JOHN GOKONGWEI, JR., PETITIONER, VS. SECURITIES AND EXCHANGE COMMISSION, ANDRES M. SORIANO, JOSE M. SORIANO, ENRIQUE ZOBEL, ANTONIO ROXAS, EMETERIO BUÑAO, WALTHRODE B. CONDE, MI…

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 the by-laws of the corporation, basing
their authority to do so on a resolution of the stockholders adopted on March
13, 1961, when the outstanding capital stock of respondent corporation was only
P70,139,740.00, divided into 5,513,974 common shares
at P10.00 per share and 150,000 preferred shares at P100.00 per share.  At the time of the amendment, the outstanding
and paid up shares totalled 30,127,043, with a total
par value of P301,270,430.00.  It was contended that according to section 22
of the Corporation Law and Article VIII of the by-laws of the corporation, the
power to amend, modify, repeal or adopt new by-laws may be delegated to the
Board of Directors only by the 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 rights 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 allowed because the questioned amendment gave the Board
itself the prerogative of determining whether they or other persons are engaged
in competitive or antagonistic business; that the portion of the amended
by-laws which states that in determining whether or not a person is engaged in
competitive business, the Board may consider such factors as business and
family relationship, is unreasonable and oppressive and, therefore, void; and
that the portion of the amended by-laws which requires that “all nominations
for election of directors * * * shall be submitted in writing to the Board of
Directors at least 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
Jose M. Soriano from San Miguel International,
Inc. and/or its successor-in-interest.

The “Urgent Motion for Production and Inspection of
Documents” was opposed by respondents, alleging, among others, that the
motion has no legal basis; that the demand is not based on good faith; that the
motion is premature since the materiality or relevance of the evidence sought
cannot be determined until the issues are joined; that it fails to show good
cause and constitutes continued harassment; and that some of the information
sought are not part of the records of the corporation and, therefore,
privileged.

During the pendency of the motion for
production, respondents San Miguel Corporation, Enrique Conde,
Miguel Ortigas and Antonio Prieto
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 opposed 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 litigation and attorney’s fees were presented against
petitioner.

Subsequently, a Joint Omnibus Motion for the striking out of the
motion for production and inspection of documents was filed by all the
respondents.  This was duly opposed by
petitioner.  At this juncture,
respondents Emigdio Tanjuatco,
Sr. and Eduardo R. Visaya were allowed to intervene
as oppositors and they accordingly filed their
oppositions-in-intervention to the petition.

On December 29, 1976,
the Securities and Exchange Commission resolved the motion for production and
inspection of documents by issuing Order No. 26, Series of 1977, stating, in
part as follows:

“Considering the evidence submitted before the Commission by
the petitioner and respondents in the above-entitled case, it is hereby
ordered:

1.    That respondents produce and permit the
inspection, copying and photographing, by or on behalf of the petitioner-movant, John Gokongwei, Jr., of
the minutes of the stockholders’ meeting of the respondent San Miguel
Corporation held on March 13, 1961, which are in the possession, custody and
control of the said corporation, it appearing that the same is material and
relevant to the issues involved in the main case.  Accordingly, the respondents should allow
petitioner-movant entry in the principal 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, with drawing his request to
copy and inspect the management contract between San Miguel Corporation and A. Soriano Corporation and the renewal and amendments thereof
for the reason that he had already obtained the same, the Commission takes note
thereof; and

4.    Finally, the Commission holds in abeyance
the resolution on the matter of production and inspection of the authority of
the stockholders of San Miguel Corporation to invest the funds of respondent corporation in San Miguel International, Inc.,
until after the hearing on the merits of the principal issues in the above entitled
case.

This Order is immediately executory upon
its approval.”^[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 Commission issued an order denying the motion for issuance of
temporary restraining order.  After
receipt of the order of denial, respondents conducted the special stockholders’
meeting wherein the amendments to the by-laws were ratified.  On February
14, 1977, petitioner filed a consolidated motion for contempt and
for nullification 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 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 authorizations to the
Board of Directors by the stockholders at the meeting on March 20, 1972 to
invest corporate funds in other companies or businesses or for purposes other
than the main purpose for which the Corporation has been organized, and
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 respondents
are acting oppressively against petitioner, in gross derogation of petitioner’s
rights to property and due process.  He
prayed that this Court direct respondent SEC to act on collateral incidents
pending before it.

On May 6, 1977, this Court issued a temporary restraining order
restraining private respondents from disqualifying or preventing petitioner
from running or from being voted as director of respondent corporation and from
submitting for 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, and petitioner’s consolidated motion
to declare respondents in contempt and to nullify the stockholders’ meeting;

(2)   Order No. 450, Series of 1977 (SEC Case No.
1375), allowing petitioner to run as a director of respondent corporation but
stating that he should not sit as such if elected, until such time that the
Commission has decided the validity of the by-laws in dispute, and denying
deferment of Item 6 of the Agenda for the annual stockholders’ meeting; and

(3)   Order No. 451, Series of 1977 (SEC Case No.
1375), denying petitioner’s motion for reconsideration of the order of
respondent Commission denying petitioner’s motion for summary judgment.

