matters affecting the

corresponding areas of competition between his corporation and San +iguel. 2onetheless, perhaps,it is best that such evidence be formally offered at the hearing contemplated in ur decision.

*s to whether or not petitioner may sit in the board if he wins, definitely, under the decision in thiscase, even if petitioner should win, he will have to immediately leave his position or should be oustedthe moment this Court settles the issue of his actual disualification, either in a full blown decision orby denying the petition for review of corresponding decision of the Securities and ExchangeCommission unfavorable to him. *nd, of course, as a matter of principle, it is to be expected that thematter of his disualification 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 theprohibition against competitors embodied in the amended by;laws is already unuestionable amongthe 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 partiesconcerned must act promptly and expeditiously.

*dditionally, my reservation to explain my vote on the validity of the amended by;laws still stands.

Castro, C.'., concurs in 'ustice /arredoBs statement that the dismissal ?for lac) of necessary votes@of the petition to the extent that &it assails the validity of the amended by laws,& is the law of the caseat bar, which means in effect that as far and only in so far as the parties and the Securities and


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Exchange Commission are concerned, the Court has not found merit in the claim that the amendedby;laws in uestion are invalid.

Antonio and Santos, ., concur.

DE CASTRO, J., concurring:

*s stated in the decision penned by 'ustice *ntonio, 8 voted to uphold the validity of the amendmentto the by;laws in uestion. 0hat induced me to this view is the practical consideration easilyperceived in the following illustration: 8f a person becomes a stoc)holder of a corporation and getshimself elected as a director, and while he is such a director, he forms his own corporationcompetitive or antagonistic to the corporation of which he is a director, and becomes Chairman ofthe /oard and 1resident of his own corporation, he may be removed from his position as director,admittedly one of trust and confidence. 8f this is so, as seems undisputably to be the case, a personalready controlling, and also the Chairman of the /oard and 1resident of, a corporation, may bebarred from becoming a member of the board of directors of a competitive corporation. This is myview, even as 8 am for a restrictive interpretation of Section "3?4@ of the 1hilippine Corporation 9aw,under which 8 would limit the scope of the provision to corporations engaged in agriculture, but only

as the word agriculture& refers to its more stated meaning as distinguished from its general andbroad connotation. The term would then mean &farming& or raising the natural products of the soil,such as by cultivation, in the manner as is reuired by the 1ublic 9and *ct in the acuisition ofagricultural land, such as by homestead, before the patent may be issued. 8t is my opinion that under the public land statute, the development of a certain portion of the land applied for as specified in thelaw as a condition precedent before the applicant may obtain a patent, is cultivation, not let us say,poultry raising or piggery, which may be included in the term 8s agriculture& in its broad sense. Dorunder Section "3?4@ of the 1hilippine Corporation 9aw, construed not in the strict way as 8 believe itshould, because the provision is in derogation of property rights, the petitioner in this case would bedisualified from becoming an officer of either the San +iguel Corporation or his own supposedlyagricultural corporations. 8t is thus beyond my comprehension why, feeling as though 8 am the onlymember of the Court for a restricted interpretation of Section "3?4@ of *ct "74#, doubt still seems tobe in the minds of other members giving the cited provision an unrestricted interpretation, as to the

validity of the amended by;laws in uestion, or even holding them null and void.

8 concur with the observation of 'ustice /arredo that despite that less than six votes are forupholding the validity of the by;laws, their validity is deemed upheld, as constituting the &law of thecase.& 8t could not be otherwise, after the present petition is dismissed with the relief sought todeclare null and void the said by;laws being denied in effect. * vicious circle would be created if,should petitioner (o)ongwei be barred or disualified from running by the /oard of


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petitioner, not be allowed to run. 1etitioner may be allowed to run, despite an adverse decision ofboth the /oard and the Securities and Exchange Commission, only if he comes to this Court andobtain an injunction against the enforcement of the decision disualifying him. 0ithout suchinjunction being reuired, all that petitioner has to do is to ta)e his time in coming to this Court, andin so doing, he would in the meantime, be allowed to run, and if he wins, to sit. This would, however,be contrary to the doctrine that gives binding, if not conclusive, effect of findings of facts of

administrative bodies exercising uasi;judicial functions upon appellate courts, which should,accordingly, be enforced until reversed by this Tribunal.

6ernando and !a"asiar, ., concurs.

Antonio and Santos, ., concur

DE CASTRO, J. concurring

*s stated in the decision penned by 'ustice *ntonio, 8 voted to uphold the validity of the amendmentto the by;laws in uestion. 0hat induced me to this view is the practical consideration easilyperceived in the following illustration: 8f a person becomes a stoc)holder of a corporation and gets

himself elected as a director, and while he is such a director, he forms his own corporationcompetitive or antagonistic to the corporation of which he is a director, and becomes Chairman ofthe /oard and 1resident of his own corporation, he may be removed from his position as director,admittedly one of trust case, a person already controlling, and also the Chairman of the /oard and1resident of, a corporation, may be barred from becoming a member of the board of directors of acompetitive corporation. This is my view, even as 8 am for restrictive interpretation of Section "3?4@ of the 1hilippine Corporation 9aw, under which 8 would limit the scope of the provision to corporationsengaged in agriculture, but only as the word &agriculture& refers to its more limited meaning asdistinguished from its general and broad connotation. The term would then mean &farming& or raisingthe natural products of the soil, such as by cultivation, in the manner as in reuired by the 1ublic9and *ct in the acuisition of agricultural land, such as by homestead, before the patent may beissued. 8t is my opinion that under the public land statute, the development of a certain portion of theland applied for as specified in the law as a condition precedent before the applicant may obtain a

patent, is cultivation, not let us say, poultry raising or peggery, whch may be included in the term&agriculture& in its broad sense. Dor under Section "3?4@ of the 1hilippine Corporation 9aw, construednot in the strict way as 8 believe it should, because the provision is in derogation of property rights,the petitioner in this case would be disualified from becoming an officer of either the San +iguelCorporation or his own supposedly agricultural corporations. 8t is thus beyond my comprehensionwhy, feeling as though 8 am the only members of the Court for a restricted interpretation of Section"3?4@ of *ct "74#, doubt still seems to be in the minds of other members giving the cited provision anunrestricted interpretation, as to the validity of the amended by;laws in uestion, or even holdingthem null and void.