It is petitioner’s assertions anent the foregoing orders, (1)
that respondent Commission acted with indecent haste and without circumspection
in issuing the aforesaid orders to petitioner’s irreparable damage and injury;
(2) that it acted without jurisdiction and in violation of petitioner’ right to
due process when it decided en banc an issue not raised before it and
still pending before one of its Commissioners, and without hearing petitioner
thereon despite petitioner’s request to have the same calendared for hearing;
and (3) that the respondents acted oppressively against the petitioner in
violation of his rights as a stockholder, warranting immediate judicial
intervention.

It is prayed in the supplemental petition that the SEC orders
complained of be declared null and void and that respondent Commission be
ordered to allow petitioner to undertake discovery proceedings relative to San
Miguel International, Inc. and thereafter to decide SEC Cases Nos. 1375 and
1423 on the merits.

On May 17, 1977,
respondent SEC, Andres M. Soriano, Jr. and Jose M. Soriano filed their comment, alleging that the petition is
without merit for the following reasons:

(1)   that the petitioner and the interests he
represents are engaged in businesses competitive and antagonistic to that of
respondent San Miguel Corporation, it appearing that he owns and controls a
greater portion of his SMC stock thru the Universal Robina
Corporation and the Consolidated Foods Corporation, which corporations are
engaged in businesses directly and substantially competing with the allied
businesses of respondent SMC and of corporations in which SMC has substantial
investments.  Further, when CFC and Robina had accumulated shares in SMC, the Board of
Directors of SMC realized the clear and present danger that competitors or
antagonistic parties may be elected directors and thereby have easy and direct
access to SMC’s business and trade secrets and plans;

(2)   that the amended by-laws were adopted to
preserve and protect respondent SMC from the clear and present danger that
business competitors, if allowed to become directors, will illegally and
unfairly utilize their direct access to its business secrets and plans for
their own private gain to the irreparable prejudice of respondent SMC, and,
ultimately, its stockholders.  Further,
it is asserted that membership of a competitor in the Board of Directors is a
blatant disregard of no less than the Constitution and pertinent laws against
combinations in restraint of trade;

(3)   that the by-laws are valid and binding since
a corporation has the inherent right and duty to preserve and protect itself by
excluding competitors and antagonistic parties, under the law of
self-preservation, and it should be allowed a wide latitude in the selection of
means to preserve itself;

(4)   that the delay in the resolution and
disposition of SEC Cases Nos. 1375 and 1423 was due to petitioner’s own acts or
omissions, since he failed to have the petition to suspend, pendente
lite, the amended by-laws calendared for
hearing.  It was emphasized that it was
only on April 29, 1977 that
petitioner calendared the aforesaid petition for suspension (preliminary
injunction) for hearing on May 3, 1977.  The instant petition being dated May 4, 1977, it is apparent that
respondent Commission was not given a chance to act “with deliberate
dispatch”; and

(5)   that even assuming
that the petition was meritorious, it has become moot and academic because
respondent Commission has acted on the pending incidents complained of.  It was, therefore, prayed that the petition
be dismissed.

On May 21, 1977, respondent Emigdio G. Tanjuatco, Sr. filed his comment, alleging that the
petition has become moot and academic for the reason, among others, that the
acts of private respondents sought to be enjoined have reference to the annual
meeting of the stockholders of respondent San Miguel Corporation, which was
held on May 10, 1977; that in said meeting, in compliance with the order of
respondent Commission, petitioner was allowed to run and be voted for as
director; and that in the same meeting, Item 6 of the Agenda was discussed,
voted upon, ratified and confirmed. 
Further, it was averred that the questions and issues raised by
petitioner are pending in the Securities and Exchange Commission which has
acquired jurisdiction over the case, and no hearing on the merits has been had;
hence the elevation of these issues before the Supreme Court is premature.

Petitioner filed a reply to the aforesaid comments, stating that
the petition presents justiciable questions for the
determination of this Court because (1) the respondent Commission acted without
circumspection, unfairly and oppressively against petitioner, warranting the
intervention of this Court; (2) a derivative suit, such as the instant case, is
not rendered academic by the act of a majority of stockholders, such that the
discussion, ratification and confirmation of Item 6 of the Agenda of the annual
stockholders’ meeting of May 10, 1977 did not render the case moot; that the
amendment to the by-laws which specifically bars petitioner from being a
director is void since it deprives him of his vested rights.

Respondent Commission, thru the Solicitor General, filed a
separate comment, alleging that after receiving a copy of the restraining order
issued by this Court and noting that the restraining order did not foreclose
action by it, the Commission en banc issued Orders Nos. 449, 450 and 451
in SEC Case No. 1375.

In answer to the allegation in the supplemental petition, it
states that Order No. 450 which denied deferment of Item 6 of the Agenda of the
annual stockholders’ meeting of respondent corporation, took into consideration
an urgent manifestation filed with the Commission by petitioner on May 3, 1977
which prayed, among others, that the discussion of Item 6 of the Agenda be
deferred.  The reason given for denial of
deferment was that “such action is within the authority of the corporation
as well as falling within the sphere of stockholders’ right to know, deliberate
upon and/or to express their wishes regarding disposition of corporate funds
considering that their investments are the ones directly affected.”  It was alleged that the main petition has,
therefore, become moot and academic.

On September 29, 1977, petitioner filed a second supplemental
petition with prayer for preliminary injunction, alleging that the actuations
of respondent SEC tended to deprive him of his right to due process, and
“that all possible questions on the facts now pending before the
respondent Commission are now before this Honorable Court which has the
authority and the competence to act on them as it may see fit.” (Rollo, pp. 927-928.)

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

(1)   whether or not the
provisions of the amended by-laws of respondent corporation, disqualifying a
competitor from nomination or election to the Board of Directors are valid and
reasonable;

(2)   whether or not respondent SEC gravely abused
its discretion in denying petitioner’s request for an examination of the
records of San Miguel International, Inc., a fully owned subsidiary of San
Miguel Corporations; and

(3)   whether or not
respondent SEC committed grave abuse of discretion in allowing discussion of
Item 6 of the Agenda of the Annual Stockholders’ Meeting on May 10, 1977, and the ratification of
the investment in a foreign corporation of the corporate funds, allegedly in
violation of section 17-1/2 of the Corporation Law.

I

Whether or not amended by-laws are valid is purely a legal
question, which public interest requires to be
resolved –

It is the position of the petitioner that “it is not
necessary to remand the case to respondent SEC for an appropriate ruling on the
intrinsic validity of the amended by-laws in compliance with the principle of
exhaustion of administrative remedies”, considering that:  first: 
“whether or not the provisions of the amended by-laws are
intrinsically valid * * * is purely a legal question.  There is no factual dispute as to what the
provisions are and evidence is not necessary to determine whether such amended
by-laws are valid as framed and approved * * *”; second:  “it is for the interest and guidance of
the public that an immediate and final ruling on the question be made * *
*”; third:  “petitioner was
denied due process by SEC” when “Commissioner de Guzman had openly
shown prejudice against petitioner * * *,” and “Commissioner Sulit * * * approved the amended by-laws ex-parte and obviously found the same intrinsically
valid”; and finally:  “to
remand the case to SEC would only entail delay rather than serve the ends of
justice.”

Respondents Andres M. Soriano, Jr. and
Jose M. Soriano similarly pray that this Court
resolve the legal issues raised by the parties in keeping with the
“cherished rules of procedure” that “a court should always
strive to settle the entire controversy in a single proceeding leaving no root
or branch to bear the seeds of future litigation,” 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.8a 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.8b 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 a 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 no vested
right of any stockholder under Philippine law to be voted as director of a
corporation.

It is alleged that petitioner, as of May
6, 1978 has exercised, personally or thru two corporations owned or controlled
by him, control over the following shareholdings in San Miguel Corporation, viz.:  (a) John Gokongwei,
Jr. – 6,325 shares; (b) Universal Robina Corporation
– 738,647 shares; (c) CFC Corporation – 658,313 shares, or a total of 1,403,285
shares.  Since the
outstanding capital stock of San Miguel Corporation, as of the present date, is
represented by 33,139,749 shares with a par value of P10.00, the total shares
owned or controlled by petitioner represents 4.2344% of the total outstanding
capital stock of San Miguel Corporation. 
It is also contended that petitioner is the president and substantial
stockholder of Universal Robina Corporation and CFC
Corporation, both of which are allegedly controlled by petitioner and members
of his family.  It is also claimed that
both the Universal Robina Corporation and the CFC
Corporation are engaged in businesses directly and substantially competing with
the allied businesses of San Miguel Corporation, and of corporations in which
SMC has substantial investments.

ALLEGED AREAS OF COMPETITION BETWEEN PETITIONER’S
CORPORATIONS AND SAN MIGUEL CORPORATION

According to respondent San Miguel Corporation, the areas of
competition are enumerated in its Board Resolution dated April 28, 1978, thus:

Thus, according to respondent SMC, in 1976, the areas of
competition affecting SMC involved product sales of over P400 million or more than
20% of the P2 billion total product sales of SMC.  Significantly, the combined market shares of
SMC and CFC-Robina in layer pullets, dressed chicken,
poultry and hog feeds, ice cream, instant coffee and woven fabrics would result
in a position of such dominance as to affect the prevailing market factors.

It is further asserted that in 1977, the CFC-Robina
group was in direct competition on product lines which, for SMC, represented
sales amounting to more than P478 million. 
In addition, CFC-Robina was directly competing
in the sale of coffee with Filipro, a subsidiary of
SMC, which product line represented sales for SMC amounting to more than P275
million.  The CFC-Robina
group (Robitex, excluding Litton Mills recently
acquired by petitioner) is purportedly also in direct competition with Ramie
Textile, Inc., another subsidiary of SMC, in product sales amounting to more
than P95 million.  The areas of
competition between SMC and CFC-Robina in 1977
represented, therefore, for SMC, product sales of more than P849 million.