8 concur with the observation of 'ustice /arredo that despite that less than six votes are forupholding the validity of the by;laws, their validity is deemed upheld, as constituting the &law of the

case.& 8t could not be otherwise, after the present petition is dimissed with the relief sought to declarenull and void the said by;laws being denied in effect. * vicious circle would be created if, shouldpetitioner (o)ongwei be barred or disualified from running by the /oard, petitioner could comeagain to s, raising the same uestion he has raised in the present petition, unless the principle ofthe &law of the case& is applied.

Clarifying therefore, my position, 8 am of the opinion that with the validity of the by;laws in uestionstanding unimpaired, it is nowfor petitioner to show that he does not come paired, it is now forpetitioner to show that he does not come within the disualification as therein provided, both to the


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/oard and later to the Securities and Exhange Commission, it being a foregone conclusion that,unless petitioner disposes of his stoc)holdings in the so;called competitive corporations, San +iguelCorporation would apply the by;laws against him. is right, therefore, to run depends on what, onelection day, +ay 5, "#$#, the ruling of the /oard and=or the Securities and Exchange Commissionon his ualification to run would be, certainly, not the final ruling of this Court in the event recoursethereto is made by the party feeling aggrieved, as intimated in the &'oint Separate pinion& of

'ustices Teehan)ee, Concepcion, 'r., Dernande> and (uerrero, that only after petitionerBs&disualification& has ultimately been passed upon by this Court should petitioner not be allowed torun. 1etitioner may be allowed to run, despite anadverse decision of both the /oard and theSecurities and Exchange Commission, only if he comes to this Court and obtain an injunctionagainst the enforcement of the decision disualifying him. 0ithout such injunction being reuired, allthat petitioner has to do is to ta)e his time in coming to this Court, and in so doing, he would in themeantime, be allowed to run, and if he wins, to sit. This would, however, be contrary to the doctrinethat gives binding, if not conclusive, effect of findings of facts of administrative bodies exercisinguasi;judicial functions upon appellate courts, which should, accordingly, be enforced until reversedby this Tribunal.

S+p&r&+ Opi'io'

TEEHANKEE, CONCE%CION JR., BERNANDE# &'( GUERRERO, JJ., concurring:

8

*s correctly stated in the main opinion of +r. 'ustice *ntonio, the Court is unanimous in its judgmentgranting the petitioner as stoc)holder of respondent San +iguel Corporation the right to inspect,examine and secure copies of the records of San +iguel 8nternational, inc. ?S+8@, a wholly owned

foreign subsidiary corporation of respondent San +iguel Corporation. espondent commissions enbanc rder 2o. 77#, Series of "# $ $, denying petitionerBs right of inspection for &not being astoc)holder of San +iguel 8nternational, 8nc.& has been accordingly set aside. 8t need be only pointedout that:

a@ The commissionBs reasoning grossly disregards the fact that the stoc)holders ofSan +iguel Corporation are li)ewise the owners of San +iguel 8nternational, 8nc. asthe corporationBs wholly owned foreign subsidiary and therefore have every right tohave access to its boo)s and records. otherwise, the directors and management ofany 1hilippine corporation by the simple device of organi>ing with the corporationBsfunds foreign subsidiaries would be granted complete immunity from thestoc)holdersB scrutiny of its foreign operations and would have a conduit fordissipating, if not misappropriating, the corporation funds and assets by merely

channeling them into foreign subsidiariesB operationsA and

b@ 1etitionerBs right of examination herein recogni>ed refers to all boo)s and recordsof the foreign subsidiary S+8 which are which are & in respondent corporationBspossession and control& 1, meaning to say regardless of whether or not such boo)s andrecords are physically within the 1hilippines. all such boo)s and records of S+8 arelegally within respondent corporationBs &possession and control& and if nay boo)s orrecords are )ept abroad, ?e.g. in the foreign subsidiaryBs state of domicile, as is to beexpected@, then the respondent corporationBs board and management are obliged under


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the CourtBs judgment to bring and ma)e them ?or true copies thereof available within the1hilippines for petitionerBs examination and inspection.

88

n the other main issue of the alidity of respondent San +iguel CorporationBs amendment of its by;

laws =whereby respondent corporationBs board of directors under its resolution dated *pril !#, "#$$declared petitioner ineligible to be nominated or to be voted or to be elected as of the board of directors,the Court, composed of "! members ?since +me. 'ustice *meurfina +elencio errera inhibited herselffrom ta)ing part herein, while +r. 'ustice amon C. *uino upon submittal of the main opinion of +r.'ustice *ntonio decided not to ta)e part@, failed to reach a conclusive vote or, the reuired majority of 5votes to settle the issue one way or the other.

Six members of the Court, namely, 'ustices /arredo, +a)asiar, *ntonio, Santos, *bad Santos and as well as its position in this case to the Solicitor (eneral that the case at bar is &premature& andthat the administrative remedies before the commission should first be availed of and exhausted. 4

0e are of the opinion that the uestioned amended by;laws, as they are, ?adopted after almost acentury of respondent corporationBs existence as a public corporation with its shares freelypurchased and traded in the open mar)et without restriction and

11. gocongwei vs ca

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