According to private respondents, at the Annual Stockholders’
Meeting of March 18, 1976, 9,894 stockholders, in person or by proxy, owning
23,436,754 shares in SMC, or more than 90% of the total outstanding shares of
SMC, rejected petitioner’s candidacy for the Board of Directors because they
“realized the grave dangers to the corporation in the event a competitor
gets a board seat in SMC.”  On September 18, 1978, the Board of
Directors of SMC, by “virtue of powers delegated to it by the stockholders,”
approved the amendment to the by-laws in question.  At the meeting of February 10, 1977, these amendments were
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 496
stockholders, representing 1,648,801 shares voted for him.  On the May
9, 1978 Annual Stockholders’ Meeting, 12,480 shareholders, owning
more than 30 million shares, or more than 90% of the total outstanding shares,
voted against petitioner.

AUTHORITY OF CORPORATION TO PRESCRIBE QUALIFICATIONS
OF DIRECTORS EXPRESSLY CONFERRED BY LAW

Private respondents contend that the disputed amended by-laws
were adopted by the Board of Directors of San Miguel Corporation as a measure
of self-defense to protect the corporation from the clear and present danger
that the election of a business competitor to the Board may cause upon the
corporation and the other stockholders “irreparable prejudice.”
Submitted for resolution, therefore, is the issue — whether or not respondent
San Miguel Corporation could, as a measure of self-protection, disqualify a
competitor from nomination and election to its Board of Directors.

It is recognized by all authorities that “every corporation has
the inherent power to adopt by-laws ‘for its internal government, and to
regulate the conduct and prescribe the rights and duties of its members towards
itself and among themselves in reference to the management of its
affairs.'”12
At common law, the rule was “that the power to make and adopt by-laws was inherent
in every corporation as one of its necessary and inseparable legal
incidents.  And it is settled throughout
the United States that in the absence of positive legislative provisions
limiting it, every private corporation has this inherent power as one of its
necessary and inseparable legal incidents, independent of any specific enabling
provision in its charter or in general law, such power of self-government being
essential to enable the corporation to accomplish the purposes of its
creation.”13

In this jurisdiction, under section 21 of the Corporation Law, a
corporation may prescribe in its by-laws “the qualifications, duties and
compensation of directors, officers and employees * * *.” This must
necessarily refer to a qualification in addition to that specified by section
30 of the Corporation Law, which provides that “every director must own in
his right at least one share of the capital stock of the stock corporation of
which he is a director * * *.” In Government v. El Hogar,14
the Court sustained the validity of a provision in the corporate by-law
requiring that persons elected to the Board of Directors must be holders of
shares of the paid up value of P5,000.00, which shall
be held as security for their action, on the ground that section 21 of the
Corporation Law expressly gives the power to the corporation to provide in its
by-laws for the qualifications of directors and is “highly prudent and in
conformity with good practice.”

NO VESTED RIGHT OF STOCKHOLDER TO BE ELECTED DIRECTOR

Any person “who buys stock in a corporation does so with the
knowledge that its affairs are dominated by a majority of the
stockholders and that he impliedly contracts that the will of the majority
shall govern in all matters within the limits of the act of incorporation
and lawfully enacted by-laws and not forbidden by law,”15
To this extent, therefore, the stockholder may be considered to have “parted
with his personal right or privilege to regulate the disposition of his
property which he has invested in the capital stock of the corporation, and
surrendered it to the will of the majority of his fellow incorporators. * * *
It can not therefore be justly said that the contract, express or implied,
between the corporation and the stockholders is infringed * * * by any act of
the former which is authorized by a majority * * *.”16

Pursuant to section 18 of the Corporation Law, any corporation
may amend its articles of incorporation by a vote or written assent of the
stockholders representing at least two-thirds of the subscribed capital stock
of the corporation.  If the amendment
changes, diminishes or restricts the rights of the existing shareholders, then
the dissenting minority has only one right, viz.:  “to object thereto in writing and demand
payment for his share.”  Under
section 22 of the same law, the owners of the majority of the subscribed
capital stock may amend or repeal any by-law or adopt new by-laws.  It cannot be said, therefore, that petitioner
has a vested right to be elected director, in the face of the fact that
the law at the time such right as stockholder was acquired contained the
prescription that the corporate charter and the by-law shall be subject to
amendment, alteration and modification.17

It being settled that the corporation has the power to provide
for the qualifications of its directors, the next question that must be
considered is whether the disqualification of a competitor from being elected
to the Board of Directors is a reasonable exercise of corporate authority.

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

Although in the strict and technical sense, directors of a
private corporation are not regarded as trustees, there cannot be any doubt
that their character is that of a fiduciary insofar as the corporation and the
stockholders as a body are concerned.  As
agents entrusted with the management of the corporation for the collective benefit
of the stockholders, “they occupy a fiduciary relation, and in this sense
the relation is one of trust.”18 “The ordinary trust
relationship of directors of a corporation and stockholders,” according to
Ashman v. Miller19 “is not a matter of statutory
or technical law.  It
springs from the fact that directors have the control and guidance of corporate
affairs and property and hence of the property interests of the stockholders.  Equity recognizes that stockholders are the
proprietors of the corporate interests and are ultimately the only
beneficiaries thereof * * *.”

Justice Douglas, in Pepper v. Litton,20
emphatically restated the standard of fiduciary obligation of the directors of
corporations, thus:

“A director is a fiduciary. 
* * * Their powers are powers in trust. 
* * * He who is in such fiduciary position cannot serve himself first
and his cestuis second.  * * * He cannot manipulate the affairs of his
corporation to their detriment and in disregard of the standards of common
decency.  He cannot by the intervention
of a corporate entity violate the ancient precept against serving two
masters.  * * * He cannot utilize his
inside information and strategic position for his own preferment.  He cannot violate rules of fair play by doing
indirectly through the corporation what he could not do so directly.  He cannot 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 corporate duties above his personal
concerns.

Thus, in McKee Co. v. First
National Bank of San Diego,
supra, the court sustained as valid and reasonable an amendment to the
by-laws of a bank, requiring that its directors should not be directors,
officers, employees, agents, nominees or attorneys of any other banking
corporation, affiliate or subsidiary thereof. 
Chief Judge Parker, in McKee, explained the reasons of the court,
thus:

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

In McKee, the Court further listed qualificational
by-laws upheld by the courts, as follows:

“(1)   A director shall not be directly or
indirectly interested as a stockholder in any other firm, company, or
association which competes with the subject corporation.

(2)   A director shall not be the immediate member of
the family of any stockholder in any other firm, company, or association which
competes with the subject corporation.

(3)   A director shall not be an officer, agent,
employee, attorney, or trustee in any other firm, company, or association which
competes 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 combination’s 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, wholesaler or retailer, shall combine, conspire or agree in any
manner with any person likewise engaged in the manufacture, production,
processing, assembling or importation of such merchandise or object of commerce
or with any other persons not so similarly engaged for the purpose of making
transactions prejudicial to lawful commerce, or of increasing the market price
in any part of the Philippines, or any such merchandise or object of commerce
manufactured, produced, processed, assembled in or imported into the
Philippines, or of any article in the manufacture of which such manufactured,
produced, processed, or imported merchandise or object of commerce is
used.”

There are other legislation in this
jurisdiction, which prohibit monopolies and combinations in restraint of trade.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 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 (Italics supplied.)

According to the Report of the House Judiciary Committee of the
U.S. Congress on section 9 of the Clayton Act, it was established that:  “By means of the interlocking
directorates one man or group of men have been able to dominate and control a
great number of corporations * * * to the detriment of the small ones dependent
upon them and to the injury of the public.”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 corporate 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 compensations 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 amounted to US$9.4 million; and (4) that from 1972-1975, SMI did not
declare cash or stock dividends, all earnings having been used in line with a
program for the setting up of breweries by SMI.

These averments are supported by the 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 by the corporation
defensively if the Court is to take cognizance of it as a qualification.  In other words, the specific provisions take
from the stockholder the burden of showing propriety of purpose and place upon
the corporation the burden of showing impropriety of purpose or motive.”58
It appears to be the “general rule that stockholders are entitled to full
information as to the management of the corporation and the manner of
expenditure of its funds, and to inspection to obtain such information,
especially where it appears that the company is being mismanaged or that it is
being managed for the personal benefit of officers or directors or certain of
the stockholders to the exclusion of others.”59

While the right of a stockholder to examine the books and records
of a corporation for a lawful purpose is a matter of law, the right of such
stockholder to examine the books and records of a wholly-owned subsidiary of
the corporation in which he is a stockholder is a different thing.

Some state courts recognize the right under certain conditions,
while others do not.  Thus, it has been held
that where a corporation owns approximately no property except the shares of
stock of subsidiary corporations which are merely agents or instrumentalities
of the holding company, the legal fiction of distinct corporate entities may be
disregarded and the books, papers and documents of all the corporations may be
required to be produced for examination,60 and that a writ of mandamus
may be granted, as the records of the subsidiary were, to all intents and
purposes, the records of the parent even though the subsidiary was not named as
a party.61
Mandamus was likewise held proper to inspect both the subsidiary’s and
the parent corporation’s books upon proof of sufficient control or dominion by
the parent showing the relation of principal or agent or something similar
thereto.62

On the other hand, mandamus at the suit of a stockholder
was refused where the subsidiary corporation is a separate and distinct
corporation domiciled and with its books and records in another jurisdiction,
and is not legally subject to the control of the parent company, although it
owned a vast majority of the stock of the subsidiary.63
Likewise, inspection of the books of an allied corporation by a stockholder of
the parent company which owns all the stock of the subsidiary has been refused
on the ground that the stockholder was not within the class of “persons
having an interest.”64

In the Nash case,65 The Supreme Court of New York held
that the contractual right of former stockholders to inspect books and records
of the corporation “included the right to inspect corporation’s
subsidiaries’ books and records which were in corporation’s possession and
control in its office in New York.”

In the Bailey case,66 stockholders of a corporation were
held entitled to inspect the records of a controlled subsidiary corporation
which used the same offices and had identical officers and directors.

In his “Urgent Motion for Production and Inspection of
Documents” before respondent SEC, petitioner contended that respondent
corporation “had been attempting to suppress information from the
stockholders” and that petitioner, “as stockholder of respondent
corporation, is entitled to copies of some documents which for some reason or
another, respondent corporation is very reluctant in revealing to the petitioner
notwithstanding the fact that no harm would be caused thereby to the
corporation.”67 There is no question that
stockholders are entitled to inspect the books and records of a corporation in
order to investigate the conduct of the management, determine the financial
condition of the corporation, and generally take an account of the stewardship
of the officers and directors.68

In the case at bar, considering that the foreign subsidiary is
wholly owned by respondent San Miguel Corporation and, therefore, under its
control, it would be more in accord with equity, good faith and fair dealing to
construe the statutory right of petitioner as stockholder to inspect the books
and records of the corporation as extending to books and records of such wholly
owned subsidiary which are in respondent corporation’s possession and control.

IV

Whether or not respondent SEC gravely abused its discretion in
allowing the stockholders of respondent corporation to
ratify the investment of corporate funds in a foreign corporation

Petitioner reiterates his contention in SEC Case No. 1423 that
respondent corporation invested corporate funds in SMI without prior authority
of the stockholders, thus violating section 17-1/2 of the Corporation Law, and
alleges that respondent SEC should have investigated the charge, being a
statutory offense, instead of allowing ratification of the investment by the
stockholders.

Respondent SEC’s position is that submission of the investment to
the stockholders for ratification is a sound corporate practice and should not
be thwarted but encouraged.

Section 17-1/2 of the Corporation Law allows a corporation to
“invest its funds in any other corporation or business or for any purpose
other than the main purpose for which it was organized” provided that its
Board of Directors has been so authorized by the affirmative vote of
stockholders holding shares entitling them to exercise at least two-thirds of
the voting power.  If the investment is
made in pursuance of the corporate purpose, it does not need the approval of
the stockholders.  It is only when the
purchase of shares is done solely for investment and not to accomplish the
purpose of its incorporation that the vote of approval of the stockholders
holding shares entitling them 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 its purpose as stated in its articles of
incorporation, and subject to the limitations imposed by the Corporation Law,
has the power to acquire, hold, mortgage, pledge or dispose of shares, bonds,
securities, and other evidences of indebtedness of any domestic or foreign
corporation.  Such an act, if done in
pursuance of the corporate purpose, does not need the approval of stockholders;
but when the purchase of shares of another corporation is done solely for investment
and not to accomplish the purpose of its incorporation, the vote of approval of
the stockholders is necessary.  In
any case, the purchase of such shares or securities must be subject to the
limitations established by the Corporation Law; namely, (a) that no
agricultural or mining corporation shall in anywise be interested in any other
agricultural or mining corporation; or (b) that a non-agricultural or
non-mining corporation shall be restricted to own not more than 15% of the
voting stock of any agricultural or mining corporation; and (c) that such
holdings shall be solely for investment and not for the purpose of bringing
about a monopoly in any line of commerce or combination in restraint of trade.’
(The Philippine Corporation Law by Sulpicio S. Guevara,
1967 Ed., p. 89) (Italics ours.)

“’40.   Power to invest corporate funds.  A private corporation has the power to invest
its corporate funds “in any other corporation or business, or for any
purpose other than the main purpose for which it was organized, provided that
‘its board of directors has been so authorized in a resolution by the
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 stockholder is not necessary.”‘
(Id., p. 108.) (Italics ours.)”
(pp. 258-259.)

Assuming arguendo that the Board
of Directors of SMC had no authority to make the assailed investment, there is
no question that a corporation, like an individual, may ratify and thereby
render binding upon it the originally unauthorized acts of its officers or
other agents.70
This is true because the questioned investment is neither contrary to law,
morals, public order or public policy. 
It is a corporate transaction or contract which is within the corporate
powers, but which is defective from a purported failure to observe in its
execution the requirement of the law that the investment must be authorized by
the affirmative vote of the stockholders holding two-thirds of the voting
power.  This requirement is for the
benefit of the stockholders.  The
stockholders for whose benefit the requirement was enacted may, therefore,
ratify the investment and its ratification by said stockholders obliterates any
defect which it may have had at the outset. 
“Mere ultra vires acts,” said this Court in Pirovano,71
“or those which are not illegal and void ab
initio, but are not merely within the scope of
the articles of incorporation, are merely voidable
and may become binding and enforceable when ratified by the stockholders.”

Besides, the investment was for the purchase of beer
manufacturing and marketing facilities which is apparently relevant to the
corporate purpose.  The mere fact that
respondent corporation submitted the assailed investment to the stockholders
for ratification at the annual meeting of May 10, 1977 cannot be construed as
an admission that respondent corporation had committed an ultra vires act, considering the common practice of
corporations of periodically submitting for the ratification of their
stockholders the acts of their directors, officers and managers.

WHEREFORE, judgment is hereby rendered as follows:

The Court voted unanimously to grant the petition insofar as it
prays that petitioner be allowed to examine the books and records of San Miguel
International, Inc., as specified by him.

On the matter of the validity of the amended by-laws of respondent
San Miguel Corporation, six (6) Justices, namely, Justices Barredo,
Makasiar, Antonio, Santos, Abad
Santos and De Castro, voted to sustain the validity per se of the
amended by-laws in question and to dismiss the petition without prejudice to the
question of the actual disqualification of petitioner John Gokongwei,
Jr. to run and if elected to sit as director of respondent San Miguel
Corporation being decided, after a new and proper hearing by the Board of
Directors of said corporation, whose decision shall be appealable
to the respondent Securities and Exchange Commission deliberating and acting en
banc, and ultimately to this Court. 
Unless disqualified in the manner herein provided, the prohibition in
the afore-mentioned amended by-laws shall not apply to petitioner.

The afore-mentioned six (6) Justices, together with Justice
Fernando, voted to declare the issue on the validity of the foreign investment
of respondent corporation as moot.

Chief Justice Fred Ruiz Castro reserved his vote on the validity
of the amended by-laws, pending hearing by this Court on the applicability of
section 13(5) of the Corporation Law to petitioner.

Justice Fernando reserved his vote on the validity of subject amendment
to the by-laws but otherwise concurs in the result.

Four (4) Justices, namely, Justices Teehankee,
Concepcion Jr., Fernandez and Guerrero filed a
separate opinion, wherein they voted against the validity of the questioned
amended by-laws and that this question should properly be resolved first by the
SEC as the agency of primary jurisdiction. 
They concur in the result that petitioner may be allowed to run for and
sit as director of respondent SMC in the scheduled May 6, 1979 election and
subsequent elections until disqualified after proper hearing by the
respondent’s Board of Directors and petitioner’s disqualification shall have
been sustained by respondent SEC en banc and ultimately by final
judgment of this Court.

In resume, subject to the qualifications afore-stated, judgment
is hereby rendered GRANTING the petition by allowing petitioner to examine the
books and records of San Miguel International, Inc. as specified in the
petition.  The petition,* insofar as it assails the validity of the
amended by-laws and the ratification of the foreign investment of respondent corporation, for lack of necessary votes, is
hereby DISMISSED.  No costs.

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

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

Fernando, J., concurs in the
result and reserves his right to file a separate opinion.

Teehankee, J. with Concepcion,
Jr., Fernandez, and Guerrero, JJ., file a joint separate
opinion.

Barredo, J., concurs and reserves the filing of a
separate opinion.

Aquino and
Melencio-Herrera, JJ., did not take part.

---

^[1]
The pertinent amendment reads as follows:

“RESOLVED, That Section 2,
Article III of the By-laws of San Miguel Corporation, which reads as follows:

‘SECTION 2.  Any stockholder having at least five thousand
shares registered in his name may be elected director, but he shall not be
qualified to hold office unless he pledges said five thousand shares to the
Corporation to answer for his conduct.’

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

‘SECTION 2.  Any stockholder having at least five thousand
shares registered in his name may be elected Director, provided, however, that
no person shall qualify or be eligible for nomination or election to the Board
of Directors if he is engaged in any business which competes with or is
antagonistic to that of the Corporation. 
Without limiting the generality of the foregoing, a person shall be
deemed to be so engaged:

(a)  if he is an officer, manager or controlling
person of, or the owner (either of record or beneficially) of 10% or more of
any outstanding class of shares of, any corporation (other than one in which
the corporation owns at least 30% of the capital stock) engaged in a business
which the Board, by at least three-fourths vote, determines to be competitive
or antagonistic to that of the Corporation; or

(b)  If he is an officer, manager or controlling
person of, or the owner (either of record or beneficially) of 10% or more of
any outstanding class of shares of, any other corporation or entity engaged in
any line of business of the Corporation, when in the judgment of the Board, by
at least three-fourths vote, the laws against combinations in restraint of
trade shall be violated by such person’s membership in the Board of Directors.

(c)  If the Board, in the exercise of its judgment
in good faith, determines by at least three-fourths vote that he is the nominee
of any person set forth in (a) or (b).

In determining whether or not a
person is a controlling person, beneficial owner, or the nominee of another,
the Board may take into account such factors as business and family
relationship.

For the proper implementation of
this provision, all nominations for election of Directors by the stockholders
shall be submitted in writing to the Board of Directors at least five working
days before the date of the Annual Meeting.'” (Rollo, pp. 462-463.)

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

^[3] L-27812, September 26, 1975, 67 SCRA
146.

^[4] Gayos v. Gayos, ibid.,
citing Marquez v. Marquez, No. 47792, July 24, 1941, 73 Phil, 74, 78; Keramik Industries, Inc. v. Guerrero,
L-38866, November 29, 1974, 61 SCRA 265.

^[5] L-20654, December 24, 1964, 12 SCRA 628.

^[6] L-20583, January 23, 1967, 19 SCRA 58.

^[7] L-27802, October 26, 1968, 25 SCRA 641.

8
Samal v. Court at of Appeals, L-8579, May 25, 1956, 99 Phil. 230.

8a
2 Am. Jur. 2d 696, 697.

8b Pan American P. Corp. v. Supreme Court Delaware,
336 US 656, 6
L. ed. 2d 584.

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

10 18 C.J.S. Corporations, Sec. 189, p. 603.

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

12 McKee & Company v.
First National Bank of San Diego,
265 F. Supp. 1 (1967), citing Olincy v.
Merle Norman Cosmetics, Inc., 200 Cal.
App. 20, 260, 19 Cal. Reptr. 387 (1962).

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

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

15 6 Thompson 369, Sec. 4490.

16 Ibid.

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

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

19 101 Fed. 2d 85, cited in Aleck, Modern Corporation Law, Vol. 2, Sec.
959.

20 308 U.S.
309; 84 L. ed. 281, 289-291.

21 16 S.E. 587, 18 L.R.A. 582.

22 265 F. Supp., pp. 8-9.

23 Barreto v. Tuason, No. 23923, Mar. 23, 1926, 50 Phil. 888; Severino v. Severino,
No. 18058, Jan. 16, 1923, 44 Phil. 343; Thomas v. Pineda, L-2411, June
28, 1951, 89 Phil. 312, 326.

24 2 Fletcher Cyclopedia Corporations, Sec. 297 (1969),
p. 87.

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

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

27 Thauer v. Gaebler, 232 NW 563.

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

29 Schildberg Rock Products Co. v. Brooks, 140 NW 2d 132, 137.  Chief Justice Garfield quotes the doctrine as
follows:

“(5) The doctrine ‘corporate
opportunity’ is not new to the law and is but one phase of the cardinal rule of
undivided loyalty on the part of the fiduciaries.  3 Fletcher Cyc. Corporations, Perm. Ed., 1965 Revised Volume,
section 861.1, page 227; 19 Am. Jur. 2d, Corporations, section 1311, page 717.  Our own consideration of the quoted terms as
such is mainly in Ontjes v. MacNider, supra, 232 Iowa 562, 579, 5 N.W., 2d 860,
869, which quotes at length with approval from Guth v.
Loft, Inc., 23 Del. Ch. 255, 270, 5 A 2d 503, 511, a leading case in this area
of the law.  The quotation cites several
precedents for this:  ‘* * * if there is
presented to a corporate officer or director a business opportunity which the
corporation is financially able to undertake, is from its nature, in the line
of the corporation’s business and is of practical advantage to it, is one in
which the corporation has an interest or a reasonable expectancy, and by
embracing the opportunity, the self-interest of the officer or director will be
brought into conflict with that of his corporation, the law will not permit him
to seize the opportunity for himself. 
And, if, in such circumstances, the interests of the corporation are
betrayed, the corporation may elect to claim all of the benefits of the
transaction for itself, and the law will impress a trust in favor of the
corporation upon the property, interests and profits so acquired.”

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

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

32 “The CFC and Robina
companies, which are reportedly worth more than P500 Million, are principally
owned and controlled by Mr. Gokongwei and are in
substantial competition to San Miguel. As against his almost 100% ownership in
these basically family companies, Mr. Gokongwei’s
holdings in San Miguel are approximately 4% of the total shareholdings of your
Company.  As a consequence, One Peso
(P1.00) of profit resulting from a sale by CFC and Robina
in the lines competing with San Miguel, is earned
almost completely by Mr. Gokongwei, his immediate
family and close associates.  On the
other hand, the loss of that sale to San Miguel, resulting in a One Peso
(P1.00) loss of profit to San Miguel, in the lines competing with CFC and Robina, would result in a loss in profit of only Four
Centavos (P0.04) to Mr. Gokongwei.”  (Letter to stockholders of
SMC, dated April 3, 1978, Annex “R”, Memo for respondent San Miguel
Corporation, rollo, p. 1867).

33 Article 28, Civil Code; Section
4, par. 5, of Rep. Act No. 5455; and Section 7 (g) of Rep. Act No. 6173.  Cf. Section 17, paragraph 2, of the Judiciary
Act.

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

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

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

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

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

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

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

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

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

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

44 51 Cong. Rec. 9091.

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

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

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

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

49 Sections 3 and 5 of Presidential Decree No. 902-A
provides:

“SEC. 3.  The Commission shall have absolute
jurisdiction, supervision and control over all corporations * * * who are
grantees of * * * license or permit issued by the government * * *.”

“SEC. 5.  In addition to the regulatory and
adjudicative functions of the Securities and Exchange Commission over
corporations, partnerships and other forms of associations registered with its
as expressly granted under existing laws and decrees, it shall have original
and exclusive jurisdiction to hear and decide cases involving:

a)      
Devices or schemes employed by or any acts, of
the board of directors, business associates, its officers or partners, amounting
to fraud and misrepresentation which may be detrimental to the interest of the
public and/or of the stockholders, partners, members of associations or organizations
registered with the Commission.

b)      
Controversies arising out of intra-corporate or
partnership relations, between and among stockholders, members, or associates;
between any or all of them and the corporation, partnership or association of
which they are stockholders, members or associates, respectively; and between
such corporation, partnership or association and the state insofar as it
concerns their individual franchise or right to exist as such entity;

c)      
Controversies in the election or appointments of
directors, trustees, officers or managers of such corporations, partnerships or
associations.”

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

51 Annex “A’ of SMC’s Comment on Supplemental
Petition, pp. 680-688, Rollo.

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

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

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

55 40 O.G., 1st Suppl.
1, April 3,
1939, citing 14 C.J.S. 854, 855.

56 Fletcher, supra, p. 716.

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

58 Fletcher, supra, Section 2220, p. 717.

59 Fletcher, supra,
Section 2223, p. 728.

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

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

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

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

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

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

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

67 Rollo, pp. 50-51.

68 18 Am. Jur.
2d 718.

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

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

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

*
Includes the Supplemental Petitions filed by petitioner.

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